Training Module III: Buying and selling online
Objectives
The module 3 aims to provide perspectives of buyers and sellers, introduction to different e-business models with
classic cases.
Materials
Flip charts, PowerPoint presentations, a computer for web site demonstrations, and/or an overhead projector.
This module will go through the essentials of possible strategies, based on buyers and sellers'
perspectives, to engage in e-business, their advantages and disadvantages and their particular benefits.
First of all, before we begin into buying and selling, let's examine why people shop online? Here are a
few reasons behind this:
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Enables consumers to shop or do other transactions 24 hours a day, all year round from almost
any location
Provides consumers with more choices
Provides consumers with less expensive products and services by allowing them to shop in
many places and conduct quick comparisons
Allows quick delivery of products and services, especially with digitized products
Consumers can receive relevant and detailed information in seconds, rather than in days or
weeks
Allows consumers to interact with other consumers n electronic communities and exchange
ideas as well as compare experiences
Facilitates competition, which results in substantial discounts
At the same time, there is a big myth about the unknown world of the Internet. So, many people are still
keeping away from the Internet shopping based on a few following reasons:
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A.
Security and Privacy
o Difficult to convince customers that online transactions and privacy very secure
Customers do not trust:
o Unknown faceless sellers
o Paperless transactions
o Electronic money
Switching from a physical to a virtual store may be difficult
Lack of touch and feel online
Many unresolved legal issues
Expensive and/or inconvenient accessibility to the Internet
E-payment is not in place in many places
How it works: Expectation and Reality
Buying and selling something is an event when two parties or more engage in a commercial transaction.
So, an e-commerce transaction has two roles: buyer(s) and seller(s). Each of these roles has its own agenda,
but the logical assumption of a commerce transaction is that both parties want to cooperate to find a mutually
acceptable solution. Each of these roles as a set of beliefs, and expectations about its own purpose and agenda
in a transaction, as well as beliefs and expectations about the other role's.1
Both buyer and seller roles have "comfort zones" built into the relationship based on their expectations
and experience: perhaps the buyer believes that s/he can trust a car dealer only so far, or perhaps, a merchant
will extend credit to people whom s/he knows. This flexibility can be exploited by dishonest participants, but
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www.philosophe.com/commerce/roles.html
should one of the parties have reason to doubt this search of a mutually acceptable outcome, the entire
commerce transaction becomes more difficult and may fall apart in distrust.
Figure 1: Online consumer behaviour model
E-commerce is still new enough that participants are still trying to get a handle on how the rules of
commercials interaction apply to this new medium. The burden of smoothing the transition to online commerce
falls to the creators and owners of e-commerce sites, because when a commercial transaction falters through
misunderstanding or distrust, a typical buyer-to-be won't spend any effort analyzing the contradictory message
cues or violated role-playing expectations. When a potential customer is frustrated, s/he will exit; the merchant
has the investment in fostering the relationship, and so had better understand the mechanics of the relationship,
starting with the roles.
1. Buyer: From the Point-of-View of the Buyer
Buyers expect three important actions from a typical transaction; anything that interferes with these
three actions is going to bother the buyer:
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3.
Want to make the decision to purchase something (what, when, budget, trust, etc.)
Want to effect payment for this something (correct charges, security, protection, etc.)
Want to assume ownership of what they purchased (status of order, delivery, etc.)
If the merchant fails to meet the buyers’ expectations – whether the expectations are fail or accurate –
the buyer will be dissatisfied. Delayed orders face the possibility of cancellation.
2. Buyer: From the Point-of-View of the Seller
The larger ecommerce web sites tend to treat individual buyers as statistics. Sales count as indications
of trends: more click-through, more page hits, more traffic all means more revenue. Pleasing the individual user
is usually not a priority. Getting the users to recognize the site’s branding is a priority, however, because the
assumption is that exposure will translate to patronage.
3. Seller: From the Point-of-View of the Buyer
Buyers (online shoppers) seem to look for some of the following general characteristics when choosing
between sellers (e-commerce merchants):
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The perception of the cheapest price: Numerous studies show that people comparison shop
online for the cheapest price.
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The perception of fewer hassles:
The different commerce “engines” or applications
accommodate user of expectations (e.g., user-friendliness) with different degrees of success.
The perception of trustworthiness: A user must decide to trust an e-commerce site before
making a purchase, and this decision is based on a perception and judgment of the site’s
trustworthiness.
The visibility of the site: The user’s awareness of a site has an obvious effect on their potential
to purchase from the site. Advertising, public relations, and media play all contribution to
increase consumer awareness about a site, but none of these speaks to the quality or
trustworthiness of the site.
