E-Commerce

Abstract

E-commerce is the process of conducting business online through sales transactions and information exchange. There are a number of applications of e-commerce, including online retailing and electronic markets, and online auctions. E-commerce offers many benefits to businesses, including the widening of the marketplace and the reduction of operating costs. E-commerce is often combined with other channels as part of a business's marketing and sales efforts. As with any marketing and sales efforts, careful consideration needs to be given regarding how to best present a business online. There are a number of considerations to be taken into account in order to develop a website that will help the organization to maximize the effectiveness of its e-commerce efforts.

Overview

Arguably, the primary goal of information technology and systems is the ability to transmit large amounts of data and information between organizations and individuals quickly and accurately. In addition, information systems often provide the means to automate previously labor-intensive tasks and to add convenience. For example, in many cases, information technology can significantly reduce the time, effort, and expense involved in developing written documents. Similarly, one no longer has to physically go to a store and search aisles for products to purchase. With the advent of information technology, customers frequently have the opportunity to do these tasks electronically by shopping online using e-commerce retailers.

E-commerce is the process of conducting of business online through sales transactions and information exchange. Although the term e-commerce is sometimes used interchangeably with e-business, it is actually one of the functions of e-business. In addition to shopping functions, e-business is the process of buying and selling goods or services electronically rather than through conventional means, along with the support activities and transactions necessary to do these tasks.

The twenty-first century saw a rapid expansion of e-commerce as computer technology improved and proliferated. The impact of this growth was felt throughout the global economy, and especially in the struggles of many traditional brick-and-mortar retailers to compete. It brought significant changes to business fields such as supply chain management, employment, and marketing. Researchers have also studied the effects of e-commerce—whether in general or in the case of specific influential businesses such as the online retailer Amazon—on subjects ranging beyond business, such as sociology and environmental impact.

Online Retailing and Electronic Storefronts. Most modern businesses have established an online presence. One of the most common applications of e-commerce is online retailing. In this scenario, the organization's home page is the electronic equivalent of a brick-and-mortar storefront, and the various web pages being the electronic equivalent of the aisles of a traditional store. Typically, e-commerce websites allow customers to browse “the aisles” by having links to various categories of products and to search for specific items by various characteristics such as keywords, title, product name, item number, or model number so that they can go directly to a specific product using a search engine.

Online Auctions. E-commerce is not only the electronic equivalent of a physical retail store or mall, however. Another popular approach to e-commerce is through online auctions. This approach to e-commerce allows customers to determine the price of products rather than paying a fixed, predetermined amount. There are three online approaches to auctions. In the forward auction, shoppers bid on an item and the seller takes the highest offer. In the reverse auction, bidders list their product or service needs and the maximum they are willing to pay for the product or service. Sellers then bid against each other in an attempt to offer the product or service at the lowest price. The third approach to online auctions is the Dutch auction. In this approach, an item is offered online at a high opening price. At a predetermined interval, if no one has purchased the item, the price is lowered. This continues until someone is willing to purchase the item at the price offered.

Benefits of E-Commerce. E-commerce offers many benefits to businesses. First, e-commerce enables a business to extend its geographic reach to customers around the globe. For example, through e-commerce, customers no longer have to physically go to a brick-and-mortar store to purchase software. Not only can most software be sold over the internet, but in many cases it can be downloaded directly from the internet, thereby eliminating the costs not only of delivery but of packaging and storing the product as well. However, even when a product needs to be physically delivered via a transportation carrier, e-commerce can facilitate selling to a larger market.

E-commerce also can increase the speed at which transactions can take place. Transaction times are reduced because customers no longer have to wait in line to be served but can complete their own transactions over a secure network simultaneously with other shoppers. Although the transaction speed is irrelevant if the customer still has to wait for delivery of those items that are not available locally, e-commerce can save time because the customer does not physically have to go from store to store to locate an item.

Similarly, e-commerce can also increase productivity. Customers can lessen the time needed to find similar products and compare features and prices by doing their research online. This ability means that the customer can make a better informed decision but also make such decisions in a timelier manner, thereby helping the business's cash flow and saving the customer time.

Incorporating E-Commerce into Business Strategy. As all too many small business owners learned the hard way after the dot-com bubble burst in 2001, e-commerce is not a passive tool that magically brings in business and profits. Those businesses that were able to survive beyond the early 2000s were those that had used the internet as only one of many marketing channels and were able to fall back on other channels to market and sell their products and services. One of the lessons learned from the bursting of the dot-com bubble is that e-commerce often works best when it is only an extension of one's business, not the sole channel. Indeed, in the 2010s, a number of businesses that began as online-only retailers began opening brick-and-mortar stores as well. The use of e-commerce is not an all-or-nothing proposition. Businesses can—and in many cases must—have both traditional capabilities as well as e-commerce capabilities. Nevertheless, by the 2010s, an increasing number of online-only businesses found success, staying power, and profitability, as consumers became increasingly comfortable with online transactions.

