E-Commerce: Mechanisms, Infrastructures and

Tools

BBBA 412
Level 400

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 Learning Objectives
1. Describe the major electronic commerce activities
and processes, and the mechanisms that support
them.
2. Define e-marketplaces and list their components.
3. List the major types of e-marketplaces and describe
their features.
4. Describe electronic catalogs, search engines, and
shopping carts.
5. Describe the major types of auctions and list their
characteristics.
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 Learning Objectives
6. Describe bartering and negotiating online.
7. Understand virtual communities and their
use in e-commerce
8. Describe social networks as an e-commerce
mechanism.

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 The Physical Marketplace
Physical markets play a central role in the
economy, facilitating the exchange of
information, goods, services, and
payments. In the process, they create
economic value for buyers, sellers, market
intermediaries, and for society at large.

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 The Marketplace
Markets (physical of electronic) 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.
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 E-Marketplaces
An e-marketplace (also e-market,
virtual market, or marketspace) is an
electronic space where sellers and
buyers meet and conduct different
types of transactions.

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 E-Marketplaces
The functions of an e-market are the same as
those of a physical marketplace; however,
computerized systems tend to make electronic
markets much more efficient by providing more
updated information and various support
services, such as rapid and smooth executions of
transactions.

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 Physical Marketplace

Online Marketplace

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 Benefits of E-Marketplace
Creates new sales (purchase) opportunities
Eliminates paper and reduces administrative costs
Expedites processing and reduces cycle time
Lowers search costs and time for buyers to find
products and vendors
Increases productivity of employees dealing with
buying and/or selling
Reduces errors and improves quality of services
Makes product configuration easier
Reduces marketing and sales costs (for sellers)
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 E-Marketplaces

Unique features of the e-marketplace:

• Greater information richness
• Lower information search costs for buyers
• Diminished information asymmetry between
sellers and buyers
• Ability of buyers and sellers to be in different
locations

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 E-Marketplace
• E-Marketplaces leverage infotech with
increased effectiveness and lower transaction
and distribution costs, leading to greater
economic efficiencies.
There are three types of e-marketplace
(1) private (2) public, and (3) consortia

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 E-Marketplaces (Marketspaces)
Private e-marketplaces:
Online markets owned by a single company; may be
either sell-side or buy-side e-marketplaces.
Sell-side e-marketplace
A private e-marketplace in which a company sells either
standard or customized products to qualified companies
Buy-side e-marketplace
A private e-marketplace in which a company makes
purchases from invited suppliers

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 Sell-Side Private E-Marketplace
“Sell side e-commerce is e-commerce transactions
between a supplier organisation and its customers,
possibly through intermediaries.”

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 Buy-Side Private E-Marketplace
“Buy side e-commerce are e-commerce transactions
between a purchasing organisation and it suppliers,
possibly through intermediaries.”

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 Public E-Marketplaces
Public e-marketplaces:
B2B marketplaces, 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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Public E-marketplace

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 Consortia
Consortia (Consortium):
A small group of major buyers may create an e-
marketplace to deal with suppliers, usually in the
same industry. A group of sellers may also create
an e-marketplace to deal with industry buyers.
Such e-marketplaces are called consortia. They
can be completely private, where only invited
suppliers can participate, or they can be open to
more suppliers, resembling a public e-
marketplace.
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Participants and Components of
E-Marketplaces

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 Components of E-Marketplaces
1. Customers: millions of people worldwide that surf
the Web are potential buyers of the goods and
services offered or advertised on the Internet. They
are looking for bargains, customized items, collectors’
items, entertainment, and more. They are in the
driver’s seat. They can search for detailed
information, compare, bid, and sometimes negotiate.
Organizations are the major consumers, accounting
for over 85 percent of e-commerce activities.

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 Components of E-Marketplaces
2. Sellers: Hundreds of thousands of storefronts
are on the Web, advertising and offering millions
of items. Every day it is possible to find new
offerings of products and services. Sellers can
sell direct from their Web site or from e-
marketplaces.

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 Components of E-Marketplaces
3. 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 delivered over the Internet.

