December 13, 2003

E-COMMERCE holds a lot of potential for both consumers and businesses. Its potentials can be viewed from three different perspectives: (a) a communication platform, where information is delivered over networks; (b) a tool for cutting costs and providing superior customer services; (c) last but not the least as a flourishing market for buying and selling information and products online.

E-commerce is all about growth and exploration of new business opportunities. Today technology is considered to be a major driver of strategies and re-engineering of a business. Since e-commerce has changed the way companies do business, it has also changed the way company’s supply chain works.

A supply chain comprises a manufacturer, distributor, wholesaler and retailer at the very end. Retailers after understanding the tremendous potential that e-commerce holds for them have developed applications that link them with their supplier or manufacturer. All of this has to do with cutting costs and to prevent overstocking.

E-commerce has also transformed the whole consumer buying model/mercantile model. What do I mean by this? Well, in order to understand this concept we will have to take a look at both the traditional model as well as the new model that is being followed by e-retailers. The traditional business model was all about producing goods, selling them to the wholesalers, from where it went to the distributors and finally the retailer. The retailers were the people who were responsible for selling goods to the end-consumer.

One thing is for sure that this model was not only time consuming but also has high costs of warehousing, logistics, etc. This model was very volatile to prevailing market situation where not only large organizations and businesses need to cut costs and provide their customers with quality stuff and services. So we can say that the modern economy and market mechanism renders the old model obsolete.

If we look at the new business model with respect to the prevailing market situation we will find out that all these requirements of cutting costs, getting low on expenses are being met effectively and efficiently. For this the companies launch their websites and offer to sell their products online in a catalogued fashion. This makes it easy for the consumer to browse through different product categories, comparing products and picking the one that suites them the most. Happy customers are all you need these days because then they will come back again and again.

An example here would surely help. Levi’s, the famous jeans manufacturer used to distribute its product to various retailers etc. but as soon as they realized the tremendous potential that e-commerce holds for them, they started selling their apparel on the internet through their own virtual shops. This is what we call “e-retailing”. Similarly CK, Land-Send Dockers, etc, followed. Here I don’t mean to say that every garment manufacturer wants to sell their products over the internet, but the whole concept lies in the displaying of your offering to the target market on the internet. All of this not only helped them in displaying their products but also helped them in cutting intermediaries like the wholesaler and distributor (no pun intended).

Now that we have touched upon the concept of e-retailing briefly, let us get into the details. As I have already mentioned that in the traditional supply-chain model we being the retailers were approached by the customers, but now it’s the other way round. Everyday in our mail boxes we get e-newsletters from different companies telling us about their products and discounts etc. what does this show? We being the customers now are approached by the retailers (feeling grand, isn’t it!!). Here is where we have the “reverse supply-chain” concept: The retailer approaching the customer.

EC has had a huge impact on internet users. It has completely transformed the way customers shop for products and services. As the retailers have now opted to go on the net, customers find it more comfortable to shop for products without getting into the hassle of looking for the right kind of product for hours, going from mall to mall etc.

 

Factors

The important factors that a retail business has to consider before becoming an e-retailer are given below:

Over-production and excess supply: Usually companies are under pressure with increasing operating costs and declining margins. They produce high volumes without worrying about the fact that they will face overstocking. Once overstocked the retailer say “No” on receiving more stocks ultimately resulting in more losses. The retailer should keep the producers well informed about the re-order point so that they keep away from delays. Then the amount re-ordered should be such that it prevents excess supply.

Changing consumer behaviour: With e-retailing gaining mass appeal from internet users (both consumers and businesses), consumer behaviour has shown a massive change. Now with the upcoming “Generation X” that is more enlightened about technology and latest happenings around them, feel more at ease by shopping for products on-line. They are more receptive to discounts and getting full value for every penny they pay.

At present, customers are no longer influenced by brand names. Here I am talking about the masses. New customers are not willing to pay the premium for brand names but are more responsive to quality and value. Clearly e-retailers who provide the best value i.e. prices, service and selection, regardless of their brand name will be the winners in the time to come.

Technological enhancements: Today e-retailing is still far from being a competitive threat to the traditional store retailing, but it is sprouting and becoming increasingly attractive as technology improves and the e-eetailers get into the groove. When we are talking about Pakistan where the concept still remains unknown, e-retailing will evolve after we are able to implement E-commerce related laws for online buying and selling and develop a fool-proof infrastructure to carry out all these transactions online, etc.

