UNIT

UNDERSTANDING E-COMMERCE

I. DEFINITION
The term e-commerce or electric commerce refers to a comprehensive system of trading that
uses networks of computers for buying and selling of goods, information and services.
In simple words, e-commerce refers to buying and selling of goods, information and services
through electronic means.
Thus, e-commerce includes buying and selling of
1. Goods- e.g. digital cameras, music systems, clothes, accessories
2. Information-e.g. subscription to some law site may give access to some court cases
3. Services-e.g. matrimonial services through shaadi.com, placement services through
naukri.com

II. CLASSIFICATION OF E-COMMERCE

Based upon the entities involved in transaction, electronic commerce has been classified into
the following categories:

1. Business-to –Business (B2B)

2. Business-to-Consumer (B2C)
3. Consumer-to-Business (C2B)
4. Consumer-to-Consumer (C2C)

1. Business-to-Business (B2B) Electronic Commerce

Under B2B electronic commerce, commercial transactions take place between different
business organisations. An example of B2B transaction is a business organisation purchasing
material from suppliers.

2. Business-to-Consumer (B2C) Electronic Commerce

Under B2C electronic Commerce, commercial transactions take place between business firms
and their consumers. Here companies sell goods, information or services to customers online
in a more personalized dynamic environment. An example of B2C transaction is Amazon.com
selling books to customers.

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3. Consumer-to-Business (C2B) Electronic Commerce

C2B can be described as a form of electronic commerce where, the transaction, originated by
the consumer has a set of requirement specifications or specific price for a commodity, service
or item. It is the responsibility of electronic commerce business entity to match the
requirements of the consumers to the best possible extent. For instance, a consumer may
specify on a site like AirFrance.fr dates of travel, his source and destination of travel,
specifying the total number of tickets required in business/economy class. AirFrance.fr then
finds out the various options for him which best meet his requirements.

4. Consumer-to-Consumer (C2C) Electronic Commerce

C2C is the electronic commerce activity that provides the opportunity for trading of products
and/or services amongst consumers who are connected through the internet. In this category,
electronic tools and internet infrastructure are employed to support transactions between
individuals. For instance, a consumer who wants to sell his property can post an ad on
timesclassifieds.com. Another person interested in purchasing a property can browse the
property ads posted on this site. Thus, the two consumers can get in touch with each other for
sale/purchase of property through timesclassifieds.com.
III. BENEFITS OF E-COMMERCE
E-Commerce is gaining popularity because it offers the following benefits.

1. Global Market: E-Commerce enables business firms to reach out to customers all over
the world who have an access to internet. Thus, the whole world becomes a potential
market for business enterprises.
2. Lower Transaction Cost: E-Commerce reduces the cost of business transactions
substantially. For instance, the number and cost of customer service representatives in a
bank can be reduced by using net banking.
3. Higher Margins: An e-commerce firm can earn higher margins as the transaction costs
are reduced to a great extent.
4. 24X7 working: A website is open all 24 hours, 7 days in a week it can, thus, take orders,
keep an eye on delivery of goods and receive payments at any time. A business firm can
provide information about its products and services to customers around the clock.
5. Wide Choice: For the consumers, the whole world becomes a shop. They can look at and
evaluate the same product at different websites before making a purchase decision.
6. Customer Convenience: Customers can shop from home or office. They don’t need to
stand in long queues to talk to a salesman. They can read details regarding model
numbers, prices, features etc. of the product from the website and purchase at their own
convenience. Payments can also be made online.
7. Direct Contact between Business and Consumer: E-Commerce enables business
firms to establish a direct contact with their customers by eliminating middlemen.
8. Customer Satisfaction: E-Commerce allows quick response and redressal to consumer
complaints. This helps in increasing customer satisfaction.

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Limitations of E-Commerce
E-Commerce suffers from the following drawbacks.

