CHAPTER ONE

E-MARKETING /E-COMMERCE

INTRODUCTION

1.1 Definition and meaning of e-commerce

Definition: Sharing business information, maintaining business relationships and conducting

business transactions using computers connected to a telecommunication network is called E-
Commerce

A more general definition of e-commerce is given by Wigand (1997) as:

The seamless application of information and communication technology from its point of origin
to its endpoint along the entire value chain of business processes conducted electronically and
designed to enable the accomplishment of a business goal. These procedures may be partial or
complete or may encompass business to business as well as business to consumer and consumer
to business transactions.

E-commerce can be viewed as online business. It can mean selling data directly from the website
or offering applications for download after they are purchased online.

E-commerce is a technology or a system; it also can be viewed as different kind of business. It is

a business of computer and communication network which is depending upon the business
transactions. E-commerce includes both business to business (B2B) and Business to customer
(B2C) transactions.

Electronic commerce or E-commerce refers to a wide range of online business activities for
products and services. It also pertains to “any form of business transaction in which the parties
interact electronically rather than by physical exchange or direct physical contact” There are
different perspectives in defining electronic commerce. These are:

Communication perspective: according to communication perspective, electronic commerce is the

delivery of goods, services, information, or payments over computer networks or any other
electronic means.

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Business Process Perspective: according to this perspective, electronic commerce is the
application of technology toward the automation of business transaction and workflow.

Service perspective: it considers electronic commerce as a tool that addresses the desire of firms,
consumers, and management to cut service costs while improving the quality of goods and
increasing the speed of service delivery.

E-commerce is usually associated with buying and selling over the internet, or conducting any
transaction involving the transfer of ownership or right to use goods or services through a
computer-mediated network. Though popular, this definition is not comprehensive enough to
capture recent developments in this new and revolutionary business phenomenon. A more
completed definition is given as follows: E-commerce is the use of electronic communications
and digital information processing technology in business transactions to create, transform, and
redefine relationships for value creation between or among organizations, and between
organizations and individuals.

1.2.Main objectives of e-commerce:

A) Reduced costs

B) Lower product cycle time

C) Faster customer response

D) Improved service quality

1.3.Comparison between e-commerce and e-business

The main difference between e-business and e-commerce is e-commerce is related with revenue,
transactions in which money is involved. Whereas e-business may be related to internal process
like inventory control processes which do not directly give you revenue for the company, second
major difference is e-business is inside the firm and e-commerce takes its place as the transactions
related to the outside firms with the firms are considered. Exchange of money changes the
transactions of suppliers and customers from e-business to e-commerce. Still there is one similarity
that is transactions are electronic or online. Both require same skill set.

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E-commerce is used more by the service provider companies and data processing services. It is
used less by other industries as well as security and investment companies, ISO 9000 companies
will be using e-commerce in future. E-commerce is a very useful for business it allows buying and
selling online with the use of World Wide Web and internet. E-mails, faxes and telephone are also
used in e-commerce. It is not only the online shopping but it includes buying and downloading on
the net plus maintaining stock and continuous transactions with customers and suppliers.

While some use e-commerce and e-business interchangeably, they are distinct concepts. In e-
commerce, information and communication technology (ICT) is used in inter-business or inter-
organization transactions (transactions between and among organizations) and in business-to-
consumer transactions (transactions between organizations and individuals). It encompasses the
entire world of electronically based organizational activities that support a firm’s market
exchanges and cross firm boundaries. It also generates revenue to the firm. In E-commerce, on
the other hand, information and communication technology (ICT) is used to enhance one’s
business. It includes any process that a business organization (either a for-profit, governmental or
non-profit entity) conducts over a computer mediated network. It refers to the digital enablement
of transactions and processes within a firm, involving information systems under the control of the
firm.

A more comprehensive definition of e-business is “The transformation of an organization’s

processes to deliver additional customer value through the application of technologies,
philosophies, and computing paradigm of the new economy.” Three primary processes are
enhanced in e-business. These are:

Production processes: Which include procurement; ordering and replenishment of

stocks, processing of payments; electronic links with suppliers and production control
processes, among others.

Customer-Focused processes: Which include promotional and marketing efforts;

selling over the internet; processing of customers’ order and payments; and customer
support, among others.

