E-Commerce

  

E-Commerce

By

Dr.K.ChitraChellam

E-Commerce (electronic commerce) is the buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the Internet. These business transactions occur business-to-business, business-to-consumer, consumer-to-consumer or consumer-to-business. E-commerce is conducted using a variety of applications such as e-mail, fax, online catalogues, shopping carts, electronic data interchange, file transfer protocols and web services.

The major driver of e-commerce is the digital revolution. We come across digital revolution at home and work, in business, schools and hospitals, on roads and even on wars. One of the major aspects of digital revolution is the digital economy. The term digital economy refers to an economy that is based on digital technologies, which include digital communication networks (the internet, intranets, extranets, and VANs), computers, software and other information related technologies. In this new economy, digital networking and communication infrastructures provide a global platform over which people and organizations interact, communicate, collaborate, and search for information. The digital revolution accelerates e-commerce mainly by providing competitive advantage to organizations.

Today, business environment is more complex and is characterized by a more turbulent environment, more business problems and opportunities, stronger competition, the need for organization to take decisions more frequently and the need for more information and knowledge for taking decisions. In order to succeed and to survive in this environment, companies must not only take traditional actions such as lowering costs and closing unprofitable facilities, but also introduce innovative actions such as customizing, creating new products, or providing superb customer service. These two activities, that is, traditional actions and innovative actions are together known as critical response activities. Many response activities can be greatly facilitated by e-commerce. In today’s dynamic business environment, e-commerce is the only solution to various business pressures and it has become the necessity to compete or even survive.

Definition of e-commerce:

            E-commerce is the process of buying, selling, transferring, or exchanging products, services, and information via computer networks, including the internet. European Union Website has defined e-commerce as “E-commerce is a general concept covering any form of business transaction (or) information exchange executed using information and communication technology between companies, between companies and their customers (or) between companies and public administrations”. E-commerce can also be defined from the following perspectives:

From a communications perspective, E-commerce is the delivery of goods, services, information or payments over computer networks or by any other electronic means.

From a commercial perspective, E-commerce provides the capacity of buying and selling products, services and information over the internet and via other online services.

From a business process perspective, E-commerce is doing business electronically by completing business processes over electronic networks, thereby substituting information for physical business processes.

From a service perspective, E-commerce is a tool that addresses the desire of governments, firms, consumers, and management to cut service costs while improving the quality of customer service and increasing the speed of service delivery.

From a learning perspective, E-commerce is an enabler of online training and education in schools, universities and other organizations including businesses.

From a community perspective, E-commerce provides a gathering place for community members to learn, transact, and collaborate.

E-Business

            E-business (electronic business) also has a number of different definitions and is used in a number of different contexts. E-commerce is the conduct of business on the internet, not only buying and selling but also servicing customers and collaborating with business partners. E-business includes customer service (e-service) and intra-business tasks. It is the transformation of key business processes through the use of internet technologies. The development of intranet and extranet is a part of e-business. E-business is related to back – end systems in an organization. In practice, e-commerce and e-business are often used interchangeably.IBM was one of the first to use the term ‘E-business’ in October 1997, when it launched a campaign built around e-business.

History of E-commerce

            History of e-commerce dates back to the invention of the very old notion of “sell and buy”, electricity, cables, computers, modems, and the internet. E-commerce became possible in 1991 when the internet was opened to commercial use. Since that date thousands of businesses have taken up residence at web sites.

            At first, the term e-commerce meant the process of execution of commercial transactions electronically with the help of the leading technologies such as Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT) which gave an opportunity for users to exchange business information and do electronic transactions. The ability to use these technologies appeared in the late 1970s and allowed business companies and organizations to send commercial documentation electronically. 

            Although the internet began to advance in popularity among the general public in 1994, it took approximately four years to develop the security protocols (for example, HTTP) and DSL which allowed rapid access and a persistent connection to the internet. In 2000 a great number of business companies in the United States and Western Europe represented their services in the World Wide Web. At this time the meaning of the word e-commerce was changed. People began to define the term e-commerce as the process of purchasing of available goods and services over the internet using secure connections and electronic payment services. Although the dot-com collapse in 2000 led to unfortunate results and many of e-commerce companies disappeared, the “brick and mortar” retailers recognized the advantages of electronic commerce and began to add such capabilities to their web sites.

            In 2000, internet users exceeded 360 million. By the end of 2001, the largest form of e-commerce, business-to-business (B2B) model, had around $700 billion in transactions. According to all available data, e-commerce sales continued to grow in the next few years and, by the end of 2007, e-commerce sales accounted for 3.4 percent of total sales.

            E-commerce has a great deal of advantages over “brick and mortal” stores and mail order catalogs. Consumers can easily search through a large database of products and services. They can see actual prices, build an order over several days and e-mail it as a “wish list” hoping that someone will pay for their selected goods. Customers can compare prices with a click of the mouse and buy the selected product at best prices.

            Online vendors, in their turn, also get distinct advantages. The web and its search engines provide a way to be found by customers without expensive advertising campaign. Even small online shops can reach global markets. Web technology also allows to track customer preferences and to deliver individually-tailored marketing.

            History of e-commerce is unthinkable without Amazon and Ebay which were among the first internet companies to allow electronic transactions. Thanks to their founders we now have a handsome e-commerce sector and enjoy the buying and selling advantages of the internet. Currently there are 5 largest and most famous worldwide internet retailers: Amazon, Dell, Stables, Office depot and Hewlett Packard. According to statistics, the most popular categories of products sold in the World Wide Web are music, books, computers, office supplies and other consumer electronics.

Amazon.com, Inc. is one of the most famous e-commerce companies and is located in Seattle, Washington (USA). It was founded in 1994 by Jeff Bezos and was one of the first American e-commerce companies to sell products over the internet. After the dot-com collapse Amazon lost its position as a successful business model, however, in 2003 the company made its first annual profit which was the first step to the further development.

            At the outlet Amazon.com was considered as an online bookstore, but in time it extended a variety of goods by adding electronics, software, DVDs, video games, music CDs, MP3s, apparel, footwear, health products, etc.

            According to the research conducted in 2008, the domain Amazon.com attracted about 615 million customers every year. The most popular feature of the web site is the review system. i.e. the ability for visitors to submit their reviews and rate any product on a rating scale from one to five stars. Amazon.com is also well-known for its clear and user-friendly advanced search facility which enables visitors to search for keywords in the full text of many books in the database.

            One more company which has contributed much to the process of e-commerce development is dell inc., an American company located in Texas, which stands third in computer sales within the industry behind Hewlett-Packard and Acer. In 2011, there were nearly 2 billion internet users and users in over 200 countries were connected.

            History of e-commerce is a history of a new, virtual world which is evolving according to the customer advantage. It is a world which we are all building together brick by brick, laying a secure foundation for the future generations.

