UNIT I I

CONSUMER ORIENTED
E-COMMERCE

INTRODUCTION
The convergence of money, commerce, computing,
and networks is laying the foundation for a global
consumer marketplace.
Consumer applications such as on-line stores and
electronic shopping malls are burgeoning but access
is still cumbersome and basic issues need to be
resolved.
The early systems sometimes provide information
only and lack the means to accept orders via the
keyboard. Ideally, consumers should be able to
execute a transaction by clicking on the BUY button to
authorize payment, and the on-line stores bank
account would then automatically receive it from the
customers preferred payment mode.

To make Consumer-Oriented Electronic

Commerce more effective ,we need a
better understanding of the
components of the business process
from the initial search and discovery of
the product/services via on-line
catalogs to the management of the
order-to-delivery cycle, including the
all-important payment/settlement
component

2.1 CONSUMER-ORIENTED APPLICATIONS

The

range of applications envisioned for the

consumer marketplace can be broadly classified
into entertainment, financial services,
information, essential services, and education
and training.

Table : Consumer-Oriented Services

Consumer Life-Style Needs

Complementary Multimedia
Services

Entertainment

Movies on demand, video

cataloging, interactive ads,
multiuser games, on-line
discussions

Financial services and

information

Home banking, financial

services, financial news

Essential services

Home shopping, electronic

catalogs, telemedicine, remote
diagnostics

Education and training

Interactive education, multiuser

games, video conferencing, online databases

2.2 MERCANTILE PROCESS MODELS

Mercantile

processes define interaction models

between consumers and merchants for on-line
commerce.
This is necessary because to buy and sell
goods, a buyer, seller, and other parties must
interact in ways that represent some standard
business processes.
The establishment of a common mercantile
process is expected to increase convenience for
consumers who wont have to figure out a new
business process for every single vendor.

2.3 MERCANTILE MODELS FROM THE

CONSUMERS PERSPECTIVE
The

on-line consumer expects quality,

convenience, value, low price, and control.
To meet these expectations and understand the
behavior of the on-line shopper, there is a need
for a business process model that provides a
standard product / services purchasing process
from an interactive services and merchandising
point of view.
The business process model from a consumers
perspective consists of 7 activities that can be
grouped into 3 phases.

Mercantile models from the consumers

perspective contd

The prepurchase preparation phase includes search

and discovery for a set of products in the larger
information space capable of meeting customer
requirements and product selection from the smaller set
of products based on attribute comparison
The purchase consummation phase includes mercantile
protocols that specify the flow of information and
documents associated with purchasing and negotiation
with merchants for suitable terms such as price,
availability, delivery dates and electronic payment
mechanisms that integrate payment into the purchasing
process.
The postpurchase interaction phase includes customer
service and support to address customer complaints,
product returns and product defects.

Product/service search and

discovery in the information space
Comparison shopping and product
Selection based on various attributes

Prepurchase
determination

Negotiation of terms,
e.g., price, delivery times
Placement of order
Authorization of payment

Purchase
consummation

Receipt of product
Customer service and support (if not
Satisfied in X days, return product

Postpurchase
interaction

Fig: Steps taken by customers in product / service purchasing

2.3.1 Prepurchase Preparation

There

seems to be an assumption of a direct or

one-to-one relationship between predisposition
to purchase and actual purchase.
These consumer behavior models fail to
acknowledge that there are many types of
consumers.
From the consumers perspective, any major
purchase can be assumed to involve some
amount of prepurchase deliberation, the extent
of which is likely to vary across individuals,
products, and purchase situations.

 Purchase

deliberation is defined as the elapsed

time between a consumers first thinking about
buying and the actual purchase itself.
Information search should constitute the major
part of the duration, but comparison of
alternatives and price negotiation would be
included in the continually evolving information
search and deliberation process.
To deliberate, customers have to be watchful for
new or existing information regarding variables
that are important for the purchase decision
process. (automobile purchasing, unexpected
increase in income, etc)

 In

general, consumers can be categorized into

three types :
Impulsive buyers, who purchase products
quickly
Patient buyers, who purchase products after
making some comparisons
Analytical buyers, who do substantial research
before making the decision to purchase products
or services

In fact, marketing researchers have isolated several

types of purchasing :
Specifically planned purchases. The need was
recognized on entering the store and the shopper
bought the exact item planned.
Generally planned purchases. The need was
recognized, but the shopper decided in-store on the
actual manufacturer of the item to satisfy the need.
Reminder purchases. The shopper was reminded of
the need by some store influence. This shopper is
influenced by in-store advertisements and can
substitute products readily.
Entirely unplanned purchases. The need was not
recognized entering the store.

