E-Commerce: Fundamentals and

Applications

Outline

• Electronic commerce and physical commerce

• The DIGITAL phenomenon

• Looking at e-commerce from different perspectives

• Different types of e-commerce

• Examples of the types of e-commerce

• Some e-commerce scenarios

• Effect of e-commerce

• Advantages of e-commerce

Types of Commerce

Commerce

Electronic Commerce

Physical or Traditional Commerce

Internet Commerce

Businessfocusede-commerce

Consumer focusede-commerce

Digital Phenomenon

• What do you think is digital era ?

• What are the drivers of e-commerce?

Data networksIntense competitionGlobalizationInformation ageTechnologiesAutomationLow cost high quality products/services

DIGITAL

History of INTERNET

• The history of Internet dates back to 1969, when the US department of Defense established ARPANET – Advanced Research Projects Agency Network, a large WAN, by linking three universities – California + Stanford + Utah.

• And allowing researchers to access and use the systems of any of the networked universities

• Come up with an article on “The History of Internet” highlighting the important milestones

Evolution of E-Business

• The first phase of e-business evolution, which began in the mid and late 1990s. Focused on transaction oriented e-commerce rather than e-business.

• It focused only on online trading of goods and services

• During this phase, dotcom companies focused on having better search, graphical product display and payment processing capabilities

• But after dotcom bubble burst, things changed. HOW????

• In the second phase of e-business evolution, companies shifted their focus from transaction oriented e-commerce to customer centric e-business.

• During 1st phase most organizations viewed e-business merely as the development of a website for offering information about the company and its products.

• E-business involves the digitization of an organization’s internal business processes as well as its external interface with customers, suppliers and partners.

• E-business is about transforming an organization for the information age, where value is created by effectively managing intangible assets rather than just physical assets.

• E-business offers significant potential to transform companies by creating new value chains and business processes or redesigning existing ones.

• The customer centric approach is a very important aspect of e-business because…..????– Service based differentiation is gaining importance

over price based competition

– The availability of several technologies for improving customer satisfaction

Different types of E-Commerce

Business(organization)

Customer(individual)

Business (organization)

Customer(individual)

B2C (e.g Amazon)

C2B(e.g Priceline)

C2C(e.g eBay)

B2B (e.g TPN)

Examples

• B2C: www.amazon.com• C2C: www.eBay.com• B2B: www.tpn.com• C2B: www.priceline.com

Let’s visit these web sites in turn and discuss its features.

The Rise of E-business

• E-business has evolved rapidly within a short span of time

• It was virtually non-existent until 1995, but by the beginning of the new millennium, US$ 1 trillion worth e-business transactions ( including B2B and B2C) took place.

• The success of this electronic form of business is dependent on customer trust and availability of suitable technology

Differentiate between Traditional Business and E-Business

Infomediaries

• In retail chain, the distributor or dealer is the link between the manufacturer and the customer

• But in e-business environment, these intermediaries are bypassed and are replaced by websites

• In the early days of e-business, infomediaries performed the task of search engines by helping customers in search for products and services

• Now 3 business models for infomediaries have emerged:– Aggregators– Online auctioneers– Online exchanges

Aggregators

• Aggregators offer guidance to buyers in fragmented markets by providing information at a single online contact point

EXAMPLE……??????

Online auctioneers

• OA help sellers dispose perishable goods or excess stocks, and enable the buyers to purchase goods at discounted rates.

• EXAMPLES……………

Online exchanges

• Online exchanges are neutral parties that match the ask and bid rates in a regulated environment

• Infomediaries empower customers and

disseminate information quickly• The strength of Infomediaries lies in being

recognized by users as the key to the concerned market segment in which they are operating

• To be successful, infomediaries should offer Value added services

The emergence of Infomediaries

Principles of E-Business

• E-business can significantly benefit the functional processes of an organization and enhance their profits

• Therefore more and more businesses are adopting online sales and marketing

• Eg: Encyclopedia Britannica has sold more encyclopedias online than through its door-to-door method of marketing

• There are several principles of e-business which an organization must follow to reap the full benefits of its online initiatives. Lets look at few………………

Know your customerDevelop a customer profileSegment the customerAvoid the ‘SILO’ effectPredictive modeling and customer profitabilityUse multiple channels to interact with the customers Identify customer channel preferenceSynchronize channelsUnderstand the cost structure of each channel

Optimize the channel strategyPersonalize the customer experience Individualize contentEnable customers to customize the environmentPersonalize the interaction through all channelsOptimize the Value of every customerOptimize every level of customer interactionOptimize Lifetime customer valueBuild customer loyalty……………..what are the key

elements that build customer loyalty

1. Know ur customer

– Customer profiles and preferences

– The combination of products and services to be offered to customers

– The best method of providing customer support

– The marketing efforts suitable for different customer segments

– The new products and services that should be developed

– Information regarding customers after sales preferences also

2. Develop a Customer profile

• A customer profile should include an analysis of the customer life cycle and should give the organization insights into:– The product/service features that is most valued by the

customer

– Customer spending in the past and the likely future spending

– Effective segmentation and predictive modeling

3. Segment the customers• Before companies used to segment customers on the basis

of geography, income group etc as it was unable to capture and use high volumes of data

• Now companies segment customers on the basis of complex factors like channel preference, profitability, buying patterns etc

• Eg: IBM has identified 12 diff customer segments• Initially it had segmented customers into government,

education, midsize and large companies• Now the large segment is divided into global, and large

companies• The government segment is divided into 3 segments,

federal state and local• The education segment is split into K-12 and higher

education• This type of segmentation helps the company effectively

handle the demands of different customer groups

4. Avoid the ‘SILO’ Effect• Although a huge amount of information is available in

organizations, it is difficult to use the information since it is scattered across different files, in different formats and at different locations.

