Wednesday, September 2, 2009

Title: How does E-commerce help business entities achieve operational excellence?

Nowadays almost everything is done through the use of the Internet. Paying bills and buying music or software are just a few of the many things people do online. Businesses sell goods or services and use the Internet for advertisement purposes as well. In this era of online technological abundance it is interesting to figure out the different ways on how business entities do their business transactions online. This mini project will take a closer look in to e-commerce and related issues including internet technology, digital goods and marketing. Thus these following areas will be focused on. The main purpose of the report is to answer the problem formulation and make the necessary conclusions in the end. In order to answer the problem at hand; related statistics, theories from IT- strategy and some online research are necessary and will be the main sources of information.
Electronic commerce, e-commerce or eCommerce by definition means the sale and purchase of goods and services over the Web and the Internet . It involves commercial transactions between organizations and individuals using digitally, Internet- enabled platforms or devices. There are 3 types of E-commerce; B2C, B2B and C2C. The following types will be discussed in detail further below.
Business-to-consumer targets retailing products/services to individual customers normally by using catalogue utilizing shopping cart software. Some examples of B2C sites are H&M.com, pixmania.com, Ellos.dk, and veromoda.com.
Business-to-business is where companies transact or do business with each other. Manufacturers selling to distributors, wholesalers selling to retailers are some of the possible sequences in B2B. Pricing is often negotiated and in terms of quantity. Examples of B2B sites are; ChemConnect, Dell, Microsoft, Oracle, SpaceWorks, Trade Compass and many others.
Consumer-to-consumer means online users can transact and do business with other online users of a particular site. Free classified ads, forums, auctions and links make it possible for users to transact with each other online. Due to the invention of security payment systems i.e. PayPal it became a lot easier and more secure to handle money transactions through the Internet. One popular example is eBay; an online auction site where users bid on products and consumers sell their products to other users.
Another concept concerning Internet-enabled devices is mobile commerce. Almost most of handheld, wireless mobile devices have Internet access. Considering this, one can transact and purchase products/services with the use of these devices. M-commerce will not be focused on .
7 unique features of E-commerceThere are 7 unique features of E-commerce namely; ubiquity, global reach, universal standards, richness, interactivity, information density and personalization or customization. The following features are to be discussed further below.
E-commerce is considered to be ubiquitous, meaning it can be used everywhere and is universal. You can do it at home, at work or even when you’re on vacation as long as you have a digitally enable device such as a computer or a palm pilot where you can connect to the Internet. One important advantage is it lessens transaction costs where in traditional commerce you have to go to a physical retail place such as a shop to buy goods. This creates a “marketspace ” for commercial transactions. Customer convenience is also enhanced.
Using technology like the Internet can be a big advantage. First it can be used globally, anywhere and by everyone so there are no specific boundaries. Potential customers are to be considered the worldwide population who uses online devices. That means it can be the entire world so it is a huge market.
There is one universal standard when dealing with E-commerce. It is usually done over the Internet so the technical standard applying is Internet standards. Internet standards are universal meaning it can be accessed anywhere in the world using the same standards. It lowers market entry costs, the amount paid by sellers to bring their goods out in the market. By using E-commerce they can easily sell or advertise their goods or services without spending a large amount of money compared to traditional commerce. It also reduces search costs, the effort and amount of time consumers use to search for particular goods.
The richness of messages over online and digital media can be in different context and can be complex. An advantage of traditional commerce is that they are able to provide richness when selling products or services with the use of personal, face to face techniques and visual auras done by the sales representatives. E-commerce on the other hand uses rich audio, text and video messages sent over the Web.
Interactivity is one important feature with E-commerce. 2 way communication is encouraged between the customer and the merchant i.e. E-commerce website. Compared to traditional commerce, E-commerce offers more participation on the side of the customer. It is possible to get customer information, ask product questions, edit specific orders etc.
Information density is increased with the use of E-commerce. This means the information customers and online merchants get are in bigger amounts and better quality. It reduces information costs because you can get specific information online with less time and effort. Consumers get a bigger price transparency; it means consumers can get specific prices for a market. They also get a bigger cost transparency, where they get the actual prices merchants paid for the products. Merchants have a big advantage because they can get larger amounts of customer information compared before. They can practice price discrimination and target specific customer segments where they can sell nearly the same goods/services at different price levels.
