An introduction to Ecommerce (05 lecture 1)

Written by: Jonathan Briggs

September 29, 2005 [6582 views]

In this first lecture we will try and answer the following:what is electronic commerce, what are the components of an ecommerce system, what is the difference between B2B and B2C systems and what should you think about if you are involved with an ecommerce project?

What is ecommerce?

• Commerce (business) facilitated electronically
• Customers can purchase (or sell) goods or services online (web, mobile, kiosks etc)
• Customers can be individuals or other businesses
• Electronic business creates or supports a marketplace (between buyers and suppliers)
• Automates commercial business processes within the value chain
• Offers support for customer service
• Can create a long-term customer relationship

A reminder about value chains
Consider an industry such as food production (grossly simplified)

Farmers → Markets → Retailers → Consumers
Farmers → Wholesalers → Supermarkets → Consumers
Farmers → Food manufacturers → Wholesalers → Supermarkets → Consumers
or
Farmers → Consumers

Value (and usually cost) is added at each step of the chain
Some players (eg supermarkets) wield considerable power in the market
E-commerce may allow disintermediation (removal of links in the chain) or the emergence of new intermediaries.

Key ideas in Ecommerce

Here are a few features of successful electronic businesses:

1. Reducing costs in business processes
2. Providing 360 degree customer service (through all channels equally)
3. Extending reach to new audiences or regions
4. Retaining customers (locking them into profitable relationships)
5. Personalisation (providing each customer with individual attention/service/products)
6. Controlling the supply chain (integration) often making it harder for competitors to compete

Types of B2C e-commerce

Not all electronic commerce is about retail. Here is an extended list of types of B2C electronic commerce. When you are looking at sites you should try to identify which of the following is taking place:

1. Storefront (Retail) - products offered for sale with revenue on sale
2. Shopping mall - multiple retailers with revenue from commission or space hire
3. Auction - vendors or buyers pay fixed price or percentage
4. Portal - aggregation of services and content with mixed revenues
5. Name your price - site offers buyers to sellers for commission or fixed fee
6. Comparison pricing - site compares retailers and receives introduction fee or advertising
7. Demand sensitive pricing - site combines group demand to buy in bulk
8. Free products or services - site makes money from collecting data from visitors
9. Business exchanges - site facilitates transactions between companies for a fee
10. Recruitment - job hunters or companies pay to meet
11. Affiliate schemes - site offers introduction fees to other sites
12. Service rental - site allows software services to be rented
13. Membership - fee for regular content or services
14. Gambling - lose money by paying fees
15. Classified advertising - advertise for a fee

Many similar ideas can be used between businesses
Many businesses combine more than one model

B2B Ecommerce

1. In B2B customers are other businesses
2. B2B systems automate internal or external business processes
• Procurement
• Order processing
• JIT Manufacturing
• JIT Distribution
• Business service outsourcing (customer support)
3. One example are industry marketplaces which support buying and selling in a particular industry (oil, government procurement, farming)
4. Support for collaboration between suppliers and purchasers
5. In some industries (eg car manufacturing) companies define standards for data interchange (eg invoicing, ordering, availability) for their suppliers

Components of a system for a B2C retailer

1. Shop front (web front-end, search, browse)
2. Product database (availability, product info, images, prices)
3. Payment system (to take credit cards securely)
4. Fulfilment system (to pick, pack and ship orders and handle returns)
5. Customer database (to record customer buying history)
6. Content management system (to manage store, add products, change prices etc)
7. Incentives and promotions mechanisms (related products, up-selling, 2-for-1, 10% off)
8. Marketing systems (email newsletters, affiliates)
9. Customer service (complaints, out of stock, refunds)

What makes ecommerce projects hard?
Newspaper coverage (particularly during the dotcom boom) suggested that building an online business was both easy and cheap – clients are often surprised how much work is involved:

1. Designing hosting/technology for scalability – what happens if the site is really successful?
2. Credit card fraud makes sophisticated secure payment systems important
3. Linking stock control systems to the web (many legacy systems are hard to web-enable)
4. Sales tax, VAT and delivery charges can be hard to calculate and charge (different for different customers)
5. Enabling powerful self-service shopping with sufficient information and tools to enable the customer to find and select appropriate products or services
6. Inventory management (this is true for any retail business)
7. Managing the fulfilment processes/partners
8. Offering 24hour global customer service
9. Store management is harder than simply adding/deleting products (re-pricing, sales, specials, inventory)
10. Buying market share (marketing and promotion) is expensive but necessary to become a player in a market with significant existing retailers/businesses (eg books)
11. Recovering from broken or poor quality site (consider Boo.com)
12. Helping the customer to experience the products or services on offer
13. Keeping on top of changing prices from your competitors (in multiple currencies)
14. Encouraging shoppers to come back
15. Handling returns and refunds
16. Handling complex pricing models (such as different prices for different customers)
17. Getting attention for your site and your products (dominating Google for example)
18. Using customer data (CRM) effectively
19. Deciding on the right scale/level for a launch site
20. Improving the customer experience beyond the shopping cart
21. Reflecting seasons and coping with changes in demand
22. Making a profit

What do you want as a customer from B2C ecommerce?

1. To find what I want quickly
2. To experiment, “try things on”, research deeply, compare features
3. To be recognised as a customer
4. To feel that my personal information is secure
5. To feel that I am getting a good deal
6. To feel that the company behind the site understands my needs
7. To be able to listen to other shoppers who understand my needs
8. To be able to complain
9. To know that I can send things back if I don’t like them, they don’t work or they don’t fit
10. To be able to talk to someone human if everything goes wrong

Things to think about when designing an e-commerce site

1. Customers (who, why, motivations, expectations)
2. Different customers
3. Customer experience (fast, deep, familiar, non-technical, enjoyable)
4. Repeat customers (loyalty, location, ‘skip intro’, neighbourhoods)
5. Customer anxieties (payment, privacy, security)
6. Customer service (tracking, complaining, enquiring, humans)
7. Customer as sales agent (recommendations, marketing)
8. Employees are customers too

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