E-COMMERCE AND ITS BENEFITS (STUDY OBJECTIVE 4)

There has never been complete agreement on an exact definition of e-commerce. However, most would agree that e-commerce is a transaction between a business and customer, in which the transaction information is exchanged electronically. Under such a broad definition, there are many forms of exchange that could be called e-commerce. The use of a credit card at a department store, ATM transactions with a bank, EDI transactions between vendor and buyer, and Web-based transactions all fit into this definition of e-commerce. With the explosive growth of “Web-based” commerce in the last decade, e-commerce has widely come to be thought of as Web-based. That is, the average person thinks that e-commerce is Web-based commerce. Since Web-based commerce is the most common form of e-commerce, this section will focus on the Web-based form of e-commerce.

Hereafter, the references to e-commerce will be to Web-based e-commerce. Also, e-commerce will refer to business-to-consumer sales. The common term for business-to-consumer e-commerce is B2C. Conversely, the term e-business will include business-to-business electronic transactions. The common term for business-to-business electronic sales is B2B.

B2C sales are transactions between a business and a consumer, which usually involve a retail or service company whose customers are end-user consumers. While there are literally thousands of different types of B2C transactions, some examples are as follows:

1. Buying a book on Amazon.com
2. Downloading a song purchased from Apple's iStore
3. Buying an airline ticket on Expedia.com
4. Buying a computer at Dell.com

The common aspect in these transactions in that the consumer interacts with the business via the business's website.

There are many advantages of B2C sales to the business and to the customer. Both parties benefit from the increased access to the market, the speed and convenience of e-commerce, and the ability to share information.

BENEFITS AND DISADVANTAGES OF E-COMMERCE FOR THE CUSTOMER

The major benefits to the customer of buying products or services relate to the increased access, speed, convenience, and information sharing mentioned previously. More specifically, the benefits to the customer are the following:

1. E-commerce provides access to a much broader market for goods and services. By using e-commerce, the customer is not constrained by geography or geographic boundaries. If a customer wishes to buy a shirt, he can access any number of websites selling shirts, some of which may be in other states or countries. The customer need not physically visit a store to buy.
2. E-commerce also provides more convenient times for shopping. Orders can be placed 24 hours a day, 7 days a week. As mentioned in item 1, the customer does not need to go to a store to buy the product or service and is not limited by location or hours of operation of the website, as he would be when shopping at a store.
3. The wider access to the marketplace also provides more choices to the customer. This may enable the customer to more easily find the same product at a less expensive price. In addition, the wider market access may allow the customer to find a product with better features at a more competitive price.
4. E-commerce is likely to provide lower prices, for many reasons. Businesses that sell via e-commerce can reduce many costs, and these cost savings can be passed on to the customer. The details of the cost savings will be discussed later in the section on the benefits to businesses of e-commerce. In addition, the customer may not be required to pay sales taxes for e-commerce purchases. However, in many cases, the tax savings may be offset by shipping or delivery costs.
5. The information-sharing aspect of the Internet and World Wide Web allows the customer to exchange information with businesses before, during, and after the purchase. Some e-commerce websites have live chat sessions with product or service specialists to answer questions.
6. E-commerce can allow quicker delivery of the product, enabled by the faster processing time of e-commerce. To fill an order, the business does not have to undertake steps such as entering order information into the computer system. As soon as the customer enters the order via the website, order processing can begin.
7. Customers can receive targeted marketing from businesses that they frequently purchase from. For example, Amazon.com analyzes customer buying patterns and can recommend specific books that may be of interest to the customer.

While there are significant advantages to e-commerce to the customer, there are also disadvantages. The free and open nature the World Wide Web allows the opportunity for fraud, theft of assets, or theft of data. Customers have concerns about the privacy and security of personal information shared with businesses during e-commerce transactions. Hackers and identity thefts can potentially steal credit card information, banking information, and private data. Because such concerns may prevent some customers from purchasing via e-commerce, businesses must respond by trying to ensure the security and privacy of customer data. The details of privacy principles are covered later in this chapter.

