The New Commerce: E-Business

The core of business has not changed: it is still about making a profit by selling a product or service to an audience that needs it. But the methods by which this have done are dramatically changed.

The author indicates businesses gain a competitive advantage by selling online (EN: he misunderstands the concept, and overlooks many of the actual advantages) and customers appreciate the convenience, but feels that :may people lament the los of personal contact" and have lost the benefit of personalized service and social relationships with merchants.

He raises a question about whether e-commerce is even viable, or if it will tail (EN: at the time, in the wake of the dot-com crash, it was an entirely valid question) and suggests that, if it is to survive, both merchants and customers will need to embrace some fundamental changes in their notion of a customer-vendor relationship.

Opportunities for Merchants

The author asserts that merchants have been drawn to the web by the misperception that the medium is cheap and effective in attracting a large body of consumers. They "severely underestimated" the level of effort required to establish an online presence that would attract and retain an audience, and seem surprised that their meager efforts have had correspondingly meager results.

The author has a nice analogy of a kid setting up a makeshift lemonade stand and expecting to compete with Coke and Pepsi.

The author schematizes tasks in the buying process according to his matrix:

A merchant should take a more holistic view of the buying process, rather than focusing on each individual purchase as an independent action performed in a vacuum.

From there, it's random thoughts: MCI's "friends and family" plan is an innovative way to capitalize on consumer advocacy and get your customers to promote your product. Shopping sites that make it easy for customers to compare prices, undermining loyalty to merchants. There are user groups of all kinds where people inevitable end up talking about products and companies, even when the context seems purely non-commercial. The harm that "Scammers and spammers" have done to trust.

Advantages for Customers

As an information medium, the Internet provides the user with easy access to a wealth of information about products and merchants, from companies, the media, and one another. Comparing products and prices and making an informed buying decision has never been easier.

In some instances, consumers who prefer to buy offline still shop online, gathering information before visiting a merchant. This is especially true of big-ticket purchases (automobiles, real estate, loans)

On a basic level, a "good deal" is a matter of price. An extreme viewpoint is that customers want to obtain every product as cheaply as they can without compromising on service. A more realistic one is that consumers are willing to negotiate a fair deal, but have an eye toward the deals that others got - specifically, that the lowest price offered by any merchant to any consumer is the "right" price, and that any other is overcharging, and that some customers are willing to accept trade-offs (buying in bulk, taking delivery at a later date) to obtain a discount.

Beyond price, customers consider features (the example of automobiles - in which there are many options), style (aesthetics), and intangibles (a customer might insist on an American-made product). These variances create special classes of demand, addressed as niche markets when they occur in sufficient quantity.

Early Web retail strategy concerned itself with disintermediation - eliminating the middleman and his mark-up (EN: though in truth, the supplier often pocketed the difference rather than offering a lower price to consumers.) Conversely, some strategies introduced a new intermediary to the process, a vendor who assembled products from a range of vendors (EN: which is no different than the retail store model in managing product selctions).

The concept of "relationship" is in vogue, with the sense being that a good relationship with the customer facilitates resale or sale of other merchandise (preempts the customer feeling the need to shop elsewhere). Advertising is still needed to attract new customers, but relationship management is necessary to retain the existing ones and increase share-of-wallet.

An aside on "complaint sites" where customers crab about the problems they have encountered. There are traditional groups like the Better Business Bureau and Chamber of Commerce (EN: these entities have always sided with the businesses, who pay membership fees) as well as independent consumer sites. (EN: Aside of sites, there are individuals who mention companies in private Web pages, particularly blogs, that can easily be aggregated using a search engine).

The point is this: that the Internet empowers consumers to get what they want from companies, and to punish companies who fail to provide it by communicating to other potential customers on a large scale.

Consumers also enjoy greater negotiating power through price comparison sites, and there are even services that reverse the power, enabling the consumer to solicit bids, such as the Priceline "name your price" feature for travel or sites that make banks "compete" to sell a loan to a customer.

The author suggests that the Web enables group shopping, multiple buyers forming a "co-op" to aggregate negotiation power for a quantity og goods (EN: this has not been realized in a significant way thus far.)

Personalization and Customization

One of the features of the Web is its ability to collect data about every user action and make meaningful decisions on merchandising based on user activities by analyzing server logs, click stream data, purchase history, and other observable phenomena (EN: it is not unique, merely easier to do online than in a physical environment).

In addition to customizing the shopping experience based on the behavior of customers as a whole, there is also the ability to personalize Web sites to the individual user. This can be done by the customer, if options are provided, or the merchant (automated logic based on action and reaction).

Customer reactions are mixed: on one hand, there are privacy concerns and users fear that merchants are collecting "too much" information and will use it to take advantage or discriminate; on the other hand, customers are often pleased when merchants recognize them and tailor services to their needs. It can be a delicate balance.

There is also the balance of stability: if a site is new and different with each visit, it can be argued that it arouses interest, but it also makes each shopping experience an unfamiliar one, and users are frustrated by not being able to find what they had seen once before, particularly for routine purchases.

There is "empirical evidence" that suggests the number of clicks from home page to product page is a factor - the more clicks, the less likely the customer is to find and purchase the product. However, where product selection is large (e.g., a retailer with 40,000 items), it is often a choice between more clicks or long menus.

Calling attention to specific items is an "art form," in that any promotion of a product is intrusive upon the customer's focus on something he already wants to buy, and can have a detrimental impact on sales and customer base. This is a problem for promotion, but also for personalization (when the products you assume the customer will want are not, in fact, what he wishes to buy on a given visit).

To Trust or Not To Trust

Trust is a critical element of the customer relationship, especially in the online medium. Among customers who refuse to shop online at all, the chief reasons for their reluctance are trust-related issues. To complicate the problem, trust is fragile: difficult to create, easy to undermine, and extremely difficult to recover once it has been lost.

The author turns to a political theorist (Fukuyama) who defines trust as an expectation of "regular, honest, and cooperative behavior" - it is primarily an expectation of future behavior, based on past experience and present observation.

Computer scientists have concentrated on building reliable equipment; now e-business and e-service providers are trying to win your trust. They want you to get past your hesitation and type in your credit card numbers.

Security is a basic element of trust - the fear that your personal information (credit card number) may be compromised. Beyond that, customers must trust merchants to deliver as promised. It is also bilateral, in that a merchant must trust that a person presenting themselves as a customer is who they claim to be.

Some loose points:

The Skeptic's Corner

The author asserts that e-business is well established, but there is a still a risk that consumer trust can be undermined by old-school merchants whose deceptive or draconian practices scare away good customers and scammers who use e-commerce sites as a front to obtain personal information. There is also the fear that government regulation (including additional taxes on electronic commerce) could interfere and drive customers back to traditional channels. The author suggests that widespread acceptance of "the new computing" attitude and practices will help to counter this.

EN: I am doubtful that businesses will be motivated out of fear of damaging the medium, but at the same time confident that customer service and customer experience will continue to be a competitive advantage for the companies that are willing to invest in doing it right.)