Introduction to Electronic Commerce

Online business has many names; e-Commerce, e-business, online shopping and others involving the use of the internet or a modern telephone or smart phone to place transactions for desired products and services. As you read, think about the power a successful online firm has over his store-based counterpart. What is online business? What is the role of the Internet and other communications media in providing an organization's e-business presence? What are some similarities and some differences between e-business and brick and mortar commerce? How can they complement each other? Are the days of brick-and-mortar stores coming to an end?

Why use the Internet?

Demand risk

Sharply changing demand or the collapse of markets poses a significant risk for many firms. Smith-Corona, one of the last U.S. manufacturers of typewriters, filed for bankruptcy in 1995. Cheap personal computers destroyed the typewriter market. In simple terms, demand risk means fewer customers want to buy a firm's wares. The globalization of the world market and increasing deregulation expose firms to greater levels of competition and magnify the threat of demand risk. To counter demand risk, organizations need to be flexible, adaptive, and continually searching for new markets and stimulating demand for their products and services.

The growth strategy matrix suggests that a business can grow by considering products and markets, and it is worthwhile to speculate on how these strategies might be achieved or assisted by the Web. In the cases of best practice, the differentiating feature will be that the Web is used to attain strategies that would otherwise not have been possible. Thus, the Web can be used as a market penetration mechanism, where neither the product nor the target market is changed. The Web merely provides a tool for increasing sales by taking market share from competitors, or by increasing the size of the market through occasions for usage. The U.K. supermarket group Tesco is using its Web site to market chocolates, wines, and flowers. Most British shoppers know Tesco, and many shop there. The group has sold wine, chocolates and flowers for many years. Tesco now makes it easy for many of its existing customers (mostly office workers and professionals) to view the products in a full-color electronic catalogue, fill out a simple order form with credit card details, write a greeting card, and facilitate delivery. By following these tactics, Tesco is not only taking business away from other supermarkets and specialty merchants, it is also increasing its margins on existing products through a premium pricing strategy and markups on delivery.

Alternatively, the Web can be used to develop markets , by facilitating the introduction and distribution of existing products into new markets. A presence on the Web means being international by definition, so for many firms with limited resources, the Web will offer hitherto undreamed-of opportunities to tap into global markets. Icelandic fishing companies can sell smoked salmon to the world. A South African wine producer is able to reach and communicate with wine enthusiasts wherever they may be, in a more cost effective way. To a large extent, this is feasible because the Web enables international marketers to overcome the previously debilitating effects of time and distance, negotiation of local representation, and the considerable costs of promotional material production costs.

A finer-grained approach to market development is to create a one-to-one customized interaction between the vendor and buyer. Bank America offers customers the opportunity to construct their own bank by pulling together the elements of the desired banking service. Thus, customers adapt the Web site to their needs. Even more advanced is an approach where the Web site is adaptive. Using demographic data and the history of previous interactions, the Web site creates a tailored experience for the visitor. Firefly markets technology for adaptive Web site learning. Its software tries to discover, for example, what type of music a visitor likes so that it can recommend CDs. Firefly is an example of software that, besides recommending products, electronically matches a visitor's profile to create virtual communities, or at least groups of like-minded people–virtual friends–who have similar interests and tastes.

Any firm establishing a Web presence, no matter how small or localized, instantly enters global marketing. The firm's message can be watched and heard by anyone with Web access. Small firms can market to the entire Internet world with a few pages on the Web. The economies of scale and scope enjoyed by large organizations are considerably diminished. Small producers do not have to negotiate the business practices of foreign climes in order to expose their products to new markets. They can safely venture forth electronically from their home base. Fortunately, the infrastructure–international credit cards (e.g., Visa) and international delivery systems (e.g., UPS)–for global marketing already exists. With communication via the Internet, global market development becomes a reality for many firms, irrespective of their size or location.

The Web can also be a mechanism that facilitates product development , as companies who know their existing customers well create exciting, new, or alternative offerings for them. The Sporting Life is a U.K. newspaper specializing in providing up-to-the-minute information to the gaming fraternity. It offers reports on everything from horse and greyhound racing to betting odds for sports ranging from American football to snooker, and from golf to soccer. Previously, the paper had been restricted to a hard copy edition, but the Web has given it significant opportunities to increase its timeliness in a time sensitive business. Its market remains, to a large extent, unchanged–bettors and sports enthusiasts in the U.K. However, the new medium enables it to do things that were previously not possible, such as hourly updates on betting changes in major horse races and downloadable racing data for further spreadsheet and statistical analysis by serious gamblers. Most importantly, The Sporting Life is not giving away this service free, as have so many other publishers. It allows prospective subscribers to sample for a limited time, before making a charge for the on-line service.

Finally, the Web can be used to diversify a business by taking new products to new markets. American Express Direct is using a Web site to go beyond its traditional traveler's check, credit card, and travel service business by providing on-line facilities to purchase mutual funds, annuities, and equities. In this case, the diversification is not particularly far from the core business, but it is feasible that many firms will set up entirely new businesses in entirely new markets.