Traditional commerce Commerce is a negotiated exchange

Traditional commerce • Commerce is a negotiated exchange of valuable objects or services between at least two parties and includes all activities that each of the parties undertakes the complete the transaction. 1

Technology and commerce • In order to understand how technology can aid commerce we need to understand traditional commerce. • Once we have identified what activities are involved in traditional commerce, we can consider how technology can improve them. • Note that technology does not always improve commerce. Knowing when technology will NOT help is also useful. 2

Views of commerce Commerce can be viewed from at least two different perspectives: 1. The buyer’s viewpoint 2. The seller’s viewpoint Both perspectives will illustrate that commerce involves a number of distinct activities, called business processes. 3

The Buyer’s perspective From the buyer’s perspective, commerce involves the following activities: 1. Identify a specific need 2. Search for products or services that will satisfy the specific need 3. Select a vendor 4. Negotiate a purchase transaction including delivery logistics, inspection, testing, and acceptance 5. Make payment 6. Perform/obtain maintenance if necessary 4

The Seller’s perspective From the sellers’ perspective, commerce involves the following activities: 1. Conduct market research to identify customer needs 2. Create a product or service to meet those needs 3. Advertise and promote the product or service 4. Negotiate a sales transaction including delivery logistics, inspection, testing, and acceptance 5. Ship goods and invoice the customer 6. Receive and process customer payments 7. Provide after sales support and maintenance 5

Business processes are the activities involved in conducting commerce. Examples include: • Transferring funds • Placing orders • Sending invoices • Shipping goods to customers 6

E-commerce We will define e-commerce as the use of electronic data transmission to implement or enhance any business activity. When used appropriately, electronic transmission can save both time and money. 7

What is e. Commerce? In its broadest definition, e. Commerce is digitally enabled commercial transactions between and among organizations and individuals. ü Digitally enabled means, for the most part, transactions that occur over the Internet and World Wide Web(“Web”) ü Commercial transactions involve the exchange of value (e. g. money) across organizational or individual boundaries in return for products and services. . 8

Impact of e-commerce E-commerce is changing the way traditional commerce is conducted: • Technology can help throughout the process including promotion, searching, selecting, negotiating, delivery, and support. • The value chain is being reconfigured. 9

Value chain analysis A way of looking at the activities of an industry or organization. • Primary activities Costs are directly allocated to a product • Support activities Costs are associated with the overall operation of the organization 10

Example: Figure 1 -12 11

E-commerce Categories 3 n There are five general e-commerce categories: o o o Business to Consumer (or B 2 C) e-commerce Business to Business (or B 2 B) e-commerce (sometimes called e-procurement) Business processes that support buying and selling activities Consumer-to-consumer (or C 2 C) e-commerce Business-to-government (or B 2 G) e-commerce 12

B 2 C e-commerce n Description ¡ n Example ¡ n Businesses sell products or services to individual customers (consumers) Walmart. com sells merchandise to consumers through its Web site ¡ www. walmart. com 13

B 2 B E-commerce n Description ¡ n Example ¡ n Businesses sell products or services to other businesses Grainger. com sells industrial supplies to large and small businesses through its Web site ¡ www. grainger. com 14

Business Processes that Support Buy/Sell Activities n Description ¡ n Businesses and other organisations maintain and use information to identify and evaluate customers, suppliers and employees (and to support buying, selling hiring, planning and other activities). More and more this information is being shared Example ¡ Dell Computer uses secure internet connections to share current sales and forecasts with suppliers who use it to plan their production, therefore they deliver the right quantities of 15 components at the right time

C 2 C e-commerce n Description ¡ n Example ¡ n Participants in an online marketplace can buy and sell goods with each other Consumers and businesses trade with each other on e. Bay. com Web site ¡ www. ebay. com 16

B 2 G e-commerce n Description ¡ n Example ¡ n Business sell goods or services to governments and government agencies Cal-Buy portal for businesses that want to sell online to the State of California Web site ¡ www. pd. dgs. ca. gov/calbuy/default. htm 17

E-commerce Categories Example n You are a computer manufacturing company who performs the following activities on the Internet: ¡ ¡ ¡ Sells computers to individuals (B 2 C) Purchases parts (e. g. hard drives, power supplies etc. ) from a supplier (B 2 B) Hires staff, manage customer accounts, advertise, etc. (Business processes) Sells computers to the Government to be used in schools (B 2 G) On e. Bay. com individuals buy and sell this brand 18 of computers (C 2 C)

Components of e. Commerce Major components of e. Commerce: 1. B 2 B – Business to Business. Largest segment with about $700 B of all total $12 Trillion in 2001(est) ü Types include inter-business exchanges, edistributors, B 2 B service providers, matchmakers and infomediaries 2. B 2 C – Business to Consumer. Much smaller with on $65 B in 2001(est). ü Buzzwords: Internet pureplay-located only on the web. Clicks and Mortar-both web and physical location. 19