• This is referred to as Silo effect• Silo effect occurs when an organization’s customer and

prospect information is spread across different business units, divisions, departments and product lines.

• Few years back CompUSA suffered from this effect• The customer service agents were not able to access full

information about the customers as it was scattered across the departments.

• When a customer called, they had to spend considerable time locating the required information

• After deploying Siebel call centre software, it was able to help this problem

5. Predictive modeling and Customer Profitability

• Predictive modeling can be used by companies to identify customers who are likely to discontinue business with the company

6. Use multiple channels to interact with the customer

• New communication channels – internet and mobile devices

• Customers use channel that is most convenient for a given situation

• A study conducted by Mckinsey revealed that Charles Schwab is one of the most successful online brokerage firms

• Charles Schwab services customer through the internet, telephone and call centers

7. Identify Customer channel preference• Customers use only a few channels consistently when

they are given a choice• So organizations should analyze the channel usage of

their high value customers• Offering self service capabilities will enhance customer

satisfaction and productivity• Honeywell has implemented a web-based self service

system that contains answers to about 50,000 queries• These are stored in common database so that they are

available to the customers• If the customer is unable to find a solution using the

company’s knowledge base, they can forward their queries through the company’s website to the concerned person

8. Synchronize channels

• Regardless of the channel used by a customer for interaction, every interaction should be tracked and recorded.

• An e-business system will maintain a universal queue that will support queries from various channels

• All the queries pass through a single channel and the queries are prioritized based on standard rules that govern the routing of queries

• Organizations should be equipped with powerful online tools for coordinating multi-channel interactions

9. Understand the cost structure of each channel

• Channel optimization is important irrespective of the function for which the channel is used

• Channel optimization involves balancing the cost of the channel against factors like value to customers, customer preferences and profit potential.

• Though transaction costs are low on the web, it may not be the right medium for all transactions

10. Optimize the channel strategy

• A cost/benefit analysis can be conducted to find out returns that the multi-channel strategy is yielding

• The web, e-mail and call centers are the cost effective channels

• Migrating to a web based channel does not mean that other channels should be abandoned

• Eg : At IBM mundane queries are answered through call centers while complicated queries are handled by the sales force

Class Assigments

Write short notes on the following :

1.Online Banking

2.Virtual Private Networks

3.Broad Band Telecommunication

4.Advantage and Disadvantage of Home Banking

5.5 properties of electronic payment system

Domain Names

• Domain names come in 2 forms :– English-like names– Numeric or Internet Protocol (IP) addresses

• Yahoo.com• Microsoft.com• Un.org• Whitehouse.gov

ICANN

The Internet Corporation for assigned

1. Discuss the various driving forces behind e-commerce. What are the practical problems in implementing e-commerce

2. What are the three pillars of e-commerce business. Describe in detail

3. What is the difference between online and offline transactions ? How does e-commerce support online transactions

4. Most businesses should engage in e-commerce on the internet. Do u agree or disagree with the statement? Justify your answer

5. How does e-commerce works. Explain with an example

6. Discuss any three internet protocols

7. What are the various components of I-way infrastructure

8. Explain the types of credit cards and smart cards

Suggested Reading

• The Digital Dilemma: Intellectual Property in the Information Age, National Research Council, 2000, R. David (ed.)

• (2) Information Rules: A Strategic Guide to the Networked Economy, Shapiro and Varian, 1998, Harvard Business School Press, Boston.

• (3) A modest number of relevant, current articles and web sites.

Question 1

Visit the following websites:• www.woolworths.co.za• www.wits.ac.za• www.mweb.co.za• www.kalahari.net• www.investec.com

• 1.1 Identify the type of business model/(s) employed by each site (see Chipp and Ismail, 2004: Chapter 3, for example, advertising model, portal, market maker, broker, e-tailer).

1.2 For each site analyse:• Value proposition• Scope of offering• Target markets• Resources.

Question 2

Consider the following product categories: Houses, clothing, banking and CDs.

• 2.1 For each product, determine if it is mostly a search, experience or credence good.

• 2.2 Explain how the consumer decision-making process will be unique for each type of product if purchased online.

3.The marketing director of a well-known, up-market hotel in Southern Africa has approached you for advice relating to the pricing of their hotel rooms on their site. The customers of the hotel are mostly wealthy persons from Europe. Most are regular visitors to the hotel. They are time pressured and have high expectations but because the hotel is familiar with them it is able to offer them personalised service. Based on what you know about customer characteristics and product characteristics (Chipp and Ismail 2004: 163), advise the hotel on the price sensitivity of its customers and the need to be competitive in terms of rates with other hotels.

4.Compare and contrast reverse auctions, English auctions and Dutch auctions. Which would be most appropriate for the rapid sale of last minute airline seats?