4. Seller: From the Point-of-View of the Seller
From the seller’s point of view, the e-commerce site is out there on the web to make money. The goal is
to generate always increasing traffic, so visibility is essential. Advertising, press releases, media exposure,
partnerships –these all are tremendously important for creating and maintaining public awareness of the site.
The critical concerns governing the decision making process become: will a proposed change drive traffic to the
site, and will it interfere with the basic ability to purchase from the site?1
5. Intermediaries
There are many other players or roles in the world of e-business/e-commerce called intermediaries, who
may process the merchandise in the warehouse, may ship the merchandise, may deliver it, may process
transactions, may support post-sales, etc.
6. Buyers-sellers-intermediaries: Put all together
There are four major categories of e-business/e-commerce based on dynamic pricing:
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One buyer, one seller –negotiation, bargaining
Many buyers, many sellers – dynamic exchanges
One seller, many potential buyers –forward (regular) auctions
One buyer, many potential sellers –reverse auction, tendering
Figure 2: Buyers and sellers in B2B e-business
Figure 3: Buy-side and sell-side e-commerce
B.
Types of E-Business Models
E-Business models have been defined and categorized in many different ways. In the implementation,
a business can combine several different models as part of its overall e-business strategy. The basic categories
of business models are as follows:
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Brokerage model
Advertising model
Merchant model
Manufacturer model
Subscription model
Affiliate model
1. Brokerage model
Brokers are market-makers. They bring buyers and sellers together and facilitate transactions. Brokers
play a frequent role in business-to-business (B2B), business-to-consumer (B2C), or consumer-to-consumer
(C2C) markets. Normally, they generate revenues from charging a broker fee or commission for each transaction
they enables. The formula for fees can vary. The types of this model that are frequently seen include;
Types
Auction Broker
Function
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Transaction Broker.
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It is the oldest form of brokerage model. It conducts auctions for sellers
(individuals or merchants).
Broker charges the seller a listing fee and commission scaled with the value of
the transaction. Auctions vary widely in terms of the offering and bidding rules.
Visit www.ebay.com, and www.alibaba.com for reference.
Auctions (Annex):
o English auction
o Yankee auction
o Reverse auction
o Proxy format auction
o Dutch auction
o Express or flash auction
It acts as a third-party payment mechanism for buyers and sellers to settle a
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transaction. Transaction cost is the major revenue.
Visit www.paypal.com, and www.escow.com for more references.
Search Agent.
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A software agent used to search-out the price and availability for a good or
service specified by the buyer, or to locate hard to find information. For
example, a job search site (www.jobdb.com)
Virtual Marketplace
(virtual mall).
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It offers a hosting service for online merchants that charges setup, monthly
listing, and/or transaction fees. It sometimes provides automated transaction
and relationship marketing services.
Visit www.amazon.com for a reference.
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2. Advertising model
The web advertising model is an extension of the traditional media broadcast model. In this case, a web
site is working as if a broadcaster. It usually offers all users a free of charge content and services. The site can
generate revenues form posting advertising messages in the form of banner ads. The broadcaster may be a
content creator or an aggregator of content created elsewhere. The advertising model works best when the
volume of viewer traffic is large or highly specialized.
Types
Function
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Portal
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It is a search engine that may include varied content or services. A high
volume of user traffic makes advertising profitable and permits further
diversification of site services. A personalized portal allows customization of
the interface and content to the user. A niche portal cultivates a well-defined
user demographic.
Visit www.yahoo.com for a reference
Classifieds
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It consists of listed items for sale or wanted for purchase. Listing fees are
common, but there also may be a membership fee.
Content-Targeted
Advertising
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Pioneered by Google (www.google.com), it extends the precision of search
advertising to the rest of the web. Google identifies the meaning of a web page
and then automatically delivers relevant ads when a user visits that page.
3. Merchant model
The merchant
only on the web. Sales
by the site’s look and
customer experiences.
