Electronic commerce

Electronic commerce or e-commerce consists of the buying, selling, marketing, and servicing of products or services over computer networks. The information technology industry might see it as an electronic business application aimed at commercial transactions.

An alternative definition of e-commerce might view it as the conduct of business commercial communications and management through electronic methods, such as electronic data interchange and automated data-collection systems.

Electronic commerce may also involve the electronic transfer of information between businesses (EDI).

According to Forrester Research (as cited in Kessler, 2003), electronic commerce generated sales worth US $1212.2 billion in 2003.

Historical development

The meaning of the term "electronic commerce" has changed over time. Originally, "electronic commerce" meant the facilitation of commercial transactions electronically, usually using technology like Electronic Data Interchange (EDI) to send commercial documents like purchase orders or invoices electronically.

Today it includes activities more precisely termed "Web commerce" -- the purchase of goods and services over the World Wide Web via secure servers (note HTTPS, a special server protocol which encrypts confidential ordering data for customer protection) with e-shopping carts and with electronic pay services, like credit card pay authorizations.

Key success factors in e-commerce

Several factors have critical importance in the success of any e-commerce venture. They include:

Providing value to customers. Vendors can achieve this by offering a product or product-line that attracts potential customers at a competitive price.
Providing service and performance. Offering a fast, user-friendly purchasing experience may go some way to achieving these goals.
Providing an attractive website. The tasteful use of colour, graphics, animation, photographs, fonts, and white-space percentage may aid success.
Providing an incentive to buy and to return. Sales promotions can involve coupons, special offers, and discounts. Cross-linked websites, and advertising affiliate programss can also help.
Providing personal attention. Personalized web sites, purchase suggestions, and personalized special offers may go some of the way to substituting for the face-to-face human interaction found at a traditional point of sale.
Providing a sense of community. Chat rooms, discussion boards, soliciting customer input, loyalty schemes and affinity programs can help in this respect.
Providing reliability and security. Parallel servers, fail-safe technology, information encryption, and firewalls can enhance this requirement.
Providing a 360-degree view of the customer relationship, defined as ensuring that all employees, suppliers, and partners have a complete view, and the same view, of the customer.
Owning the customer’s total experience. E-tailers foster this by treating any contacts with a customer as part of a total experience, an experience that becomes synonymous with the brand.
Streamlining business processes, possibly through re-engineering and information technologies.
Letting customers help themselves. Provision of a self-serve site, easy to use without assistance, can help in this respect.
Helping customers do their job. E-tailers can provide such help through ample comparative information and good search facilities. Provision of component information and safety and health comments may assist e-tailers to define the customers' job.
Constructing a sound business model. If this key success factor had appeared in textbooks in 2000, many of the dot.comss might not have gone bust.
Engineering an electronic value chain in which one focuses on a "limited" number of core competencies.
Operating on or near the cutting edge of technology and staying there as technology changes.
Setting up an organization of sufficient alertness and agility to respond quickly to any changes in the environment.

E-commerce problems

Even if these sixteen key factors are used to devise an exemplary e-commerce strategy, problems can still arise for the provider of E-commerce goods and services. Sources of such problems include:

Failure to understand customers, why they buy, and how they buy. Even a product with a sound value proposition can fail if producers and retailers do not understand customer habits, expectations, and motivations. E-commerce could potentially mitigate this potential problem with proactive and focused marketing research, just as traditional retailers may do.
Failure to consider the competitive situation. One may have the capability to construct a viable book e-tailing business model, but lack the will to compete with Amazon.com.
Inability to predict environmental reaction. What will competitors do? Will they introduce competitive brands or competitive web sites. Will they supplement their service offering? Will they try to sabotage a competitor's site? Will price wars break out? What will the government do? Research into competitors, industries and markets may mitigate some consequences here.
Over-estimation of resource competence. Can staff, hardware, software, and processes handle the new strategy? Have e-tailers failed to develop new employee and management skills? These issues may call for thorough resource planning and employee training.
Failure to coordinate. If reporting and control relationships do not suffice, one can move towards a flat, accountable, and flexible organizational structure, which may or may not aid coordination.
Failure to obtain senior management commitment. This often results in a failure to obtain sufficient corporate resources to accomplish a task. It may help to get top management involved right from the start.
Failure to obtain employee commitment. If planners do not explain the strategy well to employees, or fail to give employees the whole picture, then training and setting up incentives for workers to embrace the strategy may assist.
Under-estimation of time requirements. Setting up an e-commerce venture can take considerable time and money, and failure to understand the timing and sequencing of tasks can lead to significant cost overruns. Critical path, critical chain, or PERT analysis may mitigate such failings.
Failure to follow a plan. Poor follow-through after the initial planning, and insufficient tracking of progress against a plan can result in problems. One may mitigate such problems with benchmarking, milestones, variance tracking, penalties for negative variances, rewards for positive variances, and remedial realignments.

Product suitability

Certain products/services appear more suitable for online sales and others remain more suitable for offline sales. The most successful purely virtual companies deal with digital products, including information storage, retrieval, and modification, music, movies, education, communication, software, photography, and financial transactions. Examples of this type of company include: Schwab, Google, eBay, Paypal, Egghead, and Morpheus.

Virtual marketers can sell some non-digital products/services successfully. Such products have a high value-to-weight ratio, and/or involve embarrassing purchases, and/or typically go to people in remote locations, and/or have shut-ins as their typical purchasers.

Products such as spare parts, both for consumer items like washing machines and for industrial equipment like centrifugal pumps, also seem good candidates for selling online. Retailers often need to order spare parts specially, since they typically do not stock them at consumer outlets -- this means that e-commerce solutions in this area do not compete with retail stores, only with other ordering systems. A key element for success in this niche consists of providing customers with exact, reliable information about which part number their particular version of a product needs, for example by providing parts lists keyed by serial number.

Purchases of pornography and of other sex-related products and services fulfil the requirements of both virtuality (or if non-virtual, generally high-value) and potential embarrassment; unsurprisingly, provision of such services has become the most profitable segment of e-commerce.

Products unsuitable for e-commerce include products that have a low value-to-weight ratio, products that have a smell, taste, or touch component, products that need trial fittings, and products where colour integrity appears important.

Acceptance of e-commerce

Consumers have accepted the e-commerce business model less readily than its proponents originally expected. Even in product categories suitable for e-commerce, electronic shopping has developed only slowly. Several reasons might account for the slow uptake, including:

Concerns about security. Many people will not use credit cards over the Internet due to concerns about theft and fraud.
Lack of instant gratification with most e-purchases (non-digital purchases). Much of a consumer's reward for purchasing a product lies in the instant gratification of using and displaying that product. This reward does not exist when one's purchase does not arrive for days or weeks.
The problem of access, particularly for poor families and poor countries. Low penetration rates of Internet access in some sectors greatly reduces the potential for e-commerce.
The social aspect of shopping. Some people enjoy talking to sales staff, to other shoppers, or to their cohorts: this social reward does not exist in online shopping.

Suppliers offering services to electronic commerce practitioners

Entities using electronic commerce

Finding related topics

External links

General Information
Government
- Government Ecommerce Site
Ecommerce News
- Ecommerce Guide
- Ecommerce Times
Security
- Secure Electronic Transaction, SET

References

Kessler, M. (2003). More shoppers proceed to checkout online. Retrieved January 13, 2004