Chapter 1 Overview of Electronic Commerce

CHAPTER 1 – OVERVIEW OF ELECTRONIC COMMERCE

1. EC, Electronic commerce, is the process of buying, selling, or exchanging products, services, and information, via computer networks, mostly the Internet. E-business refers to a broader definition of EC that includes servicing customers, collaborating with business partners, and conducting electronic transactions within an organization. E-Commerce is just a part of E-Business

2. The major benefits of EC are:

Organizational (sellers). - EC expands the market place with minimum capital outlay. - More customers can be reached and there are more suppliers to buy from. - EC allows low inventories, customized products/services, reduced cycle time, better customer service, and lower communication cost.

Consumer. - Shop from anywhere anytime. - Get a large variety of products from many countries. - Usually pay less. - Can get customized products/services. - Can search quickly for detailed information.

Societal. - Less traffic, pollution, improved public services, improved quality of life.

3. The major technological limitations are: security, reliability, standards and protocols (need to be improved) and insufficient bandwidth.

Intangible – non-technological limitations are: lack of trust, resistance to change, not enough support services, accessibility problems.

4. The major EB activities that are taken by organizations: - continuous productivity improvements, - forming business alliances 2

- development of top quality electronic commerce applications, - BPR (business process restructuring) by utilization of strategic IS (CRM, SCM, ERP, Intranets/Extranets),

5. An intranet is an enterprise internal network which uses Internet technology (TCP/IP protocol, search engines, browsers, etc). An extranet is a secured network that uses the Internet infrastructure to connect the intranets of business partners, or to allow customers and others to access a corporate intranet.

6. Intranet/Extranet web site also known as a corporate portal is a network configuration in which employees, business partners, and the public can access corporate information, communicate, and collaborate.

12. The main types of EC are: - E2E – Exchange-to-exchange – A system that connects electronic exchanges to each other. - C2C – Consumer-to-consumer – A category of electronic commerce in which consumers sell directly to other consumers. Examples include online auction sites, such as ebay. - G2C – Government-to-citizens – A category of electronic commerce in which a government organization buys or sells goods, services, or information to businesses and citizens. - B2B – Business-to-business – A category of electronic commerce in which all of the participants are businesses or other organizations (e.g., non-profit). - B2C – Business-to-consumer – A category of electronic commerce in which businesses sell goods or services directly to the consumer.

Mobile commerce, also called M-commerce, occurs when electronic commerce is conducted via wireless communications (i.e., cellular phones and personal digital assistants). 3

CHAPTER 2 – THE DIGITAL ECONOMY

1. To succeed in the Digital Economy (Information Age) characterized by global hyper-competition

- Enterprises change business models and strategies for success and sustainability – must be knowledge- and customer-centric - Companies use web-based IT and EC application to facilitate competitive advantage; the Web-based applications provide customer service, online selling, and procurement support

2. A marketplace refers to a physical market, while a marketspace is an electronic market. The components of the marketspace are: - Customers - Sellers (online) - Products and services (hard/soft goods - Digitized products are those that can be transferred to a binary code. Examples are software, music, and videos.) - Infrastructure (HW, SW, connection) - Front end (web pages with seller’s portal, catalogs, shopping cart, etc.) - Back end (SW applications that support online trading – payment processing, order management, inventory management, etc.) - Intermediaries (not wholesalers) – third party that operates between buyers and sellers – SW used to match buyers and sellers - Business partners – shippers - Support services – e.g. quality certification companies

3. Terms/procedures/issues connected with marketspace trading:

- Price discovery is the process of finding either the highest price a buyer is willing to pay or the lowest price a seller is willing to accept. Online auctions sell to the highest bidder, while Priceline.com tries to find the lowest price from a seller. - Search cost is the time, effort, and expense a consumer incurs to find product, price, and quality information about a good or vendor. - Quality uncertainty arises when a customer purchases from an unknown or lesser known brand. The customer is concerned that the quality of the product or service might not live up to expectations. 4

i. The problem can be managed in a number of ways. First, the vendor can attempt to instill trust by using a third party (support services) seal of approval (such as TRUSTe, or BBBOnLine). ii. Second, the vendor can provide a free sample to the customer so that quality can be judged. iii. Third, the vendor can provide a guarantee to accept returns when the customer is not satisfied. - Disintermediation is the elimination of middlemen in the value chain. (The major losers are: wholesalers, brokers, salespeople, and non-differentiated manufacturers.) Reintermediation refers to utilizing SW (may be provided by third party) to match buyers and sellers.

5. Benefits connected with marketspace trading are:

- The digitization of products and services ordering allows them to be delivered in seconds. This greatly reduces the time required to obtain them. In addition, e-commerce facilitates greater efficiency along supply chains, leading to cycle time reduction (the time required for a product and its associated paperwork to move through the supply chain). - E-commerce allows manufacturers to customize all their products and services. - In build-to-order systems the manufacturer only begins assembly after an order has been placed. Many people already use the WWW as part of their car buying experience. They read reviews and find dealer pricing. Direct marketing can prove successful if the auto makers offer the customer a good value proposition by ordering direct. Once a car is customized and the buyer clicks the purchase button, the car design is sent to the factory floor.

CHAPTER 3 – RETAILING IN ELECTRONIC COMMERCE (E-TAILING)

1. In case the producer doesn’t sell the product directly to final consumer over some sort of network, but uses services of a retailer (sales intermediary) that sells the products/services online, both parties are involved in so-called E-Tailing. E-Tailing – process of retailing conducted online, over the Internet. Retailers who sell over the Internet are known as E-Tailers.

