E-Commerce Models: Advantages and Disadvantages

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Introduction

Electronic commerce (e-commerce) is referred to as the practice of carrying out business through the World Wise Web or rather the internet. In general terms, just like other forms of traditional commerce, buyers and sellers get a platform whereby they can exchange their goods and services. The only difference between e-commerce and traditional methods is that, in e-commerce, business is carried out over wired communication lines connected throughout the world. In this case, the World Wide Web serves as the central medium for all traders’ transactions. This mode of business occurs through the use of forms such as emails, facsimiles, or fax (Garcia-Murillo M, 2004).

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Through e-commerce, it is easy to sell and buy commodities and services that customers require from the comfort of their homes. Secure gateways and encrypted channels offer a secure mode of monetary transactions. Payments are made easy with the use of e-checks, credit cards, Payment gateways, or sometimes using traditional systems of payment (Belanger, 2002).

Ecommerce has various models. These include business-to-business (B2B) commerce, business-to-consumer (B2C) commerce models, and Consumer-to-consumer commerce (C2C) model, Business to Employee (B2E), and Consumer to Business (C2B). This section examines three e-commerce models, including the merits and demerits of each (Belanger et al., 2002).

Consumer to Consumer model (C2C)

Consumer-to-consumer e-commerce usually refers to individuals carrying out business on the internet, that is, commerce between private consumers. In this model, a third party usually builds a transaction bridge between different customers involved. An example of this model is auctioning, whereby consumers set up sales of their goods and services for other consumers to bid and win the specified goods or services (Garcia-Murillo M, 2004 ). There is usually a nominal fee charged for the services by the third party. C2C models are categorized in various ways, for instance, according to the level of pureness, that is, analyzing how many outside players/third parties need to be involved in transactions. They can also be categorized according to price. This finds out whether the prices of the commodities have been fixed beforehand or even whether there is a possibility of price competition by auction. In a fixed price model, the prices of a commodity are usually fixed in advance by the seller. In such models, no one prevents price re-negotiations from taking place between the seller and the buyer (Garcia-Murillo M, 2004).

Advantages of Consumer to Consumer model

This model cuts off intermediaries from the chain of distribution in a way. Compared to other traditional models, business arrangements are between the buyer and seller only, which eliminates many transaction costs involved when intermediaries are involved (Garcia-Murillo M, 2004 ).

Access to a broader market is a great advantage presented by this model. Consumers are able to find different sellers and compare prices. They also get a variety of products which could not be possible when many regulations are put in place (Belanger, F et al., 2002).

Disadvantages of Consumer to Consumer model

Connecting both buyers and sellers is very challenging in this model. Finding the right consumer who will buy the product is one major challenge that sellers face through this model. If we compare how business is conducted between the traditional method and this model, we find that merchants were able to advertise and market their products and services more than the way marketing is done through these models (Garcia-Murillo M, 2004). The unavailability of internet connections to many people makes these models unpopular.

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In this model, gaining trust from consumers is usually very difficult. Due to an aspect of anonymity, there is usually a high risk of a hoax defrauding people their money. There is also the danger of misrepresentation of material facts about a commodity by the sellers in this model. This makes the C2C model lose popularity. Trust is very basic in any business; therefore, it is much riskier using this model (Belanger, F et al., 2002).

The monetary transaction is a great challenge. Reliability while making the transaction is usually a big deal, especially due to a lack of trust between sellers and buyers. Other times, there is no payment guarantee. This is usually because the transaction systems are not well structured in this model. Monetary transaction systems, therefore, need implementation to avoid this aspect of mistrust and fraud while making transactions.

Business to business e-commerce (B2B)

Business-to-business e-commerce refers to e-commerce between different companies. Examples of such models include Cisco and Del, and IBM. It usually has two basic components, namely e-commerce and e-market. E-marketing is the architecture of business to the business model, which consists of application service providers, logistics such as transportation and distributions, auction solution software, web-based commerce enablers such as Commerce One, among others. E markets are the websites where buyers and sellers come together and conduct their business transactions (Belanger, F et al., 2002).

B2B advantages

B2B enhances the reduction of product search costs as well as transaction costs. The exchange does not involve many intermediaries when looking for the suppliers of the goods which the buyers want to buy, products and prices, as well as the products price compared with traditional methods. Internet greatly ensures efficiency in the availability of information. The cost of transaction cost is also significantly reduced through this model. Such cost includes costs involved in the processing of invoices, purchasing orders as well as payment schemes. B2B enhances automated transaction processes.

It also removes many which could result from geographic market segmentation. The buyers get information about sellers offering better products services. On the other hand, suppliers increase the number of potential buyers. This model usually promotes information flow between consumers and sellers.

