CHAPTER TWO

ENABLING TECHNOLOGIES AND INFRASTRUCTURE

Learning Objectives

By the end of this chapter the learner shall be able to;

i. Explain the technologies that facilitate E-commerce

ii. Explain the concept of the Client server technologies
iii. Explain the concept of the Intranets and the extranets
iv. Explain the different connecting technologies for networks such as broadband.

2.1 The Internet and the World Wide Web

The Internet is a global system of interconnected computer networks that use the
standard Internet Protocol Suite (TCP/IP) to serve billions of users worldwide. It is a
network of networks that consists of millions of private, public, academic, business, and
government networks, of local to global scope, that are linked by a broad array of
electronic, wireless and optical networking technologies. The Internet carries a vast
range of information resources and services, such as the inter-linked hypertext
documents of the World Wide Web (WWW) and the infrastructure to support electronic
mail.

The origins of the Internet reach back to research of the 1960s, commissioned by the
United States government in collaboration with private commercial interests to build
robust, fault-tolerant, and distributed computer networks.

Services Provided by the Internet

Electronic Mail

E-mail, also known as electronic mail, is one of the most popular Internet services. E-
mail allows you to send messages to one person, or to send a message simultaneously
to a group of people. One of the greatest advantages of e-mail over other forms of
1
communication is the convenience to the recipient. Messages wait in your mailbox until
you open it. Another advantage of an Internet e-mail account is that you can check
your e-mail as you travel; assuming you can access the Internet in the city you are
visiting through friends, family, professional organizations, or a public or college library.

(i) Features of E-mail:

One-to-one or one-to-many communications

Instant communications
Physical presence of recipient is not required
Most inexpensive mail service, 24-hours a day and seven days a week
Encourages informal communication

(ii) Components of an E-mail Address

As in the case of normal mail system, e-mail is also based upon the concept of a
recipient address. The email address provides all of the information required to get a
message to the recipient from anywhere in the world. Consider the e-mail ID

[email protected]

In the example above, "john" is the local part, which is the name of a mailbox on the
destination computer, where finally the mail will be delivered. Hotmail is the mailserver
where the mailbox "john" exists, .com is the type of organisation on net, which is
hosting the mail server.

There are six main categories;

com Commercial institutions or organization

edu Educational institutions

gov Government site

mil Military site

net Gateways and administrative hosts

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org Private organizations

WWW

WWW are initials that stand for World Wide Web. A "web" is a network of fibers or
cables connecting different points. (Spiders make webs to catch flies.) The Web is one
of the services available on the Internet. It lets you access millions of pages through a
system of hyperlinks. Because it is "world-wide", it was originally called the World Wide
Web or WWW. This is a special part of the internet that allows people to view
information stored on participating computers. It is an easy-to-use, graphical source of
information which has opened the internet to millions of people interested in finding out
information.

FTP (File Transfer Protocol)

This facility is a method of gaining limited access to another machine in the Internet,
and obtaining files from it. You need full Internet connectivity, to do ftp
interactively. FTP has many advantages, for example, it allows you to get new free
software, or updated versions of old programs, as well as useful data for your research.
The most common way of using FTP is via anonymous FTP. When you start an ftp
connection, you will be asked for a user name and a password.

Telnet: logging in to Remote Network Computers

Telnet is the Internet facility that allows you to execute commands on a remote host
(another computer, most likely one to which you do not have physical access) as if you
were logged in locally. You need to know the name of the machine to which you want
to connect, and to have a valid user name in it. There is no such thing as "anonymous"
telnet.
The commands for telnet are:

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 o telnet hostname: it will open a connection to the host you name. For
example, "telnet math.sunysb.edu" will connect you to the machine
named math.sunysb.edu
o telnet "address": it opens a connection to the host at "address".

Usenet Newsgroups

Usenet newsgroups, also called bulletin boards, are a similar e-mail conferencing
system, but are less intrusive to the subscriber than listserves since messages are
posted to Usenet sites around the world instead of appearing in each subscriber's
mailbox. Usenet refers to the huge collection of messages which are posted to tens of
thousands of newsgroups worldwide. Millions of people around the world regularly read
newsgroup messages, following their favorite topics of interest. New newsgroups are
added and old ones deleted every day.

Usenet can provide a unique information resource not readily accessible from any other
source. If you are looking for personal anecdotes about products, especially computer-
related hardware and software products, how-to information, practical advice, or the
latest news stories, newsgroup archives may be a valuable resource.

Internet Chat

Communication on the Internet goes even further than personal e-mail, newsgroups
and mailing lists, to encompass real-time conversations (synchronous communication)
among two or more people. Chat is available on the Internet through Internet Relay
Chat or IRC. It consists of thousands of chat channels, each covering a different topic
and with participants from all over the world.

Web Conferencing

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Many institutions are discovering new ways to integrate Internet communications into
their organizations. One of the most popular ways is through the use of web or online
conferencing.

Web conferencing is currently being used by businesses for employee training,

meetings and general communication. Educational institutions are using web
conferencing as a way to enhance on-site classes or distance education classes. Web
conferencing is a tool which provides a way for "students" to share information, ask
questions, get answers, discuss problems and work collaboratively. Conferencing
provides opportunities to solve issues by providing a dynamic exchange of text,
graphics, HTML links to information, audio, and video in a structured conversation
organized by topic.

Web conferences may take place in "real-time" where all participants are
communicating at the same pre-arranged time.

Requirements for connecting to the internet

Internet service provider – an internet service provider provides you with a

connection to the internet and the software you will need to navigate.
telecommunication line – a telephone line is required to connect you to the
internet service provider.
Modem – a modem converts a digital signal received from a computer into an
analogue signal that can be sent along ordinary telephone lines, and back to digital
at the other end.
Web browser – a web browser is software used to view and download Web pages
and various types of files such as text, graphics and video. Examples are Microsoft
Internet Explorer or Netscape Navigator.

