March 17, 2016

Electronic Commerce - Summary of Stair and Reynolds Book Chapter

Chapter 8 - Electronic Commerce

An Introduction to E-commerce

E-commece involves conducting business activities using electronic data transmission involving computers, telecommunications networks, and streamlined work processes.

E-commerce involves business transactions executed electronically between companies (B to B) and
consumers (B to C). Transactions between consumers also became possible through electronic communication. Hence C to C Ecommerce also emerged.

Multistage model for E-commerce

Search and identification

Prepare a list of needed items, browse the online catalogue and fill out an RFQ form.
The heart of any B2C e-commerce system is the customer’s ability to search for and identify
items for sale.
E.g. An employee accesses a catalogue and browses to find the desired machine part.
Bots can be used for search and identification.

Selection and negotiation

Once the price quotations have been received from each supplier, make choices.
The supplier’s service and delivery speed can be important in selection.

Purchasing products and services electronically

Complete the purchase order by sending an electronic form to the supplier.

Product and service delivery

Electronic distribution eliminates inventory problems for manufacturers.

After-sales service

Customer information is captured from the order and stored in the customer database.
Companies can add the capability to answer after-sales questions to their Web sites.

E-commerce challenges

1. To define an effective e-commerce model and strategy.

Three basic components of a successful e-commerce model:
Message boards and chat rooms are used to build a loyal community of interested people.
Providing useful, accurate, and timely content gets people to return to your site.
Commerce involves consumers paying to purchase goods posted / advertised online.

2. To manage shipments of individual units directly to consumers.

Split-case distribution = a system that requires cases of goods to be opened on the receiving
dock and the individual items from the cases are stored in the warehouse.
The distribution system must also be able to ship and track individual items.

3. To integrate Web-based order processing systems with traditional mainframe systems.
Front-end Web-enabled applications need to be integrated to traditional back-end ones.

The E-commerce supply chain

Supply chain management = a key value chain composed of 3 sub-processes:
1. Demand planning
Involves: analysing customers’ buying patterns & developing customer demand forecasts.
2. Supply planning
Allocates the right amount of resources to meet demand and includes: strategic / inventory /
distribution / procurement / transportation planning & supply allocation.
3. Demand fulfilment
Fulfils demands quickly and efficiently and includes: order capturing, customer verification,
order promising, backlog management, and order fulfilment.
Increased revenues and decreased costs
By eliminating steps in order & delivery, more sales can be completed in the same time period
Improved customer satisfaction
More detailed info about delivery dates and current status can increase customer loyalty.
Inventory reduction across the supply chain
Better customer order info reduced inventory at all intermediate storage points.

Business to Business (B2B)

Manufacturers can buy at a low cost worldwide.
Enterprises can sell to a global market right from the start.
Business to consumer (B2C)

E-commerce Applications

Retail and wholesale

Electronic retailing = the direct sale from business to consumer through electronic storefronts.
Cybermall = a single Web site that offers many products & services at one Internet location.
E-commerce software can help you find duplicates, so you can spot opportunities to save.


Electronic exchange (EE) = a forum where manufacturers, suppliers, and competitors buy and sell
goods, trade market information, and run back-office operations.
Advantages of EE: speed, smaller inventory, competitive marketplace, lower prices.
Disadvantages of EE: companies can lose trade secrets, suppliers’ prices are driven down,
expensive to participate in multiple exchanges, government scrutiny of participants…


The Web gives firms more info about customer behaviour than other marketing approaches.
Market segmentation = identifying specific markets and targeting them with adverts.
Relationship management = using detailed info about a customer to set prices, negotiate
terms, tailor promotions and customise the relationship with that customer.

Investment and finance

On-line stock trading

A portfolio tracker allows you to enter info about the securities you own. (= indispensable tool)
You can then access the tracker site to see how your stocks are doing.
You can also program trackers to watch for certain events, like stock prices changing…

On-line banking

With electronic bill payment, you set up a list of frequent payees.
When you want to pay your bills, you enter the code / name, amount, and the date to pay.
Electronic bill presentment = when the biller posts an image of your statement on the Internet,
and alerts you by email that your bill has arrived so you can direct your bank to pay it.


Technology infrastructure


E-commerce solutions should be designed to be upgraded to meet unexpected user traffic.
You can use a third-party company that rents space on its computer system, provides a highspeed
connection to the Internet, and personnel to operate & manage the server.
If you want to take full responsibility for acquiring & operating the Web server hardware &
software instead, you need considerable up-front capital and trained individuals.

Web server software

Apache HTTP server and Microsoft Internet Information Server are the two most popular Web
server software packages.

Security and identification

These services identify and verify employees coming into the server from the Internet.
Access controls provide / deny access to files based on the user name or URL.

Retrieving and sending Web pages

A Web server processes and responds to client requests that are sent using HTTP.

Web site tracking

Web servers capture visitor information, which is placed into a Web log file for analysis.
Web log file = a file that contains information about visitors to a web site.

Web site development

Web site development tools can be used to develop a Web site.

Web page construction

Web page construction software uses Web editors and extensions to produce Web pages.

