BUSINESS MODELS OF E-COMMERCE

E-business involves changes in an organization’s business and functional

processes with the application of technologies, philosophies and computing
paradigms of the new digital economy. Together e-business and e-commerce
have created a system of applications and utilities whereby money, information
and services can be exchanged via the web.
The various models of e-commerce have brought business and customer closer to
each other and transformed the way of conducting the business drastically. The
business models are classified as:
 Business to Customer (B2C)
 Business to Business (B2B)
 Customer to Customer (C2C)/Peer to Peer (P2P)
 Customer to Business (C2B)
 Business to Government (B2G)
Business-to-Consumer (B2C)
B2C applies to any business or organization that sells its products or services to consumers
over the Internet for their own use. i.e. it provides a direct sale between the supplier and
the individual customer. B2C e-commerce involves what is known as electronic retailing or
e-tailing. E-tailing involves online retail sales and makes it easier for a manufacturer to sell
directly to a customer, cutting out the need for an intermediary (retailer) and thereby
eliminating the need for a physical store for distribution of the products.
An electronic or Web storefront refers to a single company web site where products and
services are sold. The first noticeable success came around 1995 with the launch of eBay
and amazon.com which is being followed by many imitators.
The main things which are browsed and sell well over the Internet include:
Computer Hardware and Software: While hardware is most popular, more and more
people buy software online.
Consumer Electronics: It is the second largest product category sold online.
Sporting Goods: There are only a few e-tailers that sell sporting goods exclusively online.
Office Supplies: B2C sales of office supplies are increasing rapidly all over the world.
Other things which are well sold over the internet include Books and music, Toys, Health
and beauty, Entertainment, Apparel, Services
Major Activities of B2C E-Commerce
 Information Sharing: A B2C e-commerce model may use some or all of the following
applications and technologies to share information with customers:
a) Company Web site
b) Online catalogs
c) E-mail
d) Online advertisements
e) Message board system
f) Newsgroups and discussion groups

ORDERING

SERVICE AND SUPPORT FULFILLMENT

B2C E-COMMERCE

INFORMATION SHARING PAYMENT

Company Website Credit cards

Online catalogs Electronic cheques
E-mail Digital cash
Online advertisements
Message board system
News groups
Discussion groups

Fig : Activities of B2C e-commerce

 Ordering: A customer may use electronic forms similar to paper forms or e-mail to
order a product or service.
 Payment: There are a variety of option available today like Credit cards, Electronic
cheques, Digital cash etc.
 Fulfilment: The fulfilment function could be very complex depending upon the
delivery of physical products (books, videos and CD’s) or digital products (software,
music, electronic documents). Fulfilment is responsible for physically delivering the
product or service from the merchant to the customer.
 Service and Support: This aspect is more important as e-commerce companies lack a
traditional physical presence and need other ways to maintain current customers.
The means are:
 a) E-mail confirmation.
b) Periodic news flash
c) Online surveys
d) Help desk
e) Guaranteed secure transactions
f) Guaranteed online auctions.
All these five activities need to be used in conjunction with one another for a B2C business
to be successful.

