Chapter 7

Question 1

7. What is electronic commerce?

Answer 1

Electronic commerce (EC or e-commerce) is the process of buying, selling, transferring, or exchanging products, services, or information through computer networks, including the Internet.

Question 2

7. What are some ways e-commerce influences organizations?

Answer 2

First, it increases an organization’s reach, defined as the number of potential customers to whom the company can market its products. In fact, e-commerce provides unparalleled opportunities for companies to expand worldwide at a small cost, to increase market share, and to reduce costs.

By utilizing electronic commerce, many small businesses can now operate and compete in market spaces that were formerly dominated by larger companies.

Another major impact of electronic commerce has been to remove many of the barriers that previously impeded entrepreneurs seeking to start their own businesses.

Question 3

7. What are the major types of electronic commerce?

Answer 3

→ business-to-consumer (B2C), business-to-business (B2B), consumer-to-consumer (C2C), business-to-employee (B2E), and government-to-citizen (G2C).

Question 4

7.1 What is the “degree of digitalization”?

Answer 4

It is the extent to which the commerce has been transformed from physical to digital

• product can be either physical or digital
• delivery agent can also be either physical or digital

Question 5

7.1 What are the three e-commerce forms?

Answer 5

Each depends on the degree of digitalization involved:

1. Brick-and-mortar organizations: traditional commerce, both dimensions are physical
2. Pure E-Commerce: all dimensions are digital. Companies engaged only in EC are considered virtual (or pure-play) organizations
3. Clicks-and-mortar/clicks-and-bricks: partial EC. These organizations conduct some e-commerce activities, yet their primary business is carried out in the physical world

Question 6

7.1 What are the five major e-commerce mechanisms?

Answer 6

1. electronic catalogs
2. auctions
3. electronic storefronts/malls
4. electronic marketplaces
5. electronic payment mechanisms

Question 7

7.1 What are electronic catalogs?

Answer 7

Electronic catalogs consist of a product database, a directory and search capabilities, and a presentation function.

Question 8

7.1 What is an auction and what are its two types?

Answer 8

An auction is a competitive buying and selling process in which prices are determined dynamically by competitive bidding. Electronic auctions (e-auctions) generally increase revenues for sellers by broadening the customer base and shortening the cycle time of the auction.

There are two major types of auctions: forward and reverse.

• In forward auctions, sellers solicit bids from many potential buyers. The higher bidder wins the items. Ex.: eBay.com
• In reverse auctions, one buyer, usually an organization, wants to purchase a product or a service. The buyer posts a request for a quotation (RFQ), interested suppliers study the RFQ and then submit bids electronically, lowest-price bidder wins the auction, and may provide considerable savings for the buyer.

Question 9

7.1 What is an electronic storefront and an electronic mall?

Answer 9

An electronic storefront is a website that represents a single store.

An electronic mall, also known as a cybermall or an e-mall, is a collection of individual shops consolidated under one Internet address.

Electronic storefronts and electronic malls are closely associated with B2C electronic commerce.

Question 10

7.1 What is an electronic marketplace?

Answer 10

An electronic marketplace (e-marketplace) is a central, virtual market space on the Web where many buyers and many sellers can conduct e-commerce and e-business activities. Electronic marketplaces are part of B2B electronic commerce.

Question 11

7.1 What are electronic payment mechanisms and what are some examples?

Answer 11

Electronic payment mechanisms enable buyers to pay for goods and services electronically, rather than writing a cheque or using cash.

• Electronic cheques
• Electronic Cards: electronic credit (or debit) cards (B2C) = 30 days to settle the borrowed amount, purchasing cards (B2B) = 1 week to settle borrowed amount, store-valued money cards (or cafeteria card), EMV smart cards (chip & pin cards) = technical standard for smart payment card
• Digital, Online Payments (payment gateways): a software application linked to credit card of customers and merchant account. (Providers: PayPal, Verisign, authorize.net, etc)

Question 12

7.1 What are the benefits of e-commerce?

Answer 12

Benefits:

• E-commerce benefits organizations by making national and international markets more accessible and by lowering the costs of processing, distributing, and retrieving information.
• Customers benefit by being able to access a vast number of products and services, around the clock.
• The major benefit to society is the ability to easily and conveniently deliver information, services, and products to people in cities, rural areas, and developing countries.

Question 13

7.1 What are the limitations of e-commerce?

Answer 13

Limitations:

• One major technological limitation is the lack of universally accepted security standards.
• Also, in less-developed countries, telecommunications bandwidth is often insufficient, and accessing the Web is expensive.
• The remaining non-technological limitation is the perception that EC is nonsecure.

Question 14

7.1 What is a business model?

Answer 14

Each type of EC is executed in one or more business models. A business model is the method by which a company generates revenue to sustain itself.

Question 15

7.1 Name and describe the types of business models.

Answer 15

• Electronic tendering system: B2B reverse auction that involves requesting quotes from suppliers.
• Name-your-own-price: Buyer sets the price.
• Find-the-best-price: intermediaries search for and provide the best price for what customers want.
• Affiliate marketing: performance-based advertising method where businesses pay a commission on conversions to an affiliate.
• Viral marketing: “friend marketing:” relying on people to tell their friends electronically about products.
• Group purchasing (e-coops): groups of buyers negotiate volume discounts.
• Product customization: online self-configuration of products that are individually produced.
• Electronic marketplaces and exchanges: online private (one seller) or public (many sellers) marketplaces attract many buyers.
• Bartering Online: exchanges or sales of products without the exchange of cash using an intermediary.
• Deep discounters: online direct sales at low prices (deeply discounted) for special models promotions or “fire sales”.
• Membership: only members can use the services, which could be products or services.