E-commerce in India

            The origin of e-commerce in India coincides with the introduction of internet connectivity in the country in 1989. As such, e-commerce in India is in its infancy. Historically, Rediff-on-the-net, one of India’s leading online services, set up India’s first e-commerce on August 13, 1998. Then, India entered the age of e-commerce the day the government deregulated the Internet Service Provider (ISP) policy in November 1998.

            Since then, there is no looking back and the country is proliferating in internet. The rate of growth of penetration of internet has been spectacular. It took radio 50 years to have 50 million owners. Television (TV) 16 years and personal computer 17 years. But it has taken internet only 4 years to reach that figure after the invention of WWW and browsers.

            Till now, internet penetration in India is about 0.5 per cent of the population against 50 per cent in Singapore. Nevertheless, India is fast emerging as the largest country for registering domain names in the entire Asia-Pacific region. According to the latest dotcom index for the year up-to February 2000, India occupies 11^th place in it after US. UK,Korea, Canada, France, Germany, Japan, China, Spain and Italy. Presently, India has nearly 35 ISPs in various stages of operations. Added to these are 187 more ISPs granted licences. The popular ISPs already providing access to internet in the country are the Videsh Sanchar Nigam Limited (VSNL), Mahanagar Telephone Nigam Limited (MTNL), Satyam Online, BT Internet, Intel India, Max India, Quark, HCL Perot, Infosys, Future Divices and Dishnet. Satyam Online, India’s largest ISP mega corporation got over 1,15,000 subscribers across the country.

            As of March 31, 2000, there were 7.5 lakh Internet connections in the country with 3.2 million Internet users. According to Forrester Research, over 27 million households in India will access the Internet by 2003. National Association of Software and Service Companies (NASSCOM), the apex body and Chamber of Commerce of India’s software-driven IT industry, has recently released findings of its survey to evaluate the E-commerce scenario in India. As per the findings of the survey, the total volume of e-commerce transactions in India was about Rs.131 crore in the year 1998-99.

            Out of this volume, about Rs.12 crore were contributed by retail internet or business-to-consumer transactions and about Rs.119 crore were contributed by business-to-business (B2B) transactions in B2B transactions.

In B2B transactions both buyers and sellers are known to each other and enjoy sufficient mutual trust. Added to it is that B2B transactions are relatively of higher value and companies trading on internet offer very high and attractive cost-saving options. But, such a situation is not obtainable in case of B2C transactions. Another point worth mentioning is that the expansion of e-commerce in India, so far, has been uneven concentrating in a few metropolitan cities, namely, Bangalore, Hyderabad, Mumbai and Delhi.

The common man residing in rural areas of the country is however, still unaware of happening in Information Technology (IT) sector. Obviously, mush progress in e-commerce cannot be achieved until the country’s vast rural sector is not brought within the folds of internet. Hence, hitherto untouched rural sector by internet so far offers a great potential for e-commerce in India. The former US president, Bill Clinton during his visit to India in March 2000 also hailed India’s remarkable progress in IT sector and also remarked that India has the potential to become the world’s largest economy using the power of internet. It is a matter of great satisfaction that today India is the fifth largest market in the world in terms of purchasing power. About 8 per cent of India’s population has a per capita income exceeding US$ 3,500 which is 80 million people. In nutshell, e-commerce has set in but much is yet to be tapped in this respect in the country.

            India’s e-commerce market was worth about $3.8 billion in 2009, it went up to $12.6 billion in 2013. In 2013, the e-retail segment was worth US$2.3 billion. About 70% of India’s e-commerce market is travel related. Electronics and apparel are the biggest categories in terms of sales.

            India had an internet user base of about 375 million (30% of population) during 2015. Despite being the second largest user base in world, only behind China (650 million, 48% of Population), the penetration of e-commerce is low compared to markets like the United states(266M, 84%), or France (54M, 81%), but is growing at an unprecedented rate, adding around 6 million new entrants every month.

In India, cash on delivery is the most preferred payment method, accumulating 75% of the e-retail activities. Demand for international consumer products is growing much faster than in-country supply from authorized distributors and e-commerce offerings. During 2015, six Indian e-commerce companies namely Flipkart, Snapdeal, InMobi, Quikr, Olacabs and Paytm.

            As per “India Goes Digital”, a report by Avendus Capital, a leading Indian Investment Bank specializing in digital media and technology sector, the Indian e-commerce market is estimated at Rs.28,500 crore ($6.3 billion) for the year 2011. Online travel constitutes a sizable portion (87%) of this market today.

 Another big segment in e-commerce is mobile/DTH recharge with nearly 1 million transactions daily by operator websites. New sector in e-commerce is online medicine. Company like Reckwing-India, Buyonkart, Healthkart already selling complementary and alternative medicine where asNetMed has started selling prescription medicine online after raising fund from GIC and Steadview capital.

Key Drivers in Indian e-commerce

Ø  Large percentage of population subscribed to broadband internet, burgeoning 3G internet users, and a recent introduction of 4G across the country.

Ø  Explosive growth of Smartphone users, soon to be world’s second largest Smartphone user base.

Ø  Rising standards of living as a result of fast decline in poverty rate.

Ø  Availability of much wider product range (including long tail and direct imports) compared to what is available at brick and mortar retailers. 

Ø  Competitive prices to brick and mortar retail driven by disintermediation and reduced inventory and real estate costs.

Ø   Increased usage of online classified sites, with more consumers buying and selling second –hand goods.

Ø  Evolution of Million –Dollar startups like Jabong.com, Makemytrip, Bookmyshow, Zomato etc

Benefits of E-commerce

            E-commerce provides benefits to organizations, individual customers and society.

Benefits to organizations

            E-commerce offers the following benefits to the organization:

• ·         Using e-commerce, organization can expand their business to national and international markets with minimum capital investment.
• ·         An organization can easily get more customers, best suppliers and suitable business partners across the world.
• ·         E-commerce improves the brand image of the company.
• ·         E-commerce helps organization to provide better customer services.
• ·         E-commerce helps the organization to simplify the business processes and make them faster and efficient.
• ·         E-commerce reduces the paper work and decreases the cost of creating, processing, distributing, storing and retrieving paper-based information.
• ·         Excessive inventories and delivery delays can be minimized with electronic commerce. (for example E-commerce makes it possible to do business seven days in a week and for 24 hours in a day (24*7)
• ·         E-commerce enable efficient procurement that can reduce administrative costs by 80 per cent or more, reduce purchase prices by 5 to 15 per cent, and reduce cycle time by more than 50 per cent. 
• ·         It is easy to start and manage the business. there is no need to establish a business premises.
• ·         E-commerce reduces the telecommunication costs because internet is much cheaper than value added networks (VANs)
• ·         Digitization of products and processes are possible particularly in case of software and music/video products which can be downloaded or e-mailed directly to customers via the internet in digital or electronic format.
• ·         E-commerce also offers benefits like increased productivity, increased access to information, reduced transportation costs and increased operation and trading flexibility.

