Course: Subject: Topic:

Advanced/Graduate Diploma in Logistics & Materials Management E-commerce 1. Benefits and limitations of electronic commerce. 2. Impacts of electronic commerce on organizations. 3. Issues in E-tailing. 4. Factors affecting EC consumer behavior. 5. Types of B2B and characteristics.

CONTENTS 1. BENEFITS AND LIMITATIONS OF ELECTRONIC COMMERCE o 1.1 The benefits, limitations, and Impacts of electronic commerce. 3 o 1.2 Benefits of E-Commerce o 1.3 Limitations of E-Commerce 2. IMPACTS OF ELECTRONIC COMMERCE ON ORGANIZATIONS o 2.1 Impacts of electronic Commerce on business processes and organizations o 2.2 Transforming Organizations o 2.3 The changing face of marketing 7 8 9 4 6

o 2.4 Figure: changes in supply chain 3. ISSUES IN E-TAILING. o 3.1 Disintermediation and reintermediation 4. FACTORS AFFECTING EC CONSUMER BEHAVIOR o 4.1 A Model of Consumer Behavior Online o 4.2 The behavior process model 5. TYPES OF B2B AND CHARACTERISTICS. o 5.2 The Basic types of B2B E-Market Places & services

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o 5.2 B2B Characteristics 6. REFERENCE

1. The benefits and limitations of e-commerce. 1.1 The benefits, limitations, and Impacts of electronic commerce. Few innovations in human history encompass as many benefits as EC does. The global native of technology, the opportunity to reach hundred of millions of people interacts the nature, the variety of possibilities for its use and the resourcefulness and rapid growth of its supporting infrastructures, especially the web, result in potential benefits to organization, individuals, and society. These benefits have just begun to materialize, but they will increase e significantly as EC expands.1 The limitations and barriers of EC

Barriers to EC can be classified as either technological or non technological. The major barriers are, According to a 2006 study (Harmony Hollow software 2006), the major barriers to EC are 1) resistance to new technology, 2) implementation difficulties, 3) security concerns, 4) lack of technology skills, (5) lack of potential customers, and (6) cost. Ethical issues Ethical issues create pressures or constraints on business operations. Ethics relates to standards of right and wrong, and information ethics relates to standards of right and wrong in information technology and EC practices. Ethical issues have the power to damage the image of an organization and morale of employees. Ethics is a difficult area, because ethical issues are not cut-and-dried. What is considered ethical by one person may seem unethical to another. Likewise, what is considered ethical by one person may seem unethical to another. Likewise, what is considered ethical in one country may be unethical in another. Implementing EC use may raise ethical issues ranging from employee e-mail monitoring to invasion of privacy of millions of customers whose data are stored in private and public data bases. Despite these barriers EC is expanding rapidly. As experience accumulates and technology improves, the cost-benefit ratio of EC will increase, resulting in even greater rates of electronic commerce adoption.

1.2 Benefits of E-commerce Benefit Organizational benefits Description

Global reach

Can easily and quickly locate the best suppliers, more customers and more suitable business partners. i.e. buy cheaper and sell more.

Cost reduction

EC decreases the cost of creating, processing, distribution, storing can and be Retrieving paper-based information

Supply chain improvement

Supply delays.

chain

inefficiencies

minimized e.g. Inventory and deliver Extended hours Customization New business models 24/7/365 pull-type production (build-to-order) Tendering (reverse auction), name-yourown-price model, affiliate marketing, viral marketing etc. Vendors specialization Lower communication cost Efficient EC enables high degree of specialization EC lowers telecommunications cost. EC can reduce administrative cost, purchasing prices, and reducing cycle time. procurement Improved customer relations Up-to-date company material EC enable close customer relations EC enables company information to be updated by the minute.

