Chapter 3: E-Commerce Market mechanisms
E-commerce Notes
3.0 The Digital Revolution and the Economic Impact of EC .......................................1
3.1 Impacts of EC to Organizations...........................................................1
3.11 Business Pressures ............................................................................................1
3.12 Organizational Responses...................................................................................2
3.2 E-Commerce Market Mechanisms ...........................................................................2
3.21 Electronic Marketplaces...........................................................................2
3.3 Categories of E-Marketplaces.............................................................................3
3.4 Supply Chains ................................................................................................3
3.41 Supply Chain Components .....................................................................4
3.42 Types of Supply Chains.........................................................................4
3.5 Value Chain & Value System.....................................................................4
3.51 Effect of EC in Supply Chain & Value Chain .............................................4
3.7 Electronic Catalogs ...................................................................................5
3.71 Classifications of Electronic Catalogs .........................................................5
3.8 Search Engines........................................................................................5
3.81 Search Engines, Intelligent Agents and Shopping Carts ..............................................5
3.9 Exercise:................................................................................................................6
3.0 The Digital Revolution and the Economic Impact of EC
In the digital revolution, the economy is based on digital technologies such as, digital
communication networks, computers, software, and other related information technologies.
Digital revolution is also called Internet economy, new economy or web economy
Digital networking and communication infrastructure provides a global platform where people
and organizations can interact, communicate, collaborate, and search for information. The global
platform includes the following characteristics:
1. A vast array of digitizable products
2. Consumers and firms conduct financial transactions digitally
3. Microprocessors and networking capabilities embedded in physical goods
The term digital economy also refers to the convergence of computing and communication
technologies on the Internet and other networks and the resulting flow of information and
technology that is stimulating e-commerce and vast organizational changes.
This convergence enables all types of information (data, audio, video, etc.) to be stored,
processed, and transmitted over networks to many destinations worldwide. Web-based EC
systems are accelerating the digital revolution by providing competitive advantage to
organizations
Another economic impact of EC is the trade-off between the number of customers a company
can reach (called “reach”) and the amount of interactions and information services they can
provide to customers (called “richness”).
3.1 Impacts of EC to Organizations
The New World of doing Business based on e-commerce is characterized by the following:
• Business pressures
• Organizational responses
• The role of Information Technology (including electronic commerce)
3.11 Business Pressures
Business pressures are related to the business environment. The term business environment
refers to the social, economic, legal, technological, and political actions that affect business
activities. Business pressures are divided into the following categories:
1. Market
The market is global, competitive, and is characterized by a changing workforce and powerful
consumers
2. Societal
E-commerce Notes
These includes factors such as Social responsibility, Government regulations, budgets/ subsidies
and ethics
3. Technology
Technology includes innovations, obsolescence, and Electronic Commerce e.t.c.
3.12 Organizational Responses
Organizational responses include:
1. Strategic systems
Provide organizations with strategic advantages, enabling them to increase their market share,
better negotiate with their suppliers, and outsmart competitors
2. Continuous improvement efforts
Many companies continuously conduct programs to improve, productivity, quality, and customer
service
3. Business process reengineering (BPR)
Strong business pressures may require a radical change. Such an effort is referred to as BPR
4. Business alliances
Alliances with other companies, even competitors, can be beneficial to a business. This can lead
to establishment of virtual corporations. A Virtual Corporation is an electronically supported
temporary joint venture for a specific time-limited mission
5. Electronic markets
Require the collaboration of the different companies and competitors.
6. Reduction in cycle time and time to market
Cycle time reduction refers to shortening the time it takes for a business to complete a productive
activity from its beginning to end. It is extremely important for increasing productivity and
competitiveness
Extranet-based applications accelerate steps in the process of product or service development,
testing, and implementation.
7. Empowerment of employees and collaborative work
Employees are given the authority to act and make decisions on their own which improves
productivity. Empowered sales people and customer service employees make customers happy
and help increase customer loyalty.
8. Supply chain improvements
E-commerce helps in reducing supply chain delays, inventories and eliminate other inefficiencies
9. Mass customization—production of large quantities of customized items
Business problem is how to efficiently provide customization. EC is an ideal facilitator of mass
customization by enabling electronic ordering to reach the production facility in minutes
Note
The task facing each organization is how to put together the components that will enable
the organization to gain competitive advantage by using EC The first step is to put in the
right connective networks e.g. LANs, Intranets e.t.c.
The vast majority of EC is done on computers connected to Internet, Intranet, or Extranet
3.2 E-Commerce Market Mechanisms
3.21 Electronic Marketplaces
Markets facilitate exchange of information, goods, services, and payments. They create
economic value for buyers, sellers, market intermediaries and the society at large.
The three main functions of markets are:
1. Matching buyers and sellers
2. Facilitating the exchange of information, goods, services, and payments associated with
market transactions
3. Providing an institutional infrastructure
Market space Components
A market space is a marketplace in which sellers and buyers exchange goods and services
for money (or for other goods and services), but do so electronically. Components of a
market space include, customers, sellers, goods (physical or digital), infrastructure, front-
end, back-end, intermediaries or business partners, and support services.
1. Customers
Web surfers looking for bargains, customized items, entertainment etc.
2. Sellers
Hundreds of thousands of storefronts are on the web advertising and reaching out to millions via
websites
3. Products
There are two types of products, physical and digital. Physical products can only be delivered in
conventional ways while digital products can be transformed to digital format and delivered over
the Internet.
