Chapter 3 Enabling Commerce Using the Internet

Electronic Commerce Defined

 Electronic Commerce (EC)
o Exchange of goods, services and money among firms, between firms and
their customers, and between customers supported by communication
technologies
 Online transactions have become a major segment of the global economy
 Emergence of the Internet and Web further facilitated Electronic Commerce which
allowed for marketing and selling products and services to individual consumers
 Electronic Commerce is the process leading up to the purchase of a product as well
as the customer service
 Business-To-Consumer (B2C)
o Transactions between businesses and consumers
 Business-To-Business (B2B)
o Transactions between businesses and businesses
 In some forms of EC it does not involve business firms
 Consumer-To-Consumer (C2C)
o Transactions between people not necessarily working together
 Consumer-TO- Business (C2B)
o Transactions between customers and businesses
 Technology forces are driving businesses and the Internet and Web have emerged as
strong agents of change helping to
o Lower barriers
o Level the playing field
o Allow small businesses to sell products to a global consumer base
 Companies are trying to reach a
wider customer base with more
products and closer relationships
with customers by meeting
peoples unique needs
 Wide ranging capabilities include:
o Global Information
Dissemination
o Integration
o Mass Customisation
o Interactive
Communication
o Collaboration
o Transactional Support
o Disintermediation

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Internet and World Wide Web Capabilities
Information Dissemination
 Powerful combination of internet and web technologies has given rise to a global
platform allowing firms to compete effectively for customers and gain access to new
markets
 The worldwide connectivity of the Internet enables global information dissemination
 Increasing geographical reach
Integration
 Allows integration of information through linking corporate databases to websites to
provide real-time access to personalised information
Mass Customisation
 Helps firms tailor their products and services to meet a customer’s particular needs
on a large scale
 Web technologies helps firms realise they need to achieve this
Interactive Communication
 Enables firms to build customer loyalty by providing immediate communication and
feedback to and from customers, and this can dramatically improve the firm’s image
through demonstrated responsiveness
 Companies have provided customers with real time customer service through their
web site
Transaction Support
 The internet and web has reduced transaction costs while enhancing operational
efficiency and enhancing operational efficiency
 It has reduced transactions cost cause there are less phone representatives taking
the order
Disintermediation
 Cutting out the “middleman” and reaching customers more directly and efficiently
 Enabled manufactures of products to sell their products directly to the end
customers without the need for distributors or retailers
 Allows producers or service providers to offer products at a lower price
 Reintermediation
o Design of business models that introduce the middleman in order to reduce
the chaos brought on by disintermediation
EC Business Strategies
 Web has moved traditional business operations into a hypercompetitive electronic
marketplace
 Beneficial for small companies to access a global marketplace
 Companies must strategically position themselves to compete in the new EC
environment
 Brick-and-mortar business strategy
o focus solely on traditional physical markets
 Click-only business strategy (virtual companies)
o Conduct business electronically in cyberspace and have no physical stores
allowing them to focus on EC
o Called “pure play companies”
 Click-and-mortar business strategy (Bricks-and-clicks business strategy)

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 o Operating in both physical and virtual arenas

The Click-and-Mortar Strategy

 Operate their physical locations and have added the EC component to their business
activities
 Transactions occur during both physical and virtual environments
 Need to learn how to fully maximise commercial opportunities in both domains
 Business activities must be tailored for both environments in order for the firms to
be completely effective
 Different skills are necessary to support web-based computing, requiring substantial
resource investments
 Companies must design, develop and deploy systems and applicate to accommodate
an open computing architecture
The Click-Only Strategy
 Compete more effectively on price as they do not need the physical aspects
 Can reduce prices to rock-bottom levels
 Conducting business in cyberspace has some problems
EC Revenue Models
 Business need to have a sound underlying business model to succeed
 Internet has enabled or enhanced revenue models
 Many companies are able to use web as an economic medium to reach a larger
customer base which enables them to sell products for a low price while maintain a
profit
 Ads are place on web sites to create revenue making many millions of dollars

