ELECTRONIC COMMERCE SYSTEMS:

GETTING YOUR BUSINESS ON THE

INTERNET

ELECTRONIC COMMERCE
E-commerce is a new kind of services where commercial activity is conducted
through the Internet. E-commerce systems provide the ablity to purchase and
sale goods, payment orders, service maintenance, generating prices subject to
various conditions (discounts, delivery, quantity, the amount of the order),
conducting of marketing materials.
E-commerce – refers to a wide range of on-line activities for products and
services. It also pertains to any form of business transactions in which the
parties interact electronically
rather than by physical exchanges or direct physical contact. It is usually
associated with buying and selling over the Internet, or conducting any
transaction involving the

There are three primary processes enhanced in e-businesses:

1. Production processes – which include procurement, ordering and
replenishment of stocks, processing of payments, electronic links with
suppliers, and production control processes, among others.
2. Customer-focused processes – which include promotional and marketing
efforts, selling over the Internet, processing of customers’ PO (Purchase Orders)
and payments, and customer support, among others.
3. Internal Management Processes – which include employee services,
training,
internal information sharing, video conferencing, and recruiting.
E-commerce has grown in importance as companies have adopted pure-click
and brick-and-click channel systems. We can distinguish pure-click and brick-
and-click channel system adopted by companies:

1. Pure-click or pure-play companies are those that have launched a website

without any previous existence as a firm.
2. Bricks-and-clicks companies are those existing companies that have
added an on-line site for e-commerce.
3. Click-to-brick on-line retailers that later open physical locations to
supplement
their on-line efforts.

E-commerce business usually employ some or all of the following practices:

• Provide e-tail or “virtual storefronts” on websites with on-line catalogs,
sometimes
gathered into a “vitual mall”;
• Buy or sell on websites or on-line marketplaces’
• Gather and use demographic data through web contracts and social media’
• Use electronic data interchange, the busine-to-business exchange data;
• Reach prospective and established customers by e-mail or fax;
• Use business-to-business buying and selling; and
• Provide secure business transactions.

Creating an e-commerce solution mainly involves creating and deploying an e-

commerce site. The first step in the development of an e-commerce site is to
identify the e- commerce model. Depending on the partie involved in the
transaction, e-commerce can be classified into four models namely:
1. Business-to-Business (B2B) Model
2. Business-to-Customer (B2C) Model
3. Consumer-to-Consumer (C2C) Mode
4. Consumer-to-Business (C2B) Model
1. Business-to-Business (B2B) Model - involves electronic transaction for
ordering, purchasing, as well as other administrative tasks between houses.
The advantages of the B2B model are:
▪ It can effeciently maintain the movement of the supply chain and the
manufacturing and procuring processes; and
▪ It can accommodate corporate processes to deliver the right products
and services quickly and cost-effectively.
The B2B model is predicted to become the largest value sector of the industry
within a few years. This is said to be the fastest growing sector or e-commerce.

2. Business-to-Consumer (B2C) Model - involves transactions between

business organizations and customers.

COMMERCE BUSINESS MODELS

Consider a hypothetical example in which a transaction is conducted between a
business organization and a consumer.

▪ A business house, LMN Department Store, displays and sells a range of

products on their website, www,lmn.com.
▪ The detailed information of all their products is contained in the huge
catalogs maintained by LMN Department Stores.
▪ Now, a consumer, William Smith, wants to buy a gift for his wife. He
therefore, logs on to the site of LMN Department Stores and selects a gift from
the catalog.
▪ He also gets the detailed information about the gift such as, the price,
availability, discounts, and so on from there catalog.
▪ Finally, when he decides to buy the gift, he places an order for the gift on their
website.
To place an order, he needs to specify his personal and credit card information
on www.lmn.com. This information is then availability by LMN Department
Stores and stored in their database. On verification of the information the order
id processed.
Therefore, as you can see, the B2C model involves transactions done between
consumer and one or more business organizations.

3. Consumer-to-Consumer (C2C) Model – involves transaction between

consumers.
4. Consumer-to-Business (C2B) Model – involves a transaction that is
conducted between a consumer and a business organization.