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2.2 Client –server technologies

The client–server model of computing is a distributed application structure that

partitions tasks or workloads between the providers of a resource or service, called
servers, and service requesters, called clients.[1] Often clients and servers communicate
over a computer network on separate hardware, but both client and server may reside
in the same system. A server machine is a host that is running one or more server
programs which share their resources with clients. A client does not share any of its
resources, but requests a server's content or service function. Clients therefore initiate
communication sessions with servers which await incoming requests.

Description

The client–server characteristic describes the relationship of cooperating programs in an

application. The server component provides a function or service to one or many
clients, which initiate requests for such services.

Functions such as email exchange, web access and database access, are built on the
client–server model. Users accessing banking services from their computer use a web
browser client to send a request to a web server at a bank. That program may in turn
forward the request to its own database client program that sends a request to a
database server at another bank computer to retrieve the account information. The
balance is returned to the bank database client, which in turn serves it back to the web
browser client displaying the results to the user. The client–server model has become
one of the central ideas of network computing. Many business applications being
written today use the client–server model.

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2.3 Intranet and extranets

What is an intranet?

In essence, an intranet is a business' own private website. It is a confidential business

network that uses the same underlying structure and network protocols as the internet
and is protected from unauthorised users by a firewall.

Intranets enhance existing communication between employees and provide a common

knowledge base and storage area for everyone in your business. They also provide
users with easy access to company data, systems and email from their desktops.

Because intranets are secure and easily accessible via the internet, they enable staff to
do work from any location simply by using a web browser. This can help small
businesses to be flexible and control office overheads by allowing employees to work
from almost any location, including their home and customer sites.

Other types of intranet are available that merge the regular features of intranets with
those often found in software such as Microsoft Office. These are known as online
offices or web offices. Creating a web office will allow you to organise and manage
information and share documents and calendars using a familiar web browser function,
which is accessible from anywhere in the world.

Types of content found on intranets:

administrative - calendars, emergency procedures, meeting room bookings,

procedure manuals and membership of internal committees and groups
corporate - business plans, client/customer lists, document templates, branding
guidelines, mission statements, press coverage and staff newsletters
financial - annual reports and organisational performance
IT - virus alerts, tips on dealing with problems with hardware, software and
networks, policies on corporate use of email and internet access and a list of
online training courses and support
marketing - competitive intelligence with links to competitor websites,
corporate brochures, latest marketing initiatives, press releases, presentations
human resources - appraisal procedures and schedules, employee policies,
expenses forms and annual leave requests, staff discount schemes, new
vacancies
individual projects - current project details, team contact information, project
management information, project documents, time and expense reporting
external information resources - route planning and mapping sites, industry
organisations, research sites and search engines

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What is an extranet?

An extranet is similar to an intranet but it is made accessible to selected external

partners such as business partners, suppliers, key customers, etc, for exchanging data
and applications and sharing information.

As with an intranet, an extranet can also provide remote access to corporate systems
for staff who spend lots of time out of the office, for instance those in sales or customer
support, or home workers.

Extranet users should be a well-defined group and access must be protected by

rigorous identification routines and security features.

Why would you use an extranet?

Businesses of all sizes are under increasing pressure to use online ordering, electronic
order tracking and inventory management.

At the same time small businesses are keen to meet the demands of larger companies
in terms of working flexibly, adopting new technologies and enabling the exchange of
business information and transactions.

Extranets offer a cheap and efficient way for businesses to connect with their trading
partners. It also means that your business partners and suppliers can access the
information they need 24 hours a day.

The ability of the extranet to automate the trading tasks between you and your trading
partners can lead to enhanced business relationships and help to integrate your
business firmly within their supply chain.

2.4 Connecting technologies for networks such as broadband

Signals are usually transmitted over some transmission media that are broadly classified
in to two categories.

Guided Media:

These are those that provide a conduit from one device to another that include twisted-
pair, coaxial cable and fiber-optic cable. A signal traveling along any of these media is
directed and is contained by the physical limits of the medium. Twisted-pair and coaxial
8
cable use metallic that accept and transport signals in the form of electrical current.
Optical fiber is a glass or plastic cable that accepts and transports signals in the form of
light.

Unguided Media:

This is the wireless media that transport electromagnetic waves without using a
physical conductor. Signals are broadcast either through air. This is done through radio
communication, satellite communication and cellular telephony.

Broadband

The term broadband refers to a telecommunications signal of greater bandwidth, in

some sense, than another standard or usual signal (and the broader the band, the
greater the capacity for traffic).

Chapter Review Questions

1. What is the difference between the internet and the worldwide web?
2. What are the different connecting media under the guided media?
3. Explain the difference between the internet an the extranet.

Southerland K., Understanding the Internet : A clear Guide to Internet Technologies,

Butterworth –Heinemann

9
 CHAPTER THREE

THE E-MARKETPLACES STRUCTURES AND MECHANISMS

Learning Objectives

By the end of this chapter the learner shall be able to;

F. Introduction to Electronic markets

G. Electronic markets components participants
H. E-Market places; storefronts and electronic malls
I. Information portal
J. Transactions, intermediation, and processes in E-commerce

3.1 Introduction to Electronic Markets

According to Bakos (1998), electronic markets play a central role in the economy,
facilitating the exchange of information, goods, services, and payments. ln the process,
they create economic value for buyers, sellers, market intermediaries, and for society at
large. Markets (electronic or otherwise) have three main functions: (1) matching buyers
and sellers; (2) facilitating the exchange of information, goods, services, and payments
associated with market transactions; and (3) providing an institutional infrastructure,
such as a legal and regulatory framework that enables the efficient functioning of the
market.

