Introduction to E-commerce

The process of buying and selling goods and services through the Internet

Author: Sid Arora
Sid Arora
Sid Arora
Investment Banking | Hedge Fund | Private Equity

Currently an investment analyst focused on the TMT sector at 1818 Partners (a New York Based Hedge Fund), Sid previously worked in private equity at BV Investment Partners and BBH Capital Partners and prior to that in investment banking at UBS.

Sid holds a BS from The Tepper School of Business at Carnegie Mellon.

Reviewed By: Himanshu Singh
Himanshu Singh
Himanshu Singh
Investment Banking | Private Equity

Prior to joining UBS as an Investment Banker, Himanshu worked as an Investment Associate for Exin Capital Partners Limited, participating in all aspects of the investment process, including identifying new investment opportunities, detailed due diligence, financial modeling & LBO valuation and presenting investment recommendations internally.

Himanshu holds an MBA in Finance from the Indian Institute of Management and a Bachelor of Engineering from Netaji Subhas Institute of Technology.

Last Updated:January 11, 2024

What Is Electronic Commerce (E-commerce)?

Electronic Commerce (E-commerce) refers to online buying and selling of goods and services. It involves transactions conducted through the internet, enabling businesses and consumers to exchange products and payments digitally.

A prologue would regularly cover the overview, types, set-up instructions, marketing and promotion, payment and shipping, legal and regulatory considerations, and examples related to e-commerce.

The outline of a web-based business gives an overall prologue to the idea of the business, including the meaning of what it is and how it varies from conventional physical retail.

The guide explains various kinds of online businesses, including business-to-customer (B2C), business-to-business (B2B), and consumer-to-consumer (C2C) online businesses, etc.

Setting up ECOM contains steps associated with setting up an internet business, including picking a plan of action, choosing an item or administration to sell, and setting up an internet-based store.

Advertising and advancement cover the different ways of advancing and marketing a web-based business, including site improvement (Search engine optimization), online entertainment showcasing, and email promoting.

Payment and delivery cover the different installment methods and transportation choices for internet business organizations, including Visa handling, PayPal, and different transporters.

Legal and administrative contemplations cover web-based business organizations' different legitimate and administrative contemplations, including shopper security regulations, information assurance, and assessments.

Contextual investigations and best practices give instances of fruitful internet business organizations and best practices for running a web-based business activity.

The guide aims to provide a comprehensive introduction to e-commerce for those new to the field, covering the key concepts, strategies, and tools needed to launch and run a successful ECOM business.

Key Takeaways

  • E-commerce or electronic commerce refers to the buying and selling of goods or services over the internet.
  • Various types of ECOM are business-to-business (B2B), business-to-consumer (B2C), consumer-to-consumer (C2C), business-to-administration (B2A), mobile commerce, social commerce, and dropshipping.
  • B2B commonly includes bigger exchanges and longer deal cycles than B2C.
  • Compared to B2C and B2B, B2A ECOM often includes various rules and procedures.

    Types of E-commerce

    E-commerce or electronic commerce refers to the buying and selling of goods or services over the internet. It is also known as web-based business activity.

    It incorporates different exercises, from web-based shopping and sales to buying labor and products through virtual entertainment stages and versatile applications.

    The business has filled quickly as of late, with an ever-increasing number of customers going to the web for their shopping needs.

    This has prompted an expansion in the number of organizations that work on the web and an upsurge in the number of physical stores with a web-based presence. There are several types of electronic commerce, including:

    Business-to-consumer (B2C)

    B2C internet business includes organizations selling items or administrations straightforwardly to purchasers through a web-based stage. B2C internet business is the most widely recognized kind of web-based business, and it incorporates organizations that sell items or administrations online to individual clients.

    For example:

    • Online retailers like Amazon, Walmart, and Best Buy.
    • Apparel and style stores like Zara, H&M, and ASOS.
    • Electronic stores like Apple, Samsung, and Dell.
    • Food and staple conveyance administrations like Instacart and Grubhub.
    • Travel and convenience booking locales like Expedia and Airbnb.

    B2C online business organizations commonly have a site or portable application where clients can peruse and buy items or administrations. These organizations may likewise utilize online entertainment and showcasing channels to reach clients.