4. Infrastructure which includes the hardware, software, and networks.
5. Front-end business processes
These include: Seller’s portal, Electronic catalogs, shopping cart, search engine, and payment
gateway.
6. Back-end activities
These are related to:
• Order aggregation and fulfillment
• Inventory management
• Purchasing from suppliers
• Payment processing
• Packaging and delivery
7. Intermediary
A third party that operates between sellers and buyers e.g. banks, insurers, credit card
companies’ e.t.c.
8. Other business partners
Collaborate on the Internet, mostly along the supply chain
9. Support services such as
Certification and trust services and Knowledge providers
3.3 Categories of E-Marketplaces
E-market places can be categorized into:
1. Private e-marketplaces which are online markets owned by a single company.
2. Sell-side marketplaces where a company sells either standard or customized products to
qualified
companies.
3. Buy-side marketplaces in which a company makes purchases from invited suppliers.
4. Public e-marketplaces which includes B2B markets, usually owned and/or managed by
an independent third party, that include many sellers and many buyers (exchanges).
3.4 Supply Chains
The term Supply chain refers to the flow of materials, information, money, and services
from raw material suppliers through factories and warehouses to the end customers.
Supply chains include organizations and processes that create and deliver products,
information and services to the end customers:
It involves activities that take place during the entire product life cycle including movement
of information and money and procedures that support the movement of a product or a
service as well as the organizations and individuals involved.
Illustration: A Simple Supply Chain
3.41 Supply Chain Components
There are three main components of a supply chain:
1. Upstream supply chain which includes the activities of suppliers (manufacturers and/or
assemblers) and their suppliers
2. Internal supply chain which includes all in-house processes used in transforming the
inputs received from the suppliers into the organization’s outputs
3. Downstream supply chain which includes all the activities involved in delivering the
product to the final customers
3.42 Types of Supply Chains
1. Integrated make-to-stock
2. Continuous replenishment
3. Build-to-order—model in which a manufacturer begins assembly of the customer’s order
almost immediately upon receipt of the order
4. Channel assembly—model in which product is assembled as it moves through the
distribution channel
3.5 Value Chain & Value System
Value chain is the series of activities a company performs to achieve its goal(s) at various stages
of the production process; each activity adds value to the company’s product or service,
contributes to profit, and enhances competitive position in the market
Value system refers to a set of value chains in an entire industry, including the value chains of
tiers of suppliers, distribution channels, and customers.
3.51 Effect of EC in Supply Chain & Value Chain
Value chain and the supply chain concepts are interrelated
EC increases the value added by:
• Introducing new business models
• Automating business processes
EC smoothes the supply chain by:
• Reducing problems in the flows of material, money, and information
• facilitating the restructuring of business activities and supply chains
3.6 E-Market Success Factors
The factors to be considered in the E-market include:
1. Product characteristics including type, price and quality.
2. Industry characteristics
3. Seller characteristics
4. Consumer characteristics under which a consumer may be classified as an impulse,
patient or analytical buyer.
3.7 Electronic Catalogs
Electronic catalogs are the presentation of product information in an electronic form. They are
the backbone of most e-selling sites
Evolution of electronic catalogs
Merchants or business people advertise and promote the product while customers act as the
source of information via feedback. They also carryout price comparisons
The electronic catalog consist of
• Product database,
• Directory and search capability and
• Presentation function,
• Replication of text that appears in paper catalogs
The main advantages of electronic catalogs are that they are more dynamic, customized, and
integrated.
3.71 Classifications of Electronic Catalogs
Electronic catalogs can be categorized based on:
Dynamics of information presentation under which a catalog can be static or dynamic
Degree of customization under which a catalog can be ready-made or customized
Electronic catalogs allow integration of:
a). Order taking and fulfillment
b). Electronic payment
c). Intranet workflow
d). Inventory and accounting system
e). Suppliers’ extranet
Customized Catalogs are those which are assembled specifically for a company or an individual
shopper.
Customization systems can:
1. Create branded, value-added capabilities
2. Allows user to compose order
3. May include individualized prices, products, and display formats
4. Automatically identify the characteristics of customers based on the transaction records
3.8 Search Engines
A search engine is a computer program that can access a database of Internet resources, search
for specific information or keywords, and report the results. It involves the use of intelligent or
software agents that can perform routine tasks that require intelligence
3.81 Search Engines, Intelligent Agents and Shopping Carts
E-commerce users use both search engines and intelligent agents
Search engines find products or services
Software agents conduct other tasks (comparisons) that may require some level of intelligence.
Electronic shopping cart is an order-processing technology that allows customers to accumulate
items they wish to buy while they continue to shop
3.9 Exercise:
1. Define the term internet economy and state at least two characteristics and benefits
associated with it.
2. Discuss the impact of Ecommerce to organizations.
3. List down four components of:
a. A market place
b. An electronic catalogue
c. A supply chain
4. List four categories of e-market places.
5. Briefly explain the following terms:
a. Market space
b. Business environment
c. Business process re-engineering
d. Supply chain
e. Intelligent agents
f. Value chain
g. Electronic catalogues
h. Search engine.
6. Suppose you are working for a company that is planning to launch a new product in the
e-market.
What tool would you advice the company to use in order to present the product information to
the users?