B2B enhances transparency in pricing. The model allows many buyers and sellers to come together and form a single e-market; therefore, it is easier to access the market price information and the processes of the transaction from those participating in the market. Information is usually publicized on the internet. Information transparency allows competition, thereby allowing a decline in prices as well as enhancing decision-making while buying the products (Garcia-Murillo M, 2004).

Economies of scale are made possible business-to-business e-markets develop the previously traditionally used methods of supply-side cost-based economies of scale. In addition, due to the aspect of many buyers and sellers together, the model enhances the demand-side economies of scale. This is known as the network effect. Increasing the number of buyers and sellers creates effective value for all the participants on the demand side.

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B2B disadvantages

Competition in this model is very stiff on the web. There are low barriers to entry by the firms providing goods and services. Buyers have a wide variety of options where they can purchase the same from. Through the use of search engines, buyers can easily get access to different companies offering the products they want to buy. This is a demerit to those firms since they are forced to lower their prices which in turn lower their profit margins.

The technological problem can make a firm lose many buyers within a short time. This technology encounters some serious problems at times (Belanger, 2002 ). Some technical problems may go unnoticed sometimes by the administrators. This can greatly hamper buyers’ effective retrieval of vital information about a particular product; this may make the buyers opt to take products from other companies.

Business to Consumer (B2C)

Business to business e-commerce refers to commerce between companies and consumers of their products. Consumers usually search for information about the market in this model and then buy physical commodities or information goods, that is, electronic materials. Examples of material goods include software and e-books.

Advantages of B2C

This model reduces transaction cost just like the majority of other e-commerce models. The previously used methods such as invoicing costs as well as order processing costs are significantly reduced.

The model is convenient and very efficient. It provides an avenue where consumers can buy goods and services while at home. This saves them time and effort. Consumers also get after-sale services wherever they are without traveling to get such services. For instance, they can directly query through the website in case of any problem encountered.24-hour services are available to consumers as opposed to traditional methods where businesses are closed after working hours. Convenience in terms of the availability of services significantly enhances consumers’ satisfaction.

Business to customer models encourages infrastructure reduction. The actual traditional business methods usually involve many infrastructure costs such as the lease of shops, decorating the business infrastructure, configurations as well as making shelves. B2B model greatly reduces these costs. It only involves an online store which is a virtual homepage where the sellers do list their products, and consumers can click to view the details of goods.

Operations costs are significantly reduced in this business model. This is because it involves direct one-on-one sales between a company and the buyers. The direct online sales to customers enable the company to bypass many wholesale segments. This makes the prices of the commodities cheaper. The companies are able to increase their profits margins due to low costs of operations (Belanger, 2002 ).

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Disadvantages of B2C

Consumer psychology is not possible to meet. Gauging from the previously used traditional methods, consumers prefer to see the kind of products they want to buy physically. Therefore, experiential consumptions for the virtual online buying and selling of goods appear skeptical. There are a few differentiations of the websites; thus, they appear invariably monotonous. When we look at the pricing, delivery methods, and means of communication, for instance, innovation of business model, we see it is not strong (Belanger et al., 2002).

Lack of credit system improvement in these models is a major disadvantage. Due to complexities in these models’ transactions, there is a need for an integrated credit system that covers the wider geographical areas. This aspect is usually lacking in many countries, and this makes the model less effective. This means that very few consumers use this form of business.

Conclusion

In the emerging world of the global economy, e-commerce has increasingly become imperative when forming business strategies. It’s also an effective catalyst for economic development as well as growth. Information and communication technology (ICT) has significantly added value to businesses and allows easier access to customers and the sellers of commodities. Embracing e-commerce is one of the greatest achievements in businesses today. Many transactions have been made easy; companies have been able to connect easily with many customers, thus increasing their sales volumes. It has been established that there are various e-commerce models and each of these models has its own merits and demerits. Companies have been able to carry out transactions with other companies with ease through the use of the World Wide Web; this has made business transactions easier. Compared to other traditional methods, companies using this model (B2B) have significantly been able to cut the cost of operation as well as other transaction costs involved.

The consumers to consumer (C2C) model enables the private individual to carry out business with other people. This significantly reduces the number of intermediaries in the market, therefore, minimizing the chances of prices distortions. However, the model encounters a number of challenges, such as a lack of trust. The possibility of fraud is enormous in this method; therefore, the level of trust is very low in this e-commerce model. Misrepresentation of material facts poses a major challenge in this form of e-commerce model, the reason being that there are few third parties involved. Business to customers (B2C) is so far one of the most popular models. It allows sellers and buyers to carry out business transactions easily through the internet. Consumers are now able to buy their products from their homes. All these models have, in one way or another, significantly enhanced economic development. Major developments are being carried out to enhance these models.

List of References

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