Models of B2C
Auctions: Electronic auctions offer an electronic implementation of the bidding mechanism
which can be accompanied by multimedia presentation of the goods. They may also offer
integration of the bidding process with contracting, payments and delivery.
The sources of income for the auction provider are in selling the technology platform, in
transactions and collection of e-shops that usually gets enhanced by a common umbrella
like that of a well-known brand.
Advantages of Internet auctions
Convenience: It gives the participants convenience, as bidder can stay at his home or office
and still participate in the bidding. In addition, it is also more convenient for a bidder to find
more about the goods being auctioned.
Flexibility: Traditional auctions allow only synchronous bidding requiring all bidders to
participate at the same time. In contrast, Internet auctions allow asynchronous bidding
lasting days or weeks, which offers more flexibility to the bidders.
Increased Reach: The potential of reach of an Internet based auction site is global and thus
the market for auctioned good is extremely vast.
Economical to Operate: These are cheaper to run as lot of costs relating to infrastructure
required for a conventional auction system is not necessary.
Disadvantages of Internet auctions
Inspection of goods: In an Internet based auction, it is not possible to physically inspect the
goods. The bidders have to rely on the information provided or on some electronic images
of the goods on auction.
Potential for Fraud: Internet bidder has to trust that the seller would actually send the good
for which he has paid. Also the payments are made online using the card details or bank
details which may not be necessarily safe all the time.
Online Stores: It refers to marketing of a company’s products through the web.
 Benefits to the Company:
a) Increased demand.
b) A low-cost route to global reach.
c) Cost-reduction of promotion and sales.
d) Reduced costs.
 Benefits for the Customers:
a) Lower prices.
b) Wider choice.
c) Better information.
d) Convenience.
 Delivering value to Customers: In order to develop and deliver more value to the
customers the following things can be considered:
a) Merchants have to try to find ways to gain competitive advantage in factors other than
just the price.
b) Online shops need to provide a shopping experience that addresses all of the customer’s
requirements. It should also try to provide an environment that is easy to explore.
c) Expansion of the range of services.
d) Find cost-effective ways to increase customer base and generate higher revenues.
Online Services
Many companies are using Internet to provide customer service. Service sector banking and
Stock trading is one such example.
Major Challenges of B2C e-commerce: Getting good browsers, building customer’s trust
and loyalty are few of the challenges, which need proper attention while offering a Business
the benefits of e-commerce solution.

 Getting browsers to buy things: Getting visitors to the site is only half the battle.
Whether they buy something is what determines the success. Customers are still
abandoning their online shopping carts for a number of reasons, including clunky
design. HTML is the cause of the most of the usability problems associated with e-
commerce.Now that broadband is more widespread, companies are boosting their
conversion rates by deploying more advance web technologies and rich media.
 Building customer Trust/ Privacy: There is no silver bullet that will stop all security
breaches and all identity thieves. Still, the companies need to take steps to ensure their
customer information is well protected. First of all, companies should secure web
transactions using the secure socket layer protocol, then should also consider two-part
authentication, which can combine passwords with a security key with a changing code.
 Building customer Loyalty: Customer loyalty is particularly important given the fact that
more consumers are using search engines to research products online, rather than going
 directly to a particular store’s site. To build a strong relationship with the customers the
following can be considered:
a) Focus on Personalization: A wide array of software is available to help e-commerce
sites create unique boutiques that target specific customers.For example, American
Airlines has personalized its website so that business fliers view it as a business
airline and leisure travelers see it as a vacation site.Amazon and Flipkart which built
their own personalization and customer relationship management system, is well
known for their ability to recognize customers’ individual preferences.
b) Create an easy-to-use customer service application: Providing just an e-mail
address can be frustrating to customers with questions. Live interactions may help a
lot in this regard. Also, the site should be made easy as far as user friendliness is
concerned.
 Fulfillment: E-commerce has increased the focus on customer satisfaction and delivery
fulfilment. One cautionary tale is ‘Toys “R” Us’ holiday debacle in 1999, when fulfillment
problems caused some Christmas orders to be delivered late. Since then, companies
have spent billions to improve their logistical systems in order to guarantee on-time
delivery. Providing instant gratification for customers still isn’t easy, but successful B2C
e-commerce operations are finding that fulfilment headaches can be eased with
increased focus and investment in Supply Chain and Logistic technologies.

Business-to-Business (B2B)
B2B involves online transactions between two businesses or any two organization. In B2B,
companies buying from and sell to each other online. It has evolved to encompass supply
chain management as more companies outsource parts of their supply chain to their trading
partners. For example a company like TATA Motors may deal electronically with its dealers
and may place online orders to its vendors for the raw materials and component parts and
can track the status of those orders.
A large number of companies are adopting this technique to curb the existing inefficiencies
involved in potentially time consuming and tedious tasks, while cutting down the costs.
B2B activity refers to all e-commerce transactions that can occur between two
organizations. This includes purchasing and procurement, supplier management, inventory
management, channel management, sales activities, payment management, and service
and support. Examples of B2B include online companies that specialize in marketing
strategies, advertising, email companies, internet consultants, website development etc.
A well-executed B2B system can take care of a wide spectrum of activities. It can take up
the role of a number of workers of a company. It reduces the cycle time substantially. It
assists a firm in replacing the existing business practices with new, quick, efficient and
secure business practices.
By using B2B e-commerce, business can reengineer their supply chain and partnership. B2B
will help access to the following types of information:

 Product: Price, sales history etc.