Benefits to consumers:

                        E-commerce offers the following benefits to consumers:

• ·         Customers can do business transactions or they can make enquiry about the product or service at any time and from any place.
• ·        E-commerce provides internet users more options. The customers can compare and select the cheaper and better option.
• ·         Quick delivery of product is possible.
• ·         E-commerce saves the shopping time of consumers.
• ·         Customers can get detailed information about the price and features of the product within few seconds.
• ·         Customers can easily participate in virtual auctions.
• ·         Customers can customize the products according to their requirements.
• ·         Customers can buy products which are not available in physical stores.
• ·         Customers can put review comments about a product and can see what others are buying.
• ·         Increased competition among the electronic stores has resulted in offering more discounts to consumers.
• Benefits of E-commerce to society

·         E-commerce enables people to work from home. It is not only convenient but also provides happier and less stressful working environments.

·         Some products are sold at lower price. So even less affluent people can buy the products online. Even people from rural areas can buy products online.

·         E-commerce facilitates delivery of public services like health care, education and government services at a reduced cost and improved quality.

Limitations of E-commerce

·         E-commerce is suitable only for internet users.

·         Online business is not trusted by customers as there are many cases of frauds and faulty payments.

·         Consumers are fearful to send their credit card numbers over the internet.

·         Computer viruses may cause unnecessary delay.

·         E-commerce is not suitable for perishable commodities which require proper storage and warehousing.

·         E-commerce is not suitable for small traders.

·         Consumers have to make a lot of phone calls and send e-mails for getting the products at the right time.

·         No face to face contact between the customers and sellers. So immediate feedback about the products cannot be obtained from the customers.

E-Advertising

E-advertising also referred to as online advertising or Internet advertising, is a form of marketing and advertising which uses the internet to deliver promotional marketing messages to consumers. It includes contextual ads on search engine result pages, banner ads, online classified advertising, social network advertising and e-mail marketing including e-mail spam. Internet has introduced the concept of interactive marketing, which enables advertisers to interact directly with customers. In interactive marketing, a consumer can click an ad to obtain more information or send an e-mail to ask a question. Companies use internet advertising as one of their advertising channels. At the same time, they also use TV, newspaper, or other channels.

Benefits of E-advertising:

·         A major benefit of online advertising is the immediate publishing of information and content that is not limited by geography or time.

·         Online advertising allows for the customization of advertisements including content and posted websites.

·         Online ads are sometimes cheaper than those in other media. Ads can also be updated at any time with minimum cost.

·         Web ads can use text, audio, graphics and animation. In addition, games, entertainment and promotions can be easily combined in online advertisements.

·         Internet ads provide fresh and up-to-date information to customers.

·         Web ads are interactive and can be targeted to specific interest groups and individuals.

·         Web advertising can be location based. By using wireless technology and GPS, ads can be sent to consumers whenever they are in a specific time and location (eg., near a shopping mall).

Banner advertising

                        Banner advertising is the most commonly used form of internet advertising. A rectangular graphic display that is used for advertising on a web page is called Banner advertising. Banners appearing at the top or bottom of a web page are called “leader board”. Banners appearing on right or left side are called ‘skyscrapers’. “Key word Banners” appear when a pre-determined word is searched from a search engine. “Random Banners” appear randomly. Companies which want to introduce new products or a new movie use random banners.

The banner ads are paid through any of the following 3 methods:

·         Cost-per-impression: Payment is made when every website visitor sees the banner ad.

·         Cost-per-click: Payment is made when every website visitor clicks the ad and visits the advertiser’s website.

·         Cost-per-action: Payment is made when every website visitor clicks the ad, visits the advertiser’s website, fills out an order form and makes a purchase.

Benefits of banner advertising

·         By clicking on the banner ads, the users are transferred to the advertiser’s website.

·         Banners can be easily-customized

·         Viewing rate is very high in case of banner ads

·         Banners include graphics, animation, colour pictures and sounds to attract the attention of users.

Demerits of Banner ads

·         Banner ads are very costly

·         Only limited information can be placed on the banner.

·         Advertiser must give a creative but very short message to attract viewers.

E-mail chain letters

E-mail chain letter is a low cost aggressive advertisement technique. Advertisers send e-mail chain letters to make the internet users to visit their websites. In online marketing, a chain letter may consists of a marketing message, sent to a number of people and asking each recipient to forward the marketing message to as many people as possible. The users are promised with cash rewards, commission, discount and other offers for forwarding the message.

Online coupons

            Online coupon is an online sales promotional activity used by marketers to promote the sale of their products and to attract new customers. In e-marketing, online coupons is a ticket or a document that can be used to get financial discount at the time of purchasing the product. Online coupon is also known as “coupon codes”, “Promotional codes” “Discount codes”, “Discount vouchers”, “Shopping codes” etc.,

            Online coupons are offered to encourage repeated purchase of a specific product from a specific retailer. These coupons are sent to customers through e-mail. Online coupons are similar to normal coupons expect that they come from the web and are printed out by customers.

Sponsored ads

            Sponsored ads or sponsored links are present on all major Search Engine Result Page (SERP). These ads or links appear in search engine result page above the natural results in another colour or on the right side of the page. These ads appear when the users search a keyword. These ads are labeled as sponsored ads (or) sponsored links. The advertisers pay the publisher when the ad in clicked.   

E-Banking

            E-Banking (electronic banking) also known as cyber banking, virtual banking, online banking, or home banking is a service that allows customers to access their bank information, conduct financial transaction, makes deposits, withdraw cash and pay bills through electronic media such as computers, ATM, mobile phones etc. Modern banking is more information-based, speedy and boundary less due to the impact of E-commerce. E-banking is more of a science than art. E-banking is knowledge-based and mostly scientific in using electronic devices of the computer revolution.

Some of the basic functions performed by e-banking are:

Ø  Balance enquiry

Ø  Viewing accounts statement on-line

Ø  Sending in request for a cheque book

Ø   Notifications of change of address

Ø  Transferring funds from one account to another account

Ø  Payment of electricity, water, telephone bills etc

Ø  Viewing details of past 3 months transactions

Ø  Access to latest schemes

Ø  Access to rates of interest and other service charges

Ø  Notification of lost/stolen ATM card

Advantages of E-Banking

            E-banking offers the following advantages:

o   Customers can perform basic banking transactions round the clock (24*7) globally.

o   Customers can perform banking operations by sitting at their home (or) office through their PC, laptop and mobile phones. Thus, e-banking saves the time and cost of consumers.

o   Banks can serve more customers without opening more branches.

o   Staff requirements of the bank are also reduced to a greater extent.

o   The cost of transaction through internet banking is much less as compared to traditional banking.

o   Transactions are processed at a greater speed and with accuracy. So banks can serve more customers a within a short period of time.

o    Immediate payment of utility bills, instant transfer of funds, instant credits etc are made possible under e-banking.

o   Customers can perform all basic banking operations such as fund transfer, balance enquiry, online loan, credit card application, and request for cheque book, withdrawal of cash, and deposit of cash etc., E-cheques can be cleared immediately.