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Business-To-Consumer E-Commerce and Internet Banking
Stages of B2C EC
 B2B-oriented Web sites typically range from passive to active
 Passive web sites provide product information only as well as the company’s address
and phone number
 Active web pages are highly sophisticated and are interactive which allows
customers to view products at real time and make purchases online
 Stages are classified as:
o E-Information-Providing electronic brochures and other types of information
for customers
o E-Integration –Providing customers with the ability to obtain personalised
information by querying corporate databases and other information sources
o E-Transaction- Allowing customers to place orders and make payments
 Due to high storage and distribution costs most traditional brick-and-mortar retails
and service providers are forced to limit their product offerings to service the needs
and wants of mainstream customers
 Many w-tailers can focus on the long tails which are products outside the
mainstream tastes
Drawbacks of E-Tailing
 Are downsides to this approach which are associated with product delivery and the
customer’s inability to adequately experience and characteristics of a product prior
to purchase
Product Delivery Drawbacks
 E-tailing requires additional time for products to be delivered.
 Credit card information may not be approved or the shipper may try to deliver the
package when you are not home
Direct Product Experience Drawbacks
 Lack of sensory information e.g. taste, smell and feel
 E-tailing eliminate the social aspects of the purchase
 Online shopping provides certain anonymity which allows people to shop for
products they may not feel comfortable buying in an offline retail store
EC Web Sites: Attracting and Retaining Online Customers
 Successful companies in the old markets will not necessarily dominate the new
electronic market. A few recommendations e-trailers should keep in mind are:
o The Web Site Should Offer Something Unique
o The Web Site Must Motivate People To Visit, To Stay, and To Return
o You Must Advertise Your Presence on the Web
o You Should Learn From Your Web Site
Recommendation 1-The Web Site Should Offer Something Unique
 Providing visitors with information or products that they can find nowhere else leads
to EC profitability
 Niche market can be in almost any category
Recommendation 2-The Web Site Must Motivate People To Visit, To Stay, and To Return
 Online customers can choose from a vast variety of vendors for any product they are
looking for which makes them to be less loyal to e-tailer
 Web sites help build relationships

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  E-tailers learn about their customer’s interest to provide customized
recommendation
Recommendation 3-You Must Advertise Your Presence on the Web
 A Web site cannot be successful without customers
 To attract visitors to their side they advertise on the web
 The first way to advertise your firm’s presence is to include the web site address on
all company materials, from business cards and letterheads to advertising copy
 Bar codes are two-dimensional barcodes with a high storage capacity
Recommendation 4- You Should Learn From Your Web Site
 Company can use information from the customer to improve its web site
 Firm can track the path that visitors take through the pages they go on
 Pages that are unused can be eliminated from the site reducing maintenance and
upkeep
 Web Analytics
o Analysing web surfers’ behaviour in order to improve web site performance
Designing Web Sites to Meet Online Consumers’ Needs
 Successful companies design their Web sites to enhance their online customers’
experience
 Online consumers’ needs can be categorised as:
o Structural Firmness
 Characteristics that influence the Web site’s security and performance
o Functional Convenience
 Characteristics that make the interaction with the Web site easier or
more convenient
o Representational Delight
 Characteristics that simulate a consumer’s senses
Structural Firmness
 Online consumers are unlikely to revisit a Web site if it doesn’t function well
 Web site should be fast and shouldn’t have to wait for screens to download
 The length of time that a web surfer will wait for a web page to download is only a
couple of seconds
Functional Convenience
 Web sites that are easy to use are more popular i.e. easy to navigate and find things
 Features such as one-click ordering, offering a variety of payment methods or order
tracking can increase the perceived functional convenience
Representational Delight
 Web sites must be aesthetically pleasing
 People return to sites that look good and creating a unique look and feel can
separate a Web site from its competition
 Web sites should be clear, concise and consistent layout, taking care to avoid
unnecessary clutter
The Online Consumers’ Hierarchy of Needs
 Businesses constantly have to make trade-off between complexity, resource
limitations and other factors

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  Once consumers’ needs for structural firmness have been met, functional
convenience is the next most important set of characteristics, followed by
representational delight
 Web site must be easy to navigate and secure for consumers to stay with it
 Utilitarian Web Site
o Structural firmness will be most important
 Hedonic Web Site
o Representation delight is the most important factor
 Hybrid Sites
o Offering both hedonic and utilitarian value
 Balance different factors
Internet Marketing
 Traditionally companies’ advertising budgets were mostly spent on non-interactive
advertising campaigns e.g. newspaper, billboards or television ads
 Effectiveness of social media marketing will increase
Search Marketing
 Web surfers now just enter the name of a product into a search engine and then visit
the resulting pages
 Search marketing are paid search and search engine optimisation

Paid Search
 When searching for a specific term on your company’s site appears on the first page
is using search advertising (or sponsored search)
 This can be very expensive for advertiser as they must bid against many others
 Some search engines offer to elevate a company’s position in the organic results
after paying a fee (paid inclusion)
Search Engine Optimisation
 Most surfers visit only the first few links that are presented and rarely go beyond the
first page of the search results
 Companies use Search Engine Optimisation (SEO) to attempt to move up their web
sites in the organic search engine results
 If a Web site is frequently updated, has content relevant to the search term and is
popular the chances that it will be positioned higher in the search results