Consumer Benefits Ubiquity More products and services Cheaper products and services EC allows shopping 24/7/365 from almost any location EC gives more choices. EC providers price variety for goods and

services. Instant delivery Information availability Participate in auctions Electronic communities Get it you way e.g. digitized product Relevant and detailed information in seconds Virtual auctions Consumers consumers. Customization and personalization of products and services. More people work and shop at home. Competitive prices allow lower income earners to shop more. Great opportunity for the Poor to sell, buy and learn new skills. Health care, education, and distribution of government social services can be done at a reduce cost to a large number of people. can interact with other

Societal Benefits Telecommuting Higher standard of living Hope for the poor Availability of public services

1.3 Limitations Of Electronic Commerce Technological Limitations Lack of universally accepted standards for quality, security, and reliability Telecommunication bandwidth is insufficient, especially mostly for mcommerce, videos and graphics. Non-Technological Limitations Security and privacy concerns deter some customer from buying. Lack of trust in EC and in unknown sellers hinders buying. Many legal and public policy issues,

Software development tools are still evolving. Difficulties in integrating the internet and EC software applications and databases.

including taxations, remain unresolved are not clear. National in the way. Difficulty in measuring some benefits in EC. (E.g. advertising,) lack of matured measurement methodology. Some customers like to touch and feel the product. Adamant to change from physical to virtual store. Lack of trust in paperless, faceless transactions. Insufficient number (critical mass) of sellers and buyers (some cases) needed to make profit. Increasing number of fraud on the net. Difficulty to obtain venture capital due to the dot-com disaster. and international government regulations sometimes get

Special web servers are needed in addition to the network servers, which add to the cost of EC.

Internet accessibility is still expensive and/ or inconvenient. Order of fulfillment of large-scale B2C requires special automated warehouses

2. Impacts of electronic commerce on organizations 2.1 Impacts of electronic Commerce on business processes and organizations Little statistical data or empirical research on the full impact of EC is available because of the relative newness of the field. Therefore, the discussion in this se4ction is based primarily on experts opinions, logic, and some actual data. Existing and emerging web technologies are offering organizations unprecedented opportunities to rethink strategic business models, processes, and relationships. These e-opportunities can be divided into three categories: e-marketing (Web-based

initiatives that improve the marketing of the existing products; see Zimmerman 2007), e-operations (Web-based initiatives that improve creation of exisiting products) and e-services (Web-based initiatives that improve service industries and customer service). Their model, divides the impact of e-marketplaces into three major categories: improving direct marketing, transforming organizations, and redefining organizations, and redefining organizations. This section examines each of these impacts. Improving Marketing and Sales Traditional direct marketing is done by mail order (catalogs) and telephone (Telemarketing). According top the direct marketing association, actual sales generated by direct mail totaled $ 960 billion. For digital products software, music, and videos-the change brought by e-market is dramatic. Already this are delivered over the internet. New sales models such as shareware, freeware, and pay-as-you-use are emerging. Although these models currently exist only within particular sectors, such as software and publishing industries, they will eventually pervade other sectors. All of these impacts of e-markets on direct marketing provide companies, in some cases, with a competitive advantage over those that use only traditional directsales methods, as vividly illustrated in the Blue Nile case. Some people predict the Fall of the shopping mall, and many retail stores and brokers of services (e.g., stocks, real estate, and insurance) are labeled by some as soon-to-be-endangered species. Figure: 2.1.The Analysis of Impacts Frame Work

2.2 Transforming Organizations A second impact of e-marketplaces is the transformation of organizations. Here, we look at three key topics: organizational learning, changing the nature of work, and disintermediation and reintermediation. Technology and Organizational Learning Rapid progress in E-Commerce will force companies to adapt quickly to the new technology and offer them an opportunity to experiment with new products, services, and processes. New technologies require new organizational approaches. For instance, the structure of the organizational unit dealing with E-Commerce might have to be different from the conventional sales and marketing departments. To be more flexible and responsive to the market, new processes must be put in place. This type of corporate change must be planned and managed. 2.3: The Changing Face of Marketing

Old model- Mass and Relationships with Customers Customer needs Segmentation

New model- one-to-one and

Segmented Marketing Customization Customer is mostly a Customer is an active co producer. passive recipient. Articulated segments Target marketing is to individuals. Articulated and inferred solutions and segmented targets: oneto-one targets. prices and Customer influencing pricing (e.g. priceline.com; auctions); value-based pricing models, e-auctions, eand negotiations (i-offer).