C2B Business Model

➢ Michael Porter identified five factors that act together to determine the
nature of competition within an industry. These are the:
• Threat of new entraints to a market
• Bargaining power of suppliers
• Bargaining power of customers (“buyers”)
• Threat of substitute products
• Degree of competitive rivalry
He identified that high or low industry profits (e.g. soft drinks v airlines) are
associated with the following characteristics:

Threat of New Entrants to an Industry

➢ If new entrants move into an industry they will gain market share &
rivalry will intensify
➢ The position of existing firms is stronger if there are barriers to entering
the market
➢ If barriers to entry are low then the threat of new entrants will be high,
and vice versa
➢ Barriers to entry are, therefore, very important in determining the threat
of new entrants. An industry can have one or more barriers. The
following are common examples of successful barriers.
➢ Bargaining Power of Suppliers
▪ If a firm’s suppliers have bargaining power they will:
▪ Exercise that power
▪ Sell their products at a higher price
▪ Squeeze industry profits

PORTER’S FIVE FORCES MODEL

If the suppliers force up the price paid for inputs, profits will be reduced. It
follows that the more powerful the customer (buyer), the lower the price that
can be achieved by buying from them. Suppliers find themselves in a powerful
position when:
▪ There are only a few large suppliers
▪ The resource they supply is scarce
▪ The cost of switching to an alternative supplier is high
▪ The product is easy to distinguish and loyal customers are reluctant to switch
▪ The supplier can threaten to integrate vertically
▪ The customer is small and unimportant
▪ There are no or few substitute resources available

Just how much power the supplier has is determined by factors such as:
➢ Uniqueness of the input supplied
➢ Number and size of firms supplying the resources
➢ Competition for the input from other industries
➢ Cost of switching to alternative sources

Customers tend to enjoy strong bargaining power when:

➢ ▪ There are only a few of them
 ➢ ▪ The customer purchases a significant proportion of output of an
industry
➢ ▪They possess a credible backward integration threat – that is they
threaten to buy the producing firm or its rivals
➢ ▪ They can choose from a wide range of supply firms
➢ ▪ They find it easy and inexpensive to switch to alternative suppliers

➢ Threat of Substitute Products

➢ A substitute product can regarded as something that meets the same
need.
➢ As an example, consider the many substitutes that consumers now have
to buying a newspaper for their news:
➢ The extent of the threat depends upon

▪ The extent to which the price and performance of the substitute can match
the industry’s product
▪ The willingness of customers to switch
▪ Customer loyalty and switching costs

If there is a threat from a rival product the firm will have to improve the
performance of their products by reducing costs and therefore prices and by
differentation.

❖Degree of Competitive Rivalr

If there is intense rivalry in an industry, it will encourage businesses to engage

in
▪ Price wars (competitive price reductions),
▪ Investment in innovation & new products
▪ Intensive promotion (sales promotion and higher spending on advertising)
Several factors determine the degree of competitive rivalry; the main ones are:

INTER-ORGANIZATIONAL SYSTEM (IOS)

- An inter-organizational system (IOS) is one which allows the flow of
information to be
automated between organizations in order to reach a desired supply-chain
management systems, which enables the development of competitive
organizations.

Benefits of Inter-Organizational System

1. Efficient SCM – Supply chain management, SCM, refers to the network
and communication between interconnected businesses that depend on one
another to deliver a product or service to the public.
2. Technology Exchange – running an IOS requires the use of technology.
3. Healthy Competition – IOS systems perpetuate healthy competition in the
market.
4. Global Communication – IOS makes communication available at a global
level.
5. Reduce Business Risks – every business takes risks during the process of
production.

PAYMENTS SYSTEM (EPS)

E-commerce sites use electronic payment system which refers to paperless
monetary transactions. It has revolutionized the business processing by
reducing paper work, transaction costs, as well as labor costs. Being user-
friendly and less time consuming than the manual process of payment, EPS
helps business organizations expand its market reach.

There different types of Electronic Payment System are:

1. Payment Card – is classified into four namely:
Debit Card – differs from a credit card in such a way that in case of payment
through debit card, amount gets deducted from card’s bank account
immediately and there should be sufficient balance in bank account for the
transaction to get completed whereas in case of credit card, there is no such
compulsion.
Fleet/Fuel Card – is used as payment for gasoline, diesel and other fuel at gas
stations.
2. Smart Card – is a type of computer embedded chip card that stores and
transacts encrypted data between users.

Advantages:
• It can carry personal accounts
• Credit and buying preferences
• Can manage expenditures with automatic limits and reporting
Disadvantages:
• Costs 2 to 7 times more than magnetic stripe cards
• Needs a smart card reader
3. E-cash – is similar to regular cash which enables transactions between
customers without the need for banks or other third parties.
4. E-Check – is the result of cooperation among several banks, government
entities, technology companies and e-commerce organizations.
5. E-Wallets – are being vey useful for frequent on-line shoppers and are
commercially available for pocket, palm-sized’ handheld, and destop PCs.
6. Micropayment – can be used for billing by banks and financial, institutions,
ISPs (Internet Service Providers), content provides (offering games,
entertainment, archieves, etc.), telecommunications, service providers (offering
fax, e-mail, or phone services), and by premium search engines and specialized
databases.
7. Electronic Fund Transfer (EFT) – is a system of transferring money from
one bank account directly to another without any paper money changing hands.