Electronic Markets

The major place for conducting EC transactions is the electronic market (e—market). An
E-marketplace is an Online market, usually B2B, in which buyers and sellers exchange
goods or services; the three types of e-market places are private, public and consortia.

The emergence of electronic marketplaces (also called e-marketplaces or

marketspaces), especially internet—based ones, changed several of the processes used
in trading and supply chains, These changes, driven by technology resulted in:

Greater information richness of the transactional and relational environment

Lower information search costs for buyers

Diminished information asymmetry between sellers and buyers

Greater temporal separation between time of purchase and time of possession of

physical products purchased in the e-marketplace
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 Greater temporal proximity between time of purchase and time of possession of
digital products purchased in the e-marketplace

The ability of buyers and sellers to be in different locations.

3.2 E-Marketplace Components and Participants

A marketspace includes electronic transactions that bring about a new distribution of
goods and services. The major components and players in a marketspace are
customers, sellers, goods and services (physical or digital), infrastructure, a front end, a
back end, intermediaries and other business partners, and support services. A brief
description of each follows:

Customers - The 1.6 billion people worldwide who surf the Web are potential
buyers of the goods and services offered or advertised on the Internet. These
consumers are looking for bargains, customized items, collectors’ items,
entertainment, socialization, and more. They are in the driver’s seat. They can
search for detailed information, compare, bid, and sometimes negotiate.
Organizations are the largest consumers, accounting for more than 85 percent of
EC activities.

Sellers - Millions of storefronts are on the Web, advertising and offering a huge
variety of items. These stores are owned by companies, government agencies, or
individuals. Every day it is possible to find new offerings of products and
services. Sellers can sell direct from their Web sites or from e—marketplaces.

Products and services - One of the major differences between the

marketplace and the marketspace is the possible digitization of products and
services in a marketspace. Although both types of markets can sell physical
products, the marketspace also can sell digital products, which are goods that
can be transformed to digital format and Instantly delivered over the Internet. In
addition to digitization of software and music, it is possible to digitize dozens of
other products and services.

Infrastructure - The marketspace infrastructure includes electronic networks,

hardware, software, and more. (EC infrastructure is presented in Chapter 1.

Front end - Customers interact with a marketspace via a frontend. The

components of the front end can include the sellers portal, electronic catalogs, a
shopping cart, a search j engine, an auction engine, and a payment gateway.

Back end - All the activities that are related to order aggregation and fulfillment,
inventory management, purchasing from suppliers, accounting and finance,

11
 insurance, payment processing, packaging, and delivery are done in what is
termed the back end of the business.

Intermediaries - In marketing, an Intermediary is typically a third party that

operates between sellers and buyers. Intermediaries of all kinds offer their
services on the Web. The role of these electronic intermediaries is frequently
different from that of regular intermediaries (such as wholesalers). For example,
online intermediaries create and manage the online markets. They help match
buyers and sellers, provide some infrastructure services, and help customers
and/or sellers to institute and complete transactions.

Other business partners - In addition to intermediaries, several types of

partners, such as shippers, use the Internet to collaborate, mostly along the
supply chain.

Support services - Many different support services are available, ranging from
certification and escrow services (to ensure security) to content providers.

Types Of E-Marketplaces: From Storefronts To Portals

There are several types of e—marketplaces. The major B2C e—marketplaces are
storefronts and Internet malls. B2B e—marketplaces include private sell—side e-
marketplaces, buy—side marketplaces, and exchanges. A brief description of each
follows:

Electronic Storefronts - An electronic or Web storefront refers to a single

company’s Web site where products and services are sold. It is an electronic store.
The storefront may belong to a manufacturer (e. g. dell.com), to a retailer (e.g.,
walmart.com and wishlist.com.au), to individuals selling from home, or to another
type of business. Note that companies that sell services (such as insurance) may
refer to their storefronts as portals. A storefront includes several mechanisms that
are necessary for conducting the sale. The most common mechanisms are an
electronic catalog; a search engine that helps the consumer find products in the
catalog; an electronic cart for holding items until checkout.

Electronic Malls - In addition to shopping at individual storefronts, consumers can

shop in electronic malls . (e—malls). Similar to malls in the physical world, an e—
mall (online mall) is an online shopping e-location where many stores are located.
For example, Hawaiicom (hawaii.com) is an e-mall that aggregates Hawaiian
products and stores. It contains a directory of product categories and the stores in
each category When a consumer indicates the category he or she is interested in, on
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 the consumer is transferred to the appropriate independent storefront. This kind of
a mall does not provide any shared services. It is merely a directory Other malls do
provide shared services (e.g., choicemall.com). Some malls are actually large click-
and-mortar retailers; others are virtual retailers (e.g., buycom).

Types Of Stores And Malls - Stores and malls are of several different types:

General stores/malls. These are large marketspaces that sell all types of
products.

Examples are amazon.com, choicemall.com, shop4.vcomshop.com, spree.com,

and the major public portals (yaho0.com, aol.com, and msn.com). All major
department and discount stores also fall into this category.

Specialized stores/malls. These sell only one or a few types of products, such
as books, flowers, wine, cars, or pet toys. Amazon.com started as a specialized
e—bookstore but today is a generalized store. 1800flowers.c0m sells flowers and
related gifts; fashionmall.com/beautyjungle specializes in beauty products, tips,
and trends; and

cattoys.com sells cat toys.

Regional versus global stores. Some stores, such as e—grocers or sellers of

heavy furniture, serve customers that live nearby For example, parknshop.com
serves the Hong kong community; it will not deliver groceries to new York.