Internal management processes: Which include employee services, training; internal

information sharing; video-conferencing; and recruiting. Electronic applications enhance

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 information flow between production and sales force to improve sales force productivity.
Workgroup communications and electronic publishing of internal business information
are likewise made more efficient.

1.4.Seven Unique Features of E-Commerce Technology

1) Ubiquity

It is available everywhere at any time. The result is called a market space—a marketplace extended
beyond traditional boundaries and removed from a temporal and geographic location. It saves
transaction cost and time. In traditional commerce, you have to visit physically to a market place
in contrast you don’t have to visit anywhere for e-commerce market.

2) Global Reach

Due to e-commerce technology commercial transactions has crossed all the cultural and national
boundaries. The potential market size of e-commerce merchants is roughly equal to the world’s
online population (over 1 billion in 2005). Whereas traditional commerce cannot cross national
boundaries.

3) Universal Standards

Technical standard for conducting internet and hence e-commerce has become universal. They are
shared by all the nations. While traditional technologies differ from one nation to the next. For the
merchants’ market entry cost is same all over the world and it is lowered due to internet. For the
customers price and product search is lowered. The prices are constant throughout the world and
can be searched from any part of the world.

4) Richness

Information of any product is available easily. Traditional markets, national sales forces and the
retail stores are able to provide the prompt audio and visual information very easily which makes
it a powerful selling and commercial environment. The messages are spread evenly not depending
on the distance. The richness of the message is spread evenly i.e. complexity and the content of
the message are same throughout the world.

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5) Interactivity

It allows two-way communications between merchant and customer, no other commercial

technology of the Twentieth century except telephone has this feature. E-commerce can be used
for both giving and receiving the information from the net using different websites.

6) Information Density

The information available on the web is more accurate and reaches the person fast in a timely
manner. The information is complete and is available to consumers, merchants and participants.
In addition, the information need not be stored and processed; saving the storage, processing and
communication cost. Consumer can easily find all the cost in the world.

7) Personalization/Customization

E-commerce technologies allow personalization by targeting their marketing message to a specific

person by adjusting a message to person’s name, interests, and past purchases. The technology
also permits customization by changing the product according to the user’s requirement. A lot of
information about the customer’s requirement, its past purchases can be stored due to information
density.

1.5.Components of a well-functioning commercial web site

A well-organized web site should be easy for a customer to use and easy for the owner to maintain.
It takes a lot to build a well-organized web site. Below is a list of the most important elements that
a good web site should have:

1. A well-organized collection of products and/or services. Smaller web sites can just list
all their products on one or several web pages. Larger sites provide indices of products and
search engines so that customers can find what they need. There should be a way for
customers to get all necessary information about products, compare several products, get
an advice on related products that they might want to get, etc. To maintain a web site, the
owner should be able to change product information easily. A web site where a price
change of a single product requires changing 3 web pages is just bound to have
inconsistencies. The owner should be able to add or remove products based on every day's

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 availability, change prices, add product cross-references, etc. without making the web site
inconsistent even for a minute.

2. A convenient way for a customer to select products. Usually implemented as a shopping

cart or a shopping basket. The customer should be able to select and delete products while
browsing the web site.

3. Convenient order forms. The form should be flexible enough to allow specifying a
different address for the product delivery, a gift message, etc. It should have as few required
fields as possible. A returning customer should be provided default information so that not
to type it every time. For both the customer and the owner it is essential that the form
catches simple typos (s.a. 4 digits in a zip code).

4. Convenient ways of payment. There should be options of paying by a credit card, by a

check (not everyone has credit cards!), and by a credit card over the phone if the customer
is not comfortable sending his/her credit card number. The options may include some
electronic payment systems.

For the owner, there should be a quick way to verify the credit card information or in some
other way to check that the payment is valid.

5. Secure communication system not only to protect transmission of a credit card number,
but also to guarantee privacy of the customer (including details of the purchase). A web
site might have a user registration system with a password, in which case all transactions
by the user should be private. It is also important to prevent unauthorized access to the web
site (by a hacker or accidental).

6. Some way of storing information about customers. This is convenient for customers so
that they don't need to reenter their information every time they access the site. It also
allows to "customize" the web site for someone's interests. This can be done via customer
registration or by means of "cookies", which we will discuss later.