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  Slight Modifications to a company’s Web site can have a large impact on the site’s
ranking in search results, and investments in SEO are often worthwhile especially in
times of tight marketing budgets
Display Ads
 Ads placed on a page are in some way related to the content of the page
 A variety of interactive features, rich media ads, the ability to place ads in online
videos, as well as the ability to accurately measure an ad’s impact contribute to
display advertising’s increasing popularity
E-Mail Marketing
 Continues to be very popular among advertisers
 Move away from direct-mail advertising and replace it with e-mail advertising
 Effectiveness of e-mail advertising campaigns can be measured directly and saves
large amounts of paper allowing the company to build a positive green image
Social Media Marketing
 Companies increasingly use social networking sites for interactive communication
with their customers
 A recent trend is for companies to establish “social media listening centres” to feel
the pulse of public opinion across a variety of social media
Mobile Marketing
 Forecast to skyrocket between 2011 and 2016
 Increasing uses of smartphones allows markets to market in another channel
 Growth in mobile commerce further contributes to the growth of mobile marketing
as companies are trying to reach their customers
Pricing Models
 One common pricing model for online advertising is impression based which is based
on the number of times the page containing an ad is viewed
 Large advertisers negotiate special rates with such sides which makes these ads
expensive
 Web advertising is moving towards performance-based pricing models whose return
on investment is more direct e.g. pay-per-click models
 Conversion Rate
o Reflects the percentage of visitors who actually perform the marketer’s
desired action
 Pricing models are also commonly used for affiliate marketing
 Web site owners can earn money from referrals or ensuring sales
 High-quality ads is beneficial as it increases the sites perceived quality
Click Fraud
 The possibility of abuse by repeatedly clicking on a link to inflate revenue to the host
or increase the cost for the advertiser
 Network Click Fraud
o Site hosting an advertisement creates fake clicks to get money from the
advertiser
 Competitive Click Fraud
o Inflates an organisation’s online advertising costs by repeatedly clicking on an
advertiser’s link

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Mobile Commerce, Consumer-To-Consumer EC, and Consumer-To-business EC
 M-Commerce is any electronic transaction or information interaction conducted
using a wireless, mobile device and mobile networks
 Powerful devices provide a wide variety of services and capabilities in addition to
voice communication
 Increasing use of tablets offers a host of new opportunities for marketers
 For companies operating in the digital word it needs to harness the opportunities of
mobile commerce to ensure their content in format suited for these devices
Location-Based M-Commerce
 Highly personalised mobile services based on user’s location
 Implemented via the cellular network, Wi-Fi networks, and GPS
 This allows the service provider to offer information or services tailored to the
consumers’ needs depending on their location
Information on the Go
 Mobile devices have taken this to the next level
 People can solve a disagreement by using their smartphones and immediately
resolve the argument now
 Decisions to enter a particular restaurant, customer reviews and product reviews
 Offline shopping experience by being able to provide as much information as
possible and this has also led to showrooming
 Showrooming
o Evaluate the look and feel of product, just to then purchase it online or at
competitor’s store
 Providers have started to offer mobile tickets and even mobile boarding passes
adding convenience for the user and do not have to keep track of their tickets
Product and Content Sales
 Many online retailers have designed mobile versions of their web sites to facilitate
the shopping process on mobile devices
 There has been increasing popularity of mobile commerce
 Mobile apps offer many interactive features they are typically costly to develop as
they need to be tailored to different platforms
 Among commuters accessing content from mobile devices is extremely popular
 The increasing field of mobile content is obviously an important part of many
companies mobile marketing mix

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C2C EC
 C2C Commerce has electronically facilitated interactions to create unique
opportunities and unique problems
E-Auctions
 Internet has provided the possibility to disseminate information and services which
previously were unavailable in many locations
 E-Auctions
o Provide a place where sellers can post goods and services for sale and buyers
can bid on these items or vice versa
 Four distinct categories of e-commerce
o Bartering
 Takes place on a one-
on-one basis which
being together many
people listing items to
swap
o Reserve Actions
 Where buyers post a
request for quote
which is similar to a
request for proposal in
the sellers respond
with bids rather than
posting items or services for auction
o Forward Actions
 Where the highest bid wins
o Exchanges
 Typically taking place on a B2B level
 E-auctions are marred with fraud which include:
o Bid luring
 Luring bidders to leave a legitimate auction to buy the same item at a
lower price outside the auction space, where return policies and
buyer protection do not apply
o Counterfeit items
 Selling something that is said to be an original, but it turns out to be a
counterfeit item
o Bid Shielding
 Using two different accounts to place a low followed by a very high
bid on a desired item, leading other bidders to drop out of the
auction. The high bid is then retracted, and the item is won at the low
bid

o Shipping Fraud
 Charging excessive shipping and handling fees, far above actual cost
o Payment Failure
 Buyers not paying for item after auction conclusion
o Non-shipment