 Customers: Sales history and forecast.
 Suppliers: Product line and lead-time, sales terms and conditions.
 Product process: Capacity, product plan.
 Competitors: Market share, product offerings.
 Sales and marketing: Promotions.
 Supply chain process: Quality, delivery time etc.

B2B Exchange
A B2B exchange (also called a marketplace or hub) is a website where many companies can
buy from and sell to each other using a common technology platform. Many exchange also
offer additional services, such as payment or logistics services that help members complete
a transaction. Exchange may also support community activities, like distributing industry
news, sponsoring online discussions and providing research on customer demand or
industry forecasts for components and raw materials.
B2B sales are also generated by providing a specialized product line or service not available
to the general public. This form of B2B transaction is very common in the manufacturing
world. For example, A company which produces shaving cream in cans, may need a specific
plastic nozzle. Several plastic injection molding companies would send sales representatives
to pitch their particular designs. These nozzles would be useless for individual customers,
but a manufacturer may order thousands of them.

Development of B2B e-commerce

Considering the present situation the development of B2B e-commerce can typically be
broken down into five stages:
Stage One: The business has an interest in getting on-line, can see it could bring competitive
advantage and is increasingly aware of the need to maintain competitive parity. The
company doesn’t use e-mail and has neither Internet access nor a company web site.
Stage Two: The internet is being used as a marketing and communication tool. There is a
company web site for increasing their marketing reach and the Net is used to gather
information regarding possible competitors and suppliers. E-mail is widely used among the
partners but there is no link between any web activity and existing back office systems.
Stage Three: The business uses the Internet to interact with their customers. Their use of e-
commerce has developed to the point where they are offering a full service storefront and
possibly an online account management facility.
Stage Four: This help the companies to move towards a more integrated, on-line
relationship with trading partners.
Stage Five: The business joins online exchanges, e-marketplaces and related services, using
the Internet to connect them with business partners, suppliers and customers. This may
result in a significant pricing efficiencies.