Disadvantages

·         The start- up cost including the cost of interest connection, cost of hardware, software, other parts, cost of maintenance of websites, equipment and employees are high.

·         The bank has to spend a lot of money to train and to retain the employees.

·         Lack of skilled personnel.

·         Chances of fraud are more

·         The user of e-banking facility needs a computer. Slow browsing is another problem faced by the internet user.

·         Some banking transactions depend upon manual process

·         Customers do not accept e-banking channels due to certain psychological factors and fear.

Online entertainment

            Entertainment is an activity designed to give pleasure or relaxation to an audience. Internet entertainment is actually the entertainment from internet. Internet and entertainment are interconnected to each other. Internet entertainment is actually entertainment which can be easily downloaded via internet. Internet entertainments include games, movies, music and other sort of entertainment. Internet entertainment is growing rapidly. Basically, internet

entertainment can be broadly categorized into two types. 

They are 1) Interactive entertainment 2) Non-interactive entertainment

1) Interactive entertainment

            In this type of entertainment, the user gives suggestion and exchange information. The major forms of interactive entertainment are as follows:

a.       Web browsing

b.      Internet gaming

c.       Chatting and messaging

d.      Reading e-books

2) Non-interactive entertainment

            Non-interactive entertainment refers to internet activities that are related to entertainment but in which users are not being entertained. The major forms of non-interactive entertainment are given below:

a.       Event ticketing

b.      Online reservations

c.       Retrieval of entertainment related information

d.      Retrieval of audio and video entertainment

e.       Watching live events

E-Learning

            Electronic learning is the mode of acquiring knowledge by means of the internet and computer based training programmes. It is used by the organization for training its employees. It is also practiced at virtual universities.

            In e-learning, students study on their own at home or office and communicate with the faculties through e-mails, video conferencing, messaging and other forms of computer based communication. In e-learning, we can learn about any subject at anytime and anywhere with the help of the computer.

Advantages of E-learning

Ø  E-learning reduces the training time and cost by 50%

Ø  It provides training to large number of people from different cultural backgrounds, educational levels and occupations.

Ø  E-learning students have self-motivation. They acquire more knowledge to develop their skills.

Ø  There is greater flexibility in e-learning

Ø  E-learning saves money and reduces the travel time

Online trading

            Online trading refers to buying and selling securities (shares, debentures, bonds and mutual funds) through internet.

Advantages of online trading

Ø  There are number of websites that facilitates online trading.

Ø  There is no need to visit broker’s office.

Ø  Online trading can be done even by a common man

Ø  It is feasible to trade in various securities like shares, debentures, mutual funds and foreign exchange securities.

Ø  Orders are executed directly without any human intervention

Ø  More information related to market data, charts, stock news etc are provided to investors.

Ø  Cost of transaction is less

Unlimited amount of investment related information is available on online. Eg

Current financial news is available at

www.money.cnn.com

www.bloomberg.com

www.hoovers.com

Expert advice is available at www.thestreet.com

Any information related it finance and stocks can be found at www.finance .yahoo.com

Search Engines  

            Internet is the store house of information. With the help of search engines, we can easily search the required information on the internet. Search engine is a software that searches particular information on behalf of the users. We can just “log on” to any search engine and get the required information without much effort and time.

            A search engine has its own data base. We can use more than one search engines at a time to find something on the internet. This is because search engines use different data bases and provide different list of web pages. Eg., Google, Yahoo etc., 

E-Marketing

            E-Marketing (Electronic Marketing) is also known as Internet Marketing, web Marketing, Digital Marketing, or Online Marketing. E-Marketing is the process of marketing a product or service using the internet. It uses a range of digital technologies to help connect business to their customers. These digital technologies are a value addition to traditional marketing approaches regardless of the size and type of the business. E-Marketing consists of all activities and process of finding, attracting, winning and retaining customers. E-marketing is broader in scope as compared to conventional marketing, because it not only refers to marketing and promotions over the Internet, but also includes marketing done via e-mail and wireless media. E-marketing also embraces the management of digital customer data and Electronic Customers Relationship Management (ECRM) and several other business management functions.

Benefits of E-Marketing

            E-Marketing besides giving the advantages of traditional marketing, also offers certain additional advantages which arise from the uniqueness of the Internet. The internet serves as a reliable, readily accessible and inexpensive means of bringing together buyers and sellers across the globe. It also brings the market to the doorsteps of the customers. E-marketing is beneficial to both the seller and the buyer.

E-Marketing offers the following benefits to sellers:

·         Firms can reach potential consumers all over the world.

·         They can enjoy a constraint- free growth.

·         Less costly than traditional marketing. The marketers need not maintain a store and they can produce digital catalogues at low costs.

·         Information access and retrieval are fast.

·         There is flexibility and the companies can quickly add products to their list and change prices and descriptions.

·         It is a two-way communication channel. Companies can get immediate feedback from consumer and can use it to improve their products and services.

·         Internet marketer does business 24 hours a day and 7 days in a week (24*7)

·         There is better CRM through sharper customer data.

·         Marketers can provide many services and products from a single online store.

·         Online sellers can have access to all markets and provide enhanced value to customers.

E-Marketing also confers significant benefits on the buyers. These benefits are as follows:

·         Customers can order products 24 hours a day and from any place.

·         They can place orders within a few clicks of the mouse. Thus consumer buying process is speeded up.

·         It saves the shopping time of consumers.

·         Customers can find immense comparative information about companies, products and competitors while sitting at their home or office.

·         Customers can get customized and personalized products and services.

·         There is greater transparency and bargaining power.

·         Customers are offered wide range of products and services.

Online Shopping

            Online shopping or e-shopping is a form of e-commerce which allows consumers to directly buy goods and services from a selling through internet using a web browser. There are many advantages of online shopping and this is the reason why online stores are a booming business today. Online shopping includes buying clothes, gadgets, shoes, appliances or even daily groceries. Following are some of the advantages of online shopping:

• ·         Shopping can be done from the home, quickly and conveniently. Online shopping avoids the hassles of travelling, parking and queuing.
• ·         The online shopper can access an e-shop from any place in the world and at any time.
• ·         Goods bought online may be cheaper or more up-to-data than goods available in a physical retail outlet.
• ·         Home delivery is possible in online shopping.
• ·         Prices can be checked and compared with just a few clicks.
• ·         Online shoppers can get detailed information about the product or service.
•   ·      Customers can easily locate the product they want to buy

Online shopping also has some disadvantages that most people complain about. These include:

·         Lack of privacy and security especially in case of personal details and financial transactions.

·         Sometimes, there may be delay in delivery of goods.

·       Customers cannot actually see touch, feel or try on the goods which are only virtual     reality displays.

·    Absence of social interaction. Online shoppers cannot enjoy a joyful shopping      experience as a shopping expedition with family or friends.