4. Infrastructure: An electronic market infrastructure

includes hardware, software, and networks.
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 Components of E-Marketplaces
E-Marketplace infrastructure

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 Components of E-Marketplaces
• 5. Front end: The portion of an e-seller’s
business processes through which customers
interact, including the seller’s portal,
electronic catalogs, a shopping cart, a search
engine, and a , payment gateway, etc.

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 Components of E-Marketplaces
• 6. Back end: All the activities that are related
to order aggregation and fulfillment,
inventory management, purchasing from
suppliers, accounting and finance, insurance,
payment processing, packaging, and delivery.

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Components of E-Marketplaces

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Components of E-Marketplaces
7. Intermediaries: an intermediary is a third
party that operates between sellers and buyers.
Intermediaries of all kinds offer their services
on the web. They create and manage online
markets. They help match buyers and sellers,
provide some infrastructure services, and help
customers and/or sellers to institute and
complete transactions. Most of these online
intermediaries are computerized systems.
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Components of E-Marketplaces
8. Other business partners: Shippers, courier
services, insurers, etc. They provide logistics
or fulfillment services as third parties.

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Components of E-Marketplaces
9. Support services: Security providers,
payment facilitators (letter of credit), escrow
services, SGS Inspection/Certification , etc.
These services are created to address
implementation issues in b2b markets.

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 Disintermediation And Reintermediation

• Disintermediation is the removal of intermediaries

by producers in order to deal directly with
customers at a reduced cost to customers.
• This effect of disintermediation was one of the
expected benefits of going online in the early
years of e-commerce (dot.com boom).
• Producers' expectations were not met and many
web businesses collapsed. Producers were not
marketers!

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Disintermediation And Reintermediation
Disintermediation in the downstream value chain

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 Disintermediation And Reintermediation

Reintermediation: Establishment of new

intermediary roles for traditional intermediaries
that were disintermediated.

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 Supply Chains and Value Chains
A supply chain is the flow of materials,
information, money, and services from raw
material suppliers through factories and
warehouses to the end customers. A supply
chain also includes the organizations and
processes that create and deliver these
products, information, and services to the end
customers.

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Supply Chains and Value Chains

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Ultimate Aim of Supply Chain Strategy
Just-in-time and in-right-quantity

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 Types of Supply chain
The integrated make-to-stock (1) supply chain
model focuses on tracking customer demand in
real time, so that the production process can
restock the finished goods inventory efficiently.
This integration is often achieved through use of
an information system that is fully integrated
(such as an enterprise system).

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 Integrated make-to-stock cont’d
Through application of such a system, the
organization can receive real-time demand
information that can be used to develop and
modify production plans and schedules. This
information is also integrated further up the
supply chain to the procurement function, so
that the modified production plans and
schedules can be supported by input materials.

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 Types of Supply chain
The continuous replenishment model (2) is to
constantly replenish the inventory as it declines,
by working closely with suppliers and/or
intermediaries. However, if the replenishment
process involves many shipments, shipping costs
may be too high, causing the supply chain to
collapse.

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Continuous replenishment model cont’d

To avoid this cost problem, real-time information

on changes in demand is required in order to
plan ahead and maintain the desired
replenishment schedules and levels. Such
information can be provided by EDI, extranets,
and other e-commerce systems.

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 Types of Supply chain
Build-to-order (3) is a supply chain model in
which a manufacturer begins assembly of the
customized order almost immediately upon
receipt of the order. This requires careful
management of the component inventories and
supply chain in order to have the needed
materials on hand at each point in the
production process.

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Dell’s Front-end Build-to-Order Model

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 Types of Supply chain
Channel Assembly (4) is a slight modification to the
build-to-order supply chain model is channel
assembly. In this model, the product is assembled as
it moves through the distribution channel. This is
accomplished through strategic alliances with third-
party logistics (3PL) firms, such as Federal Express or
UPS. These services sometimes involve physical
assembly of a product at a 3PL facility, or collection
of finished components for delivery to the customer.

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 Customer Shopping Mechanisms:
Storefronts, Malls, and Portals

Describe the major e-commerce activities and

processes and the mechanisms that support
them.

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Buying Process in an E-market

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 Customer Shopping Mechanisms:
Storefronts, Malls, and Portals
Webstore (or storefront): refers to a single company’s
website where products and services are sold.
Webstores may target an industry, a location, or a niche
market (e.g., cattoys.com). The webstore may belong to
1. a manufacturer (e.g., geappliances.com and
dell.com),
2. a retailer (e.g., amazon.com)
3. individuals selling from home, or to other types of
business.