There are a number of different ways that businesses can incorporate e-commerce into their strategy. On one end of the spectrum is a predominantly offline strategy, with a primary channel that is offline and online marketing efforts playing only a supporting role. In this approach, the business may publish a website that provides customers with information about store hours and locations, describes the range of products that are sold, or offers customer-service options. For example, grocery stores may allow customers to go online to read the weekly sales flyer, send comments to the store or corporate manager, or find directions to various store locations. However, to do e-commerce, the business must also allow customers to purchase items online. To do this, the offline-focused strategy is often used when a sophisticated distribution system is needed to provide goods, personal consultation services that can only be done in person, or there are contractual restrictions among the channel partners that prohibit more online involvement.

Other organizations can primarily use the online channel for their marketing efforts, while some businesses only do business online and use traditional marketing methods (television and print advertisements; infomercials; sales calls) to point the customer to their website. This strategy can allow both the business and the customer to bypass the "middleman" or to take advantage of the lower costs associated with the online channel, which obviates the need for the overhead associated with leasing and maintaining a physical retail store.

Physical Resources and E-Commerce. Another lesson to be learned from the dot-com bubble was that it is sometimes best to devote as few physical resources to e-commerce as possible. The fact that the purchasing transaction is being conducted electronically does not obviate the need for the rest of the supply chain. Products still need to be produced, stored, transported, and delivered to the customer. When the organization already has a brick-and-mortar support infrastructure in place, the potential failure of its e-commerce activities to meet the anticipated volume of business or profits will not affect its overall ability to conduct business.

Similarly, it has been found that it is beneficial to work with other organizations already successfully working in e-commerce so that one does not have to invest in duplicate e-commerce infrastructure. However, if e-commerce becomes a major revenue source for a business, it may no longer be worthwhile to allow a partner to take a cut of the profits. For example, when the retailer Target first ventured into the e-commerce marketplace in 2001 it partnered with online retail giant Amazon, but as Target’s online sales grew, it began developing an e-commerce platform of its own, finally parting ways with Amazon in 2011.

While the wide adaptation of e-commerce during the twenty-first century heavily disrupted the retail sector and led to the closure of a number of businesses reliant on their brick-and-mortar locations, these physical spaces remained valuable for some companies. A number of companies engaged in e-commerce repurposed some aspects of their brick-and-mortar locations to serve a variety of new functions. For example, some retailers adapted brick-and-mortar spaces to serve as pickup centers for online orders and places where customers could drop off items they intended to return. Many companies also recognized that some shoppers like having the ability to inspect items in person before purchasing them online.

Creating an E-Commerce Business. E-commerce relies on effective online platforms, particularly the website, application, or other interface through which the customer and the business communicate and conduct transactions. This interface should be attractive and otherwise memorable so that customers will think of it and the organization when they again need a similar product or service. In addition, the interface must be user friendly, that is, easy and intuitive for the customer to use. Most consumers who use the internet for e-commerce have experienced websites that are difficult to navigate, do not provide all the necessary information needed to make a transaction, or that attempt to force the consumer to provide personal information that is not necessary to the transaction. When such qualities become egregious, consumers are unlikely to complete a transaction or return to the site in the future. Without the loyalty of repeat customers, the e-commerce venture is unlikely to be a success. There are a number of considerations to be taken into account when developing a website or other platform for e-commerce purposes.

Development of a Strategic Plan. First, one must consider the place of e-commerce within the greater strategic plan for the business and the strategy of the electronic channel specifically. Success in business—whether it is through conventional or electronic means—must be based on a well-developed strategy. This strategy is a plan of action to help the organization reach its goals and objectives. Strategic planning is the process that helps the organization determine what goals to set and how they are to reach them. Through strategic planning, the organization determines and articulates its long-term goals and develops a plan to use its resources—including materials, equipment and technology, and personnel—in reaching these goals. The resultant business plan summarizes the operational and financial objectives of the organization and is supported by detailed plans and budgets to show how these objectives will be achieved over time. The business plan also analyzes the risk involved in reaching these goals. In business terms, risk can be defined as the quantifiable probability that a financial investment's actual return will be lower than expected. Higher risks mean both a greater probability of loss as well as the possibility of a concomitant greater return on investment.