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may like to expand their offline businesses into selling online, or even start with selling
may be made based on list prices or through auctions. Online merchandising is defined
feel; its functionality including site performance and customer shopping options; and
The model deals with the following factors:
Product presentation
Site map -how the user gets around the site
Online ordering – shopping cart
Functional use of technology – search, personalization features
Customer service – on phone, communication by email
The backend – order processing through shipping company
Programs fostering customer loyalty and retention
Retailers and wholesalers that sell goods and services online are also known as “e-Tailers.” The
merchants may be extending their physical or “brick and mortar” store into an online store, or starting from
scratch and selling only on the Internet. Many mail-order businesses have successfully moved their catalogue
and ordering systems to the Internet. 2
4. Manufacturer model (or Direct model)
One of the key opportunities for the Internet is the capacity for manufacturers to reach buyers directly,
therefore improving the efficiency of the distribution chain. An online presence has become essential for
manufacturers. The Internet provides the ultimate way to get in touch with customers, to conduct market
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www.business.vic.gov.au/BUSVIC/STANDARD/1001/PC_50918.html
research, and to establish loyal relationship with individuals. Customers have been suggested a new way to
shop, search for a global products and brands. Moreover they feel more comfortable because of time and cost
saving, and availability of 24 hours a day. The model allows a manufacturer to reach directly and thereby
compress distribution channel. So, the heart of this model is based on having a better understanding of customer
preferences, and improved customer service. Visit www.dell.com for reference.
5. Subscription model
A user needs to pay a fee while getting more in depth information that they would like to know. For
example, web sites offering news, market survey may provide a brief summary at first. A user may be asked to
pay for a subscription on a periodical daily, weekly, or monthly basis before having the whole version.
6. Affiliate model
The affiliates provide purchase/service-point-check through to the merchant e.g., banner exchange,
revenue sharing.
C.
Classic Cases
1. Ebay (www.ebay.com) – B2B/C2C
Ebay.com is one of the phenomena of the Internet age. It is the world’s largest online auction for
individuals and now they are expanding their services beyond the auction. An individual can go to the web site
(ebay.com) and find what he or she wants to buy through selecting featured items, browsing by category, and/or
doing a search the whole site or selected categories. eBay popularized the concept of buying and selling online,
and both individuals and commercial enterprises list items for sale. There is no charge to browse the site or
make bids and purchases, but there is a fee to list items. If an item is purchased, the seller pays eBay an
additional fee. Millions of items are offered, and billions of dollars worth of merchandise are sold every year
through this services.3
Launched in 1995, eBay has made numerous acquisitions over the years, including the PayPal payment
service in 2002 and the Skype voice over IP (VoIP) service in 2005. Through its PayPal service, eBay enables
various businesses or consumers with email in 45 countries to send, and in 44 countries to receive online
payments. On February 23, 2005, it acquired Rent.com, an Internet listing web site in the apartment and rental
housing industry.3
At December 31, 2004, the Company had web sites directed toward many countries in different parts of
the regions including the United States, Australia, China, France, India, Italy, Malaysia, Philippines, Singapore,
South Korea, and the United Kingdom. In 2005, it had the revenue of US$4.55 billions and net income of
US$1.08 billions.
What make eBay work? eBay connects people who previously could not be connected economically
(new possibility). Now, that creates users’ motivation to participate (buy/sell) stronger, which leads to rapid
success over the years.
In consequences, there is a rapid growth of person-to-person auctions, rise of “questionable” auction items, end
of flea markets and garage sales, creation of new markets, specialized trading, and facilitation others.
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www.answers.com/ebay
2. Amazon.com (www.amazon.com) - B2C
Amazon.com is an online retailer which has been one of the most successful e-commerce companies. It
mainly focused on selling books, but expanded its scope to DVDs, software and music, later added more
consumer items ranging from apparels to gourmet foods. The success stems from the fact that the company
maximizes the power of databases to analyze customer preferences, undertake individualized marketing, allow
the sales of second hand items and facilitate customer participation by encouraging reviews and creation of
recommended book lists.
By the year 2000, more than 60,000 other web sites were linked to Amazon.com. The number is likely
triple that today. Amazon’s net sales for 2005 rose to almost $8.49 billion. This number is so far above any other
online shopping site as to make comparisons difficult or meaningless. 4
Based on the success in the United States, the company also expanded geographically to Canada
(www.amazon.ca), UK (www.amazon.co.uk), Germany (www.amazon.de), France (www.amazon.fr), Japan
(www.amazon.co.jp) and China (www.joyo.com), to attract people in over 24 countries around the world to open
an Amazon account and buy from any site as long as they pay shipping fee and other additional fees and duties.
Meanwhile, these web sites are designs to enable millions of unique products to be sold by companies
and by third parties across the product items including apparel, books, camera, DVDs, tools, toys, and so on.
The item of amazon.com apparel section (www.amazon.com/apparel) is a good example to claim its
success. More than one million customer accounts continue to purchase many brand name items offered by 200
apparel sellers since its launch in November 2002. Sales in the first two months of 2004 were up approximately
90 per cent year on year. The most online purchases included 52,000 pairs of shoes, 48,000 pairs of pants and
jeans, 25,000 pairs of underwear, 21,000 jackets, coats and fleeces, and 15,000 men’s dress shirts. The
www.joyo.com offers more than 300,000 books, music, video and DVD titles, making it the largest Chinese
bookstores in the world.
