E-commerce. Business-to-consumer

Communication over the Internet is characterized by easy accessibility, low-cost usage, and speed. These features are the result of astonishing developments in recent years in computer networks, processing speed, data storage capabilities, software, display technology, and user interfaces. The linking of people and companies due to e-commerce has opened up exciting new marketing opportunities as well as new processes for improving supply chain management.

Business-to-consumer e-commerce is a new method of retailing that puts the consumer in direct contact with a grocery, clothing, or PC company offering products. These Internet companies face a host of new marketing and sales challenges including the following:

• Devising graphics to attractively display physical products on the Web site

• Pricing products to gain market share, reflect supply chain costs, or some other criteria that change radically with evolving markets

• Extrapolating sales patterns from initial markets to new markets

• Identifying demographics of Web site customers

• Devising acceptable and sustainable customer service criteria

• Devising strategies to retain customers

• Selecting the number and range of products to offer that the Web site and the supply chain can support

• Connecting Web site sales to physical inventory

• Providing security for payment by credit cards

Innovations of business-to-customer Internet companies occur largely on the demand side of their businesses, although changes to conventional thinking are also needed for supply chain management.

Despite the excitement of business-to-customer Internet companies, their sales are still only a small percentage of total retail sales. Moreover, they are not projected to make serious inroads in the near future in most industries.

The logistics of business-to-customer Internet companies is driven by the classic order fulfillment principle: deliver the correct product to the correct location at the correct time for a competitive price. These companies have only just begun to realize the full importance of this principle and how difficult it is to effectively link their Web-based marketing and sales activities to their order fulfillment activities. In simple terms, an Internet company has two choices. It can build its own warehouses and manage its own distribution systems or it can hire third-party logistics companies to handle distribution for it.

Either option can prove costly. Supply chain management of business-to-consumer Internet companies is subject to serious economies of scale in paybacks from investments in warehouses, inventories, and integrated data management and modeling systems. Due to high and increasing customer service expectations, these economies of scale may be even more pronounced than those experienced by traditional retailers. It suggests that we may soon see a serious reduction in the number of Internet companies as mergers and acquisitions allow companies to achieve volumes that justify capital investment in brick and mortar and integrated systems.

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