Pure-play online organizations versus click-and-mortar stores. Stores may be

pure online organizations such as Amazon.com, that do not have physical stores.
Others are physical stores that also sell online

Types of Marketplaces

The two types of E-Marketplaces are;

Private marketplaces which are online markets owned by a single company; may be
either sell-side and/or buy-side e-marketplaces. A Sell-side marketplace is where one
company sells either standard and/or customized products to qualified companies. The
buy-side e-marketplace is where one company makes purchases from invited suppliers.

Public E–Marketplaces – are B2B markets usually owned and/or managed by an

independent third party, that include many sellers and many buyers; also known as
exchanges.

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3.3 Electronic Auctions

The electronic auctions also called online auction business model is one in which
participants bid for products and services over the Internet. The functionality of buying
and selling in an auction format is made possible through auction software which
regulates the various processes involved.

Several types of online auctions are possible. In an English auction the initial price
starts low and is bid up by successive bidders. In a Dutch auction, multiple identical
items are offered in one auction, with all winning bidders paying the same price -- the
highest price at which all items will be sold (treasury bills, for example, are auctioned
this way). Currently almost all online auctions use the English auction method.
Aexample of a popular site that conducts electronic auctions is ebay.com. The kind of
business is B2B, B2C, C2B etc.

The strategic advantages of this business model include:

1. No time constraints. Bids can be placed at any time (24/7). Items are listed
for a number of days (usually between 1 and 10, at the discretion of the seller),
giving purchasers time to search, decide, and bid. This convenience increases
the number of bidders.
2. No geographical constraints. Sellers and bidders can participate from
anywhere that has internet access. This makes them more accessible and
reduces the cost of "attending" an auction. This increases the number of listed
items (ie.: number of sellers) and the number of bids for each item (e.g.:
number of bidders). The items do not need to be shipped to a central location,
reducing costs, and reducing the seller's minimum acceptable price.
3. Intensity of social interactions. The social interactions involved in the
bidding process are very similar to gambling. The bidders wait in anticipation
hoping they will "win." Much like gambling addiction, some bidders may bid
primarily to "play the game" rather than to obtain products or services. This
creates a highly loyal customer segment. This can also skew the prices of
items/services/goods in the auction.
4. Large number of bidders. Because of the potential for a relatively low price,
the broad scope of products and services available, the ease of access, and the
social benefits of the auction process, there are a large number of bidders.
5. Large number of sellers. Because of the large number of bidders, the
potential for a relatively high price, reduced selling costs, and ease of access,
there are a large number of sellers.
6. Network economies. The large number of bidders will encourage more sellers,
which, in turn, will encourage more bidders, which will encourage more sellers,
etc., in a virtuous circle. The more the circle operates, the larger the system
14
 becomes, and the more valuable the business model becomes for all participants.
7. Captures consumers' surplus. Auctions are a form of first degree price
discrimination. As such, they attempt to convert part of the consumers' surplus
(defined as the area above the market price line but below the firm's demand
curve) into producers' surplus.

3.4 Information Portals

A portal is a mechanism that is used in e—marketplaces, e-stores, and other types of
EC (eg., in lntrabusiness, e-learning, etc.). An information portal is a single point of
access through a web browser to business information inside and/or outside an
organization. With the growing use of intranets and the Internet, many organizations
encounter information overload at a number of different levels. Information is scattered
across numerous documents, e—mail messages, and databases at different locations
and in disparate systems. Finding relevant and accurate information is often time
consuming and requires access to multiple systems.

As a consequence, organizations lose 2 lot of productive employee time. One solution to

this problem is the use ofparta/s. A portal is an information gateway it attempts to
address information overload by enabling people to search and access relevant
information from disparate IT systems and the Internet, using advanced search and
indexing techniques (such as Google’s desktop), in an intranet-based environment.

Types of Portals

Portals appear under many descriptions and shapes. One way to distinguish among
them is to look at their content, which can vary from narrow to broad, and their
community or audience, which also can vary The following are the major types of
portals:

Commercial (public) portals. These portals offer content for diverse communities
and are the most popular: portals on the Internet. Although they can be customized by
the uses.; they are still intended for broad audiences and offer fairly routine content,
some in real time {eg., a stock ticker and news about a few reselected items).
Examples of such sites are yahoo.com, aol.com, and msn.com.

Corporate portals. Corporate portals provide organized access to rich content within
relatively narrow corporate and partners’ communities. They also are known as
enterprise information portals or enterprise information portals. Corporate portals
appear in different forms.

Publishing portals. These portals are intended for communities with specific
interests. These portals involve relatively little customization of content, but they
provide extensive online search features and some interactive capabilities. Examples of
such sites are techweb.com and zdnet.com.
15
Personal portals. These target specific filtered information for individuals. They offer
relatively narrow content and are typically very personalized, effectively having an
audience of one.

Mobile portals. Mobile portals are portals that are accessible from mobile although
most of the other portals mentioned here are PC based, increasing numbers of portals
are accessible via mobile devices. One example of such at mobile portal is i—mode.

Voice portals. Voice portals are Web sites, usually portals, with audio interfaces. This
means that they can be accessed by a standard telephone or a cell phone.

Knowledge portals – Knowledge portals enable access to knowledge by knowledge

workers and enable collaboration.

3.5 Transactions, intermediation, and processes in E-commerce

Sellers, buyers and Transactions

Te major EC activity is electronic trading. Typically, a seller sells to customers. The

seller buys from suppliers: either raw materials or finished goods. Internally, processes
in the different functional areas are supported by enterprise software such as ERP and
B2E activities. The customers can be individuals (B2C), businesses (B2B), or from
government agencies (B2G). The customers place orders, and the seller fulfils them.

The roles and value of intermediaries in E-Marketplaces

Intermediaries(Brokers) play an important role in commerce by providing value-added

activities and services to buyers and sellers. There are different types of intermediaries.
The intermediaries that provide and/or control information flow are called infomediaries.