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How to sell anything on amazon and make a fortune
3. Dell Computer (www.dell.com) – B2C/B2B
Dell Computer is another good example exploiting the power of Internet and uses it to breakdown
traditional boundaries. The company started in 1984 with $1,000 to sell computers directly to consumers. By
using the Internet to receive orders with personalized specifications, Dell could slash the inventory cost and time
which normally takes to assemble a computer. The inventory turnover was shortened to 7 days when the industry
average was 80 days or more.
Presently, the company becomes the world’s no.1 direct sale computer vendor that designs, develops,
manufactures, markets, sells, and supports a full range of computer systems and services by customizing to
customer’s requirements. These include enterprise systems (servers, storage, workstations, and networking
products), client systems (notebook, and desktop computer system), printing and imagining system, software and
peripherals, and global services. The company markets and sells directly to customers who are corporate
account, and government, healthcare and education industries, as well as small and medium businesses and
individual customers.
The company’s strategy focuses on customer. It set up and manages the manufacturing facilities and
sales offices throughout North America, Europe, Asia and South America to stay close with customers wherever
they are. The company also launched the Internet sites at www.dell.com, making another channel to customers
to not only take advantage of online tools, but also be able to communicate directly when they have requirements
before and after sale service.
4. Alibaba.com (www.alibaba.com) - B2B/C2C
Alibaba.com, one of the best know Chinese Internet companies, is a global B2B marketplace for
products and services in various categories including Agriculture, Chemicals, Telecommunications, Office
Supplies, Home Appliances, Security & Protection, Food, and Gifts&Crafts. Its vision is to become the number
one destination for buyers and sellers among small and medium sized enterprises (SMEs) to find trade
opportunities and promote their business online.
Through the use of Internet search engine technology, buyers and sellers will be able to find new
business partners and make modifications to their strategic approach after evaluating the product offerings and
prices of competitors.
Beginning the business with $60,000 and a dream, Alibaba.com was officially established in Hangzhou,
China in March 1999, by a group of young Chinese Internet pioneers led by Mr. Jack Ma. Today, it has registered
approximately 1,000,000 business members worldwide. Its business model soon drew great attention in the
international IT industry and attracted various institutional investors, including Goldman Sachs and Softbank.
Additionally, governments and non-governmental organizations in the USA, Japan, Singapore, India, Taiwan,
and Europe recommend Alibaba as the B2B website of their choice.
Alibaba.com was selected by Forbes magazine as "Best of the Web: B2B" twice (2000 and 2001) and
was voted as the most popular B2B website by readers of the Far Eastern Economic Review in November, 2000.
Harvard University has twice chosen Alibaba for MBA case studies.
Alibaba.com CEO Jack Ma was nominated one of the Global Leaders for Tomorrow by the World
Economic Forum in 2001, also being honored as a recipient of the Asian Business Association Business
Leadership Award in the same year.
5. TARAD Dot Com 5(www.Tarad.com) – B2C
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Note: Tarad is a Thai word meaning a market.
Founded in 1999 by a middle aged Thai Mr. Pawoot Pongwittayapanu, TARAD Dot Com is a provider of
innovative and integrated e-Marketplace, e-Commerce, Merchant Service, advertising tool, and e-Marketing
consultation. The www.tarad.com is Thailand’s biggest “B2C” e-marketplace. There are over 47,000 merchants
signing up to open stores in the site. By taking advantage of building a concept of virtual community mall, the
web site can generate revenues from selling online advertising.
Presently, it operates three web sites of www.tarad.com (B2C, 47,000 merchants),
www.thaisecondhand.com (C2C), and www.taradebid.com, (C2C, eAuction), all of which record over 2 million
users per month relatively)
By taking advantage of building a virtual community concept, they also generate revenues from selling
online advertising, product listing fees, etc.
Reference
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Alibaba, www.alibaba.com
Amazon, www.amazon.com
Bellomo, Michael, How to sell anything on amazon and make a fortune, 2006
Business.vic.gov.au, www.business.vic.gov.au/BUSVIC/STANDARD/1001/PC_50918.html, Types of
eBusiness
Dell, www.dell.com
Ebay, www.ebay.com
Escow, www.escow.com
Google, www.google.com
JobDB, www.Jobdb.com
Paypal, www.paypal.com
Philosophe.com, www.philosophe.com/commerce/roles.html, A thoughtful approach to web site quality
Tarad, www.tarad.com, www.taradebid.com, www.thaisecondhand.com
Yahoo!, www.yahoo.com