Advantages and Disadvantages of Electronic Commerce
The Web as a Commercial Medium
As a commercial medium, the Web offers a number of important benefits
which can be examined as both the consumer and the firm levels.
Consumer benefits arise primarily from the structural characteristics
of the medium and include availability of information, provision of search
mechanisms, and online product trial, all of which can lead to reduced
uncertainty in the purchase decision. Firm benefits arise from the potential
of the Web as a distribution channel, a medium for marketing communications,
and a market in and of itself. These efficiencies are associated with Web
technology and the interactive nature of the medium.
Consumer benefits
Access to More information
One important consumer benefit associated with marketing on the Web is
the access to greater amounts of dynamic information to support queries
for consumer decision making. The Hermes survey of Web users found gathering
purchase-related information was the most preferred Web activity (Gupta,1995).
Further, the interactive nature of the Web and the hypertext environment
allow for deep, nonlinear searches initiated and controlled by customers.
Hence marketing communication on the Web are more consumer-driven than
those provided by traditional media. In addition, recreational uses of
the medium, manifested in the form of non directed search behavior, can
be an important benefit to consumers intrinsically motivated to use the
medium.
Easier Market research and comparison
The ability of the Web to amass, analyze, and control large quantities
of specialized data can enable comparison shopping and speed the process
of finding items. The Web facilitates trial (AA,1995) and provides instant
gratification; customers can test products online which may stimulate purchase.
There is also the potential of wider availability of hard-to-find products
and wider selection of items due to the width and efficiency of the channel.
Lower Costs & prices
Increased competition in procurement as more suppliers are able to compete
in an electronically open marketplace cause a greater compatition which
naturally lowers prices and costs. This increase in competition, leads
to better quality and variety of goods through expanded markets and the
ability to produce customized goods.
Benefits to the Firm
Better Distribution
Firm benefits arise partly from the use of the Web as a distribution channel.
First, the Web potentially offers certain classes of providers participation
in a market in which distribution costs or cost-of-sales shrink to zero.
This is most likely for firms in publishing, information services or digital
product categories. For example, digital products can be delivered immediately,
hence such businesses may encounter massive disintermediation or even the
eventual elimination of middleman. Moreover buyers and sellers can access
and contact each other directly, potentially eliminating some of the marketing
cost and constraints imposed by such interactions in the terrestrial world.
This may also have the effect of shrinking the channel and making distribution
much more efficient (mainly due to reduced overhead costs through such
outcomes as uniformity, automation, and large-scale integration of management
processes). Time to complete business transaction may be reduced as well,
translating into additional efficiencies for the firm. However, such potential
efficiencies must be tempered with market realities.
Businesses on the Web transfer more of the selling function to the customer,
through online ordering and the use of full-out forms, thus helping to
bring transactions to a conclusion. This permits a third benefit in the
form of capture of customer information. The technology offers the firm
the opportunity to gather market intelligence and monitor consumer choices
through customers' revealed preferences in navigational and purchasing
behavior in the Web. Note however that there are many social, legal and
technology issues and drawbacks at the present level of technology which
prevent firms from fully capitalizing on this benefit.
Marketing Communications
At the present time, most firms use the Web to deliver information about
the firm and its offerings for both internal communication with other firms
and consumers. The interactive nature of the medium offers another category
of firm benefits since it is especially conducive to developing customer
relationships. This potential for customer interaction, which is largely
asynchronous under current implementations, facilitates relationship marketing
and customer support to a greater degree than ever before possible with
traditional media.
Web sites are available on demand to consumers 24 hours a day. The interactive
nature of the medium can be used by marketers to hold the attention of
the consumer by engaging the consumer in an asynchronous "dialogue" that
occurs at both parties' convenience. This capability of the medium offers
unprecedented opportunities to tailor communications precisely to individual
customers, allowing individual consumers to request as much information
as desired. Further, it allows the marketer to obtain relevant information
from customers for the purpose of serving them more effectively in the
future.