·       Returning faulty goods to an online vendor may create an embarrassment and may      even become more problematic.

Internet

            Internet is a network that connects computer all over the world. Some computers are directly connected to one another through wire or fiber optic cables. Some are connected through local and long distance telephone lines. Some may use wireless satellite communications.

TCP/IP (Network protocol)

            The network protocol used on the internet is Transmission control protocol/Internet protocol (TCP/IP). This protocol was introduced on the ARPAnet at the beginning of January 1983.

TCP/IP is a packet switching protocol. In packet switching messages are split into segments (packets) and dispatched into the network with their source and destination addresses. These segments also have header information and a package sequence number,.

            At the destination system, the packets are reassembled into the message. TCP protocol ensures that the data had reached the destination and is error free.

            Internet protocol (IP) specifies the addressing details of each packet i.e., origination and destination addresses. IP is responsible for moving packet of data from one node to another node. IP forwards each packet based on IP addresses. IP addresses consist of 4 sets of decimal numbers separated by full stops, e.g., 192.9.1.20

            TCP/IP protocols are used to check e-mails, to view a website, to download files, to view graphics and to play music. Since TCP/IP uses packets, it is regarded as packet switching technology

Layers of TCP/IP

The TCP/IP protocol has 5 layers:

a.       Application layer:

This layer consists of the data or message to be sent. Eg., e-mail, file transfer etc. The message generated at the application layer, together with the IP address and port number, are passed to the transport layer for further processing.

b.      Transport layer:

At this layer, TCP establishes a logical connection with the receiving computer. It determines the size of the segments to be sent.

TCP divides the message into segments (packets) and adds a header to each segment. The header includes addresses of source and destination and sequence numbers of the segment. The segments are passed to the network layer with the IP address.

c.       Network layer:

The network layer is responsible for routing the packet from source to the destination point. This layer may fragment the segments from the Transport layer into smaller packets if necessary. The output packets from this layer are transferred to the data link layer.

d.      Data link layer:

This layer transfer the structured packets of data to the physical layer. This layer also performs error checking.

e.       Physical layer:

 This layer consists of the cables used for transmission, plugs, sockets and electrical signals. This is the medium through which digital signals are transmitted.

Extranet

            An extranet is a controlled private network that allows partners, vendors and suppliers or an authorized set of customers to access information from an organization’s website. An extranet is a private network organization.

Enterprise applications/business applications of extranet (uses/advantages):

o   Data can be made accessible via the web only to the authorized members of a particular work group. Eg.In the construction/industry project teams may access a project extranet to share drawings, photographs and documents.

o   Since the business processes are automated, bottlenecks will disappear and the company’s productivity will increase.

o   An extranet monitor business activities and trigger specific actions, such as automatically placing an order with a supplier when the inventory drops below a certain level.

o   An extranet reduces the errors at the time of processing orders

o   On an extranet the organization can instantly change, edit and update sensitive information such as price lists or inventory information.

o   An extranet can help to move the products more quickly by making proposals and offering specifications to suppliers and giving clients and partners up-to-date information on current projects.

o   Extranet links the inventory system directly to a supplier, so the orders can be processed can be quickly and the procurement process can be made more efficient

o   Extranet creates loyal customers information are made available to customers

o   Extranet reduces the overhead costs by spending less on suppliers and staffing.

Internet Service Provider (ISP)

ISP refers to the company that provides internet access to the customer. We can get an internet connection from various Internet Service Providers. We can choose an ISP from among 120 companies which have been granted ISP license by the Government of India. Eg., BSNL, Airtel, Aircel, Reliance etc. Every computer connected to the internet is identified by unique address. There are 2 types of addresses. They are IP address and Domains.

IP Address

If we want to connect to another computer, transfer files to or from another computer or send an e-mail to another computer, we first need the other computer’s address i.e., where the other computer is.

            An IP (Internet Protocol) address identifies a particular computer on a particular network. IP addresses are also referred to as IP numbers and Internet addresses.

            An IP Address consists of 4 sections separated by periods. Each section contains a number ranging from 0 to 255. Eg., 202.54.16.

            IP addresses are unique. No 2 machines can have the same IP address.

Domain name

A domain name is a way to identify and locate computers connected to the internet. No 2 organizations can have the same domain name.

            A domain name always contains 2 or more components separated by periods called “dots”.

Eg., microsoft.com, ibm.com. nasa.gov. 

Last portion of the domain name describes the type of organization. Eg.,

            .com – Commercial organizations

            .edu – educational institutions

            .net – organisations involved in internet operations

URL (Uniform Resource Locator)

            URL indentifies a particular Internet resource. For example, a webpage, a Gopher Server, a text file etc., Gopher server is a protocol designed to search retrieve and display documents from the remote sites on the internet.

            URL consists of letters, numbers and punctuation. The URL is hierarchical and moves from left to right. Eg: http://www.yahoo.com

Mobile commerce

 M-commerce also known as m-business. includes any business activity conducted over a wireless telecommunications network. M-commerce refers to the use of wireless hand held devices such as cellular phones to conduct commercial transactions online. Through mobile phones customers can access their accounts and credit card transactions. Bills can be paid by the customers domestically and abroad by using mobile phones. Customers can also transfer funds between accounts and send e-mail and any messages to any person or organization.

Applications of M-commerce:

1.      Finance:

Mobile users can transfer funds from one account to another account or receive information related to finance from financial institution or banks. WAP (Wireless Application Protocol) based mobile devices allow the user to access the internet or the website of the financial institutions. WAP is a set of communication protocols for wireless devices to enable the devices to have access to the Internet and advanced telephony services.

User of the credit card gets reminder information from the bank about the outstanding amount and the due date through SMS. ICICI bank has launched iMobile..iMobile allows the customers to carry out all internet banking transactions through mobile phones. Customers can transfer funds to ICICI and non-ICICI bank a/cs with the help of their mobile. Using their mobile phones, customers can pay their utility bills, send request for a cheque book, or stop payment of a cheque through mobile device.

2.      Retail and after sales Services:

 Mobile users can access the online catalogue from their mobile devices. Customers are able to shop, place orders and pay for dues through mobile phones. Eg. Indiatimes.com allows the users to purchase flower by sending SMS to 58888

3.      Mobile Marketing:

Business organizations send text messages to mobile users in order to promote a new product or carryout any form of promotional campaign. Eg., Reliance  sends the customer an SMS stating the reward points earned by them when they purchase goods from reliance.

4.      Mobile Ticketing:

Airline tickets and train tickets can be purchased through mobile phone. Movie tickets can also be booked through mobile phones. The customer will get an alert in the form of SMS if the flight is delayed.

5.      Mobile entertainment:

Downloading ringtones has become successful m-commerce applications. Several cell phone makers and wireless providers are making good money by selling different kinds of customized ringtones.

6.      Hotel reservations:

 Using mobile devices, customers can make reservations in restaurants and hotels according to their needs.