The owner can benefit a lot from storing information about a customer: he/she can
customize ads based on the customer's profile or send an e-mail advertising a new product
(but keep in mind that many people don't like this!) However, the greatest benefit is the

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 owner's ability to monitor customer's behavior: which pages have the customer visited and
which purchases (if any) he/she has made afterwards.

7. A way of keeping information about orders. This allows customers to track their orders,
and for owners to get all kinds of financial and statistical information. It is also important
to keep order information in case of later disputes.

8. The last, but not the least, customer support and feedback. There should be online
documentation for all products ever sold on the web site, various FAQs, and, ideally, a way
of customers to post their opinion about the product. Easy access to this information may
make a difference between a frequently visited web site and a lonely online looser.
This aspect of a web site cannot be completely mechanized: a human being has to answer
e-mail, judge the relevance of customer's comments (otherwise the web site may be flooded
with nonsense), and organize comments by topics, and so on. However, there is a lot that
can be computer-aided in this process, for instance sorting incoming messages by their title
and/or return address to forward them to an appropriate customer support person.

1.6. Benefits and Limitations of Electronic Commerce

1.6.1. Benefits of Electronic Commerce

1.6.1.1. Benefits to the Organization

➢ Expands market to national and international markets;

➢ Decrease the cost of creating, processing, distributing storing, and retrieving paper-based
information;

➢ Supply chain inefficiencies can be minimized with electronic commerce;

➢ Electronic commerce allows for many innovative business models that provide strategic
advantages and/or increase profits;

➢ E-commerce allows for high degree of specialization that is not economically feasible in
the physical world;

➢ It reduces the time between the outlay of capital and the receipt of products and services;

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 ➢ E-commerce enables companies to interact more closely with customers

1.6.1.2. Benefits to Consumers

➢ 24/7 service of transaction service and provides more choices;

➢ E-commerce frequently provides less expensive products with quick comparison;

➢ Consumers can locate relevant and detailed product information in seconds;

➢ E-commerce makes virtual auctions possible;

➢ It facilitates competitions

1.6.1.3. Benefits to the Society

➢ More individuals work at home and less traveling for work or shopping;

➢ Lower prices allow less affluent people to improve their living standards; and

➢ Public services can be delivered at lower costs

1.6.2. Limitations of e-commerce

1.6.2.1. Technical Limitations

➢ Systems security, reliability, standards, and some communication protocols are still
evolving;

➢ Telecommunication bandwidths are insufficient;

➢ Software development tools are still evolving and changing;

➢ Some e-commerce software might not fit with some hardware or it may be incompatible
with certain operating systems or components

1.6.2.2. Non-technical Limitations

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➢ The cost of developing e-commerce in-house can be very high and mistakes made due to
lack of experience may result in delays;

➢ Security and privacy are important in the B2C area;

➢ Customers do not trust unknown, faceless seller, paperless transactions, and electronic
money;

➢ Some customers like to touch items such as cloths, so they know exactly what they are
buying;

➢ Legal issues are not yet refined;

➢ E-commerce do not have enough support services;

➢ There could be a breakdown in human relationships and

➢ Internet access is still expensive and/or inconvenient for many potential customers.

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 Chapter Two

Business Model for Electronic Commerce

A business model is a set of planned activities designed to result in a profit in a market

place. An electronic commerce business model aims to use and leverage the unique
qualities of the internet and the World Wide Web.

2.1. Key Elements of Business Model

There are eight key ingredients of a business model that are of interest for this particular
course. These are:

2.1.1. Value proposition

From firm’s point of view it defines how company’s product or service fulfills the needs
of customers. The following questions should be adequately answered.

- Why will customers choose to do business with your firm instead of another
company?

- What will your firm provide that other firms do not and can can’t?

From customer’s point of view, electronic commerce value proposition refers to

personalization, customization, and reduction of search costs.

2.1.2. Revenue Model

It describes how the firm will earn revenue, produce profit, and produce a superior return
on invested capital. There are five revenue models:

Advertising Revenue model: A web site that offers its users content, services, and/or
products also provides a forum for advertisements and receive fee from advertisers.
The best example is www.yahoo.com.

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 Subscription Revenue Model: A web site that offers its users content or services
charges a subscription fee for access to some or all of its offerings. Examples include
www.bbc.com.uk, www.newsweek.com, wall street journal, financial times etc.