In addition to the objectives or end goals that the organization is trying to reach, strategic planning should also consider what resources are necessary to accomplish these. This should include the financial resources of the organization such as capital structure, new issues of common stock, cash flow, working capital needed, dividend payments, and collection periods. In addition, the strategic planning process also needs to give consideration to the resources necessary to accomplish the other objectives, including costs of maintaining a web presence, physical infrastructure, employees needed, and so forth.

Website Content and Design. Once a strategic plan has been developed, the next step is for the organization to flesh out its concept and design a website. Part of this process is the choice of a domain name. This is a unique, easily understood identifier for a set of addresses on a network. Having a domain name that is easily remembered and associated with the company's name can help customers find the company’s website in the future for additional transactions. Domain names that are not closely associated with the organization and its products, however, are less likely to be remembered and revisited.

The design of the website must also take into consideration the image that the business wishes to project. Branding is just as important for e-commerce as it is for conventional marketing efforts. For example, the design of a website for a high-end consulting firm would undoubtedly be different from the design of a website for a firm that is selling toys, not only in content but in terms of layout and other design features. The consulting firm, for example, might want to include a video message from its president, use a subdued color palette that conveys the serious nature of the services offered, and include a significant amount of white space or quotes from satisfied customers. The website for the toy company, however, might include animation, bright colors that appeal to children and convey the notion of fun, and use a lot of color pictures of toys. An organization needs to work closely with its web designer to develop a concept that will help convey what kind of organization it is.

No matter the type of product or service offered by the website, consideration needs to be given to the inclusion of appropriate customer-service features. Websites can collect data for use in customer relationship management, including organizing, tracking, and analyzing customer data and buying patterns. As mentioned above, e-commerce websites also need to be user friendly, allowing customers to easily navigate the site and find the information that they need. Although this often means the inclusion of search engine capabilities, it also means providing a way for customers or prospective customers to contact the business to get the information that they need. This can be done by providing contact information for phone and mail, having a pop-up email message form or an online form to fill out to submit questions, or online chat feature with customer service representatives.

While websites remain greatly important to most e-commerce efforts, many businesses also find value in creating their own mobile applications (apps) for customers to use. In some cases this may simply offer the same content as the business's website, but in a streamlined format for use on smartphones, tablets, and similar devices. With shifts in consumer habits, such devices became increasingly popular through the 2010s and so increasingly valuable in e-commerce. Businesses' apps often allow users to sign in to an account, with personalized features and integration with other apps or services for functions such as payment. As with website design, good app design takes into account the business's image and strategic goals as well as ease of use.

Terms & Concepts

Brick-and-Mortar: A term often used to refer to businesses, particularly in the retail sector, that operate out of a physical shop or other type of store.

Channel: A route used by a business to market and distribute its products or services (e.g., wholesalers, retailers, mail order, internet).

Customer Relationship Management: The process of identifying prospective customers, acquiring data concerning these prospective and current customers, building relationships with customers, and influencing their perceptions of the organization and its products or services.

Domain Name: A unique, easily understood identifier for a set of addresses on the internet.

E-Business: E-business (i.e., electronic business) is an enterprise that operates electronically rather than through conventional means.

E-Commerce: Online business transactions such as sales and information exchange. E-commerce is supported by e-business activities and applications.

Hyperlinks: Text or symbols on a website that allow the user to automatically link to another page or document. Hyperlinks are usually identified by being different from regular, unlinked text by being in a different color font or underlined.

Information System: A system that facilitates the flow of information and data between people or departments.

Information Technology: The use of computers, communications networks, and knowledge in the creation, storage, and dispersal of data and information. Information technology comprises a wide range of items and abilities for use in the creation, storage, and distribution of information.

Risk: The quantifiable probability that a financial investment's actual return will be lower than expected. Higher risks mean both a greater probability of loss and a possibility of greater return on investment.

Search Engine: Application software within an internet browser that is used to scan for a keyword or phrase.

Strategic Planning: The process of determining the long-term goals of an organization and developing a plan to use the company's resources—including materials and personnel—in reaching these goals.

Strategy: In business, a strategy is a plan of action to help the organization reach its goals and objectives. A good business strategy is based on the rigorous analysis of empirical data, including market needs and trends, competitor capabilities and offerings, and the organization's resources and abilities.

Supply Chain: A network of organizations involved in production, delivery, and sale of a product. The supply chain may include suppliers, manufacturers, storage facilities, transporters, and retailers. Each organization in the network provides a value-added activity to the product or service. The supply chain includes the flow of tangible goods and materials, funds, and information between the organizations in the network.

Bibliography

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