7.      Intra office communication:

 Travelling salesmen have to get details about the product and price. Any information required by the salesmen can be easily and quickly with the help of mobile devices.

8.      Information:

 Mobile users can get information like sport news, weather reports or political news through SMS. Students can check their university results through SMS.

9.      Gaming:

Customers can play multi-player games through mobile phones. Mobile phones are very popular with colourful displays and has attracted the mobile users irrespective of there are group.

10.  Location-based M-commerce:

 Location based M-commerce refers to the use of GPS – enabled devices or similar technologies to deliver products and services based on the user’s location.

        Location based M-commerce focuses on 5 key areas:

·         Location: Determining the basic position of a person or a thing (eg., a car)

·         Navigation: Plotting a route from one location

·         Tracking: Monitoring the movement of a person or a thing (eg) a vehicle.

·         Mapping: Creating maps of specific geographical locations.

·         Timing: Determining the precise time to reach a specific location.

GPS- the global positioning system is a worldwide satellite-based tracking system.

11.  Location-based advertising:

For example, we have purchased a dress material in Reliance at Tirunelveli. Suppose we are in Madurai and walking near Vishal De Mall which has a Reliance shop, our cell phone beeps with a message stating that, “Come inside and get a 15% discount or offers”. Thus, the location of our mobile device was detected due to GPS and GIS (Geographical information system).

Advantages of Mobile commerce

1.      Using mobile phones, the user can access stone data and access internet at anytime and from any location.

2.      The mobile users can receive any information and contact any person at any time.

3.      Organizations can distribute information to a large group of people. They can carry out sales promotion activities effectively. 

4.      With the help of mobile devices the information can be received and transferred within few seconds.

5.      Location based mobile commerce is useful to both consumers and business organization

6.      The applications of M-commerce can be personalized according to the needs of the users.

7.      There is no need to activate a personal computer.

Factors that drive M-commerce (Drivers of Mobile Commerce)

1.      Widespread availability of more powerful devices. These devices are increasing in power, functions and features that support e-commerce.

2.      The widespread use of cell phones among the 15-25 year –old age group. These users constitute a major market of online buyers.

3.      Both mobile communication network operations and manufacturers of mobile devices are advertising the many potential application of m-commerce.

4.      The price of wireless devices and per-minute pricing of mobile services continues to decline even as available services and functions are increasing.

5.      The transition from a manufacturing to a service-based economy is encouraging the development of mobile based services, especially when customer service plays an important role in highly competitive industries.  

Electronic Retailing/E-tailing

            E-tailing is the sale of goods and services through the internet. It follows the B₂C business model wherein the business interacts directly with the customers without involvement of any intermediaries. There are 2 types of e-retailers. They are:

·         Pure play e-retailers: Such as Amazon, that emerged as the online bookseller. It is present only online and do not have any physical outlet for the customers.

·         Brick and click e-retailers: These e-retailers sell products through the internet as well as they have physical stores for the customers. Eg., Dell computers

Advantages of E-retailing

1.      Through e-retailing, customers can save both their efforts and time.

2.      Wide range of products is available online. So comparison can be made easily before the purchase

3.      The customer can shop anytime and from anywhere (24*7). 

4.      Huge discounts can be availed while shopping online

5.      Detailed information about the product is available online. This information helps the customers to make the purchase decision.

6.       E-retailing offers the easy payment terms such as payment on delivery that instigate the customers to shop online.

Disadvantage of E-retailing

1.      Customers may not be sure of the quality of products offered online.

2.      Customers may not trust on the payment gateways and may have a fear that their credits cards may be misused

3.      It is not possible to see and feel the product in case of e-retailing

4.      If the product is not readily available the customer has to wait for some time to get the product in his hands.

5.      The customer misses the emotional attachment with the seller that leads faith on the products offered by him.

E-mall/Electronic mall

E-mall is a website that displays electronic catalogues from several suppliers, and charges commission from them for the sales generated at that site. It is a website in which a number of different companies advertise and sell their products. It is also known as digital mall. An e-mall is a collection of e-shops available in a single website. E.g. ,www.e-malluk.net. The   customer   can purchase multiple items from different e-shops  by using a single payment.

10 most important features of E-retailing website

1.      Quality of image: Image quality is the king in case of e-commerce. E-retailer should invest in quality images of the products sold by him. He should not use the same images as other retailers. 

2.      Alternate views: The product must be displayed in as many angles and details as possible. People not to see exactly what they are getting.

3.      Zoom feature: The Product page must have zoom feature to enable consumers get a better view of the product.

4.      Consumer reviews: The product pages must have consumer reviews to enable the shoppers to find out what other consumers say about the product.

5.      Product comparisons: Product comparisons can improve the shopping experience and increase sales. A product comparison feature on product pages can help consumers view features side-by-side, instead of flipping through many pages.

6.      Live chat: Live chat is very important to an e-commerce site. Every product page have this feature. Customer questions can be answered immediately.

7.      Product demos: Product demos inform the consumer and decrease the return rate. This feature shows, explains and educate consumers about the specific product.

8.      E-mail: All the product must have this feature to spread information in a quick and efficient way.

9.      Show products on human models: Showing products on models is very effective. It helps the online shopper to have a much better understanding of the product.

10.  Share buttons: The product pages must have social buttons. These buttons aloe online users to post and share information about the product with their friends and family through Facebook, Twitter and counter networks.

Electronic market

            It is an information system that allows the participating buyers and sellers to exchange information about prices and products available in the online market. This market enables the purchase to compare the prices and other attributes and take a purchase decision. The E-market provides brokering services which brings to suppliers & customers in a specific market segment.

Components of E-market

In an E-market sellers & buyers exchange goods & services for money electronically. The major components in an E-market place are

a.       Customers

b.      Sellers

c.       Goods & Services

d.      Infrastructure

e.       Front end

f.       Bank end intermediaries

g.      Other business partners

a)      Customers :

People who surf the web are potential buyers of the goods and services offered (or) advertised on the internet. These customers can search for detailed information compare the products and negotiate.

b)      Sellers:

There are millions of E-store fronts on the web. An E-store front is a single company’s website where products and services are sold. It is an E-store. The m-store may belong to the manufacture (dell.com) or a retailer (wallmart.com) or an individual. These E-store fronts sell products ranging from music CDs to automobiles.

c)      Goods and services:

E-market sells both physical and digital, products. Digital products include E-books, music, videos, software and games.

Physical products include any type of tangible products, tickets, toys, clothes, electronic products etc.,

Services include Internet marketing service, offline marketing services, web design etc.

d)     Infrastructure:

The E-market place infrastructure include E-networks, hardware, software, EDI, E-mail, HTML, JAVA, etc.,

e)      Front end:

Customers interact with E-market place through front end. Front end consists of the following components

a.       Seller’s portal        Eg: flipkart, E-bay, Jabong, OLX, Snapdeal,, amazon

b.      Electronic catalogues

c.       Shopping cart

d.      Search engine      Eg: Google, Yahoo, ask.com

e.       Payment Gateway      (processes & verify credit card transactions)

f)  Back end:

Back end of the business consists of all the activities related to order aggregation and fulfillment, inventory management, purchasing from supplier, accounting and finance, packaging, payment processing and delivering.

g)      Intermediaries:

E-Intermediaries are different from regular intermediaries such as wholesalers, retailers.