    B2C online business organizations frequently offer many items and administrations, making them an all-in-one resource for clients. Client care is additionally a significant part of these organizations, as it is the resource for purchasers.

    Business-to-business (B2B) 

    B2B online business includes organizations offering items or administrations to different organizations. In B2B, exchanges happen between two organizations instead of between an organization and a customer. It can incorporate both advanced and actual labor and products.

    For example,

    • Wholesalers and makers offer items to retailers and merchants.
    • Programming organizations offer items and administrations to different organizations.
    • Businesses offer consultancy, bookkeeping, and lawful administration to different organizations.
    • Organizations that offer natural substances and supplies to different organizations create their items.

    B2B commonly includes bigger exchanges and longer deal cycles than B2C. In addition, it has a specific target market and spotlights on building long-term relationships with clients.

    They have a devoted outreach group to deal with these connections and arrange contracts. Consequently, B2B generally has complex functionalities, like stock administration, acquirement, and recording of the board.

    Consumer-to-consumer (C2C)

    C2C online business includes shoppers offering items or administrations to different buyers. A third-party platform that connects buyers and sellers, like an online marketplace or a social media website, typically facilitates C2C.

    For example,

    • Online commercial centers like eBay and Craigslist.
    • Online entertainment stages like Facebook, Instagram, and TikTok.
    • Online classified sites like OLX and Craigslist
    • P2P lending and crowdfunding stages like Lending Club and Kickstarter

    C2C online business permits people to sell merchandise they never again need or need or to begin a private venture by selling high-quality or novel items. C2C enables people to create small businesses by selling handmade or one-of-a-kind goods or stuff they no longer require or want.

    C2C platforms also allow customers to buy goods for less money than they would pay at a conventional merchant. 

    Note

    Unlike B2C, the C2C platform often charges a fee for facilitating the transaction and does not maintain inventory.

    Consumers can save or gain money through C2C e-com. Still, there are hazards involved, such as the possibility of fraud and disagreements, which are generally reduced by the platform's policies and guidelines.

    Business-to-administration (B2A)

    Businesses that engage in B2A ECOM sell goods and services to governmental bodies and other public institutions. Also referred to as "e-government" or "e-procurement," this kind of electronic commerce.

    For example,

    • companies that offer goods to the government or educational institutions.
    • Government agencies are receiving IT and consulting services from businesses.
    • Public infrastructure projects are out for bid by construction corporations.

    Compared to B2C and B2B, B2A ECOM often includes various rules and procedures. For instance, tight guidelines and standards governing competition, fairness, and transparency are frequently followed in government procurement.

    To comply with these rules, B2A ECOM systems frequently have functions like bid management, contract management, and invoice management. Additionally, B2A ECOM enables the government to make purchases more effectively, saving money and improving service delivery.

    Mobile commerce (m-commerce)

    M-commerce, a subset of e-commerce, is the buying and selling of goods and services via mobile devices like smartphones and tablets. Customers may shop and make purchases using their mobile devices wherever they are, thanks to m-commerce.

    For example:

    • Retailers like Amazon, Walmart, and Best Buy have mobile apps.
    • Food delivery providers' mobile applications, such as Grubhub or Uber Eats.
    • Ride-hailing apps for smartphones, such as those from Uber and Lyft.
    • Booking websites for travel and lodging, such as Expedia or Airbnb, have mobile applications.

    As more and more people use their mobile devices to access the internet and make transactions online, m-commerce is growing in popularity. In response to this trend, retailers, service providers, and other companies have created mobile-optimized websites and mobile apps that offer a smooth purchasing experience. 

    Note

    Location-based services like push alerts and customized offers can be used by businesses through m-commerce to connect with and engage with customers.

    M-commerce has become more practical thanks to mobile payment methods like Apple Pay, Google Pay, and Samsung Pay. As a result, M-commerce is a terrific method for businesses to broaden their customer base, boost sales, and maintain their competitiveness in the digital age.

    Social commerce

    A social business is an online business that trades items or administrations through web-based entertainment stages.

    Social trade allows organizations to utilize web-based entertainment stages to grow their internet business presence and permit shoppers to find, explore, and buy items through virtual entertainment.