Personalization can be easily done with E-commerce. By using customer information, a business can create marketing strategies focused on specific target groups. In that way, the customers get a personalized marketing profile, designed to suit their needs. One important goal in marketing is to deliver value to customers, convincing them that a product or service will satisfy their needs. Customization is also possible with E-commerce. Delivered products/services can be changed according to customer preferences and past purchases. A person can choose to read which online news article he wants to read first and this is possible by selecting it on the website. Another way is to have a profile on a specific site; based on the information from the profile a company can send certain event messages that suit your interests or preferences.
Internet TechnologyInternet by definition means a worldwide system of interconnected computer networks using the TCP/IP protocol . It is a global data communications system while the Web is one of the services that can be used in the Internet. Some common uses for the Internet are; E-mail, Web, remote access, collaboration, file sharing, streaming media etc.
Looking at table 1 the total worldwide usage of the Internet is around 1,463, 632, 361 billion (estimated on June 30, 2008) done by the International Telecommunications Union. The biggest users seen here is in the Asian region and the lowest is in the Oceania/Australian region. These numbers are also depending on the size of population.
Internet Business ModelsDue to the Internet traditional business models have been affected. New business models emerged and some traditional value chain channels are either put aside or updated. Nowadays information can be easily obtained from anywhere and the cost of creating; sending and storing it are reduced. Companies, in one way or another, use the Internet to add extra value to their existing products/services and provide the foundation for new ones to create profit. Some of the most important internet business models are the following; virtual storefront, information broker, online marketplace, content provider, online service provider, virtual community and portal. It will be explained further below.
Virtual storefront is where the physical products are sold directly to consumers or businesses. It can be called the “direct model” because businesses or manufacturers use one of the most important channels which is namely the Internet to directly sell products/services to customers. In this way, they compress the distribution channels and reduce search cost. Personalization or customization is also focused on because customers can choose which products to buy and the design or substance of the finished product. Some examples are dell computers and amazon.com.
Information broker is where customer information i.e. their consumption habits are being analyzed and studied. Product and producer information are also useful to customers interested in purchasing a product. Some companies function as information intermediaries assisting buyers and sellers to understand a specific market. Companies using the information broker model generate revenue by directing buyers to sellers. Examples are Edmunds.com, Realtor.com, advertising networks and research agencies.
Transaction broker is where online sales transactions are processed and a fee is generated in every transaction. It also provides third-party services to buyers and sellers settling the payment process. Examples are PayPal, Escrow and Expedia.comOnline marketplace is where buyers and sellers can negotiate, transact, and fulfill transactions for products/services. It also includes online and reverse auctions. Reverse auctions means that the buyer sends out bids to different sellers to sell with a specified price. This model is both for consumer and businesses and generates transaction fees. Examples are eBay.com, GoIndustry, Priceline.com, ChemConnect.com and dba.dk.
Content provider is where digital products/ services i.e. music, movies, news, photos and videos are offered and sold over the Web. Users are normally charged a service or transaction fee. Subscriptions and advertising models are combined and used in this model. Examples are Netflix.com, iTunes.com and Games.com.
Online service provider offer network connectivity and other online services. This model generates revenue through subscriptions, transactions fee or collecting customer information and by using advertising tools. Examples are America Online, Streamload.com and Xdrive.comVirtual community is a model where people can meet and interact in an online space. People with similar interests can share ideas and find information. Social networking sites are one type of online communities and have become popular through time. Social networking means extending your social contacts and network and these includes friends, job colleagues, family and others. This is done by signing up for a networking site, making a profile and adding people you know or a new friend. You then browse a lot of profiles in order to get in touch with someone. There are networking sites focusing on extending your social network like your friends and others focusing on your job network like your colleagues. This model generates revenue through advertising tools such as banner ads, pop-ads, links and subscription or transaction fees. Examples are Friendster.com, MySpace.com, Facebook.com, Flickr, LinkedIn.com and YouTube.com. Social shopping is a type of e-commerce where users of an online community get to share shopping ideas and help other users on their shopping lists. It is similar to a networking site although focusing on shopping for particular products. Examples are Kaboodle, StyleHive.com and stylefeeder.com.
Portals are normally search engines, although not all are, and it contains varied information and services. It offers a connection of links within a site. Personalization is possible with a portal, although user registration is necessary in most cases. This model generates profit by encouraging a high level of user traffic in the site using advertising tools. One example is Google, which generates profit by using different online advertising tools like click ad, adwords, adsense and many more. By far, it is considered to be the biggest search engine in the world. Other examples are Yahoo.com and MSN.com.
