What Is Ecommerce?

E-Commerce Basics

Before venturing into the world of e-commerce, you’ll need to understand some basic concepts.  The following list isn’t inclusive of every e-commerce term or concept, but an explanation of just the basics you’ll need to get started with understanding how e-commerce works.

Ecommerce system: The general definition of e-commerce is all the buying and selling that takes place online. The e-commerce system refers to the network of programs, functions and connections that make the buying and selling possible. It can include distribution, marketing, product servicing, automated inventory management and many more functions that take place in the background, much as bricks-and-mortar businesses rely on warehousing, shipping and other services to keep their operations going. Obviously, the first thing it includes is a website and a good domain name.

Shopping Cart: When you’re shopping online, you can designate items for placement in a virtual shopping cart. You can add things and remove things, and eventually check out and pay for the items. The online shopping cart represents an entire system whose most important function is its interaction with other systems, like billing, credit card authorization, fulfillment, shipping and inventory management. The interaction among all these systems can be quite technical, which is why your employee or contractor has to be good at what he or she does. One of the challenges in setting up a cart system is to make sure that the systems that communicate with one another are compatible.

Payment Gateway: The final stage of your online shopping experience is paying for the goods. The payment gateway communicates with your merchant bank account to deposit money from sales. It might also interface with a third party payment processor like PayPal.

Third Party Payment Processor: You can do all your banking with your current merchant bank, but chances are that if you’re just starting out in e-commerce, the monthly charges and setup fees will be excessive. Third party payment processors work with an array of merchant banks and take care of those costs. Instead, they charge you very low setup fees and assess reasonable transaction fees. If your sales are low in a given month, your banking costs are also lower. Some third party payment processors include a shopping cart system that can be customized for your web site. This reduces the time and cost of cart setup as you already know the cart and payment systems are designed to interface smoothly.

Catalog: The functionality and information quality of your catalog is critical to your users’ experience. It is essentially a database with an engine that creates catalog pages based on categories chosen by the shopper. For example, if a shopper is looking for a set of solid blue sheets, he or she would select the “bedding” category, then “sheet sets” and then “blue” as the color choice. The result would be a page of thumbnail photographs of all the blue sheet sets in your inventory.

Customer Accounts: You can ask your customer for a billing address, a shipping address and credit card information and send him on his way. That would be a mistake. Ask for his e-mail address and you have a potential return customer. Retain his information in a database, and you can enhance future shopping by saving him the time and trouble of entering all his information again. And you can send him a discount coupon or other incentive. When you business grows, you can analyze the data you’ve collected to learn about your customers’ preferences and shopping habits. Skilled analysis is at the heart of success in e-commerce.

Integrated Shipping: If you’re shipping five or ten products a week, you may not see the need for a sophisticated shipping system. But if you’re sending out hundreds or thousands of packages a month, then having a system that calculated shipping charges against the weight of the item (noted in your database file) can save you time and money. Besides, many customers want on-the-spot calculation of shipping options (overnight, 1-day, 3-day, etc.) and you’ll probably want to compare the prices from the US Postal Service and the major express delivery companies like FedEx and UPS.

Fulfillment: Any business that ships products has a fulfillment operation. Products have to be taken from the shelf, packed, boxed, wrapped and labeled. Customer satisfaction often depends on how quickly the order is filled and shipped. Some systems allow customers to go online and find out exactly where in the chain their order is. They can tell when the package leaves your warehouse, then they can connect to UPS or another shipment system to find out exactly where the package is: what city, and when it is to be transported to their area.

Inventory Tracking: Small business owners can often tell at a glance when they’re running low on a popular product and pick up the phone to reorder. When your business takes off, though, the eyeball method just won’t work. Your shopping cart system can take care of inventory control, or you can append another system that does the job. Ideally, your inventory tracking system can automatically generate an e-mail to your supplier when it’s time to reorder, long before you actually run out.

These are the basic components that make up an e-commerce system. They’re by no means exclusive and don’t include many other auxiliary systems such as security and traffic analysis. If your information flows smoothly among the systems you have in place at the outset, you’re off to a very good start.