Chapter 11: E-Commerce

Learning Objectives Explain what e-commerce is and describe some of the benefits and risks involved with implementing e-commerce. Discuss the types of Web sites that can be used to implement e-commerce. Identify a variety of e-commerce business models and discuss their similarities and differences.

Learning Objectives List several strategies for implementing e-commerce using the Web, including some of the decisions that need to be made, the options available for accepting payments, and the process of designing and developing an effective Web site. Outline some sales and marketing strategies that can be used in conjunction with an e-commerce Web site. Discuss some security issues related to e-commerce transactions.

Overview This chapter covers: Potential advantages and disadvantages of e-commerce Types of e-commerce Web sites and e-commerce business models Steps for implementing Web-based e-commerce Sales and marketing strategies for e-commerce Web sites E-commerce security issues

What Is E-Commerce? E-commerce: Act of doing business transactions over the Internet or similar communications technology Has existed for years via private networks (electronic funds transfers, etc.) Now typically performed via the Internet E-commerce in the U.S. has continued to grow at a steady pace M-commerce (mobile commerce) is growing U-commerce (universal commerce) trend is also on the rise

Advantages of E-Commerce For businesses: Reduced costs Dot-coms are less expensive than brick-and-mortar stores because there is no physical storefront to maintain Increased customer satisfaction If shopping experience is convenient (open all the time, no driving, etc.) Broader customer base (less geographical restrictions) More effective sales and marketing tools (personalized e-mails, customer relationship management tools, etc.) Potentially higher sales

Advantages of E-Commerce For customers: Convenience Easier comparison shopping Higher number of merchants to choose from Geographical location is not an issue Shopping bots and other comparison shopping tools are available Higher degree of selection Potential cost savings Customized products

Advantages of E-Commerce

Disadvantages of E-Commerce For businesses: Pressure to be always open, site always working Lost business due to some customer hesitation to shop online Risk of fraudulent credit card transactions Ease of entry for competitors

Disadvantages of E-Commerce For customers: Fraud and other potential security problems Buyer protection programs and using credit cards can help Not being able to see or touch the goods 3D online stores may help Possible expense of returning merchandise

Types of E-Commerce Web Sites Manufacturer and e-tailer Web sites: Sell products and services directly to the end user

Types of E-Commerce Web Sites Brokerage sites: Bring buyers and sellers together and earn revenue by charging commissions on sales made via the site Online auction sites: Allow individuals to auction products to other individuals Buyers bid and highest bidder at the time the auction closes buys the item Seller pays a listing fee and a selling fee based on the final price Sellers set the starting bid and can specify a minimum sales price Many sites bid automatically for each bidder up to his or her maximum stated price

Types of E-Commerce Web Sites

Types of E-Commerce Web Sites Financial brokerage sites: Allow individuals to sell stocks, bonds, etc. Market and commodity exchange sites: Match up buyers and sellers of commodities, such as equipment, energy, cattle, etc.

E-Commerce Business Models Business model: The policies, operations, and technologies used by a business in order to generate revenue E-commerce business model: Description of the types of buyers and sellers in an e-commerce company, such as B2B, B2G, and so forth Business-to-consumer (B2C) model Business-to-business (B2B) model Consumer-to-consumer (C2C) model Business-to-government (B2G) model (consumer-to-government - C2G) Intermediary hub model Vertical hub Horizontal hub

Implementing Web-Based E-Commerce Step 1: Select appropriate business models and types of Web sites More than one can be selected Some businesses add additional types later on Some business models are patented Step 2: Select the desired e-commerce applications Determine electronic customer relationship management (eCRM) activities to be included Determine which other business systems the Web site will be linked to

Implementing Web-Based E-Commerce

Implementing Web-Based E-Commerce Step 3: Develop procedures for handling electronic financial transactions Need to determine which types will be accepted Most sites accept credit cards; debit cards too

Implementing Web-Based E-Commerce Customers can use virtual account numbers, and prepaid credit cards to limit risk and liability Digital cash options include: Electronic checks: Funds come out of customer’s checking account Online payment accounts (such as PayPal): Funds can be transferred to others from the customer’s account Can transfer funds ahead of time or have money transferred from a credit card or bank account as needed Some transactions require a fee Can add or remove funds as needed Electronic gift certificates, gift cards, and coupons: Appropriate codes are entered into the Web site at time of purchase

Implementing Web-Based E-Commerce

Implementing Web-Based E-Commerce Smart cards: Can hold a cash value For Web purchases, typically read by readers attached to a PC Many credit cards and campus IDs are smart cards Many can be used with NFC technology Smart card readers may become common on vending machines, in taxis, and other public locations

Implementing Web-Based E-Commerce Digital wallet: Electronic file that holds information to speed online transactions Can hold credit card numbers, passwords, address, etc. to be used in e-commerce transactions Third-party digital wallets: Standalone programs that automatically or manually transfer necessary information to an online order form as needed Site-specific digital wallets: Store this information for each customer on a business’ Web server for use with purchases on that site only

Implementing Web-Based E-Commerce

Implementing Web-Based E-Commerce Special B2B considerations because of the volume of B2B transactions B2B transaction processing Allows merchants to customize their payment processing plans to fit their needs Credit card, debit card, check, and digital cash settlement Credit checking Expense tracking Electronic billing Payment settlement compatible with other widely used systems Consolidation and reconciliation services Escrow services

Implementing Web-Based E-Commerce Order-fulfillment companies Take care of physically filling orders for a business including: Order management Distribution CRM services Marketing tools E-fulfillment strategic planning Integration with existing systems

Implementing Web-Based E-Commerce Step 4: Design and develop an effective Web site Sites should be carefully designed, developed, and tested Sites should use adequate security measures Should be attractive, fast loading, and easy to use Make checkout process easy to use to reduce shopping cart abandonment Consider adding statements to encourage trust E-commerce features can be created using: Storefront software: Facilitates the creation of an online store (either packaged or Web-based) Shopping cart software: Designed to add only ordering capabilities to an existing Web site

Implementing Web-Based E-Commerce

Implementing Web-Based E-Commerce

Implementing Web-Based E-Commerce Step 5: Implement appropriate sales and marketing strategies Include adequate customer service features Collect taxes from customers only if required by law Display a privacy policy and security statement Use an appropriate domain name and URL URL should be easy to remember and type Visitors should not have to type a page name (such as index.html) to view the home page of the site

Implementing Web-Based E-Commerce Promote your Web site sufficiently Use appropriate meta tags (description, keywords)

Implementing Web-Based E-Commerce Submit your site to search sites Consider paying for sponsored listings on search sites Consider using banner ads Use of rich media ads is growing Can display sponsor banner ads on site Can place banner ads on other sites Use of behavioral (targeted) ads is growing Update your site regularly and consider adding incentives for return visits (contests, coupons, etc.) 31

Implementing Web-Based E-Commerce

Security Issues Security is essential for e-commerce Web sites Some guidelines for e-commerce sites: Secure financial transactions (use a secure Web server) Secure sensitive documents and files (use encryption) Authenticate online business partners (use digital certificates and digital signatures)

Summary What Is E-Commerce? Types of E-Commerce Web Sites E-Commerce Business Models Implementing Web-Based E-Commerce Security Issues