    For example:

    • Through local elements or third-party applications, items are sold through Instagram, Facebook, TikTok, Pinterest, and other virtual entertainment stages.
    • Businesses use social media platforms to market and promote their products or services.
    • Influencer marketing is where businesses work with social media influencers to promote their products or services to their followers.

    It allows organizations to use the force of virtual entertainment to increment brand mindfulness, direct people to their site, and further develop client commitment. 

    Note

    Virtual entertainment platforms allow organizations to target explicit crowds and contact a more extensive crowd than conventional web-based business stages.

    Social commerce also allows businesses to build customer relationships, create brand loyalty and increase sales. Additionally, it allows organizations to fabricate client connections, make brand dependability, and increment deals.

    Web-based entertainment stages likewise give organizations a better approach to collaborating with clients, which can give important bits of knowledge about client inclinations and assist with further developing the general shopping experience.

    Dropshipping

    Dropshipping is an online business where a retailer does not hold inventory on hand but instead passes customer orders and shipping data to a manufacturer, another retailer, or a wholesaler, who then delivers the products straight to the client.

    The supplier sends the product to the buyer after the peddler has finished the sale, and the retailer makes a profit margin. Online stores that offer products from many brands and producers are examples of dropshipping.

    Small electronic commerce companies lack the funding necessary to maintain a sizable inventory. Dropshipping is a fulfillment choice that online marketplaces like Amazon, Etsy, and Shopify provide for vendors.

    Dropshipping enables merchants to provide a range of goods without purchasing inventory or warehouse space, solving the biggest problem after funding any business faces. We all agree that it's easy to buy a luxury car but not the space to park it in today's world.

    Note

    Since merchants only order things from the supplier after selling them to the customer, dropshipping lowers the risk of unsold inventory.

    Dropshipping enables business owners to launch an online store with a low initial cost and little risk. However, retailers have less control over product quality, shipment dates, and customer support, which can be problematic.

    Additionally, retailers may have to deal with more returns and refunds because they are not personally handling the products before they are dispatched to the client.

    Subscription-based commerce

    Customers that use subscription-based commerce, sometimes referred to as subscription commerce or subscription-based business model, pay a regular price for a good or service. However, traditional e-commerce, where customers make a single purchase, differs from subscription-based commerce.

    For example:

    • Boxes with a monthly subscription, like Birchbox or Dollar Shave Club.
    • Netflix or Spotify-like streaming services.
    • Firms like Salesforce or Adobe provide software as a service (SaaS).
    • Platforms for online education like Skillshare or Udemy.
    • Services that supply meals, such as Blue Apron or HelloFresh.

    A long-term relationship with the consumer or items and services that require regular usage are ideal candidates for the subscription-based model.

    In addition, businesses can forecast and plan their revenue thanks to subscription-based commerce because they can rely on a consistent cash stream.

    Additionally, it enables companies to create lasting client relationships and provide specialized, one-on-one services. Customers gain from the convenience of not having to buy products again and from being able to plan their spending.

    However, companies may have to cope with clients quitting subscriptions and may need to focus on client retention over time.

    Advantages and Disadvantages of E-Commerce

    There are a few upsides and downsides to electronic commerce that can't be overlooked. 

    Some of the advantages are: 

    1. Comfort/Convenience: It permits clients to shop from any place, whenever, making it a helpful choice for occupied people.
    2. Reach: It can contact a worldwide crowd, expanding the potential client base.
    3. Cost: Getting ready for an online business can be more affordable than a physical business.
    4. Personalization: It considers the personalization of the shopping experience through proposals, designated promotions, and different means.
    5. Data Analysis: Online business organizations approach abundant client information and buying propensities, which can be utilized to settle on informed business choices.

    On the other hand, between the disadvantages of E-Commerce, we can list the following:

    1. Competition: The online business market is exceptionally serious, with numerous organizations competing for a piece of the pie.
    2. Shipping and Handling: Actual merchandise should be delivered and dealt with, which can be difficult for internet business organizations, particularly small and medium-sized organizations.
    3. Returns, Refunds, and Discounts: Electronic commerce business organizations might need to manage a higher volume of profits and discounts than physical organizations.
    4. Security Concerns: Internet business organizations are defenseless against digital assaults, which can think twice about information and damage the business' standing.
    5. Dependence on technology: Internet business organizations depend vigorously on innovation, which can be a burden in the event of specialized troubles or web blackouts.