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 Customer Shopping Mechanisms:
Storefronts, Malls, and Portals
E-mall (online mall)
An online shopping centre where many online
stores are located (Intermediary marketspace)
Types of stores and malls
– General stores/malls
– Specialized stores/malls
– Regional versus global stores
– Pure-play versus click-and-mortar stores

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 Customer Shopping Mechanisms:
Storefronts, Malls, and Portals
Web Portals
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 systems. Finding relevant
and accurate information is often time consuming
and requires access to multiple systems.
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 Selling/Buying Mechanisms

A webstore includes tools for carrying out the

selling/buying process such as:
1. an electronic catalog (Catalogue);
2. a search engine that helps the consumer
find products in the catalog;
3. an electronic shopping cart for holding
items until checkout;

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 Selling/Buying Mechanisms

4. a payment gateway where payment

arrangements can be made;
5. a shipment centre where shipping
arrangements are made;
6. and customer services, which include product
and warranty information and CRM.

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Selling/Buying Mechanisms –
Catalogs and Search Engine

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 Selling/Buying Mechanisms –
Catalogs
Electronic catalogs (e-catalogs)
The presentation of product information in an
electronic form; the backbone of most e-
selling sites

Online Catalogs versus Paper Catalogs

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 Selling Mechanisms: Electronic Catalogs,
Search Engines, and Shopping Carts
Online catalogs advantages
• Ease of updating
• Ability to be integrated with the purchasing
process
• Coverage of a wide spectrum of products
• Interactivity
• Customization
• Strong search capabilities
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 Selling/Buying Mechanisms – E-Shopping
Cart

An electronic shopping cart (also known as shopping bag

or shopping basket) is software that allows customers to
accumulate items they wish to buy before they arrange
payment and check out, much like a physical shopping
cart in a traditional supermarket.
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Selling/Buying Mechanisms – Payment
Gateway

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Selling/Buying Mechanisms - Fulfillment

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Selling/Buying Mechanisms - Searching

A search engine is a computer program that

can access databases of Internet or intranet
resources, search for specific information or
keywords, and report the results. Types of
e-commerce searches:
• Internet/web search
• enterprise search
• desktop search
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 Online Pricing Strategies
Fixed pricing (also called menu pricing):
– Sellers set the price and buyers take it or leave it.
That is, same price for everyone.
– This is the model most brick-and-mortar retailers
use.
Two common fixed pricing strategies used online:

1. Price leadership:
– A price leader = lowest-priced product entry
To implement this strategy, costs must be minimum.
Largest producer = price leader because of
economies of scale.
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 Online Pricing Strategies

2. Promotional pricing:
– Used to encourage a first purchase,
encourage repeat business, and close a sale.
– Carry an expiration date to create a sense of
urgency.
– Promotional pricing on the Internet can be
highly targeted through e-mail messages
and research shows high customer
satisfaction with Internet purchases.

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 Online Pricing Strategies
Price discrimination or price differentiation is
a pricing strategy where identical or largely
similar goods or services are transacted at
different prices by the same provider in different
markets or territories.

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 Online Pricing Strategies
One major characteristic of auctions is that they
are based on dynamic pricing. Dynamic pricing
refers to prices that are not fixed, but are
allowed to fluctuate, and are determined by
supply and demand.

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 Auctions, Bartering and Negotiating Online

One of the most interesting

market mechanisms in e-
commerce is the electronic
auction. Auctions are used
in B2C, B2B, C2C, G2B, and
G2C.

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Auctions, Bartering and Negotiating Online

The Internet provides an infrastructure for

executing auctions electronically at lower cost,
with a wide array of support services, and with
many more participating sellers and buyers than
physical auctions. Individual consumers and
corporations can both participate in this rapidly
growing and very convenient form of e-
commerce.