Online intermediaries are companies that facilitate transactions between buyers and
sellers and receive a percentage of the value.

16
The two types of online intermediaries are brokers and infomediaries.
Brokers

A broker is a company that facilitates transactions between buyers and sellers. The
following are different types of brokers:

Buy/sell fulfillment. A corporation that helps consumers place buy and sell orders
(eg., eTrade).

Virtual mall. A company that helps consumers buy from a variety of stores (eg.,
ahoo! Stores).

Metamediary. A firm that offers customers access to a variety of stores and

provides them with transaction services, such as financial services (e. g.,
Amazon zShops).

Bounty. An intermediary that will locate a person, place, or idea for a fee (e.g.,
BountyQuest (now defunct).

Search agent. A company that helps consumers compare different stores

(eg.,Shopping.com).

Shopping facilitator. A company that helps consumers use online shops by

providing currency conversion, language translation, payment features, and
delivery solutions, and potentially a user-customized interface, (eg.,
MyOrbital.com).

Infomediaries

Web sites that gather and organize large amounts of data and act as intermediaries
between those who want the information and those who supply the information are
called intermediaries (Webopedia 2006). There are two types of infomediaries:

The first type offers consumers a place to gather information about specific
products and companies before they make purchasing decisions. lt is a third—
party provider of unbiased information; it does not promote or try to sell specific
products in preference over other products or act on behalf of any vendors (e.
g., Autobytel.com and BizRate.com).

The second type is not necessarily Web—based. It provides vendors with

consumer information that will help the vendor develop and market products.
The infomediary collects the personal information from the buyers and markets
that data to businesses. The advantage of this approach is that consumer privacy
is protected and some infomediaries offer consumers a percentage of the
brokerage deals.

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Intermediaries whether human or electronic, can address the following ficve limitations
of direct intermediaries: Search costs, Lack of privacy, Incomplete information, contract
risk and pricing inefficiencies.

Chapter Review Questions

1. List the roles of intermediaries in e-markets.
2. What is the difference between a physical marketplace and an E-marketplace.
3. List the components of a marketplace
4. Explain the different types of portals

Turban E. D., Electronic Commerce, 2008 Managerial Perspective (Pearson International

Edition) page 44-59

18
 CHAPTER FOUR

Internet Consumer Retailing

Learning Objectives

By the end of this chapter the learner shall be able to;

A. Introduction and definition of terms

B. E-Tailing business models
C. Travel and tourism services online
D. Internet job market
E. Real estate, insurance, and stock trading online

4.1 Introduction and Definition of Terms

A retailer is a sales intermediary, a seller that operates between manufacturers and
customers. Even though many manufacturers sell directly to consumers, they
supplement their sales through wholesalers and retailers (a multichannel approach). In
the physical world, retailing is done in stores (or factory outlets) that customers must
visit in order to make a purchase. Companies that produce a large number of products,
such as Procter 8c Gamble, must use retailers for efficient distribution. Catalog sales
offer companies and customers a relief from the constraints of space and time: Catalogs
free a retailer from the need for a physical store from which to distribute products, and
customers can browse catalogs on their own time. With the ubiquity of the Internet, the
next logical step was for retailing to move online. Retailing conducted over the Internet
is called electronic retailing, or e-tailing, and those who conduct retail business online
are called e-tailers. E-tailing also can be conducted through auctions. E-tailing makes it
easier for a manufacturer to sell directly to the customer, cutting out the intermediary
(e.g., Dell and Godiva).

Products known to sell on the internet.

With approximately 118 million shoppers online in the United States in 2005, e-tailers
appreciate the need to provide excellent choice and service to an ever-increasing cohort

19
of potential customers. Hundreds of thousands of items are available on the Web from

numerous vendors. The following categories are all selling well online; Travel (tickets
and reservations), Consumer hardware and software , consumer electronics, office
supplies, sports and fitness goods, books and music, toys, health and beauty products,
entertainment, clothing, jewelry, cars, services, pet supplies among others.

Characteristics of Successful E-Tailing

Many of the same basic principles that apply t0 retail success also apply to e—tail
success. Sound business thinking , visionary leadership , thorough competitive analysis
and financial analysis, and the articulation of a well—thought—out EC strategy are
essential. So, too, is ensuring appropriate infrastructure, particularly a stable and
scalable technology infrastructure to support the online and physical aspects of EC
business operations. With all else being equal in the online environment, goods with the
following characteristics are expected to facilitate higher sales volumes:

High brand recognition (eg., Lands End, Dell, Sony)

A guarantee provided by highly reliable or well known vendors (eg., Dell, LL.
Bean)
Digitized format (eg., software, music, or videos)
Relatively inexpensive items (e.g., office supplies, vitamins)
Frequently purchased items (e. g., groceries, prescription drugs)
Commodities with standard specifications e.g. books CDs airline tickets
Well-known packaged items that cannot be opened even in a traditional store
(e.g., foods, chocolates, vitamins)

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4.2 E-Tailing Business Models
In order to better understand e—tailing, let’s look at it from the point of view of a
retailer or a manufacturer that sells to individual consumers. The seller has its own
organization and must also buy goods and services from others usually businesses B2B.