    With the advantages and disadvantages mentioned above, we can conclude that e-commerce has its own set of challenges. Still, proper planning and implementation can be a powerful tool for business expansions and revenue growth.

    How to set up an e-commerce business

    After understanding the types, advantages, and disadvantages of e-com, it is essential to see the steps involved in setting up an online store.

    Ten steps must be followed to ensure a successful business setup and to create a flourishing ECOM company that develops and blossoms with the correct strategy and resources.

    The 10 steps are:

    1. Choice of target market: Choose a target market for your goods or services. Then, research the goods or services your target market is interested in purchasing. Think about elements like consumer demographics, shopping patterns, and market trends.
    2. Pick a business strategy: Select the electronic commerce business model, such as dropshipping, subscription-based, or traditional electronic commerce, that best fits your product or service.
    3. Plan your business: Create a thorough business plan that details your objectives, target market, marketing plan, projected financials, and overall business strategy.
    4. Pick an online storefront: Choose an e-commerce platform that effectively serves your company's demands. Shopify, BigCommerce, and WooCommerce are popular choices.
    5. Design and develop your website: Produce a slick, user-friendly, secure website that looks professional. Ensure the website is search engine-friendly.
    6. Secure payment gateway: Create a payment gateway that clients can use to make safe purchases using credit cards or other payment options.
    7. Marketing and promotion: Create a marketing plan that uses email marketing, social media marketing, search engine optimization, and other strategies.
    8. Fulfillment and shipping: Establish a strategy for order processing and shipping that will enable you to quickly handle and deliver customer orders.
    9. Legal and regulatory compliance: Ensure your company follows all pertinent laws and rules, such as consumer protection and data protection laws.
    10. Launch and track: Start your online store and monitor how it's doing. After that, tweak as necessary to maximize your website and marketing initiatives.

    Note

    Starting an online store requires perseverance, hard work, and dedication. Having a well-thought-out plan of action and a distinct idea of what you hope to accomplish is crucial.

    How to do Marketing and promotion of an e-commerce

    An electronic commerce business must have marketing and promotion since they can boost sales and increase visitors to your website.

    Several methods for advertising and promoting an online store include:

    1. Search engine optimization(SEO): Optimize your website's content for search engines to appear higher in search results. Meta tags, keyword research, and other forms of optimization are examples of this.
    2. Social media promotion: Connect with potential clients and advertise your goods or services through social media sites like Facebook, Instagram, and Twitter.
    3. Email marketing: Create an email list of current and potential consumers, then utilize email marketing campaigns to spread the word about new items, specials, and other exclusive deals.
    4. Influencer marketing: Partnering with social media influencers to pitch your items to their following is known as influencer marketing.
    5. Content marketing: Create quality material pertinent to your target audience and publish it on your website and social media channels.
    6. Paid advertising: To reach a wider audience and increase traffic to your website, use paid advertising platforms like Google AdWords, Facebook Ads, and Instagram Ads.
    7. Affiliate marketing: Affiliate marketing is collaborating with other companies or people to sell your goods or services in return for commissions from sales.
    8. Marketing through referrals: Encourage current clients to refer friends and family to your company by providing rewards or discounts.
    9. Hosting events: To advertise your company and build relationships with potential clients, host live or recorded events, webinars, or workshops.
    10. Publicity: Speak with influencers and the media to have your company and products covered.

    Note

    Your target market, products or services, and overarching business objectives will all affect the optimal marketing and promotion plan for your ECOM business. To maximize your outcomes, it's crucial to test various marketing and promotion tactics and to modify your strategy as necessary.

    Payment and shipping in e-commerce

    The two crucial elements of electronic commerce, i.e., payment and shipping, can impact clients' happiness and your company's overall performance.

    A) Payment

    1. Setting up a secure payment gateway that enables clients to pay using credit cards, debit cards, or other options is crucial. This will guarantee the protection of clients' financial and personal information. Additionally, it will facilitate the speedy and effective processing of transactions.
    2. Clients are offered various payment alternatives, such as credit cards, PayPal, and digital wallets, to boost the likelihood of a sale.