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Auctions, Bartering and Negotiating Online

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Auctions, Bartering and Negotiating Online

Four major categories of dynamic pricing

– One buyer, one seller
– One seller, many potential buyers
– One buyer, many potential sellers (reverse
auction; name your price)
– Many sellers, many buyers (Double auction)

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 Auctions, Bartering and Negotiating Online
• Auction:
A market mechanism by which a seller places an
offer to sell a product and buyers make bids
sequentially and competitively until a final price is
reached
• Auctions can be done:
– online
– off-line
– at public sites (eBay)
– at private sites (by invitation)
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 Auctions, Bartering and Negotiating Online
• Electronic auctions (e-auctions): Auctions
conducted online
• Host sites on the Internet serve as brokers,
offering services for sellers to post their goods
for sale and allowing buyers to bid on those
items
• Conventional business practices that
traditionally have relied on contracts and fixed
prices are increasingly being converted into
auctions with bidding for online procurements
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Auctions, Bartering and Negotiating Online

1. Forward Auction:
One seller, many potential buyers
 An auction in which a seller entertains bids
from buyers; bidders increase price
sequentially
 Forward auctions used for fast liquidation and
as a selling channel. Price is increasing; the
highest bidder wins

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Auctions, Bartering and Negotiating Online

Forward Auction 68
Auctions, Bartering and Negotiating Online

2. Reverse auction (bidding or tendering

system):One buyer, many potential suppliers
Auction in which the buyer places an item for
bid (tender) on a request for quote (RFQ)
system, potential suppliers bid on the job, with
price reducing sequentially, and the lowest bid
wins; primarily a B2B or G2B mechanism.

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Reverse Auction
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Auctions, Bartering and Negotiating Online

3. One buyer, many potential sellers

(special model) “Name-your-own-price”
model:
 Auction model in which a would-be
buyer specifies the price (and other
terms) they are willing to pay to any
willing and able seller. It is a C2B model,
pioneered by Priceline.com
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Auctions, Bartering and Negotiating Online

4. Double auction: Many sellers, many

buyers
Auctions in which multiple buyers and
their bidding prices are matched with
multiple sellers and their asking prices,
considering the quantities on both
sides - Market
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 Auctions, Bartering and Negotiating Online
5. Online Bartering - e-bartering (electronic
bartering)
Bartering, the exchange of goods and services, is
the oldest method of trade. The problem with
bartering is that it is difficult to match trading
partners. It is time consuming.

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Auctions, Bartering and Negotiating Online

Electronic bartering—bartering conducted online

—can improve the matching process by
attracting more partners to the barter. In
addition, matching can be done faster, and as a
result, better matches can be found. Items that
are frequently bartered online include office
space, storage, and factory space; unused
facilities; and labour, products, and banner ads.
EG: u-exchange.com & swapace.com
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Auctions, Bartering and Negotiating Online

Dynamic prices can also be determined by

negotiation, especially for expensive or specialized
products. Much like in auctions, negotiated prices
result from interactions and bargaining among sellers
and buyers. However, in contrast with auctions,
negotiation also deals with non-pricing terms, such as
payment method and credit. Negotiation is a well-
known process in the off-line world, for example in
real estate, automobile purchases, and contract work.

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Auctions, Bartering and Negotiating Online

Three factors may facilitate online negotiation:

1. Products and services that are bundled and
customized.
2. Computer technology that facilitates the
negotiation process.
3. Software (intelligent) agents that perform
searches and comparisons, thereby providing
quality customer service and a base from which
prices can be negotiated.
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Limitations of Traditional Off-line Auctions

• The rapid process may give potential buyers

little time to make a decision
• Bidders must usually be physically present at
auctions
• Difficult for sellers to move goods to an
auction site
• Commissions are fairly high

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E-Communities

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Virtual Communities and Social Networks

A community is a group of people with common

interests who interact with one another. A virtual
community is one where the interaction takes place
over a computer network, mainly the Internet
(internet communities). Virtual communities, like
physical communities, may belong to entities such
as neighborhoods, clubs, associations, gender
groups, etc. Virtual communities offer several ways
for members to interact, collaborate, and trade.

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Virtual Communities and Social Networks

• Online communities have larger membership

than physical communities.
• Physical communities are geographically
confined to a location whereas online
communities are generally not.
• Online communities may be public or private

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Virtual Communities and Social Networks

Public Online Communities

Communities can be designated as public,
meaning that their membership is open to
anyone. The owner of the community may be a
privately held corporation (e.g., Twitter), public
for profit, or nonprofit organizations. Many of
the large social networks, including Facebook,
belong to the public for profit category.