The other disadvantage for the customer is the inability to handle or try out the product. Compared with a store shopping experience, the customer does not have the same ability to see and handle the product.

BENEFITS AND DISADVANTAGES OF E-COMMERCE FOR THE BUSINESS

Advantages to the business are as follows:

1. E-commerce provides access to a much broader market, including the potential of a global market for even small businesses. Traditional geographic boundaries are no longer a constraint if the business uses e-commerce.
2. Dramatically reduced marketing costs are a typical result of the expanded market. While a business may still spend for advertising, such as for Web-based ads, the cost per customer reached is usually substantially less than that for traditional forms of marketing. For example, suppose that an electronics store can place a local television advertisement at a cost $10,000 to reach 10,000 customers. That same amount spent on a Web-based ad has the potential to reach millions of potential customers.
3. E-commerce provides the potential for much richer marketing concepts that include video, audio, product comparisons, and product testimonials or product tests. On its website, the business can provide links to these marketing tools.
4. The company can quickly react to changes in market conditions. For example, if market changes require price drops, the business can quickly change prices on the website, and all customers will see the new price immediately. If a company uses mail-order catalogs instead of e-commerce, price changes can occur only when a new catalog is printed. If a chain store such as Walmart wished to change prices in all of its stores in a specific region or state, it would be somewhat time-consuming to update the signs and systems in order to institute the price changes.
5. The business using e-commerce is likely to experience reduced order-processing and distribution costs. Order-processing costs are reduced because e-commerce automates all or most of the order processing. Rather than business employees taking sales orders by phone or mail and keying them into the IT system, the customer enters all order information. Distribution costs are reduced simply because e-commerce uses a much different model than traditional retail businesses. Many e-commerce businesses do not maintain stocks of inventory in stores or warehouses. The business may instead order only when the customer orders and have the product drop-shipped directly from the supplier to the customer.
6. The customer convenience aspect of e-commerce means that the business is likely to experience higher sales.
7. Higher sales coupled with reduced marketing, order processing, and distribution costs can lead to much higher profits.

There are also some disadvantages to e-commerce, for businesses. The IT systems necessary to conduct e-commerce are usually much more complex and costly. The e-commerce software and systems must also be implemented in a way that integrates the existing general ledger, inventory, and payment IT systems. (The IT software and hardware infrastructure that supports e-commerce and e-business is discussed in the next chapter.) In addition, the free and open nature of the World Wide Web opens a business to greater chances for fraud, hackers, and compromised customer privacy.

THE COMBINATION OF E-COMMERCE AND TRADITIONAL COMMERCE

Much of the preceding discussion focused on the comparison of e-commerce with traditional forms of commerce, namely, catalog and store commerce. However, in the retail environment of today, most retailers or service businesses use a combination of traditional commerce and e-commerce. For example, Walmart, Target, and Kmart are traditional store-based retailers that now also offer to customers Web-based shopping. Local, regional, and national banks all used to depend on customers' walking, riding, or driving to a bank branch office. Today, banks also offer Web-based banking. So, traditional forms of commerce have changed to incorporate e-commerce. However, the converse is true also. Many e-commerce retailers that began purely as e-commerce forms of business have found that they must add the traditional customer interaction in the form of stores or offices. For example, E*TRADE Financial Corp., a Web-based brokerage firm, found that to better service customers, it needed some physical office locations. E*TRADE opened offices around the country and placed a link on its website, called “Physical Locations.” The Web page that customers access by clicking on that link presents the addresses of regional offices of E*TRADE in large cities.

This merging and melding of forms of commerce has led to new terminology in the world of commerce. Companies that work from purely traditional stores, are called bricks and mortar retailers in e-commerce. At one point in the evolution of e-commerce, businesses that were purely Web-based were called e-tailers. As businesses merged the two, the resulting combined forms are referred to as clicks and mortar businesses. Alternatively, some call this form of business bricks and clicks.