Online intermediaries create and manage E-market. They help match buyers and sellers, provide some infrastructure services and help sellers and customers to complete their transactions.

Online intermediaries provide information about buyers, sellers and their products. They also offer quality assurance for products to be purchased they also deliver goods & services to customers. They also act as either a buyer (or) a seller. Most online retailers operate in this way. Eg: amazon

h)      Other business partners:

Other business partners include shippers, several types of partners, joint venture etc.

Advantages of E-market:

1)      E-market reduces the cost of searching product information.

2)      Customers can find out the products they need by using search engines.

3)      E-market provides differentiation. Differentiation means providing a product or a service that is not available in physical market. Eg: amazon.com, provides customers with books and information that are not available in the physical book store.

4)      E-market also provides customization of products and services. Customers can design the product according to their preferences.

5)      Many E-store fronts offer products at low price.

6)      E-market offers superior customer service.

7)      There is no need for a sales force and brick and mortar to set up a business. It is easy and inexpensive to setup a website.

8)      Time and money of customers and companies are saved

Business models of E-commerce (or) Types (or) classifications

Following are the different business models of E-commerce.

1)      Business to business (B₂B)

2)      Business to consumers (B₂C)

3)      Consumers to business (C₂B)

4)      Consumers to consumers (C₂C)

5)      Business to Employees (B₂E)

6)      Business to government (B₂G)

7)      Government to consumers (G₂C)

8)      Government to Government (G₂G)

9)      Government to Employees (G₂E)

10)  Peer to Peer (P₂P)

1)   B₂B ( Business to Business )

B₂B refers to transactions between businesses conducted electronically over the internet. Such transactions may take place between a business and its supply chain members. (Wholesalers and retailers) as well as between a business and any other business.

In India, many firms follow this technical model of B₂B E-commerce to reduce cost and to save time. B₂B model develops the communication system between the business and their partners. In India IBM, CITY bank, BHEL, TVS, Maruti, Bajaj and many others are doing B₂B E-commerce transactions.

Eg: Honda doing B₂B E-commerce transactions with suppliers, dealers, manufacturing and sales department.

Suppliers (MRF Tyres)                                    Dealers (Pearl Honda)

     Honda

            Sales department                                 Manufacturing department

Types of B₂B E-market places:

The B₂B E-commerce can be supplier-centric, buyer-centric (or) an intermediaries-centric model.

Supplier-centric model:

In this model, a supplier sets up the E-market place to sell the goods Eg: Dell. The seller is a manufacturer selling goods to   wholesalers (or) retailer (or) an individual business. 

Buyer-centric model:

Big business organization with high purchase capacity create an E-market place. This website is used for purchasing goods and for placing request for quotation.

Intermediaries’ centric model:

Here, a third party set up an E-market place. The third party helps both the buyer and seller to interact with each other at its market place.

Types of transactions: (B₂B)

            B₂B transactions are of 2 basic types - a) spot buying b) strategic sourcing (or) systematic buying.

Spot buying:

Purchasing goods as and when they are needed at prevailing market price is known as spot buying.

Strategic sourcing:

Purchasing goods based on long term contracts is known as strategic sourcing.

Types of materials traded in B₂B:

Direct materials- Materials used in making a product, such as steel in a car, paper in a book.

Indirect materials – These are also known as non-production materials. They support production and are usually used in maintenance and repairs, operations (MRO) activities.

Virtual service Industries:

            Services can also be provided electronically in B₂B. The major B₂B services are:

1)      Travel

2)      Entertainment

3)      Real estate

4)      Financial services (EFT)

5)      Online stock trading

6)      Online financing (Loans)

7)      Other online services – consultancy services, health organizations, Law firms.

Benefits of B₂B: B₂B model offers the following benefits:

1)      Creates new sales and purchases opportunities

2)      Eliminates paper work

3)      Reduces the administrative cost

4)      Reduces the search cost

5)      Reduces the cycle time

6)      Increases the productivity of employees dealing with buying and selling

7)      It reduces errors and improves the quality of services

8)      It reduces marketing and sales cost for sellers.

9)      It reduces the procurement cost for buyers

10)  It reduces inventory level and storage cost

11)  It increases the opportunity for collaboration

12)  Customized online catalogues with different prices for different customers.             E.g.: Chinese E-com.company -  Alibaba.com

2) B₂C   (Business to Consumers)

B₂C refers to E-business transactions between business and their customers through electronic network. B₂C e-commerce offers consumers the capability to browse, select and buy products online. B₂C E-commerce provides wide range of products and services at low price and adequate information to evaluate purchases. 1000’s of products are available in the web from numerous vendors. They include:

a)      Computer software and hardware

b)      Consumer electronic-digital camera. Printer, scanner etc.

c)      Office supplies

d)     Sports goods

e)      Books and music

f)       Toys

g)      Health and beauty products

h)      Entertainment

i)        Clothing

j)        Jewellers

k)      Services-Travel, banking, stock trading, real estate, insurance etc.

E.g.: amazon.com, snap deal, flip kart, E-bay etc.

In B₂C E-commerce, firms concentrate on product, quality, product range, web designing, payment security, customer service, shipping services etc.

                        Consumers                              Consumers

                                                Amazon

                        Consumers                              Consumers

3. Consumers to Business (C₂B)

            C₂B is a business model in which consumers (individuals) create value and businesses consume that value. E.g.: when a consumer gives a useful idea for new product development then that consumer is creating a value for business if the business adopts that idea. C₂B is also known as reverse option model (or) demand collection model (or) name your own price model.

            Consumers can offer products (or) services to companies and the companies pay the consumers. Individuals use internet to sell their products and services to organization. Eg: A book publisher sells his product electronically to the website like amazon.com

            In this type of E-commerce buyer fixes the prices for products (or) services which may (or) may not be accepted by the seller. Priceline.com is an example of C₂B. In Priceline.com the buyers enter the price and the seller decides the price and whether to fulfill such request (or) not.

            Consumers ^Booksamazon.com

4. Consumer to consumer: (C₂C)

            C₂C E-commerce refers to E-commerce transactions in which both the buyer and seller are individuals and not business firms. The most commonly found C₂C activities are online auctions and classified ads. People can use internet based classified ads to sell their used products like cars, furniture, laptop, house properties, mobiles, TV, two wheelers etc. C₂C activities also include personal services like online advising and consulting. In this model consumers also exchange information about products. These websites are only intermediaries which match consumers. They do not check the quality of the product being offered.