2. The best sold and recognizable categories of e-tailed products are: - HW and SW - Consumer electronics - Office supplies - Sporting goods - Products for adults - Books and Music - Toys - Health and Beauty - Entertainment (tickets, events, games) - Clothing - Jewelry - Cars - Services (travel, online banking, bill payments)

3. Business models of online retailing: 1) Full vs. partial cyber retailer 2) Generalized vs. specialized cyber retailer 3) Electronic shopping mall vs. electronic store 4) Global vs. regional marketing

4. Online shoppers that use e-tailing web sites need to feel that they receive a good value proposition. Although many find it more convenient than traditional shopping (mainly because of lower prices, convenience and personalized service), some consumers resist shopping online for various reasons, such as security concerns (quality of the goods and services they purchase as well as the security of their personal information). E-tailers must establish a trust relationship with their customers to be successful. Many e-tailers use trust mechanisms such as third party quality seals and money back guarantees. 6

CHAPTER 3/4 – INTERNET CONSUMERS, E-SERVICE, AND MARKET RESEARCH

1. EC consumers can be divided into two types: individual consumers and organizational buyers. - There are more individual consumers than organizational buyers - Purchase volume for each individual customer is smaller than that of organizational buyers - The nature of buying for individual consumers is more personal, while for organizational buyers it is more professional. - Products or services bought by organizational buyers are generally used as input for making other products - The location of individual buyers is dispersed - The type of negotiations is simpler for individual retail buyers

2. The purchasing decision-making process can be divided into five stages. 1. Need identification, which occurs when a consumer is faced with an imbalance between actual and desired states of a need. (A marketer’s goal is to convince the consumer that the product or service the seller offers will meet his/her needs.) 2. Information search - the consumer searches for information about the various alternatives available to satisfy the need. (A marketer should use pages with detailed info about products/services, guarantee info, FAQs, contact, search tools, etc.) 3. Evaluation of alternatives 4. Purchasing decision including arranging payments and delivery. 5. Post purchase stage involves possible customer service and evaluation of the usefulness of the product.

4. In order to positively influence the purchasing decision-making process, companies care about:

- Customer loyalty (the degree of commitment a customer feels toward a specific vendor or a brand). It is an important determination of profit since a loyal customer will repeat business or refer friends to access the service. - Customer satisfaction that consequently drives customer loyalty. (For example, in the automobile industry, even a slight drop from complete satisfaction creates an enormous drop in loyalty.) Companies should implement strategies to manage satisfaction and to listen to the customer. - Trust is important since customers can only see a picture of the product, but not the product itself. How to increase customers’ trust in EC without initial face-to-face interactions is a critical issue. 7

(Vendors can increase trust via third parties such as TRUST-e, iescrow, etrust, etc.)

5. Customer service A call center is one of the most important tools of customer service. However, EC vendors take care of customer service issues communicated through various contact channels including e-mail and to Web interaction (including online forum, FAQs pages, automated e-mail reply, VOIP technologies).

6. The goal of market research is to find the relationship between consumers, products, and marketers; in order to: - discover marketing opportunities - establish marketing plans - better understand the purchasing process - evaluate marketing performance.

6a. The Internet provides an efficient channel for fast, cheap, and reliable collection and processing of marketing information, even in a multimedia format. Methods used on the Net include - one-to-one communication with specific customers, usually via e-mail - moderated focus groups conducted via chat rooms - surveys placed on Web sites. o User-friendly web surveys can incorporate radio buttons, data-entry fields, and checkboxes, which keep respondents from selecting more than one choice or adding comments where none were intended. Also, skipping questions is done automatically based on respondents’ previous answers.

CHAPTER 4 – ADVERTISEMENT IN ELECTRONIC COMMERCE

1. Internet advertisement can be done on a) the company’s Web site and/or b) on others’ sites, usually via links. In this case the idea is to bring users to the company’s home page/product catalogs.

2. Internet advertising: - Is up-to-the-minute accurate - It can be seen from any place worldwide - It is usually cheaper than that of TV, newspapers, or billboards, and you can run it for a long time - It is media rich with possible audio and animation effects. - It may provide lots of additional information if so desired. - Finally, it can be interactive, so the viewers remember it.

3. Commonly used Internet advertisement tools are a) Banner ads - a rectangular ad space on the computer screen, standard is about 5” x ¾”. - It may contain static or dynamic information. - It can appear only once or periodically - It usually contains a link to the advertiser when you click on it. - Keyword banners appear when you click on a related word. - Random banners appear at random. - Static banners cost the most since they permanently stay on a page. o Banner swapping occurs when two companies agree to display each other’s banners. o Banner exchange facilitates the swapping of banner ads among three or more companies. b) Another common ad tool is a pop-up window. c) Viral marketing is word-of-mouth marketing that occurs using Internet technologies, such as e-mail, chat rooms, and virtual communities.

4. The advantages of electronic versus paper catalogs are: - easy to keep up-to-date, - easier and cheaper to customize, - contain more information with links to details, - potential use of multimedia, 9

- easy-to-find products due to the use of search engines - customers can interact with the catalogs e.g., preview 3-D images, zoom pictures, ask for more details, change colors, and even match clothes or other items. - easy integration with corporate ordering and back office systems. - electronic catalogs can easily appear in multiple languages