Types of B2B Markets

B2B electronic commerce can be implemented by different e-marketplace. These models
can be broadly divided into categories based on the way in which they are operated.
Independent e-marketplace: This category is operated by a third party who is neither a
buyer nor a seller. These are usually public marketplaces open to all buyers or sellers in a
particular industry or region. There is typically some form of payment is required to
participate. The main reason for the third party creating this type of e-marketplace is to
generate revenue.
Buyer-oriented e-marketplace: This category is normally run by a consortium of buyers in
order to establish an efficient purchasing environment. The intention is to help buyers lower
their administrative costs and achieve optimum prices from their s uppliers.The e-
marketplace is open to existing suppliers who are encouraged to place their catalogues
online so that they can be accessed by all members of the consortium.
Supplier-oriented e-marketplace: This marketplace is set-up and operated by a number of
suppliers who are seeking to establish an efficient sales channel via the Internet to a large
number of buyers.
Vertical and horizontal e-marketplace: Vertical e-marketplace address the requirements of
a specific industry sector such as automotive, chemical, construction or text iles.A large
organization may set up such a marketplace to enable it to work with smaller businesses in
its supply chain.
A Horizontal marketplace addresses regional or functional requirements. Companies use
such marketplaces to purchase indirect products such as office equipment or stationery.
Business purchases can be classified into two broad levels – Manufacturing inputs and
Operating inputs. The second aspect is about how businesses buy products and services –
either through Systematic sourcing or through Spot sourcing.
Manufacturing inputs: These are raw materials and components that go directly into
the products or process.
Operating inputs: These are not parts of finished goods but include things like office
supplies and spare parts. These are often called Maintenance, Repair and Operating
(MRO) goods.
 Systematic sourcing: These involve negotiated contracts involving long-term
relationship between buyer and seller.
Spot sourcing: In this case the buyer’s objective is to fulfill an immediate need at the
lowest possible cost and does not involve any long-term relationship between the buyer
and seller.
B2B hubs can be categorized as:
MRO (Maintenance, repair and operating) hubs: These hubs concentrate on goods with
low value. The transaction cost is relatively higher. These hubs provide value by increasing
the efficiency in the procurement process. These hubs use third party logistics supplier to
deliver goods, thus enabling them to disintermediate or bypass existing middlemen in the
channel. Ex:- mro.com, bizbuyer.com and Ariba.
Yield manager: This type of e-markets creates spot markets for common operating resource
like manufacturing capacity, labor or advertising. This functionality allows the companies to
expand or contract their operations at a short notice. Yield managers add great value in
situations where there is high degree of price and demand volatility, and where fixed assets
cannot be liquidated or acquired quickly. Youtilities, employease, elance for human
resource, iMark for capital equipment and capacity Web for manufacturing are few good
examples.
Exchanges: Online exchange allow purchasing manager to effectively manage peaks and
ebbs in demand and supply by allowing them to exchange commodities or near
commodities for production. These exchanges maintain relationships with buyers and
sellers, making it very convenient for business to conduct business over exchanges, and in
many cases the buyers and sellers never even see each other. Ex:- PaperExchange and e-
steel.
Catalog Units: These are industry specific hubs that bring many suppliers together at one
easy-to-use web site. These hubs automate the sourcing of non-commodity manufacturing
inputs and create value by reducing transaction costs. Catalog hubs can be either buyer
focused or seller focused. Some hubs would work as distributors for suppliers while others
would work for buyers in their negotiations with sellers. Ex:- PlasticNet.com in the plastics
industry and Chemdex in the chemical industry.
Private Exchanges: In these exchanges company connects with its supplier base or known
customer base. In other words, it is one to many connection between the company and its
trading partners. In private exchanges companies do not look beyond their existing
customer / supplier base, but provide deep collaboration and focus on direct material
procurement capabilities. These exchanges generally have sophisticated e-Market
capabilities, developed through use of advanced software applications and integration with
trading partners ERP systems. Private exchanges offer greater privacy, security and superior
collaborative capabilities and provide an opportunity for increased competitive advantage.
Industry consortium: This model provides some to many connections among industry
members and their trading partners. These e-Markets give individual members access to
each other’s trading partners. These exchanges also offer collaborative capabilities as
private exchanges. Industry consortiums serve large and captive customer base.
Independent markets: This type of e-market brings buyers and sellers together in the form
of many-to-many connection among buyers and sellers and has the widest variety of
participants but at the same time makes collaboration difficult.

Fig - e-Hub
An e-Hub is web enabled platform that allow trading partners to find, exchange, and share
information related to buying and selling activities. Various activities are automated. E-Hub
provides complete transparency at all stages of execution of a transaction and information
flows to all concerned enabling them to respond efficiently and on time. All the parties
contribute their share of information to create a pool of dynamic information at “mission
control center” in the e-Hub.
It provides not only current view of the order but also provides visibility into other aspects
of fulfilling that order, such as production capacity, inventory availability, and logistics and
fulfillment status.
Relationship of B2B e-commerce with other perspectives:-
Electronic Marketing: B2B platform can be used to sell the company’s product and services
to business customers on the internet. This model can be called seller oriented marketing as
customers visit the web site that the supplier has prepared.
Procurement Management: From the purchasing company’s point of view, B2B is a medium
of facilitating procurement management such as reduced prices and reduced cycle time
because to the suppliers, participating to the customers oriented marketplace and winning
the bid is the major concern.
Electronic Intermediaries: Individual consumers and business purchases a group of items
such as books, stationery and personal computers, in such cases the consumers and
business buyers can share the intermediary.
Certain items such as industrial equipment and parts are purchased only by business
buyers.
Since the purchasing party is a business who has to deal with many suppliers and
intermediaries, an integrated and tailored buyer’s directory linked suppliers and
intermediaries is needed.
Just in Time: JIT delivery of parts to manufacturing buyers is crucial to realize JIT
manufacturing. Direct marketing requires an internal JIT manufacturing system; the JIT
delivery and advanced confirmation of supplier’s inventory are essential elements of B2B.
Electronic Data Interchange: EDI is the electronic exchange of specially formatted standard
business documents such as orders, bills approval of credit, shipping details and
confirmation sent between business partners.
Benefits of B2B e-commerce: It has been proved that e-commerce can help the companies
a lot as far as saving on the buy side and increasing profits on the sell side is concerned.
Some ways the companies have been benefited from B2B e-commerce include:

 Managing inventory more efficiently.