Consumers selling used products ^OLX.in   consumers buying used products

5. B₂E (Business to Employees)

            The transaction between the business and employees is called B₂E E-commerce. B₂E services help employees to obtain the required information about the company quickly. It also develops the relationship between the management and employees.

6. B₂G (Business to Government)

            The transactions between the business and government through an electronic network are termed as B₂G E-commerce. It is used for procurement, licensing procedure, government related formalities and filling of tax returns. Eg: when Asian paints submits the tax returns to the income tax department through internet, then it is B₂G E-commerce. 

7. G₂C (Government to Consumers)

            G₂C refers to E-business transactions between government and citizens. Government conducts transactions electronically in order to provide facilities to the public, to speed up the transactions and to provide information to the public. Tenders, passport forms, returns etc., are sent to the public through E-mail.

8. G₂G (Government to Government)

            G₂G consists of E-commerce activities between various units of government in order to improve the effectiveness, services, information and to give training to its employees electronically.

10. Peer to Peer E-commerce: (P₂P)

            P₂P is a type of network in which two (or) more PCs share files and other computer resources directly without a separate server computer. The user computer act as both client and server. Direct interaction between people is possible. Eg: instant messaging and video conferencing. We can also download files that other people are willing to share. Eg: sharing of picture, music and games files.

Supply chain management

Benefits of supply chain management: (SCM)

1. Precise purchasing:

            Supply chain management helps the company to manage all the activities related to purchase and planning. This system helps in efficient planning of raw materials required and to buy the raw materials from the best supplier at the right time and cost. Since the materials are bought as per the demand of the consumers, there is no excess (or) deficiency in the materials an effective system of supply chain management helps to improve the company’s relationship with suppliers.

2. Collaboration:

            Team work improves among the employees in the planning department, the supplier of raw material and the distributers of finished products. They work together to provide customers with goods and services they demand.

3. Lower cost:

            An effective SCM helps to reduce the paper work and overhead expenses. The company purchases and stores raw materials at optimum levels. Thus, the expenses of storing unnecessary stock of raw materials reduces. The company takes orders from customers and then manufacture goods accordingly. Also the company get discount from suppliers. Thus an effective system of SCM lowers the cost of raw materials.

4. High quality:

            Company using SCM develops a set of metrics to monitor the supply of raw materials, to measure the quality of output and labor productivity. So customers can get high quality products.

5. Cycle time:

            SCM ensures regular supply of raw materials. It helps to reduce the cycle time. Cycle time is the time taken by a company to complete the entire business processes. Thus, SCM helps to minimize delays, increase revenue and provide improved customer service.

Porter’s value chain model

            Value chain is a set of activities carried on by an organization to deliver a valuable product (or) service to customers Michael Porter of Hardware Business School was the first to introduce the concept of value chain. He introduced this concept in his book “Competitive Advantage” in 1985. Value chain analysis helps a company to identify the areas that can be optimized so as to maximize efficiency and profitability.        

Porter suggested that activities within an organization add value to the services and products produced by an organization. These activities should be  at optimum level to achieve competitive advantage.

            The Value Chain framework of Michael Porter is a model that helps to analyse specific activities through which firms can create value and competitive advantage. Porter categorized the value chain activities as primary and support activities.

1) Primary activities:

a) In bound logistics:

            In-bound logistics include receiving raw materials from suppliers, storing raw materials, inventory control and transportation planning.

b) Operations:

            Operations include manufacturing, assembling, packing, equipment, maintenance, testing and all the other activities that transform the inputs into final product.

c) Out bound logistics:

            The activities required to transfer the finished product to the place of customers like warehousing, transportation.

d) Marketing and sales:

            The activities connected with making the buyers to purchase the product like pricing, channel selection, advertising, sales promotions, personal, selling, retail management etc. 

e) Service:

            Providing assistance to buyers in the form of repair services, installation, training, spare parts management etc. Any (or) all of these activities may be vital and can develop competitive advantage.

2) Support activities:

            The activities which support the primary value chain activities are known as support activities.

a) Procurement:

This activity includes procurement of raw materials, spare parts, plant and machinery etc.

b) Technological development:

Use of technology in research and development stage, new product design and development and process automation.

c) Firm infrastructure:

These activities include organization structure, general management, planning, legal, finance, accounting, public affairs, quality management etc.

Creating a cost advantage based on Value chain:

A firm may create a cost advantage.

  i) By reducing the cost of individual value chain activities (or)

            ii) By reconfiguring the value chain.      

 Cost advantage can be achieved by reducing the cost of primary activities and support activities. Recently many companies have achieved cost advantage by using information technology.

Porter identified 10 cost drivers related to value chain activities.

They are:

1.      Economies of scale

2.      Learning

3.      Capacity utilization

4.      Linkages among activities

5.      Inter-relationships among business units

6.      Degree of vertical Integration

7.      Timing of market entry

8.      Firms cost policy

9.      Geographic location

10.  Institutional Factors

(Government policy, regulation, taxation etc.)

A firm develops the cost advantage by controlling these drivers. The cost advantage can also be achieved by reconfiguring the value chain. Reconfiguration means structural changes such as new production process, new distribution channel (or) a different sales approach.

Protocols

            A protocol is a standard set of rules and signals followed by all computer systems to communicate with each other. It is an agreed format for transmitting data between two devices.

OSI Model (Open System inter-connection)

            OSI is an ISO standard for worldwide communication. OSI creates networking framework for implementing protocols in 7 layers. Each layer receives information from the above layer, processes and passes the information to the next layer. Each layer adds its own information (header) to the incoming information and sends the information to a lower layer.

            Headers include address of destination and source; check sums (error control), types of protocols used and other options such as flow control options and sequence numbers.

Various layers in OSI:

7. Application layer      Upper layer

6. Presentation layer    

5. Session layer

4. Transport layer

3. Network layer

2. Data link layer 

1. Physical layer     Lower layer

Layer 1 – Physical layer

            This layer consists of physical plugs, sockets, cables and electrical signals. This is the medium through which digital signals are transmitted.

Layer 2 – Data link layer:

            This layer transfers frames (structured packets of data) from one computer to another computer. This layer also performs error checking.

Layer 3 – Network layer     

This layer specifies the route through which the data is to be sent to a different network.

Layer 4 – Transport layer:

            This layer transfers the data between the source and destination points. This layer also verifies whether the data has reached the destination point. This layer has 2 types of connection modes.

            1. Connection oriented mode:

                        Connection oriented mode do not have the ability to check errors. So chances for loss of data are more.

            2. Connection less mode:

                        This mode checks errors before transferring the data.

Layer 5 – Session layer:

            The session layer controls the connection between the computers. This layer establishes, manages and terminates connections between computers.

Layer 6 – Presentation layer

            This presentation layer defines, encrypts and decrypts the information received from an application layer.

Layer 7 – Application layer

            This application layer consists of the type of data to be communicated or to be sent.

E.g.: E-mail, file transfer etc.