Transaction Revenue Model: A company receives a fee for enabling or executing a

transaction. E.g. www.ebay.com

Sales Revenue model: Companies derive revenue by selling goods, information, or

services to customers.

Affiliate Revenue Model: Web sites that steer business to an “affiliate” receive referrals
fee or percentage of the revenue from any resulting sales. E.g. www.mypoint.com

2.1.3. Market Opportunity

It refers to the company’s intended market space and the overall potential financial
opportunities available to the firm in that market space.

2.1.4. Competitive Environment

It refers to the other companies operating in the same market space selling similar
products. It is influenced by:

✓ How large their operations are;

✓ How many competitors are active;

✓ What the market share of each competitor is;

✓ How profitable these firms are; and

✓ How they price their products

• Direct competitors – companies that sell products or services that are very similar and
into the same market segment

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 - Example: Priceline.com and Travelocity.com

• Indirect competitors – companies that may be in different industries but that still
compete indirectly because their products can substitute for one another

- Example: CNN.com and ESPN.com

2.1.5. Competitive Advantage

It is achieved by a firm when firms can produce a superior product and/or bring the
product to market at a lower price than most, or all, or its competitors. Competitive
advantage may arise due to asymmetry; the firm in the market has more resources-
Financial backing, knowledge, information, and/or power- than other participants.
Companies leverage their competitive assets when they use their competitive advantages
to achieve more advantage in surrounding markets

The asymmetry can be:

➢ Patent;

➢ Connection;

➢ Image; and

➢ First mover advantage

Types of competitive advantage include:

- First mover advantage – results from a firm being first into a marketplace

- Unfair competitive advantage – occurs when one firm develops an advantage based
on a factor that other firms cannot purchase

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2.1.6. Market Strategy

It is plan that a company put together that details exactly how it intend to enter a new
market and attract new customers. For example, www.yahoo.com advertises
aggressively to attract more number of users where as some companies partner each
other.

2.1.7. Organizational Development

It describes how the company will organize the work that needs to be accomplished.
Work is divided into the following:

o Functional departments;

o Defined area within the function;

o Responsibilities; and

o Hiring people

2.1.8. Management Team

It refers to the employees of the company responsible for making the business model
work. The management team’s ability and credibility to outside investors, immediate
market-specific knowledge, and experience in implementing business plans are key
factors for success. In pooling effective management team, the following questions
should be answered:

▪ What kind of technical background is desirable?

▪ What kind of supervisory experience is necessary?

▪ Which job functions should be filled first? Marketing, operations, finance, etc

▪ Do prospective senior managers have experience and contacts for raising

financing from outside investors?

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 • Business to business known as B2B

• Business to consumer known as B2C

• Consumer to business known as C2B

• Consumer to consumer known as C2C

• Mobile e-commerce

Table 1: Business models of E-commerce

2.2. Electronic Business Models Based on Relationship of

Transaction Parties

2.2.1. Business-to-Consumer (B2C)

It involves business organizations that sell products directly to consumers. Examples

include www.amazon.com, www.ediets.com, www.pets.com etc. Firms reach individual
consumers through the following business-to-consumer models:

I. Portal: They offer users powerful web search tools as well as integrated package of
content and service such as news, e-mail, instant messaging, calendars, shopping,
music downloads, video, business information, all in one place. Portals do not sell
anything directly and in that sense they can present themselves as unbiased. They
generate revenue primarily by charging advertisers for advertising placement,

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 collecting referral fees for steering customers to other sites, and charging for premium
services. Portals fall into two categories:

 Horizontal/General portals: They define their markets space to include all users of
the internet. Good examples in this case are www.yahoocom,
www.americanonline.com, www.msn.com , www.google.com etc. They seek to be
user’s home base.

 Verticals/specialized: They focus around a particular subject matter or subject

market or market segment. E.g. www.iboat.com, www.sailnet.com etc.

II. Electronic Tailer: It is online retail store where time-starved customers can shop at
any hour of the day or night without leaving home or office. The different type of
electronic tailers are discussed as under:

❖ Virtual Merchant: Online version of retail store, where customers can shop at any
hour of the day or night. A very good example is www.amazon.com.

❖ Click-and-Mortar: online distribution channel for company that also has physical
stores. E.g. www.walmart.com.