Classification by Distribution Channel

A business model is a description of how an organization intends to generate revenue `
through its business operations. More specifically it is an analysis of the organizations
customers and, from that, a discussion of how that organization will achieve profitability
and sustainability by delivering goods and services (value) to those customers. E—
tailing business models can be classified in several ways for example, some classify e-
tailers by the scope of items handled (general purpose versus specialty e-tailing) or by
the scope of the sales region covered (global versus regional), whereas others use
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classification by revenue models (see Chapter 1). Here we will classify the models by
the distribution channel used, distinguishing five categories:
1. Mail-order retailers that go online. Most traditional mail-order retailers, such as
QVC, Sharper Image, and Lands’ End, simply added another distribution channel-
the Internet. Several of these retailers also operate physical stores, but their
main distribution channel is direct marketing.
2. Direct marketing from manufacturers. Manufacturers, such as Dell, Nike, Lego,
and Sony, market directly online from company sites to individual customers.
Most of these manufacturers are click-and—mortar, also selling in their own
physical stores or via retailers. However, the manufacturer may be a pure—play
company (e.g., Dell).
3. Pure—play e-tailers. These e—tailers do not have physical stores, only an online
sales presence. Amazon.com is an example of a pure—play e-tailer.
4. Click-and-mortar retailers. These are of two sorts, depending on how the
businesses were originally founded. Originally, click-and-mortar referred to
traditional businesses that developed Web sites to support their business
activities in some way (e.g., walmart.com, homedepot.com, and
sharperimage.com). However, we are now seeing the reverse trend. A small
number of successful e-tailers are now creating physical storefronts, leveraging
the brand power of the online environment to support more traditional trading
activities via stores. For example, Expedia.com.
5. Internet (online) malls. these malls include large numbers of independent
storefronts.

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4.3 Travel and Tourism Services On-line
Online travel bookings and associated travel services are one of the most successful e-
commerce implementations, with estimates of sales of $73.4 billion in 2006. However
this was expected to increase by 34% by 2010. The number of travelers using the
Internet to plan and book trips is still growing significantly, with some 79 million
Americans using the Internet to research travel options and destination information in
2005. Of interest is that now 82 percent of those who do this research online also
convert to booking their travel online. They most often purchase airline tickets,
accommodation, and car rentals online, but future growth is expected in associated
events such as cultural event tickets, theme/ amusement park tickets, and tickets for
sporting events (Tia.org 2005). The most popular types of Web sites are online travel
agencies (such as Expedia, Travelocity, and Priceline).
The revenue models of online travel services include direct revenues (commissions),
revenue from advertising, lead-generation payments, consultancy fees, subscription or
membership fees, revenue-sharing fees, and more. With such rapid growth and
success, the travel industry seems to have matured beyond initial concerns such as
trust, loyalty, and brand image.

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Services Provided
Virtual travel agencies offer almost all of the services delivered by conventional travel
agencies, from providing general information to reserving and purchasing tickets,
accommodations, and entertainment. Tn addition, they often provide services that most
conventional travel agencies do not offer, such as travel tips provided by people who
have experienced certain situations (e.g., a visa problem), electronic travel magazines,
fare comparisons, city guides, currency conversion calculators, fare tracking (free e-mail
alerts on low fares to and from a city and favorite destinations), worldwide business
and place locators, an outlet for travel accessories and books, experts’ opinions, major
international and travel news, detailed driving maps and directions within the United
States and several other countries (see infohub.com), chat rooms and bulletin boards,
and frequent-flier deals. In addition, some offer several other innovative services, such
as online travel auctions.
Some benefits are; The amount of free information is tremendous, and it is accessible
at any time from any place. Substantial discounts can be found, especially for those
who have time and patience to search for them. Providers of a travel services also
benefit: Airlines, hotels, and cruise lines are selling otherwise-empty spaces. Also, direct
selling saves the provider’s commission and its processing.

4.4 The Internet Job Market

The Internet offers a rich environment for job seekers and for companies searching for
hard to find employees. Nearly all Fortune 500 companies now use the Internet for
some of their, recruitment requirements, and studies reveal that online resources are
now the most popular way to find suitably qualified applicants for job vacancies
(Careerbuilder.com 2006). Online, job recruitment revenues and volume overtook print
ad classifieds at the end of 2005, and in 2006 were estimated to reach $2.3 billion.

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The following parties use the Internet job market:
Job seekers. Job seekers can reply to employment advertisements Or, they can
take the initiative and place their CV’s on their own homepages or on others’
Web sites, send messages to members of newsgroups asking for referrals, and
use the sites of recruiting firms, such as careerbuilder.com,
Employers seeking employees. Many organizations, including public
institutions, advertise openings on their Web sites. Others advertise job openings
on popular public portals, online newspapers, bulletin boards, and with recruiting
firms. Employers can conduct interviews and administer interactive intelligence,
skills, and psychological tests on the Web. Some employers, such as Home
Depot, have kiosks in some of their stores on which they post job openings and
allow applicants to complete an application electronically
Job agencies. Hundreds of job agencies are active on the Web. They use their
own Web pages to post available job descriptions and advertise their services in
e-mails and at other Web sites. job agencies and/ or employers use newsgroups,
online forums, bulletin boards, Internet commercial resume services, and portals
such as Yahoo! Hotlobs and myjobseye.com. Most portals are free; others charge
membership fees but offer many services.
Government agencies and institutions. Many government agencies
advertise openings for government positions on their Web sites and on other
sites; some are required by law to do so. In addition, some government agencies
use the Internet to help job seekers find jobs elsewhere, as is done in Hong
Kong and the Philippines.

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4.5 Real Estate, Insurance, and Stock Trading On Line
Online financial services are exploding on the Internet and are being embraced by
customers. According to Dandapani (2004), online financial services essentially altered
the industry landscape.
Real Estate On Line
The increasing presence and realization of e—commerce possibilities and opportunities
in the real estate business is creating a momentum and a readiness for change and
slowly adding pressure to transform the old ways of doing things in this previously
stable and conservative business. Changes are reaching a tipping point, beyond which
the nature of the real estate business will be altered. The changes have been some
time in coming, but after a long period of quantitative changes experts are beginning to
see some fundamental qualitative changes in the industry. Despite the fact that the
Internet is shaking up the real estate industry, the emerging pattern is more complex
than the simple disintermediation of agents.