 Adjusting more quickly to customer demand.
 Getting products to market faster.
 Cutting the cost of paper-work.
 Obtaining lower prices on some supplies.
Difference between B2C and B2B e-Commerce: B2B customers are other companies while
B2C customers are individuals. B2B transactions are more complex and have higher security
needs. Beyond that, there are two big distinctions:
Negotiation: Selling to another business involves haggling over prices, delivery and product
specifications which is not the case with most of consumer sales.
Integration: Retailers don’t have to integrate with their customers’ systems whereas,
companies selling to other businesses, need to make sure they can communicate without
human intervention.

Consumer–To–Consumer OR Peer–To–Peer (C2C / P2P)

C2C or P2P is defined as exchanges between / among consumers. These exchanges
generally involve a third-party, which provides all the facilities like the infrastructure, place
and governance for the transactions / exchanges. Ex:- Ebay, OLX etc.They provide valuable
service to consumers looking for different things and services.
C2C applications are a growing area of e-commerce and as online business expands, C2C
transactions will continue to grow in popularity and the industry will become highly
profitable.

Consumer–To–Business (C2B)
Here the consumers present themselves to the business organizations who are the buyer
group. Ex:- CTB, SpeakOut.com. These sites provide consumers with market strategies and
businesses and also use them to gain insight into what the consumer wants.These groups
may be economically motivated, as with demand aggregators, or socially oriented.

Business–To–Government (B2G)
It is also known as e-government. The idea is that the government agencies and businesses
can use central Web sites to conduct business and interact with each other more efficiently.
For example, a B2G Web site provides businesses with a single place to locate applications
and tax forms for one or more levels of government (city, state, country and so forth);
provide the ability to send in filled–out forms and payments; update corporate information;
request answers to specific questions and so forth.
B2G may also include e-procurement services, in which businesses learn about the
purchasing needs of agencies and agencies request proposal responses. B2G may also
support the idea of a virtual workplace in which a business and an agency could coordinate
the work on a contracted project by sharing a common site to coordinate online meetings,
review plans and manage progress. It may also include the rental of online applications and
databases designed especially for use by government agencies.
 Business applications of e-commerce
E-business is an umbrella term that includes e-commerce and refers to the use of internet
and private intranet to transform a company’s value chain with the ultimate goal of creating
value for customers.
An e-commerce solution is a solution to conduct business using technology, through an
intranet, extranet or internet. Both B2C and B2B have this e-commerce solution. A website
with e-commerce capabilities actually draws people back; building brand loyalty and
awareness.

Trade Cycle
A trade cycle is the series of exchanges between a customer and supplier that take place
when a commercial exchange is executed. A general trade cycle consists of four phases:-
1. Pre-Sales: This phase consists of various tasks in finding a supplier and agreeing the
terms.
This phase can be further classified in:

 Search – Finding a supplier.

 Negotiate – Agreeing the terms of trade.
2. Execution: This phase consists of various tasks in selecting goods and taking delivery.
This phase can be further classified in:
 Order
 Delivery
3. Settlement: This phase consists of various tasks in invoice (if any) and payment.
This phase can be further classified in:

 Invoice
 Payment
4. After-Sales: This phase consists of various tasks in following up complaints or providing
maintenance.
Generic Trade Cycle: Three generic trade cycles can also be identified:
Generic trade cycles
1. Repeat trade cycle: These trade cycles contains regular, repeat transactions between
commercial trading partners.
2. Credit trade cycle: These trade cycles contains irregular transactions between
commercial trading partners.
3. Cash trade cycle: These trade cycles contains irregular transactions in once-off trading
relationships (commercial or retail).
 Fig : Generic Trade Cycles

Nature of Trade Cycle

For B2B transactions the trade cycle typically involves the provision of credit with execution
preceding settlement whereas in C2B these two steps are typically co-incident.
The nature of the trade cycle can indicate the e-commerce technology most suited to the
exchange. On this basis business transactions are classified as:

 Commercial transactions that are repeated on a regular basis, such as supermarkets

replenishing their shelves. EDI is the e-commerce technology appropriated to these
exchanges.