    B) Shipping

    1. Provide customers with various delivery alternatives, including normal, expedited, and international shipping.
    2. Be sure to appropriately show shipping costs and delivery times on your website and communicate these details to customers.
    3. Providing consumers with a mechanism to track their orders will enable you to keep them updated on the progress of their deliveries.
    4. Establish a return and exchange policy that is transparent and simple to understand.
    5. Pick a fulfillment strategy for your company, such as drop shipping or fulfillment by Amazon (FBA).

    You may improve customer satisfaction and lower the possibility of returns or disputes by providing clients with various payment and shipping alternatives and explaining shipping costs and delivery schedules. 

    Note

    Picking a good fulfillment method, offering a tracking number, and clearly outlining your return/exchange policy will improve delivery efficiency and boost client confidence in your company.

    Legal and regulatory considerations of e-commerce

    Many legal and regulatory considerations apply to ECOM enterprises like any other business. Any violation of these legal and regulatory obligations may lead to the imposition of fines, penalties, and even legal action.

    Some legal and regulatory considerations include:

    1. Data protection and privacy

    Data protection and privacy legislation, such as the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), must be complied with by e-commerce enterprises.

    These legislations aim to safeguard consumer data, get permission before collecting and using data, and grant customers access to their data upon request.

    2. Consumer protection 

    ECOM companies must abide by consumer protection regulations set forth by organizations like the Consumer Product Safety Commission (CPSC) and the Federal Trade Commission (FTC). 

    Note

    Besides safeguarding customers from fraud and illegal business activities, these organizations provide accurate and true information about goods and services.

    3. Intellectual property and sales tax

    Trademark and copyright rules must be complied with by these companies. To do this, they must seek authorization to utilize copyrighted content and ensure that their items don't violate anyone else's trademarks.

    Sales tax regulations differ from state to state and must be followed by ECOM companies. A sales tax permit must be applied for, a sales tax must be collected and remitted, and a sales tax return must be filed.

    4. Advertising and marketing

    ECOM companies must abide by advertising and marketing regulations, such as the FTC Act forbids false or deceptive advertising. This involves ensuring that all marketing and advertising materials are accurate and not deceptive.

    Regulators ensure that the seller does not advertise diamonds instead of shining stones. In addition, the product shown on the packaging must not be a different illuminated version of the product inside.

    5. Laws governing e-commerce 

    Laws such as the Electronic Signature in Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA), which define the legitimacy of electronic signatures and records, must be acknowledged by electronic commerce enterprises.

    Examples and case study of E-Commerce

    There are various examples of successful ECOM worldwide. Amazon and Alibaba's case is a good example of how a company can use technology, data, and a thorough market understanding to create a dominant position in the ECOM sector.

    A) Example 1

    Amazon.com is one of the biggest online shopping platforms. In 1994, the business began as an online bookstore. It has expanded to become one of the biggest electronic commerce firms in the world.

    In addition to goods like books, electronics, apparel, and food, it now provides services like streaming music and video. It has also created a line of goods, including the Kindle e-reader and the Echo smart speaker.

    Thanks to Amazon's millions of products, customers may easily and quickly find what they seek. In addition, it makes shopping simple and convenient with features like one-click ordering and free shipping on qualifying items.

    Customers' purchasing experiences are enhanced by its recommendation engine and tailored product recommendations. With the creation of new technologies like the virtual assistant Alexa and the Dash button, which enables users to reorder frequently used items quickly.

    Amazon has continued to innovate. The only mantra it follows is, "Innovation is the ability to see change as an opportunity - not a threat."

    B) Example 2

    The Chinese e-commerce behemoth Alibaba runs several online and physical retail platforms, such as Taobao and Tmall, and it provides wholesale and retail services via Alibaba.com and 1688.com.

    Alibaba's success may be ascribed to several things, including its early entry into the Chinese ECOM market, its focus on small and medium-sized businesses, and its capacity to use technology and data to give customers a seamless shopping experience.

    The success of Alibaba can be attributed to several factors, including the company's early entry, focus on a particular market segment, and technology/data-driven decision-making. 

    Researched and authored by Parul Gupta | LinkedIn

    Reviewed & Edited by Ankit SinhaLinkedIn

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