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 Physical or Traditional Commerce

Commerce

Internet 
Commerce

Business Consumer focused

focused e-commerce 
e-commerce
 Digital Phenomenon
• What do you think is digital era ?

• What are the drivers of e-commerce?

Data networks
Intense competition
Globalization
Information age
Technologies DIGITAL
Automation
Low cost high quality
products/services
 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 Customer
(organization) (individual)

Business B2B B2C

(organization) (e.g TPN) (e.g Amazon)

Customer C2B C2C

(individual) (e.g Priceline) (e.g eBay)
 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
 The emergence of Infomediaries
• 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
 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 customer
 Develop a customer profile
 Segment the customer
 Avoid the ‘SILO’ effect
 Predictive modeling and customer profitability
 Use multiple channels to interact with the customers
 Identify customer channel preference
 Synchronize channels
 Understand the cost structure of each channel
 Optimize the channel strategy
 Personalize the customer experience
 Individualize content
 Enable customers to customize the environment
 Personalize the interaction through all channels
 Optimize the Value of every customer
 Optimize every level of customer interaction
 Optimize Lifetime customer value
 Build 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?