Fig : EDI Trade Cycle

  Consumer transactions tend to be once off (or at least vary each time) and payment
is made at the time of the order. Internet e-commerce is the technology for these
exchanges.

Fig : Consumer E-Commerce

 The third generic trade cycle is the non-repeating commercial trade cycle and
Internet e-commerce or an electronic market is the appropriate e-technology for
this.

Supply Chain
Supply chain is a network of facilities and distribution options that performs the functions of
procurement of materials (from supplier), transformation of these materials into
intermediate and finished products (manufacturing), and the distribution of these finished
products to customers (to customer). This network adds value for customers through the
manufacture and delivery of products.
A supply chain, logistics network, or supply network is a coordinated system of entities,
activities, information and resources involved in moving a product or service from supplier
to customer.

Fig : Supply Chain

Supply Chain Management (SCM) : The primary objective of

SCM is to fulfill customer demand through the most efficient use of resources. SCM means
 transforming a company’s supply chain into an optimally efficient, customer satisfying
process. It is the coordination of all supply activities of an organization from its suppliers
and delivery of products to its customers. In today’s rapidly changing business environment,
continuously increased demands are being placed on business:-

 To provide products and services quicker.

 With greater added value.
 To the correct location.
 With no relevant inventory position.

Porter’s Value Chain Model

Michael Porter introduced a generic value chain model that comprises a sequence of
activities found to be common to a wide range of firms as Primary activities and Support
activities.
The primary value chain activities are:

 Inbound Logistics: The receiving and warehousing of raw materials, and their
distribution to manufacturing, as they are required.
 Operations: (Production) The processes of transforming inputs into finished products
and services.
 Outbound Logistics: The warehousing and distribution of finished goods.
 Marketing & Sales: The identification of customer needs and the generation of sales.
 Service: The support to customers after the products and services are sold to them.

Fig : Porter’s Value Chain Model

These primary activities are supported by (Support
activities):
  The infrastructure of the firm: Organizational structure, control systems, company
culture etc.
 Human resource management: Employee recruiting, hiring, training, development,
and compensation.
 Technology development: Technologies to support value-creating activities.
 Procurement: Purchasing inputs such as materials, supplies, and equipment.

Role of Electronic Commerce in Value Chain: The capability of Internet technology is

changing the way we do business with our suppliers and customers, as well as the face of
business as:-

 Intranet is a secured network of web pages and applications, which can be accessed
by anyone within a company firewall.
 Internet is a collection of servers and networks, which allow users access to
information and applications outside the company firewall.
 Extranet is a collaborative (private / secure) network that uses Internet technology
to link businesses with their suppliers, customers, or partners that share common
goals.
 E-Commerce is buying and selling electronically. And e-business is using the
capabilities of Internet technology to conduct business electronically.
E-Commerce enhances value chain by providing:-

 Electronic Value Chain: Through electronic value chain, e-commerce enhances

business by supporting:-
a. Reduced time frame.
b. Changed cost structure.
 Re-engineered Value Chain: Through re-engineered value chain, e-commerce
enhances business by supporting:-
a. Just-in-time manufacturing.
b. Quick response supply.
c. Efficient document processing.
 Competitive Advantage: e-commerce supports accompany for gaining competitive
advantage.
E-business provides various strategies for supply chain:-