Mass market and target Segments looking for customized

Pricing

Fixed

discounting.

Communication

Advertising and PR

Integrated, customized Entertainment.

interactive,

marketing

communication, education, and Distribution Traditional retailing and Direct (online) distribution and rise of direct marketing Advertising TV, billboards third marketing party logistics services. newspapers, Innovative, viral on the web, wireless devices

Changing Nature of Work The nature of work and employment will be transformed in the Digital Age; it is already happening before our eyes. Driven by increased competition in the global marketplace, firms are reducing the number of employees down to a core of essential staff and outsourcing whatever work they can to countries where wages are significantly less expensive. The upheaval brought on by these changes is creating new opportunities and new risks and forcing us into new ways of thinking about jobs, careers, and salaries. Disintermediation and reintermediation

Intermediaries are agents that mediate between sellers and buyers. Usually, they provide two types of services: 1) They provide relevant information about demand, supply, prices, and requirements and, in doing so, help match sellers and buyers; 2) they offer value added services such as transfer of products, escrow, payment arrangements, consulting or assistance in finding a business partner. Redefining Organizations Some of the ways in which e-markets will redefine organizations. New and Improved Product Capabilities E-markets allow for new products to be created and for existing products to be customized in innovative ways. Such changes may redefine organizations missions and the manner in which they operate. Customer profiles, as well as data on customer preferences, can be used as a source of information for improving products or designing new ones. Mass Customization, Mass customization enables manufacturers to create specific products for each customer, based on the customers exact needs. For example, Motorola gathers customer needs for a pager or a cellular phone, transmits the customers specifications electronically to the manufacturing plant where the device is manufactured, and then sends the finished product to the customer within a day. Customers can use the Web to design or configure products for themselves. For example, customers can use the Web to design T-shirts, furniture, cars, jewelry, Nike shoes, and even a Swatch watch. Improving the Supply Chain One of the major benefits of e-markets is the potential improvement in supply chains. A major change is the creation of a hub-based chain. Build-to-order Manufacturing In these systems, manufacturing or assembly will start only after an order is received. This will change not only the production planning and control, but also the entire supply chain and payment cycle. Impacts on Manufacturing

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EC is changing manufacturing systems from mass production lines to demanddriven, just in-time manufacturing. These new production systems are integrated with finance, marketing, and other functional systems, as well as with business partners and customers. Figure 2.4 Changes in the supply Chain

3. Issues in E-tailing.

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The following are representative issues that need to be addressed when conducting B2C. 3.1 Disintermination and Reintermediation Disintermediation refers to the removal of organizations or business process layers responsible for certain intermediary steps in a given supply chain. The manufacturer can bypass the wholesalers and retailers, selling directly to customers. Also, e-tailers may drive regular retailers out of business. Figure: 3.1 Disintermination and Reintermediation in the B2C Supply Chain

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However, consumers might have problems selecting online vendor; vendors might have problems delivering to customers; and both might need escrow service to ensure the transaction. Thus, new online assistance might be needed, and might be provided by the transaction. The traditional intermediaries fill new roles, providing added value and assistance. This process referred to as reintermediation. Thus, for the intermediary, the internet offers new ways to reach new customers, new ways to bring value to customers, and perhaps new ways to generate revenues. The intermediarys role is shifting to one emphasizes value-added services, such as assisting customers in comparison shopping from multiple sources, providing total solutions by combining services from several vendors, and providing certifications and trusted third party control and evaluation systems. Some reintermediaries cooperate with manufacturers are retailers to provide a needed service to the seller or distributor in the online environment. Other reintermediaries are virtual e-tailers that fill a unique niche. Cybermediation In addition to reintermediation, a completely new role in EC has emerged called cyber mediation, or electronic intermediation. These terms describe special websites that use intelligent agents to facilitate intermediation. Cybermediators can perform many roles in EC and can affect most market functions. For example, intelligent agents can find when and where an item that a consumer wants will be auctionized. Channel Conflict Many traditional retailers establish a new marketing channel when they start selling online. Similarly, some manufacturers have instituted direct marketing initiatives in parallel with their established channels of distribution such as retailers or dealers. In such cases, channel conflict can occur. Channel conflict refers to any situation in which direct competition and/or damage caused bypassing a former existing channel partner is perceived to have resulted from the introduction of a new, often online channel.