Using E-commerce technology is one remarkable way of doing efficient business transactions. Technologies nowadays are evolving and through time doing business transactions will be one button click away. Two interesting concepts namely; digital marketing and digital goods will be discussed in this section of the report.
Through the use of Internet, doing E-commerce has opened a lot of possibilities for businesses. More communication channels have been discovered and interaction with consumers is easily done. Merchants gained huge advantages especially with targeting marketing strategies. It is now possible to target millions of potential users and making products in accordance to their own individual preferences. In this way, customer satisfaction is increased thus value is delivered to the particular product. In traditional marketing, creating and delivering value is the most important aim to give consumers. If value is delivered, the customer will think more of the company and customer loyalty is introduced.
Digital marketing by definition is the practice of promoting products and services using digital distribution channels to reach consumers in a timely, relevant, personal and cost-effective manner . Although communication channels under Internet marketing are used, digital marketing goes beyond that by using digital-enabled devices or platforms that does not require Internet access to be used. Some examples of such devices include; mobile phones, palm pilots, sms/mms, display/banner ads and other digital devices. It is still considered to be a channel for direct marketing, using the same communication methods but in a digital fashion. One key concept under digital marketing is gathering of consumer information. Digital or internet based tools are efficient ways on analyzing and getting consumer information. Consumer behavior especially when purchasing specific products are vital for marketing. It gives the marketing manager an idea on what products to market, advertising tools to use and the marketing strategy to choose in connection to specific target groups. Some examples of tools used in gathering and analyzing consumer information are; clickstream tracking tools, collaborative filtering, blogs, shopping information tools etc.
With the abundance of E-commerce and the use of digital marketing, sales of digital goods is increasing. Digital goods are any goods that are delivered, purchased, stored and used in its electronic format. It is normally shipped or delivered electronically through E-mail or a link to download the product from a particular site is given. Merchants can decide price discrimination due to low menu and delivery cost over the Internet. Some examples of digital goods are; e-books, music files, software, digital images, website templates, manuals in electronic format, video, newspapers, magazines and others.  E-commerce technology helps business entities with their business transactions in many ways. First, you can use e-commerce under B2C, B2B and C2C markets. Considering these businesses can target different markets thus expanding their potential target segments. Most businesses nowadays use E-commerce and the Internet to do commercial transactions because it is more effective and cost reducing. Sales of Retail E-commerce have been increasing through time and are expected to increase in the future.
There are different features of E-commerce that encourages operational excellence and a higher customer satisfaction. E-commerce is ubiquitous meaning it can be used everywhere as long as you have an Internet / digitally-enabled device. There is no need for a physical retail shop and transactions costs are reduced. It can be used anywhere and by everyone so there are no specific boundaries. This includes the global population that uses online and digital devices. There is one universal standard used and that is Internet standards. It lowers market entry costs and search costs. The richness of messages sent through E-commerce technology can be varied using rich audio, text and video messages sent over the Web. Two way-communication between the consumer and merchant is encouraged and interactivity through the site is highly appreciated. Information density is increased meaning the information from consumers and online merchants are in bigger amounts. Information costs are decreased. Consumers get a bigger price and cost transparency while merchants can practice price discrimination. Personalization can be easily done basing on customer information gathered by a business entity focusing on creating marketing strategies on specific target groups. Customization is another important feature because consumers can change delivered products/services in accordance to their own preferences. Considering these features, it is easier and faster to do business transactions between consumers and online merchants thus improving operational excellence. Due to a more advanced customer information gathering or analysis, businesses gain advantages in targeting specific marketing strategies in relation to an individual´s specific preference or behavior. By doing these, they can practice more advertising, and sell products/ services at the same time satisfying consumers and developing customer loyalty to the company.
Internet has played a vital role in today´s marketing and business markets. Because of the ongoing use of it, traditional business models are affected and new business models emerged. Some of the most popular models are portals, social networking sites and auctions. Digital marketing includes the use of internet marketing tools plus the addition of digitally-enabled devices. Digital goods are goods that are delivered, purchased and used in its electronic format.
 Literature ListK.C. and J.P.Laudon, Management Information Systems, Managing the digital firm, 10th edition, Pearson Prentice Hall.
Linkswww.google.comwww.wikipedia.comwww.census.gov.comwww.businessdictionary.comwww.answers.comwww.internetworldstats.comwww.webopedia.com

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