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Examples of real estate applications are; Advice to consumers on buying or selling a
home, Commercial real estate listings, Listings of residential real estate, Information on
current mortgage rates, lenders who want to issue mortgages etc.

On-line Insurance
The uptake of EC in the insurance industry is comparatively slow in several countries.
An increasing number of companies use the Internet to offer standard insurance
policies, such as auto, home, life, or health, at a substantial discount. Furthermore,
third-party aggregators offer free comparisons of available policies. Several large
insurance and risk-management companies offer comprehensive insurance contracts
online.

On-line stock trading

In the late 1990s, online trading was an exciting innovation in the financial services
industry. However, the dot-com crash and increasing competition saw consolidation,
cost-cutting, and price reduction become the order of the day. Today the majority of
stock trading is carried out via the Internet, with 12 brokerage firms handling 75
percent of online trades (Cropper 2004). The top three brokerage firms after the 2005
mergers are Ameritrade, Charles Schwab, and E-Trade (Regan 2005a).
The commission for an online trade is considerably low. With online trading, there are
no busy telephone lines, and the chance for error is small because there is no oral
communication in a frequently noisy environment. Orders can be placed from
anywhere, at any time, day or night, and there is no biased broker to push a sale.
Furthermore, investors can find a considerable amount of free information about
specific companies or mutual funds.

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 Chapter Review Questions
13. List the B2C distribution channel models?
14. Describe the click and mortar approach
15. What are the major advantages of the electronic job market tot the candidate?
16. In the Kenyan market what commodities do you thinks would sell fast online? Why?
Turban E. D., Electronic Commerce, 2008 Managerial Perspective (Pearson International
Edition) page 90-117.

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 CHAPTER FIVE

CONSUMER BEHAVIOUR MARKET RESEARCH AND ADVERTISEMENT

Learning Objectives

By the end of this chapter the learner shall be able to;

i. The consumer decision making process

ii. Personalization, loyalty, satisfaction and trust in EC
iii. Methods of conduction market research online

5.1 The consumer decision making process

When consumers making purchasing decisions, people play different roles in the
decision-making process. The major roles are as follows;
Initiator. The person who first suggests or thinks of the idea of buying a
particular product or service.
Influencer. A person whose advice or view carries some weight in making a final
purchasing decision.
Decider. The person who ultimately makes a buying decision or any part of it
whether to buy what to buy how to buy, or where to buy
Buyer. The person who makes an actual purchase.
User. The person who consumes or uses a product or service.
lf one individual plays all of these roles, the marketer needs to understand and target
that individual. When more than one individual plays these different roles, it becomes
more difficult to properly target advertising and marketing efforts.

A generic Purchasing-decision model

A general purchasing—decision model consists of five major phases (Kotler 2005). ln
each phase, we can distinguish several activities and, in some, one or more decisions.
The five phases are (1) need identification, (2) information search, (3) evaluation of
alternatives, (4) purchase and deliver , and (5) post purchase behavior Although these
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phases offer a general idea to the consumer decision-making process, one should not
assume that every consumer’s decision-rnaking process will necessarily follow this
order. In fact, some consumers may proceed to a point and then revert back to a
previous phase, or they may skip a phase altogether.

A Customer Decision Model In Web Purchasing

The preceding generic purchasing—decision model was widely used in research on
consumer-based EC. Below is a framework built by O’Keefe and lVlcEachern (1998) for
a Web purchasing model. As shown in Exhibit 4.2, each of the phases of the purchasing
model can be supported by both Consumer Decision Support System (CDSS) facilities
and Internet and Web facilities. The CDSS facilities support the specific decisions in the
process.

5.2 Personalization, Loyalty, Satisfaction and Trust in EC

Internet marketing facilitates the use of market segmentation and one-to-one
marketing. The issues related to personalization are; personalization, collaborative
filtering, customer loyalty permission marketing and trust.
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Personalization in E-Commerce
Personalization refers to the matching of services, products, and advertising content to
individuals and their preferences. The matching process is based on what a company
knows about the individual user. This knowledge is usually referred to as a user profile.
The user profile defines customer preferences, behaviors, and demographics. Profiles
can be generated in several ways. The major strategies used to compile user profiles
include the following:
Solicit information directly from the user. This is usually done by asking the user
to fill in a questionnaire or by conducting an interview with the user.
Observe what people are doing online. A common way to observe what people
are doing online is through use of a cookie—a data file that is stored on the
user’s hard drive, frequently without disclosure or the user’s consent. Sent by a
remote Web server over the Internet, the information stored will surface when
the user’s browser again accesses the specific Web server, and the cookie will
collect information about the user’s activities at the site. This is a common
strategy but controversial in E-commerce.
Build from previous purchase patterns. For example Amazon.com builds
customer profiles to recommend books, CDs, and other products, based on what
customers have purchased before, rather than asking customers, using cookies,
or doing market research.
Perform marketing research. Firms can research the market using tools that will
be described in the next chapter.
Make inferences. Infer from information provided by customers on other issues
or by analyzing similar customers.
The Internet offers online retailers different ways to tailor services to their
customers, including:
Personalized services. Services built on a one—to—one communication
channel requiring personal data from customers.