Components of e. Commerce Major components of e. Commerce (continued): 1. C 2 C – Consumer to Consumer. Individuals selling to each other through online market maker (e. Bay. com). Estimated at $5 B in 2001. 2. P 2 P – Peer to Peer. Allows i. Net users to share files and resources directly without having to go thru a central web server. Napster is the most prevalent example. 3. M-Commerce – Mobile commerce. Use of wireless digital devices (Palm Pilots, cell phones) to conduct transactions. Just emerging but expected to grow rapidly. 20

Unique Features of e. Commerce Technology The features the set e. Commerce Technology apart from others used in traditional commerce are: 1. Ubiquity – internet/web technology is available everywhere: at work, home and elsewhere via mobile devices. ü Marketplace extended beyond traditional boundaries ü Customer convenience increased, costs reduced. 21

Unique Features of e. Commerce Technology (continued) 2. Global Reach – the technology reaches across national boundaries, around the earth. Commerce enabled across cultural and national boundaries seamlessly. ü Potential customer reach extended. ü Reduces barriers to markets. 22

Unique Features of e. Commerce Technology (continued) 3. Universal standards – there is one set of technology standards, namely internet standards. ü Promotes technology adoption ü Reduces costs of adoption 23

Unique Features of e. Commerce Technology (continued) 4. Richness – Video, Audio, graphical and text messages are possible. ü Integration to a more powerful marketing message and customer experience 24

Unique Features of e. Commerce Technology (continued) 5. Interactivity – the technology allows active user involvement. ü Consumers engage in dynamic dialog ü Experience adjusted to the individual based on responses. ü Customer becomes co-participant in the process of delivering goods to the market. 25

Unique Features of e. Commerce Technology (continued) 6. Information Density - the technology reduces information costs and increase quantity and quality. ü Information processing, storage and communication costs drop dramatically. ü Accuracy and timeliness improve greatly. ü Information becomes plentiful, cheap and accurate. 26

Unique Features of e. Commerce Technology (continued) 7. Personalization/Customization – the technology reaches allows personalized messages to be delivered to individuals as well as groups. Commerce enabled across cultural and national boundaries seamlessly. ü Potential customer reach extended. ü Reduces barriers to markets. 27

Fundamental Business Goals The fundamental goal of a business is to earn a profit. Performing business processes in the most efficient way possible furthers this goal. Firms are increasingly interested in e. Commerce because it can help increase profits. All the advantages of e. Commerce can be summarized in one statement: e. Commerce can Increase Sales and Decrease Costs. 28

Examples of e. Commerce Enabling Business Goals Increase Revenues A company is able, through publishing its catalogs online, to reach more customers for the same costs as printing and mailing its catalogs. (LL Bean) Decrease Costs The same company can provide more timely product information by updating its catalog online, than by mailing its catalog four times a year. 29

Well-suited for e. Commerce Business processes that are well-suited for electronic commerce: • Sale/purchase of new books and CDs • Online delivery of software • Advertising and promotion of travel services • Online tracking of shipments The business processes that are especially well-suited to e. Commerce include Commodity items. A Commodity is a product or service that has become so standardized and well-known that buyers cannot detect a difference in the offerings of various sellers and decide to buy based on price. 30

Best for Traditional Commerce Business processes that are well-suited to traditional commerce: ü ü Sale/purchase of high fashion clothing Sale/purchase of perishable food products Small-denomination transactions Sale of expensive jewelry and antiques Exceptions? In general, products that buyers prefer to touch, smell, or otherwise closely examine are difficult to sell using e. Commerce. 31

Questionable cases Would e. Commerce or traditional commerce work best for the following activities? • • Sale/purchase of rare books Browsing through new books Sale/purchase of shoes Sale/purchase of collectibles (trading cards, plates, etc. ) 32

Combinations of both Some business processes can be handled well using a combination of electronic and traditional methods: ü ü Sale/purchase of automobiles Online banking Roommate-matching services Sale/purchase of investment/insurance products Consumers can research products online and make final transactions in person. In any business problem it is good practice to weigh the advantages and disadvantages of a particular approach. Evaluating the application of e. Commerce technology is no 33 Different.

Advantages of e. Commerce For the seller: ü Increases sales/decreases cost. ü Makes promotion easier for smaller firms. ü Can be used to reach narrow market segments. For the buyer: ü Makes it easier to obtain competitive bids ü Provides a wider range of choices ü Provides an easy way to customize the level of detail in the information obtained ü Allows anonymity and less pressure to buy. 34

Advantages of e. Commerce II In general: ü Increases the speed and accuracy with which businesses can exchange information. ü Electronic payments (tax refunds, paychecks, etc. ) cost less to issue and are more secure. ü Can make products and services available in remote areas. ü Enables people to work from home, providing scheduling flexibility. 35

Disadvantages of e. Commerce ü Some business processes are not suited to e. Commerce, even with improvements in technology. ü Many products and services require a critical mass of potential buyers (e. g. online grocers). ü Costs and returns on e. Commerce can be difficult to quantify and estimate. ü Cultural impediments: People are reluctant to change in order to integrate new technology. ü The legal environment is unclear and full of conflicting laws; regulation has not kept up. 36