Question 16

7.2 What is e-tailing? What is the “long tail” strategy?

Answer 16

Electronic retailing (e-tailing) is the direct sale of products and services through electronic storefronts or electronic malls, usually designed around an electronic catalog format and auctions.

The long tail describes the retailing strategy of selling a large number of unique items in small quantities.

Question 17

7.2 What are the three pros of e-tailing?

Answer 17

3 pros of e-tailing:

• access to very detailed supplementary product information
• easily locate and compare competitors’ products and prices
• find hundreds of thousands of sellers

Question 18

7.2 What are three broad issues in e-tailing? Hint: COP

Answer 18

1. Channel conflict
2. Order fulfillment
3. Personalized pricing

Question 19

7.2 What do we mean by channel conflict?

Answer 19

Occurs when clicks-and-mortar companies may face conflict with their regular distributors by directly selling to customers online.

This situation can alienate the distributors. Channel conflict has forced some companies to avoid direct online sales.

Question 20

7.2 What is showrooming?

Answer 20

Channel conflict can arise in areas such as pricing and resource allocation and logistics services. Many companies are integrating their online and offline channels, a process known as multichannelling. Multichannelling has created the opportunity for showrooming.

Showrooming occurs when shoppers visit a brick-and-mortar store to examine a product (ex.: good for Amazon and eBay, bad for Target and Best Buy).

Question 21

7.2 Why can order fulfillment be a problem in e-commerce?

Answer 21

→ involves finding the product to be shipped; packaging the product; arrange for speedy delivery to the customer; and handle the return of unwanted or defective products.

Order fulfillment can create problems for e-tailers. Any time a company sells directly to customers, it is involved in various order-fulfillment activities. In addition, order fulfillment provides all related customer services.

It is very difficult to accomplish these activities both effectively and efficiently in B2C, because a company has to ship small packages to many customers and do it quickly. For this reason, companies involved in B2C activities can experience difficulties in their supply chains.

Question 22

7.2 What is personalized pricing in e-tailing?

Answer 22

Personalized pricing is the practice of pricing items at a point determined by a particular customer’s perceived ability to pay.

The optimal outcome of personalized pricing for the merchant is maximizing the price that each customer will pay. Merchants are now able to approximate the maximum price that each customer will pay.

Question 23

7.2 How do merchants practice personalized pricing (e-tailing)?

Answer 23

They do this by analyzing data → shopping carts, rewards cards, “likes”, ratings, reviews, recommendations, cx’s postal code (socioeconomic status based on census).

As a result, retailers are developing increasingly sophisticated personalized pricing algorithms. That is, retailers can find the optimal, profit-maximizing price of a good or a service for a particular customer.

When merchants combine these data with cookies, they can estimate a customer’s reservation price—the maximum amount they would be willing to pay for a specific product. Merchants can easily adjust prices for different customers simply by changing them in the system in real time.

Question 24

7.3 What are the three categories of B2B electronic commerce?

Answer 24

1. sell-side marketplace
2. buy-side marketplace
3. electronic exchanges

Question 25

7.3 What is the “sell-side marketplace” in B2B e-commerce?

Answer 25

In the sell-side marketplace model, organizations sell their products or services to other organizations electronically from their own private e-marketplace website or from a third-party website. In the B2B sell-side marketplace, however, the buyer is an organization.

The key mechanisms in the sell-side model are forward auctions and electronic catalogs that can be customized for each large buyer.

Question 26

7.3 What are “buy-side marketplaces” in B2B e-commerce?

Answer 26

The buy-side marketplace is a model in which organizations attempt to procure needed products or services from other organizations electronically. Major method → the reverse auction.

Question 27

7.3 What is procurement, purchasing, e-procurement and group purchasing in buy-side marketplaces?

Answer 27

Procurement is the overarching function that describes the activities and processes to acquire goods and services.

Purchasing refers to the process of ordering and receiving goods and services. It is a subset of the procurement process.

Procurement by using electronic support is referred to as e-procurement. E-procurement uses reverse auctions, particularly group purchasing.

In group purchasing, multiple buyers combine their orders so that they constitute a large volume and therefore attract more seller attention.

Question 28

7.3 What are electronic exchanges (e-tailing)?

Answer 28

Electronic marketplaces (e-marketplaces), called public exchanges or just exchanges, are independently owned by a third party, and they connect many sellers with many buyers. Buyers and sellers merely have to “plug in” in order to trade.

Question 29

7.3 What are direct materials and indirect materials in electronic exchanges (e-tailing)?

Answer 29

Electronic exchanges deal in both direct and indirect materials. Direct materials are inputs to the manufacturing process, such as safety glass used in automobile windshields and windows. Indirect materials are those items, such as office supplies, that are needed for maintenance, operations, and repairs (MRO).

Question 30

7.3 What are the three basic types of public exchanges (e-tailing)?

Answer 30

The three basic types of public exchanges are vertical, horizontal, and functional:

• Vertical exchanges connect buyers and sellers in a given industry. Vertical e-marketplaces offer services that are particularly suited to the community they serve. Vertical exchanges are frequently owned and managed by a consortium, a term for a group of major players in an industry.
• Horizontal exchanges connect buyers and sellers across many industries, they are used primarily for MRO materials.
• Finally, in functional exchanges, needed services such as temporary help or extra office space are traded on an “as-needed” basis.

Question 31

7.4 What are the legal and ethical issues specific to e-commerce?

Answer 31

• Fraud on the internet
• Domain names
• Cybersquatting
• Taxes and Other Fees
• Copyright