❖ Catalog Merchant: online version of direct mail catalog. E.g. www.landsend.com,

www.llbean.com

❖ Manufacturer Direct: Online sales made directly by the manufacturer itself. E.g.
www.dell.com and www.compaq.com.

III. Content Providers: They are information and entertainment companies that provide
digital content over the Web. A way of internet service provision that can be defined
broadly to include all forms of intellectual property. They distribute information
content such as digital news, music, photo, video, and art work over the web. They make
money by charging subscribers a subscription fee. Some make money by selling

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 advertising spaces. It is the second largest source of B2C e-commerce revenue in 2002.
Examples are www.sportsline.com, www.cnn.com, www.espn.com, etc.

IV. Transaction Broker: Sites that process transactions for consumers normally handled
in person, by phone, or mail. The largest industries using this model are financial
services, travel services, and job placement services. The online transaction broker’s
primary value propositions are saving of money and time. Online stock brokers
receive commissions that are considerably less than traditional brokers, with many
offering substantial deals. Transaction brokers make money each time a transaction
occurs. Examples include www.ethiojobs.net, www.etrade.com etc.

V. Market Creator: It builds a digital environment where buyers and sellers can meet,
display products search for products and establish price for products. E.g.
www.priceline.com, www.ebay.com, www.amazon.com etc.

VI. Service Provider: They are companies that make money by selling users a service,
rather than a tangible product. Examples are www.myconsulting.com,
www.lawinfo.com, www.cfo.com etc.

VII. Community Providers: They are sites that create a digital online environment where
people with similar interests can transact (buy and sell goods), communicate with like
minded people, receive interest related information, and even play out fantasies by
adopting online personalities. It rely on a hybrid revenue model that includes
subscription fees, sales revenues, transaction fee, affiliate fees and advertising fees
from other firms who are attracted by a tightly focused audience.
E.g.www.village.com,www.blackplanet.com,www.epinions.com, www.oxygen.com,
and www.about.com etc.

2.2.2. Major Business-to-Business (B2B) Models

It is about a commercial transaction between businesses that focus on selling to other

businesses. It includes the following:

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1) Marketplace/Exchange (B2B Hub): It is digital/electronic market place where
suppliers and commercial purchasers can conduct transaction. Business-to-
Business Hubs make it possible to gather information, check out suppliers, collect
prices, and keep up-to-date on the latest happening all in one place. Sellers, on the
other hand, benefit from expanded access to buyers. They make transaction and
inventory carrying cost lower. B2B hubs rely on transaction fee for their existence.
They can be of two type:

 Vertical market places that serve specific industries, for example. www.e-
steel.com

 Horizontal marketplaces that sell specific products to a wide range of

companies. E.g, www.tradeout.com etc.

2) Electronic Distributor: They are companies that supply products and services
directly to individual businesses. Where as Business-to-business hubs pull together
many businesses, making it possible for them to do business with other companies,
electronic distributors are set up by one company seeking to serve many customers.
With electronic distributors, the more products and services a company makes
available on its site, the more attractive that site to potential customers. E.g.
www.grainger.com

3) Business-to-Business Service providers: They sell services to other firms.

Traditional business-to-business service providers offer online equivalents to
common business services such as accounting, financial services, human resource
management (HRM), printing, and so on. The other category may include
www.salesforce.com and www.corio.com which rent internet-based software
applications to businesses and collect rental fee.

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 4) Match makers: Companies that make money by linking other companies and
taking cut of any business that occur via a transaction or usage fee are called
matchmakers. For example, www.iship.com compares prices among shipping
companies. Once a company has the cheapest shipper for its particular package, it
pays www.iship.com a fee in order to get service the shipments.

5) Infomediary: It is a company that would act as custodian, agents, and broker of

customer information marketing it to businesses on consumer’s behalf while
protecting their privacy at the same time. They can be classified into two:

 Audience Brokers: they capture information about customers and use it to help
advertisers find the most appropriate audience. The source of information is sales
of information. E.g. www.doubleclick.com

 Lead Generators: They gather customers data from which they then create customer
profile or reference. They then direct vendors of products and services that fit the
profiles of the customer. The source of revenue here is referral fee.

2.2.2. Major Business Models in Emerging E-commerce areas

There are new forms of business such as:

Consumer-to-consumer (C2C) Business Models: They provide a way for consumers to

sell to each other, with help of an online business. For example, www.half.com
enables consumers to sell off unwanted books, movies, etc to other consumers.
www.eBay.com is also a person-to-person online trading community with more
than 23 million registered users.