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 Individual services. Recommendation services built on the sequence of clicks,
page requests, or items that have been added to the shopping cart. This
approach improves the shopping experience while also maintaining consumer
anonymity.
Universal services. Consumers use the product search function or read
customer reviews. This approach does not require personal or context data.
Customer Loyalty
Customer loyalty refers to ―a deep commitment to rebuy or repatronize a preferred
product/ service consistently in the future, thereby causing repetitive same-brand or
same brand-set purchasing, despite situational influences and marketing efforts having
the potential to cause switching behavior‖. Attracting and retaining loyal customers
remains the most important issue for any selling company including e-tailers. Increased
customer loyalty can bring cost savings to a company in various ways: lower marketing
and advertising costs, lower transaction costs, lower customer turnover expenses, lower
failure costs such as warranty claims, and so on. Customer loyalty also strengthens a
company’s market position because loyal customers are kept away from the
competition.
E-Loyalty
E-loyalty refers to a customer’s loyalty to an e-tailer or a manufacturer that sells directly
online or to loyalty programs delivered online or supported electronically Customer
acquisition and retention is a critical success factor in e-tailing. The expense of
acquiring a new customer can be over $100; even for Amazon.com, which has a huge
reach, it is more than $15. In contrast, the cost of maintaining an existing customer at
Amazon.com is $2 to $4. Companies can foster e-loyalty by learning about their
customers needs, interacting with customers, and providing superb customer service.

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Satisfaction In EC
Given the changing dynamics of the global marketplace and the increasingly intense
competition, delivering world-class customer online experience becomes a
differentiating strategy. Satisfaction is one of the most important consumer reactions in
the B2C online environment. Maintaining customer satisfaction in the online shopping
experience is as important as the high level of satisfaction associated with several key
outcomes (e.g., repeat purchase, positive word-of-mouth, and so on). Eighty percent of
highly satisfied online consumers would shop again within 2 months, and 90 percent
would recommend Internet retailers to others. However, 87 percent of dissatisfied
consumers would permanently leave their Internet retailers without any complaints.
If certain Web site features, such as reliability of content, loading speed, and
usefulness, fail to perform properly, customer satisfaction will drop dramatically In
contrast, if features such as those that make the usage enjoyable, entertaining, and fun
perform well, they will surprise customers and result in a radical jump in customer
satisfaction.
Trust In EC
Trust is the psychological status of depending on another person or organization to
achieve a planned goal. When people trust each other, they have confidence that as
transaction partners they will keep their promises. However, both parties in a
transaction assume some risk. In the electronic marketplace, sellers and buyers do not
meet face to face. Trust is particularly important in global EC transactions due to the
difficulty of taking legal action in cases of a dispute or fraud and the potential for
conflicts caused by differences in culture and business environments. ln addition to
sellers and buyers trusting each other, both must have trust in the EC computing
environment and in the EC infrastructure. If people do not trust the security of the EC
infrastructure, they will not feel comfortable about using credit cards to make EC
purchases.

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Increasing Trust in EC Consumer trust is fundamental to successful online retailing.
Urban et al. (2000) advocated that trust is the currency of the Internet. Trust can be
increased by;
Affiliating with an Objective Third Party. This approach aims at building
consumer trust by affiliating with trusted third parties. Internet stores can put
hypertext links on their Web sites to other trusted targets, including reputable
companies or well-known portals.
Establish Trustworthiness. Trustworthiness can be achieved through three key
elements: integrity competence, and security. Integrity conveys an overall sense
of the ability of the Internet store to build an image of strong justice and fulfill all
of the promises that have been made to the customers (i.e., offering money—
back guarantee with the products and clearly stating the guarantee policy on the
Web.

5.3 Market Research For EC

The objective of market research is to discover information and knowledge that explain
the associations among consumers, products, marketing methods, and marketers. Its
aim is to discover marketing opportunities and issues, to create marketing plans, to
better understand the purchasing process, and to evaluate marketing performance. On
the Web, the objective is to turn browsers into buyers. Market research includes
gathering information about topics such as the economy industry firms, products,
pricing, distribution, competition, promotion, and consumer purchasing behavior.

Methods for Conducting Market Research Online

EC market research can be conducted through conventional methods, or it can be done
with the assistance of the Internet. On the Web market researchers can conduct a very
large study much more cheaply than with other methods. The larger the sample size,
the larger the accuracy and the predictive capabilities of the results.
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Below are the methods used to conduct market research on-line
1. Implementing Web-based surveys - these are becoming popular with companies and
researchers
2. Online focus groups - Several research firms create panels of qualified Web regulars
to participate in online focus groups
3. Hearing directly from customers - customers are asked directly what they think
about a product or service.
4. Observing customers - To avoid some of the problems of online surveys, especially
the giving of false information, some marketers choose to learn about customers by
observing their behavior rather than by asking them questions below are some of
the methods that can be used to collect customer information.
✓ transaction log. A record of user activities at a company’s Web site
✓ clickstream behavior. Customer movements on the Internet
✓ Web bugs. Tiny graphics files embedded on e-mail messages and in Web
sites that transmit information about the users and their movements to a
Web server
✓ Spyware. Software that gathers user information over an Internet
connection without the user’s knowledge
✓ clickstream data. Data that occur inside the Web environment; they
provide a trail of the user’s activities (the user’s clickstream behavior) in the
Web site
✓ Collaborative filtering. A market research and personalization method that
uses customer data to predict, based on formulas derived from behavioral
sciences, what other products or services a customer may enjoy; predictions
can be extended to other customers with similar profiles

Limitations of Online Market Research

– Too much data may be available

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– To use data properly, it should be organized, edited, condensed, and
summarized
– The solution to this problem is to automate the process by using data
warehousing and data mining
– Some of the limitations of online research methods are:
• Accuracy of responses
• Loss of respondents because of equipment problems
• The ethics and legality of Web tracking
• Lack of representativeness in samples of online users

36
 Chapter Review Questions
9. Relate cookies, Web bugs, and spy ware to market research.
10. Describe the limitations of online market research.
11. Describe the issue of trust in EC and how to increase it.
12. Explain how personalization is done in E-Commerce?
Turban E. D., Electronic Commerce, 2008 Managerial Perspective (Pearson International
Edition) page 167-179.

37