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Virtual Communities and Social Networks

Private Online Communities

May belong to a company, an association, or a
group of companies and their membership is
limited to people who meet certain
requirements (e.g., work for a particular
employer or work in a particular profession).
Private communities may be internal (e.g., only
employees can be members) or external (for
customers and suppliers).
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Virtual Communities and Social Networks

A virtual community requires

• people
• purpose
• policies
• infrastructure
• a forum administrator

Virtual communities provide social capital.

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 Social Network Service Sites

• A social network is a virtual community whose

members interact, share, and exhibit social behaviors.
They are hosted by social network sites (or services).
• A social network site is a web-based company, such as
Facebook, that provides free Web space and tools for
its community members to build profiles, interact,
share, connect, and create and publish content.
• Facebook is a social-oriented network, LinkedIn is a
business-oriented network and Twitter focuses on
blogging

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 Social Network Service Sites

• Business-oriented social networks, also known as

professional social networks, are social networks
whose primary objective is to facilitate business.
The prime example here is linkedin.com, which
provides business connections and enables
recruiting and finding jobs.
• doximity.com is a medical professionals network
for U.S. physicians and health care professionals.

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 Mobile Social Networking

Mobile social networking refers to social

networking where members chat and connect
with one another using any mobile device.
Mobile social networking is especially popular in
Japan, South Korea, and China, generally due to
better data pricing.

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 Mechanisms of Social Network Sites
• Users can construct a web page where they present
their profile to the public.
• Users can create a circle of friends who are linked
together.
• The site provides discussion forums (by subgroup, by
topic).
• Photo, video, and document viewing and sharing
(streaming videos, user-supplied videos) are
supported.
• Blogs can be used for discussion, dissemination of
information, and much more.
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 Mechanisms of Social Network Sites
• These sites offer community e-mail and instant
messaging capabilities.
• Commonly allow one to one, one to many, many to
many form of communication.
• Online voting may be available to poll member opinions.
• The site may provide an e-newsletter.
• The site provides storage for content, including
• photos, videos, and music.
• Users can find other networks, friends, or topics of
interest.
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 Social Commerce
1. Social commerce is a subset of e-commerce that
involves social media, online media that
supports social interaction, and user contributions to
assist online buying and selling of products and
services.
2. A form of electronic commerce which uses social
networks to assist in the buying of selling of
products. This type of commerce utilizes user
ratings, referrals, online communities and social
advertising to facilitate online shopping.
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 Social Commerce
• Community marketing creates communities around
products
• Able to engage your customer base in a natural setting
• Can strengthen bond between company and
consumer
• Can tighten the feedback loop
• Can be used to reinforce, or manipulate brand image
• Can be used as a "test group" to gauge new products
or advertising campaigns

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 Downside of Virtual Communities
• Many claim offline interpersonal relationships are
affected-No longer know how to communicate in
face to face situations.
• More people looking for partners online rather than
in bars or cafes or through offline friends.
• Claims that marriages are destroyed due to online
affairs through communities
• Claims that virtual communities are an escape from
real world problems.
• More people stay at home rather than to go out and
socialize – Meetup.com tries to fix this problem!

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 Social Software Tools: Weblogs and Wikis
The term ‘blog’ is short for weblog. A blog is a series of
entries, or posts created by someone on a website,
stored in chronological order, are searchable, and
allows readers to comment on your content.

A wiki (wikilog) is blog that allows everyone to

participate as a peer; anyone may add, delete, or
change content in a collaborative manner.

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Social Software Tools: Weblogs and Wikis

A wiki website operates on a principle of

collaborative trust. The simplest wiki programs
allow users to create and edit content. More
advanced wikis have a management component
that allow a designated person to accept or
reject changes. The best known example of a
wiki Web site is Wikipedia.

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Social Software Tools: Weblogs and Wikis

 No one owns content  A person owns their

 No specific post
organization  Organized in reverse
 Anyone can edit other chron. order
people’s work  Only author can edit
their own work
(others can comment)

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 Managerial Issues
1. Should we use auctions for selling?
2. Should we barter?
3. How do we select merchant software?
4. How can we use Facebook and other social
networks in our business?
5. Shall we take part in virtual worlds?

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Thank you for your attention!

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