 In

many cases search and discovery technology

as well as organized catalogs or directories are
necessary inducements to purchasing decisions.
While the technology for supporting search is
important, we still need to understand the actual
process that consumers and organizations
employ in gathering information.
In fact, the promise of e-commerce could remain
unsatisfied unless more effective methods of
information search and retrieval based on
consumer preferences and behavior are
implemented.

The Consumer Information Search Process

Information search is defined as the degree of care,

perception, and effort directed toward obtaining data or
information related to the decision problem.
Purchase behavior in e-markets differs from traditional
retail settings in two ways. First, a retailer is concerned
with simply inducing purchase through the use of
marketing mix variables. Second, a retailer is interested
in inducing purchase now, rather than later.
In e-markets, we have limited understanding of market
mix variables effective in inducing purchases. Also, the
issue of information dissemination is a major problem.
In the context of e-commerce, information search can be
classified into two categories : organizational and
consumer search.

The organizational Search Process

Organizational search can be viewed as a process

through which an organization adapts to such changes in
its external environment as new suppliers, new products,
and new services. More narrowly, purchasing
departments inside organizations search for information
about specific courses of action, such as the purchase of
equipment.
In general, organizational search is an activity designed
to balance the cost of acquiring information with the
benefits of improved financial decisions.
The organizational search process is determined in part
by market characteristics (such as pace of change and
technological complexity) and by certain aspects of a
firms present buying situation (switching cost and prior
experience). Together, these dimensions impose a series
of demands on the search process used.

Consumer Search Experiences

On-line shopping experiences can be categorized into
two distinct dimensions : utilitarian and hedonic value.
These dimensions reflect the distinction between
carrying out a shopping activity to achieve a goal
(utilitarian) as opposed to doing it because you love it
(hedonic).
Marketing experts acknowledge that shopping
experiences can produce both utilitarian and hedonic
value.
Utilitarian behavior has often been portrayed as taskrelated and rational, implying that a product is purchased
in a deliberate and efficient manner.
With hedonic aspect of shopping, people buy so that
they can shop, not shop so that they can buy.

2.3.2 Purchase Consummation

After

identifying the products to be purchased,

the buyer and the seller must interact in some
way to actually carry out the mercantile
transaction.
A mercantile transaction is defined as the
exchange of information between the buyer and
the seller followed by the necessary payment.

1.

2.
3.
4.

5.
6.

A simple mercantile protocol would require the following

transactions.
Buyer contacts vendor to purchase product or service. This
dialogue might be interactive on-line through World Wide
Web, e-mail, off-line through an electronic catalog and
telephone.
Vendor states the price.
Buyer and vendor may or may not engage in negotiation.
If satisfied, buyer authorizes payment to the vendor with an
encrypted transaction containing a digital signature for the
agreed price.
Vendor contacts his or her billing service to verify the
encrypted authorization for authentication.
Billing service decrypts authorization and checks buyers
account balance or credit and puts a hold on the amount of
transfer. (Billing service may need to interact with buyers
bank.)

7. Billing service gives the vendor the green light to

deliver product and sends a standardized message
giving details of transaction (e.g., authorization number)
for merchants records.
8. On notification of adequate funds to cover financial
transaction, vendor delivers the goods to buyer or in the
case of information purchase provides a cryptokey to
unlock the file.
9. On receiving the goods, the buyer signs and delivers
receipt. Vendor then tells billing service to complete the
transaction.
10. At the end of the billing cycle, buyer receives a list of
transactions. Buyer can then either deny certain
transactions or complain about overbilling. Suitable audit
or customer service actions are then initiated depending
n the payment scheme.

Fig : A Simplified diagram of on-line

mercantile model

Customer
With need

(1) Buy
request

(4) Delivery

merchant

(2)Remittance
request

(3) Approval

(5) Monthly statement

Payment
institution

 Customers,

typically have two choices : to pay

before receiving goods or service (by cash, debit
card) or to receive goods or services and
consume them before paying (by credit card).
The provider has to provide better customer
service in the second case than in the first
because the customer can inform the bank or
credit card company to stop payment.
Hence, depending on the payment form chosen,
the specifics of the mercantile protocol vary.