E-commerce software

5 core tasks that e-commerce software must support:
1. Catalogue management
An interactive catalogue delivers customised content to a user’s screen.
The data required to support large catalogues is stored in a database.
2. Product configuration
Product configuration software is used by buyers to build the product they need online.
This is useful when an item has many components and options.
3. Shopping cart facilities
When you click an item, its details (price, product no…) are stored automatically.
4. E-commerce transaction processing
Basic TP software takes data from the shopping cart and does calculations.
Software can also route order info to shipping companies.
5. Web traffic data analysis
Data captured in the Web log file can be turned into useful info to improve your website.

E-commerce Software

John Drake

Network and Packet Switching

Each network approach relies on basic packet switching technology & the use of routers.
Weigh up: cost, availability, reliability, security, and redundancy issues.

Electronic payment systems

Digital certificate = an email attachment that verifies the sender.
Certified authority (CA) = a trusted third-party organisation that issues digital certificates.

Secure sockets layer

SSL = a communications protocol used to secure sensitive data.
SSL sits above the TCP layer of the OSI model.
Handshake stage: authenticate server - determine encryption algorithm - exchange keys.
Following the handshake stage, data may be transferred.

Electronic cash

You must open an account with a bank and show ID to obtain e-cash.
When you want to withdraw e-cash, go to the bank’s site and present ID (digital certificate).
After verifying the ID, the bank issues you the e-cash and deducts money from your account.
The e-cash is stored in your electronic wallet on your hard drive / smart card.
Identified electronic cash:
Contains info revealing the ID of the person who originally withdrew the money from the bank.
The bank can determine what you bought, where, when, etc…
Anonymous electronic cash (digital cash):
Once it is withdrawn from an account, it can be spent without leaving a transaction trail.

Electronic wallets

Holds credit card info, e-cash, owner ID, and address info.
When consumers click on items to purchase, they just click on their e-wallet to order the item.

Smart, credit, charge, and debit cards

Debit cards allow you to spend only what is in your bank account.
Smart cards are better protected from misuse, because the information is encrypted.

Electronic payments

John Drake

Threats to E-commerce


Biometric technology digitally encodes physical attributes.

Intellectual property

= Items protected by patents, copyrights / trademarks.


On-line auction fraud

It is up to the buyer & seller to resolve details of payment and delivery.
The auction sites offer no guarantees.


Spam allows peddlers to hawk their products instantly at no cost.

Pyramid schemes

Investment fraud

Investment fraud occurs through the sale of bogus investments.

Stock scams

Chat rooms make it easy for scammers to talk up / down a stock based on false information.
Thinly traded stocks are the most easily manipulated in Internet stock scams.


Clickstream data = the data gathered based on the Web sites you visit and what you click on.
Safe harbour principles = a set of principles that address e-commerce data privacy issues.
A company following these principles must notify consumers of the purpose of data collection.

Strategies for successful E-commerce

Developing an effective Web presence

Putting up a Web site

Web site hosting services

Web site hosting companies provide tools & services required to set up a Web page.

Storefront brokers

Companies that act as middlemen between your site and on-line merchants.
Products are displayed on your  Web pages, but orders are handled by another on-line merchant.
The storefront broker is responsible for bringing together merchants and Ecommerce websites. He arranges to display the goods of a manufacturer on number of sites and deals with the details of the transactions. It means he will be in touch with the customers and website people regarding the delivery of the product ordered in case of any problem.

Building traffic to your Web site

A site has to be made search engine friendly. A Meta tag contains keywords representing your site’s content. Web site traffic analysis software or service has to be used to find various attribute about the customers visiting your site and buying from you. That will give you clues regarding the items to stock, deals to propose and communication messages to be developed.

E-Commerce 2014 | Current Global IP Protection Issues




Stanford Center for E-Commerce | Behavioral Advertising and Privacy Law


Stanford Law School

E-Commerce Best Practices | Recent Developments in Privacy Law
stanfordlawschool  2013


Laudon and Laudon on ECommerce in 12th Edition, 2012 of Management Information Systems

Learning Objectives

Ability to answer the following questions
1. What are the unique featues of e-commerce, digital markets and digital goods?
2. What the principal e-comerce business and revenue models?
3. How has ecommerce transformed marketing?
4. How has e-commerce affected business-to-business transactions?
5. What is the role of mobile commerce?
6. What issues must be addressed when building an e-commerce Web site?

E-Commerce Today

E-commerce began in 1995 when accepted  ads.
By 2010, in USA online buyers increased to 133 million and the average annual purchase has gone up to $1,139.

E-Commerce Business Models

Content provider
Transaction broker
Market creator
Service provider
Community provider

E-Commerce Revenue  Models

Sales Revenue
Transaction Fee
Affiliate Revenue

Online Marketing and Advertising Formats

Search engine
Display Ads
Rich media
Affiliate and blog marketing
E-mail advertisement

Web Site Budgets

Simple Ecommerce web sites can be built and hosted with a first year cost of $5,000 or less.

One estimate given by the authors talks 10% of the revenue of a company being spent on e-commerce technology.

The breakup is given as

Hardware 10%
Basic Software    8%
System development  22%
Content design and development 15%
System maintenance  35%
Telecommunications  10%

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