This paper focuses on the rapidly growing area of e-commerce, more so with the emergence of the National Information Infrastructure. Many companies are positioning themselves to gain from the efficiencies and effectiveness derived within its operations of an e-commerce environment. The paper explains transactions cost theory, its effects on the economizing on coordination cost and rapid cost performance improvement that could be conducted via the e-commerce environment. It explains how the e-commerce environment could substantially reduce profit margins, as consumers will be spoilt with choices expecting cheaper goods whilst firms will be competing for consumers thus reducing its product’s prices to stay competitive. Hence, the article suggests that firms would resort to marketing restriction methodology to retain its existing customers.
Furthermore, the overall expansion of the e-commerce environment would have an impact on the existing supply chain management, hence emphasising the need to rethink and redefine the value/supply chain management resulting in the value/supply chain reconfiguration. As the evolving infrastructure would link the various groups, namely producers of information, producers of physical goods, electronic retailers, electronic markets, physical distribution networks and electronic channels, the article suggests that an essential market choice box would emerge as a critical technological device to link these groups.
Over recent years information technology has experienced an unprecedented degree of changes, enabling the transformation of the basic mechanisms of business. This transformation is accelerating, supported by new computer based applications to facilitate business process, new systems to capture information on customers and new methods of communication, within and between organizations and their customers/suppliers. This phenomenon has resulted in the emergence of the electronic commerce age. It has led firms to rush into establishing a presence in this new virtual marketplace (Business Week, 1994). As stated by Hoffmann and Novak (1997) the Internet represents a new paradigm shift to businesses. Benjamin and Wigan (1995) state that ‘it is becoming increasingly difficult to delineate accurately the borders of today’s organization’.
The reported benefits to the firms deploying e-commerce include increased efficiency of order processing, reduced cost due to just-in-time inventory management, locking in of trading partners and greater ability to customize products and services based upon information arising from the transactions (Cash & Konsynski, 1985; Johnson & Vitale, 1988). In the euphoria of benefits, i.e. efficiencies, effectiveness and cost reductions, firms should not forget the cost of infrastructure, maintenance and resources needed for an e-commerce environment. Please refer to Appendix A – Apparel Company Takes A Gamble
The emergence of e-commerce has raised the prospect of radical changes to the traditional business process. This was further illustrated in 1994, when the first Internet bank, First Virtual was launched (http://www.thocp.net/timeline/1994.htm. – 12/1/04). However, as in any traditional business strategy, it imperative for the organization to understand the different factors that affect consumers’ participation. According to Chaffey (Chapter 9, p 335 – 2000) the following factors should be considered in e-commerce environment: Access – Major factor, as access in the e-commerce environment equates to consumer participation.
However, on the worldwide basis, a relative small proportion of the population has access to the Internet, i.e. less than 10% of the population. The emergence of e-commerce will significantly impact the traditional marketing concepts and the customer relationship management, Hoffman and Novak (1996). Drafting of the e-marketing strategies should have similar elements to a traditional marketing strategy, such as those defined by McDonald (1999) and Kotler (1997) however difference in the e-environment need to be considered. In the past, the planning process has been conceived as an annual event, but as McDonald (1999) points out, this is no longer relevant in a dynamic business environment. The era of e-marketing accentuates this trend. Strategies will have to be reviewed frequently. Ultimately, however, the fundamental marketing mix (4P’s) will determine who wins in markets of the future for either electronic or brick & mortar operations.
For the consumers, the biggest lure to Internet shopping is convenience. Want to browse through a bookstore 24/7 without having to go outside? Companies such as Amazon.com Inc and Barnes & Noble Inc ring up millions of dollars in sales each day by operating vast web sites that effectively let customers do just that. Consumers also are using the web to hunt for bargains, trade stocks at rock-bottom commission rates and gather information about purchases they will make later in the real world.
For the businesses, online commerce is enticing mainly because of its intense efficiency. Once a web is built, it can take orders around the clock and field countless customers-service queries, without losing tempers or requiring coffee breaks. Product catalogs can be updated constantly, without the extra trips to the printer and up-to-the-minute data about what are selling (what isn’t), discounts and offers becomes accessible with a few mouse clicks (http://interactive.wsj.com – 17/12/03). The CEO of Kodak was alleged to have said, that he couldn’t tell if Kodak’s website makes money, however he was sure that the website is the most personal way of selling since the door to door salesmen, only now the customers were knocking on Kodak’s door. In order for marketing efforts to succeed in this environment, a new business paradigm is required in which the marketing function is reconstructed to facilitate e-commerce.
However, online commerce may create new problems. With customers able to gather huge amounts of data via the Internet and then go comparison-shopping, profits margins may get squeezed. This then becomes a survival situation for some companies. In addition, many of the cost savings measures are at the expense of human resources, thus creating a national employment ‘headache’ for the Government.
The e-commerce environment has made marketing easier however challenging as consumers demands and needs increases. Hence, it is important that firms gain important insights into customers’ nature and needs. This desire to establish long-term customer relationship with increasingly sophisticated demands and needs has led many firms to seek new ways of acquiring, managing and utilising customer information (Peters and Fletcher, 1995). However, with the sheer growth of the Internet, finding relevant information is becoming difficult, hence consumers might shift to traditional ways of buying. Firms have to ensure that the ‘shift and select’ of information is done on their behalf. Here many firms rely on intermediary, however the concern of issues such as privacy, trust and security (Schell, 1996) are highlighted.