The simplest implementations involve engaging customers through the
use of E-mail buttons located strategically on the site. More sophisticated
implementations may involve fill-out forms and other incentives designed
to engage customers in ongoing relationships with the firm. The objective
of such continuous relationship-building is dual-pronged: to give consumers
information about the firm and its offers and to receive information from
consumers about their needs with respect to such offerings. Hence, effective
customized advertising, promotion and customer service is the fifth benefit
that the commercial Web offers to the firm.
Most importantly, the Web offers opportunity for competition on the
"specialty" axis instead of the price axis. From a marketing perspective,
it is rarely desirable to compete solely on the basis of price. Instead,
marketers attempt to satisfy needs on the basis of benefits sought (TK),
which means pricing is dependent upon value to the customer, not costs.
Such opportunity arises when the offering is differentiated by elements
of the marketing mix other than price. This results in the delivery of
value-laden benefits, for example, convenience through direct electronic
distribution of software, or enjoyment through a visually-appealing and
unusual Web site. As evidence that this is occurring, consumers indicated
that price was the least important product attribute considered when making
online purchases (Gupta,1995). The ability to compete on dimensions other
than price become especially critical in categories where brands are perceived
as substitutes, since it allows for more opportunities to differentiate
along other dimensions.
Operational Benefits
Operational benefits of Web use for industrial sellers are reduced errors,
time, and overhead costs in information processing; reduced costs to suppliers
by electronically accessing on-line databases of bid opportunities, online
abilities to submit bids, and online review of awards. In addition, creation
of new markets and segments, increased generation of sales leads, easier
entry into new markets (especially geographically remote markets) and faster
time to market is facilitated. This is due to the ability to reach potential
customers easily and cheaply and eliminate delays between the different
steps of the business subprocesses.
The Deficiencies and Risks involving Electronic Commerce
As a commercial medium, the Web also offers a number of important deficiencies
and risks involving marketing communications. Not like the benefits which
can be examined at both the customer and the firm levels, the risks are
mainly examined at the firm level. In this way, we can address both demand
and supply issues. Firm risks and deficiencies arise primarily from the
structural characteristics of the medium and include changing business
environment, technological issues and drawbacks at the present level of
technology, privacy problems, legal questions, public and social policies,
larger competition, and of course, costs. These deficiencies are associated
with Web technology and the interactive nature of the medium.
Electronic Commerce Applications for Firms
Changing Business Environment and Technological Issues
The traditional business environment is changing rapidly as customers and
businesses want the flexibility to change trading partners, platforms and
networks at will. It is not possible to put a figure on this cost, as it
will depend on the existing level of technology use in the firm, and the
extent to which it want to become involved in electronic commerce. As a
minimum the firm will need a personal computer, modem, and a subscription
to a Value Added Network (VAN). A business with more extensive involvement
in electronic commerce will be able to incorporate electronic commerce
in purchasing, financial, and accounting systems.
The Privacy and Security Problem
A serious deficience arise from the use of the Web as a marketing channel.
60% of the users do not trust the Web as a payment channel. Buying through
the Web is being made by using credit card number and it is still not safe
to feed it into the net, without anyone know. Anyone who transfers data
of a credit card on the Web, can not be sure about the salesman's identity;
the salesman can not be sure about the buyer's identity; the one who pays
can not be sure that his credit card number will not be collected somewhere
in the Web and be used to some malicious purposes; and the salesman can
not be sure that the credit card owner will not deny the acquisition.
The Legal Questions and Public-Social Policies
Regarding the previous problem, this issue is one of the major issues regarding
electronic commerce. There are number of questions concerning marketing
through the Web: validity of an electronic signature, non-reputability,
legality of an electronic contract, risk, trademark and copyright violations,
loss of right to trademarks, loss of right to trade secrets and liability.
There are also government's soles, regulations, economic policies and censorship.