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Determining the Right Price Pricing a product or service on the internet, especially by a click-and-mortar company, is complicated. On the one hand, prices need to be competitive on the internet. Todays comparison engines will show the consumers the prices at many stores, for almost commodity products, at almost no cost to the consumer. However, balanced against this is the fact that for some items, transaction costs will decrease, the cost of distribution will decrease, and supply chains may become more efficient and shorter, meaning that e-tailers might be able to compete in the aggressive online market space. EC offers companies new opportunities to test prices, segment customers, and adjust to changes in supply and demand. Companies can make prices more precise (optimal prices); they can be more adaptable to changes in the environment; and they can be more creative and accurate regarding different prices to different segments. Product and Service Customization and Personalization One significant characteristic of many online marketing business models is the ability of the seller to create an element of personalization for each individual customer. Although pure-play-e-tailing is risky and its future is unclear, e-tailing is growing rapidly as a complementary distribution channel to traditional stores and catalogs. Fraud and Other Illegal Activities A major problem in B2C is the increasing rate of online fraud. This can cause losses to both buyers and sellers. How to make Customers Happy A critical success factor for B2C is to find what customers want, so the vendor can make them happy. In addition to price, customers want convenience, service, and quality, and they often want to enjoy the experience of online shopping.

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4. Factors affecting EC consumer behavior Companies are operating in an increasingly competitive environment. Therefore, they treat customers like royalty as they try to lure them to buy their goods and services. Finding and retaining customers is a major critical success factor for most business, both offline and online. One of the keys to building effective customer relationships is an understanding of consumer behavior online. 4.1 A MODEL OF CONSUMER BEHAVIOR ONLINE For decades, market researchers have tried to understand consumer behavior, and they have summarized their ndings in various models of consumer behavior. The purpose of a consumer behavior model is to help vendors understand how a consumer makes a purchasing decision. If the process is understood, a vendor may try to inuence the buyers decision, for example, by advertising or special promotions. Before we discuss some of the models variables, let examine who the EC consumers are. Online consumers can be divided into two types: individual consumers, who get much of the media attention, and organizational buyers, who do most of the actual shopping in cyberspace. Organizational buyers include governments, private corporations, resellers, and public organizations. Purchases by organizational buyers are generally used to create products (services) by adding value to raw material or components. Also, organizational buyers such as retailers and resellers may purchase products for resale without any further modications. Influential Factors Five dimensions are considered to affect consumer behavior. They are consumer characteristics, environmental characteristics, merchant and intermediary characteristics, product service characteristics and EC systems. The last are mostly controlled by the sellers. The attitude-Behavior process This process starts with a positive attitude and ends with buyers decisions to purchase and or repurchase.

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Figure :4.1 EC Consumer Behavior Model

Major influential Factors Personal characteristics refer to demographic factors, individual preferences and behavioral characteristics. Several websites provide information on customer buying habits online (example; emarketer.com, clikz.com and comscore.com). the major demographics that such sites track are gender, age, martial status, educational level, ethinicity, occupation, and house hold income, which can be correlated with internet usage and EC data.