 E-Procurement: E-procurement provides cross-enterprise system to system

integration, electronic catalogs, on-line buying and selling. Various advantages of e-
procurement are:-
 a. It enhances efficiency.
b. It reduced cost/cycle time.
c. It helps in contract compliance and customer reach.
 E-Collaboration: E-collaboration provides cross-enterprise technology / design
interaction (customer & supplier). Various advantages of e-collaboration are:-
a. Design cycle time.
b. Design synergy reuse.
c. Revenue.
 Integrated Planning / Manufacturing: Integrated planning / manufacturing provides
Cross-enterprise planning / execution, system-to-system integration, and
Outsourced manufacturing visibility. The advantages are:-
a. Lead time, margin.
b. Accuracy / Flexibility
c. Inventory levels.
d. On-time delivery.
 Integrated Delivery: Integrated delivery provide cross-enterprise logistics
management / consignment visibility. The advantages are:-
a. Logistics cycle time.
b. Reduced cost.
c. Lead time.
 Online Marketing: Online marketing provides product boundary extension, new
products / services creation, new markets / channel creation. The advantages are:-
a. Market Segment Share.
b. Customer reach.

Competitive Advantage
A firm is said to pose a competitive advantage over its rivals, if it is able to sustain profit that
exceed the average for its industry. And the goal of much of business strategy is to achieve
a sustainable competitive advantage.
Michael Porter identified two basic types of competitive advantage:-

 Cost advantage.
 Differentiation advantage.
A competitive advantage exists when the firm is able to deliver the same benefits as its
competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of
competing products (differentiation advantage). Thus, a competitive advantage enables the
firm to create superior value for its customers and superior profits for itself and this is why
the Cost and Differentiation advantages are known a positional advantages. It describes the
firm’s position in the industry as a leader in either cost or differentiation.
 Resources

Cost or Differentiation
Distinctive Competencies Value Creation
Advantage

Resources and Capabilities

Capabilities Fig : Model of Competitive Advantage
Resources are the firm-specific assets useful for creating a cost or differentiation advantage
and only a few competitors can acquire it easily. For example:-

 Patents and Trademarks.

 Proprietary know-how.
 Installed customer base.
 Reputation of the firm.
 Brand equity.
Capabilities refer to the firm’s ability to utilize its resources effectively. For example, the
ability to bring a product to the market faster than the competitors. Such capabilities are
embedded in the routines of the organization and are not easily documented as procedures
and thus are difficult for competitors to replicate.
The firm’s resources and capabilities together form its Distinctive competencies. These
competencies enable innovation, efficiency, quality, and customer responsiveness, all of
which can be leveraged to create a cost advantage or a differentiation advantage.
Value Creation: The firm creates value by performing a series of activities that Porter
identified as the value chain. In addition to the firm’s own value-creating activities, the firm
operates in a value system of vertical activities including those of upstream suppliers and
downstream channel members.
To achieve a competitive advantage, the firm must perform one or more value creating
activities in a way that creates more overall value than do competitors. Superior value is
created through lower costs or superior benefits to the consumer (differentiation).
Porter’s Five Forces Model
This model involves a relationship between competitors within an industry, potential
competitors, suppliers, buyers and alternative solutions to the problem being addressed.
While each industry involves all of these factors, the relational strengths vary.
Business Insight uses input from the user to create a unique model of their industry. Then
thousands of “rules” are applied to evaluate hundreds of marketing and business concepts
as they relate to the user’s unique circumstances. This results in a set of analyses:-
  A success potential rating in all the key areas.
 A list of strategic strengths and weaknesses.
 Observations on strategic inconsistencies
 A written critique of the strategy.
 A graphic analysis of key marketing concepts.
 A written draft of a marketing plan.

Fig : Porter’s Model for Competitive Forces

E-Commerce Application in Manufacturing

Manufacturing is the transformation of raw materials into finished goods for sale, or
intermediate processes involving the production or finishing of semi-manufactures. The
production of goods and services is the result of the efforts of many organization – a
complex web of contracts and co-operation known as the supply chain or the value system.
Manufacturing requires various components, sub-assemblies etc., as well as include
transportation, storage and paperwork.

Manufacturer

Sub assembly Wholesale

Component supply Retail
supply

Fig : Manufacturing supply chain

Each supply chain transaction adds cost without adding intrinsic value. E-commerce can be
applied to the supply chain to reduce costs or improve service, and hence can enhance
manufacturing process by:-

 Enhancing efficiency.
 Reducing cost / cycle time.
 Providing accuracy and flexibility.
 Supporting Inventory levels.