Mercantile process using Digital Cash

1. Buyer obtains anonymous e-cash from issuing
bank
2. Buyer contains seller to purchase product
3. Seller states price
4. Buyer sends e-cash to seller
5. Seller contains his bank or billing service to verify
the validity of the e-cash
6. Bank gives okay signal to seller after ensuring that
the e-cash hasnt been duplicated or spent on
other products
7. Seller delivers the product to buyer
8. Seller then tells bank to mark the e-cash as used
currency.

Mercantile Transactions using Credit cards

Step 1: A customer presents a credit card for payment
at a retail location. The card reader (point-of-sale
device) scans the information on the cards
magnetic stripe
Step 2: The point-of-sale software directs the
transaction information to the local network access
point
Step 3: Once in the network, the system verifies the
source of the transaction and routes it to the
appropriate authorization source , where the card
holders account is reviewed. An authorization code
is then sent back through the network for display on
the point-of-sale device. Transaction information is
captured both in the network system and in the
point-of-sale device.

Mercantile Transactions using Credit cardscontd

Step4: Periodically, the retail location initiates a close-out
transaction that bundles completed transaction
information into a batch. Transaction count and
financial totals are confirmed between the terminal and
network, and a series of reports can be printed out at a
retail location. This transaction clears the terminal
software for a new batch of transactions.
Step 5: The system gathers all completed batches and
processes the data in preparation for settlement. The
process identifies for each merchant the appropriate
settlement location by card type and prepares detailed
reports and files that are routed to the designated
settlement bank for VISA and MasterCard transactions

Costs of Electronic Purchasing

On the surface, cash seems to be preferable to

electronic payments.
A study on supermarket purchasing revealed that the
value of the average sale on a debit card is $31.61 ,
compared with $13.83 for cash purchases. Consumers
using credit cards tended to purchase more than debit
users.
Despite these benefits, electronic payment options have
found acceptance slow.
This is expected to change as the cost of necessary
equipment decreases, expertise becomes widely
available, and consumers become familiar with
technology.

2.3.3 Postpurchase Interaction

1.
2.
3.

As long as there is payment for services, there

will be refunds, disputes, and other customers
service issues that need to be considered.
Returns and claims are an important part of
the purchasing process that impact
administrative costs, scrap and transportation
expenses, and customer relations.
Other customer service challenges :
Inventory issues
Database access and compatibility issues
Customer service issues

2.4 MERCANTILE MODELS FROM THE

MERCHANTS PERSPECTIVE

Order Planning and order generation: The business process

begins long before an actual order is placed by the customer.
Manufacturing function drafts a capacity plan that specifies
how much money will be spent, how many people will be hired
and how much inventory will be created.
Order planning leads into order generation. Orders are
generated in a number of ways in the e-commerce
environment. The sales force broadcasts ads, sends
personalized e-mail to customers or creates a WWW page.
Cost estimation and pricing: Pricing is the bridge between
customer needs and company capabilities. Pricing at the
individual order level depends on understanding the value to
the customer that is generated by each order, evaluating the
cost of filling each order; and instituting a system that enables
the company to price each order based on its value and cost.

Mercantile models from the Merchants

perspective contd

Order receipt and entry: After an acceptable price quote,

the customer enters the order receipt and entry phase of
OMC. Traditionally this was under the purview of
departments variously titled customer service, order
entry, the inside sales desk.
Order selection and prioritization: Customer service
representatives are also often responsible for choosing
which orders to accept and which to decline.
Order scheduling: During the ordering scheduling phase
the prioritized orders get slotted into an actual production
or operational sequence.

Mercantile models from the Merchants

perspective contd

Order fulfillment and delivery : During the order

fulfillment and delivery phase the actual provision of
the product or service is the made.
Order billing and account/payment management :
After the order has been fulfilled and delivered, billing
is typically handled by the finance staff, who view their
job as getting the bill out efficiently and collecting
quickly.
Postsales service : This phase plays an important role
and includes such elements as physical installation of
a product, repair and maintenance, customer training,
equipment upgrading and disposal.

Order Planning and order generation

Cost estimation and pricing

Presales
Interaction

Order receipt and entry

Order selection and prioritization
Order scheduling

Product service
Production and
delivery

Order fulfillment and delivery

Order billing and account/
payment management
Customer service and support
Fig: Order management cycle in e-commerce

Postsales
interaction