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  Sellers failing to skip item after payment has been received

Online Classified
 Enabled by Web capabilities, no transactions take place online
 Enables people to sell anything
C2B EC
 Enabled small business to participate in global EC
 Enabled consumers to sell goods and services to businesses
 Companies use crowdsourcing in order to have small, well-defined tasks performed
by a scalable ad hoc workforce of everyday people
Managing Finances and Navigating Legal Issues in EC
 Innovation has not slowed down and has opened some promising new areas within
EC
e-Banking
 Special form of service offered online is managing financial transactions through
online paying or pay bills using electronic bill pay services
 Online Investing has seen steady growth over the past several years
 Can use online brokerage firms to buy or sell stock and providers offer ways for their
customers to use their mobile devices for conducting banking transactions
Securing Payments in the Digital World
 Transfer of money is a critical factor in online shopping, online banking, and online
investing, security researchers and software companies are lamenting that people
are often reluctant to change their habits when surfing the web
 Different companies offer payment services for buying and selling goods or services
online
Credit and Debit Cards
 Still among the most accepted forms of payment in B2C EC
 Customer is also asked to provide the so-called Card Verification Value (CVV2) a
three digit code located on the back of the card
 An online customer has to transmit much personal information to the merchant and
many fear being defrauded by an untrustworthy seller or falling victim to a crime
Managing Risk in B2B Transactions
 Online consumers at time disputer transactions for various reasons
 Merchant is financially responsible for the transactions
 Any credit card transaction must be authorized by the issuer of the credit card
 In e-commerce transactions there is no physical card or signature
 Customers demand a quick checkout process leaving the merchant little time to
authenticate whether the customer is indeed the cardholder
 To minimise risk merchants use automated fraud screening services to provide the
merchants with a risk score based on a number of variables
 Based on the risk score merchants can decide whether or not to let the transaction
go through
 Merchants must collect as much data as possible during the checkout process
 Visa recommends looking for fraud indicators such as:
o E-mail Addresses

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  Contain some parts of the customers names while fraudsters have
meaningless character combination
o Shipping and Billing Addresses
 Fraudsters often have the merchandise shipped to foreign high-risk
countries and mat misspell words or street names
o Transaction Patterns
 Show very distinct patterns and fraudulent transactions often consist
of multiple orders using the same credit card in a short period or
multiple orders using different cards shipped to the same address
 Being alerted can reduce the risk of fraudulent transactions
 Ordinary people can only make payments by credit cards to receive payments

Payment Services
 Have led to inception of independent payment services
 These service allow customers to purchase goods online without having to give much
private information and only they have them and are securely stored
Legal Issues in EC
 There are issues for EC businesses which are
o Taxation of online purchases
o Protection of intellectual property
Taxation
 Many governments are concerned that sales made via electronic sales have to be
taxed in order to make up of lost revenue in traditional sales method
 On an international level taxation is more difficult
 For digital products the movement of the product is difficult to track and tax revenue
is easily lost
Digital Rights Management
 Consumers increasingly using EC
 Digital media I easily copied and shared to people
 Entertainment industry has turned to digital rights management (DRM) which allows
publishers to control their digital media to discourage limit or prevent illegal copying
and distribution
 Entertainment industry argues that DRM allows copyright holders to maximise sales
losses by preventing authorised duplication

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E-Government
 The use of information systems to provide citizens, organisations and other
government agencies with information about public services and to allow for
interaction with the government
Government-To-Citizens
 Allows for interaction between federal, state and local governments and their
constituents
 Concerns over security and protection from manipulation have thus far slowed the
adoption of e-voting
Government-To-Business
 Form of EC involves businesses’ relationships with all levels of government
 Includes e-procurement in which the government streamlines tis supply chain by
purchasing materials directly from suppliers using its proprietary Internet-enabled
procurement system
 Allows businesses to buy seized and surplus government equipment
Government-To-Government
 Used for electronic transactions that take place between countries or between
different levels of government within a country
 Allows information to be accessed regarding laws and regulations relevant to federal
requirements
 E-governments has aligned its electronic capabilities with world issues

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