1. Security: Security continues to be a problem for online businesses. Customers might be

reluctant to give their credit card number at the website due to a number of credit card
fraud cases.
2. System and Data Integrity: Data protection and integrity of the system that handles the
data are serious concerns. Computer viruses may cause data corruption, file backups,
storage problems etc. there is also a danger of hackers accessing the files and corrupting
accounts.
3. Costs: Even though the company may initially save money by cutting intermediaries,
other costs may be incurred as start-up costs in terms of hardware and software as well
as training of employees and costs to maintain the website.
4. Products People won’t buy Online: There are certain products like home furnishings
which people might not like to buy online. They might want to, for instance, sit on a sofa
to see how comfortable it is, feel the texture of the fabric etc.
5. Corporate vulnerability Web farming: The availability of product details, catalogs, and
other information about a business through its website makes it vulnerable to access by
the competitors. The competitors might then indulge in web farming i.e. extracting
business intelligence from your competitor’s web pages.
6. Problem of customer loyalty: No business can survive for long without loyal customers.
The new breed of net savvy customers buys from a website where they are getting the
best deal. They are not loyal to a particular seller.
7. Shortage of Talent: There is a great shortage of skilled people who can handle e-
commerce successfully. Traditional organisational structures and poor work cultures also
inhibit the growth of e-commerce.
8. Fulfillment Problems: There could be problems related to shipping delays and
merchandise mix-ups.
9. Returning goods: Returning goods online can be difficult. There are uncertainties
regarding whether the goods will get back to their source, who will pay for the return
postage, will the refund be paid etc.

Resources required for successful implementation of E-Commerce

Successful implementation of e-commerce requires the following resources.

1. Well designed Website: A business enterprise must develop a comprehensive website

to communicate effectively with its customers and business partners. The basic
infrastructure of a website consists of pages with text, graphics, audio, and links to other
pages. The entry point is called the homepage and other web pages are linked to the
homepage. The website must be able to provide information about the company, its
history, its products, their features and prices and other technical details. The website
should also have the ability to input data into the system, for instance, filling out a form,
sending an e-mail message to the company or sending feedback about the website.

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2. Adequate Computer Hardware: The computer hardware consists of its monitor, servers,
back up devices, printer etc. For smooth e-commerce transactions, a business needs a
computer with a lot of memory, a powerful Central Processing Unit (CPU), and a fast link
to the internet. A large storage space will give a quicker access to stored data. A processor
with good speed will lead to quicker download.
3. Adequate Computer Software: Computer software consists of operating systems like
Windows, Linux etc. In addition to an operating system, the company needs a browser
such as Internet Explorer which allows surfing on the net. Some basic software like File
Transfer Protocol (FTP), Telnet, Archie etc. are also required.
4. Effective Telecommunication System: E-commerce requires an effective
telecommunication system in the form of telephone lines, optic fibre cables, and internet
technology to handle the traffic on the internet. E-commerce cannot be successful if
telephone lines are getting frequently disconnected and it is difficult to access the internet.
5. Technically Qualified and Responsive Workforce: A well-trained workforce that is
capable of working easily with the internet and computer networks is essential for the
success of e-commerce. The company staff must be trained to handle sales inquiries,
processing orders and ensuring prompt delivery. There must be proper coordination
between receipt of order, delivery of goods and receipt of payment so as to minimize
errors.
6. Business Service Infrastructure: A foolproof system of receiving payment for the goods
and services must be developed. Adequate information must be made available to enable
the customers to know their bill amount. An inbuilt system of refunds, in case excess
amount is received should be created. Electronic payments and refunds should be
secured through banks and credit agencies.

Threats to E-Commerce Transactions

E-commerce transactions face the following threats.

1. Hacking: Hacking refers to breaking security to gain access to a system. It thus, refers to
unauthorized entry into a website. They intercept confidential information and misuse such
information to their advantage or modify and even destroy its contents to harm the parties.
2. Cyber Squatting: In order to take advantage of some established brand name or trade
mark, a firm might use the name/mark for its own website while getting the domain name
(name of the website) registered.
3. Viruses: Viruses cause harm to the efficient and smooth functioning of e-commerce.
Some viruses destroy all the information stored in a computer. They cause huge loss of
revenue and time. Viruses may enter a computer system through e-mail or disc drive
floppies.
4. Impersonation: In e-commerce transactions, sometimes hackers may pretend to be
consumers themselves. They, thus, make use of stolen credit card numbers of real
customers.

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5. Fraudulent Trading: A business enterprise operating a website might indulge in
fraudulent practices. It may operate a fake website, take away money from customers and
not supply the good or service to the customer.