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Product/ service factors: The second group of factors is related to the product/service itself. Whether a consumer decided to buy is affected by the nature of the product/service in transaction. These may include the price, brand, quality, design and other related attributes of the product. Merchant and intermediary factors: Online transactions may also be affected by the merchant that handles the product/service. This group of factors includes merchant reputation, size of transaction, trust in the merchant, and so on. For example, people feel more secure when they purchase from amazon.com (due to its reputation). EC Systems: The EC platforms for online transactions (e.g., security protection, payment mechanism, and so forth) offered by the merchant may also have effects. Motivational Factors: Motivational factors are the functions available on the website to provide direct support in the transactional process. Hygiene Factors: Hygiene factors are functions available on the website whose main purpose is to prevent possible trouble in the process (e.g., security and product tracking). 4.2 The behavior Process Model Several influential factors affect buying decisions. A classic model for describing advertising effectiveness is the Attention-Interest-Desire-Action (AIDA) model. It argues that consumer processing of an advertising message includes the following four stages: 1. A-Attention (Awareness): The first step is to attract the attention of the customer. 2. I-Interest: A message may raise customer interest by demonstrating features, advantages and benefits. 3. D-Desire: Customers may be convinced that they want and desire the product or service and that it will satisfy their needs. 4. A-Action: Finally, the consumer will take action towards purchasing. Now, some researchers also add another letter to form AIDA(s), where:

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5. S-Satisfaction: Customer satisfaction will generate higher loyalty and lead to repurchase after using a product/service. Another well-known model for interpreting the internal psychological process of the consumer buying decision is the attitude-behavior model, which includes three major constructs: attitude, intention, and behavior. A favorable attitude would lead to a stronger buying intention, which in turn would result in the actual buying behavior. Therefore, developing a positive consumer attitude plays a central role in the final purchase decision.

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5. Types of B2B and characteristics 5.1 The basic types of B2B E-marketplaces and services The following are the basic type of B2B e-marketplaces. One-to-many and many-to-one: Private E-Marketplaces and services In one to-many and many-to-one markets, one company does either all of the selling (sell-side market) or all of the buying (buy-side market). Because EC is focused on a single companys buying or selling needs in these transactions, this type of EC is referred to as company centric EC. Many-to-many: Exchanges In many-to-many e-marketplaces, many buyers and many sellers meet electronically for the purpose of trading with one another. There are different types of such e-marketplaces, which are also known as exchanges, trading communities, or trading exchanges. Exchanges are usually owned and run by a third party or by consortium. Figure 5.1: Types of B2B E-Commerce

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Supply chain improvers and Collaborative Commerce B2B transactions are segments in the supply chain. Therefore, B2B initiatives need to be examined in light of other supply chain activities such as manufacturing, procurement of raw materials and shipments, and logistics. Supply chain activities usually involve communication and collaboration. Business deal with other businesses for purposes beyond just selling or buying. One example is that of collaborative commerce, which is communication, design, planning, and information sharing among business partners. For example, they might include activities related to design, Manufacturer, or Management. 5.2 B2B Characteristics Business to business electronic commerce implies that both sellers and buyers are business corporations, while business-to-consumer electronic commerce implies that the buyers are individual customers. Types of Transactions B2B transactions are of two basic types: spot buying and strategic sourcing. Spot buying refers to the purchasing of goods and services as they are needed, usually at prevailing market price, which are determined dynamically by supply and demand. The buyers and the sellers may not even know each other. Stock exchanges and commodity exchanges (oil, sugar, corn, etc.) are examples of spot buying. Types of Materials Traded Two types of materials and supplies are traded in B2B; direct and indirect. Direct materials are materials used in making the products, such as steel in a car or paper in a book. The characteristics of direct materials are that their use is usually scheduled and planned for. Indirect Materials are items, such as office supplies or light bulbs, that support production. They are usually used in maintenance, repair, and operation (MRO) activities. The direction of the trades

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B2B market places can be classified as vertical or horizontal. Vertical marketplaces are those deals with one industry or industry segment. Examples include marketplaces specializing in electronics, cars, hospital supplies, steel or chemicals. Horizontal Marketplaces are those that concentrate on a service or a product that is used in all types of industries. Examples are office supplies, PCs or travel services.

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References 1. Efriam.T, David.k, et.al,; 2010; Electronic Commerce a managerial perspective, Pearson; sixth edition, ; NewJersy . 2. Efriam.T, David.k, et.al,; 2006; Electronic Commerce advantage perspective, Prentice hall; sixth edition, ; NewJersy . 3. Hossein.B, ; 2002; Electronic commerce principle and practices; Academic Press, U.S.A 4.

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