Peer-to-Peer (P2P) Business Models: They link users, enabling them to share files and
computer resources without a common server. For example,
www.groovenetwork.com help its workers share files, calendars, work schedules,
and plans without burdening central servers.

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 M-Commerce: it is a short form of mobile commerce which permits mobile access to
the web. Wireless networks utilize newly available bandwidth and communication
protocols to connect mobile users to the internet.

2.3. Business Models Based on the Relationship of transaction types

Business models are basically ruled by two parameters:

❖ Control: It is hierarchically controlled and at lower level there is no control so

that it is self-organizing

❖ Value Integration: The addition of value to a product or service because of the

web business opportunities.

Based on these two parameters, the following types of transactions can be

identified:

A. The Brokerage Model: it is characteristics are:

▪ The price discovery mechanism is its key principle

▪ It is a meeting point for sellers and buyers

▪ Auctions and exchanges are the models of transaction

▪ It a free market consisting of global network of buyers and sellers

▪ It is virtual market space enabled by the internet

▪ It encompasses all types of organizations

One of the brokerage models is auction model. Auction sites act as a company or form
through which internet users can log on and assume the role of either the seller or buyer.
As a seller, you are able to post an item you wish to sell, the minimum price you require
to sell your item and deadline to close the auction. As a bidder, you may search the site

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for availability of the item you are looking for, view the current bidding activity, and
place a bid.

B. Aggregator Model: Sales can be made based on list prices. In some cases goods and
services are unique to the web and do not have a traditional “Brick-and-Mortar” store
front. The following are some of the aggregator models:

➢ Virtual merchant: This is a business that operates only from the web and offer
either traditional or web specific goods or services

➢ Catalog merchant: This is the migration of mail order to a web based order
business

➢ Surf-and-Turf: it is traditional Brick-and- mortar establishment with web store

front

➢ Bit Vendor: This is a business that sell goods and services that can themselves be
distributed as bytes of information over the internet

➢ Subscription model: users pay for access to site.

C. Infomediary Model: It is an organizer of virtual community who helps companies

to collect, manage, and maximize the value of information about consumers. Data
about consumers and their buying habits are extremely valuable especially when that
information is carefully analyzed and used to target marketing campaigns. An
infomediary may offer users free internet access or free hardware in exchange for
detailed information about their purchasing habits. Infomediary can be classified in
terms of their relationship- open (non-proprietary, giving anyone free access) or
closed (proprietary, restricting access)- with buyers and sellers into four groups:

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 o Specialized agents: The related proprietary (financial) networks are sanctioned
off the broader internet by having closed relationship with both buyers and sellers.
Their business performance depends on their:

✓ Ability to deliver value through scope

✓ Specialization (a well defined and lucrative niche)

✓ Infrastructure ( a platform for transaction)

o Generic agents: They maintain open relationship with both buyers and suppliers
and involve no relationship specific investment. They create value through their
comprehensive and unbiased service often generating revenue from advertising,
which is based on eyeballs or a number of unique user clicks.

o Supplier agents: They start off in this quadrant, sponsored either by specific
companies with a vested interest in selling their products or by close affiliation to
core group of sellers. Thus, they don’t provide unbiased options for buyers. A
good example is www.auto.com

o Buyer agents: They establish relationship with a core set of buyers, working on
their behalf and any number of suppliers. To succeed, they must build a large base
of clients and win their trust. E.g. www.infoseek.com.

D. Electronic Community Model: They are commercially sponsored sites where

members congregate online and exchange views on issues of interest. They are
formed when groups of people meet online to fulfill certain needs, which include
personal interest, relationships, entertainments, and transaction. For example,
agriculture online (www.agriculture.com ) is e-community where farmers and others
(around 5 million) can find commodity prices, recent farm news, and chat room of all
type. The other example is parent soup (www.parentsoup.com ) which is an online
community of more than 200,000 parents.

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E. Value Chain: Value chain moves businesses away from discrete streams of data about
the product being made to one unified pool of information-one that even extends outside
the company to suppliers and customers. The goal is to develop full interaction among
all members of the chain resulting in lower inventories, higher customer satisfaction and
shorter time to market.

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