E-Commerce application in Wholesale

Wholesale is the sale of goods or services in large quantities and at lower prices to someone
other than customers who are also known as middleperson, middleman or distributor. They
frequently break bulk, repack and redistribute in smaller lots along with sales promotion for
their customers and label design.
Role of E-Commerce in Wholesale: In a sound market economy, low operating costs, access
to information and quick response are the key to success for an enterprise. Through
advanced information technology, enterprises can reach out to the global market and
obtain information from around the world at low cost and high speed. E-commerce
provides a fundamental solution to the problem of diminishing profit margin and brings new
opportunities to the traditional wholesale business. It supports:-

 Low operating costs.

 Access to information.
 Quick response.
 Gaining competitive edge.
By shortening the distance between manufacturer and consumer, e-commerce poses
serious threats to intermediaries in the supply chain. It also weakens the role of traditional
wholesalers and those who are unable to adapt to the network economy will be hard hit,
while those that make use of new technology and seek change will transform into small but
powerful new players. The cyberspace enable them to reach out to the customers and offer
them a wide range of information, intermediary and business service.

E-Commerce Application in Retailing

Retailing involves selling products and services to consumers for their personal or family
use. e.g. Department stores, Jewelers, dentists, hotels, online stores, etc.
Importance of Retailing: Retailers play a vital role in business world. They are the final link
between consumers and manufacturers, and add value to products by making it easier for
manufacturers to sell and consumers to buy. Otherwise, it would have become very costly
and time consuming for anyone to locate, contact and make a purchase from the
manufacturer every time one would like to buy anything. Similarly, it would be very costly
for the manufacturers of these products to locate and distribute them to consumers
individually. By bringing multitudes of manufacturers and consumers together at a single
point, retailers make it possible for products to be sold, and consequently, business to be
done.

Manufac- Distributors/ Consumers

Retailers
turer Wholesalers

Fig : Retail Business

Retailers also provide services that make it less risky and more fun to buy products. The
sales people can answer questions, tell about credit offers, and display products so that
consumers know what is available and can see it before buying. In addition, retailers may
provide many extra services, from personal shopping to gift wrapping to delivery, that
increase the value of products and services to consumers.
Role of e-commerce in Retiling: Advances in technology, like the Internet, is bringing some
fundamental changes in the form of retailing. It has made retailing more challenging and
exciting. Though some form of retailing will always be necessary. For example, even though
the Internet is beginning to make it possible for manufacturers to sell directly to consumers,
the very vastness of cyberspace will still make it very difficult for a consumer to purchase
every product directly. Retailers who offer personal services, like hair styling or dentist, will
need to have face-to-face interaction with the consumer. Even with products like gold or
diamond jewelry, customers often want to see, touch and try them before buying, or in case
of an urgency where the customer want the products immediately traditional retailing will
come into rescue. So, both the forms of retailing – online as well as traditional will co-exist.

E-Commerce Application in Service Sector

The three main industrial categories of a developed economy are : (a) Tertiary sector
(service sector or the service industry), (b) Secondary industry (manufacturing and primary
goods production such as agriculture), (c) Primary industry (extraction such as mining and
fishing).
The tertiary sector of industry involves the provision of services to other businesses as well
as final consumers. It may involve the transport, distribution and sale of goods from
producer to a consumer as may happen in wholesaling and retailing, or may involve the
provision of a service, such as in pest control or entertainment. But, here the focus is on
people interacting with people and serving the customer rather than transforming physical
goods to enhance their utility.
The service sector consists of the “soft” parts of the economy such as insurance, tourism,
banking, retail and education. Public utilities are often considered part of the tertiary sector
as they provide services to people. Services are not tangible. So it makes it difficult to value
it in monetary terms. The quality of service depends on the quality of individuals providing
the services. “People costs” are a high component of service costs.
Role of E-Commerce in Service Sector: E-commerce will improve the speed of transactions,
reduce management expenditure, increases competitiveness and helpful in the banking,
insurance & financial sectors, telecom, tourism, postal and logistics services.