I would like to mention some names that have taken this bold step of setting up an E-Retail Outlet which will surely be functioning in a couple of months. MallPK.com is a good venture by the Kal-Soft, a, GerrysNet has Pakistanishop.com, which is another appealing venture into the world of e-retailing.

Microsoft’s Expedia.com and Yahoo’s Travelocity.com are good examples of e-retailing, when we are specifically talking about the online reservation sites. Not only are these companies providing their users with service but are also giving them the value for their money. This group is catering to the market for busy travelers who prefer making their own travel arrangements any time and anywhere over the internet. Booking tickets online has dramatically reduced the cost of printing tickets on paper as they no longer require printed tickets. One more thing that saved these companies some green bucks were cutting off the intermediaries like the travel agents who used to charge commission on each ticket sold.

 

Infrastructure basis

So this was all about the basic concepts of e-retailing and its requirements. Now, we’ll sneak into e-retailing infrastructure. There are certain steps that are involved in e-retailing. These steps are also touched upon briefly below:

Contents and products: Yes, an e-retailer has to be very careful about the web-contents and his product offerings. Like most e-retailers e.g. amazon.com, yahoo.com, barnesandnobles. com, cnet.com, etc, should be able to get feedback from customers so that he keeps inventory of those products that are highly rated because then it shows which products are in demand.

Merchant service: Another important part of an e-retailer’s infrastructure is having the services of a merchant. By merchant I am referring to merchant accounts. These accounts are to be opened with banks e.g. Citibank [at prsent the only bank providing people with merchant account service here in Pakistan]. Kalsoft’s MallPK.com is a good example where Kalsoft has developed first of its kind portal for online shopping. It is utilizing Citibank’s merchant services too.

Authenticity & authorization: One of the most sensitive issues that have come up on buying and selling stuff online is security. In fact the whole of the internet is at the moment cursed with this problem. But when we are talking about an e-retailer then he needs to be more cautious of all this security threat. He should know who his customers are and what they want. He should be careful in authenticating and authorizing people who are genuine buyers. The buyer selects the products and enters all his information i.e. credit card, validity, etc, which then goes to the e-retailer’s servers, where it gets verified and only then is the buyer authorized to buy the product.

The authorization process takes place only when the billing department decrypts the payment details and checks for the buyer’s account balance/credit. All this process involves the billing services interaction with the buyer’s bank. Once authorized, the buyer is sent the receipt of transaction.

Transfer of funds: Once authorized the buyer is allowed to shop for the items he wants and finds interesting. Now after all the verification about the person, etc, the vendor gives the green signal to the retailer i.e. e-retailer that the man has all the finds required to cover the cost of the product as well as the transaction. All of this takes place electronically and in a few seconds. All this becomes convenient for the buyer because he isn’t going to wait for minutes in queries to get acknowledgment, etc.

Product delivery: The last step in the e-retailing infrastructure is the product delivery. Here, after all necessary transactions are done the product is hipped within certain days as mentioned for each product, to the buyers. Usually, an e-retailer keeps his account with a courier service company that has its branches usually all over the world e.g. UPS, is the registered courier of Amazon.com throughout the world. Similarly there are other companies like Fedex that’s all over the world serving various clients throughout.

Finally, I would like to touch upon the various challenges that traditional retailer have to overcome in order to survive in a highly competitive e-retail market. First of all, they should be able to design an attractive and interactive layout for the retail outlet, so that it’s easy for the customers to just browse through various sections of the outlet. Then comes the need of pricing your products and services in such a manner that it boosts your sales and makes customers come back to your e-shop again for more. Always take that access charge off your products. What will it do? First, of all it will lower the price of the product and the “free delivery” phrase will be most appreciated by the customer.

Giving away discounts on bulk purchase and customers who keep coming back for more.

The last but the most important thing that an e-retailer has to watch out for is managing the channel conflict. By this I basically mean to say that an e-retailer should look for the best and cheapest way to get products to its customer. Internet got rid of that problem. As I mentioned earlier e-retailing will do away with all the intermediaries, thus reducing time and increasing customer satisfaction e.g. Wal-Mart, one of the biggest discount stores in the USA has gone on the net (wal-mart.com) and has introduced an integrated system through which it keeps in touch with all its suppliers who keep a record of their stocks and the time when they run out of stock, thus dispatching new stocks to the location. All this system is now applicable to both traditional and e-retailing companies. This was all about e-retailing, challenges its facing and the e-retailing infrastructure.

The writer contributes IT-related articles to Dawn ScienceDotcom

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