B2C Basics

What is B2C e-commerce?

While the term e-commerce refers to all online transactions, B2C stands for "business-to-consumer" and applies to any business or organization that sells its products or services to consumers over the Internet for their own use.

When most people think of B2C e-commerce, they think of Amazon.com, the online bookseller that launched its site in 1995 and quickly took on the nation's major retailers. However, in addition to online retailers, B2C has grown to include services such as online banking, travel services, online auctions, health information and real estate sites.

What is the difference between B2C and B2B e-commerce?

For one thing, the customers are different — B2B (business-to-business) customers are other companies while B2C customers are individuals. Overall, 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. Not so with most consumer sales. That makes it easier for retailers to put a catalog online, and it's why the first B2B applications were for buying finished goods or commodities that are simple to describe and price.
  • Integration
    Retailers don't have to integrate with their customers' systems. Companies selling to other businesses, however, need to make sure they can communicate without human intervention.

Why was there so much hype surrounding B2C e-commerce?

Mainly because the stock prices of some of the early pure plays went through the roof. In the late 90s, dotcoms like Amazon.com and eBay — which were quickly gaining in size and market capitalization — posed a threat to traditional brick and mortar businesses. In many ways, these dotcoms seemed to be rewriting the rules of business — they had the customers without the expenses of maintaining physical stores, little inventory, unlimited access to capital and little concern about actual earnings. The idea was to get big fast and worry about profits later. By late 1999, Amazon had a market capitalization of close to $25 billion, eclipsing some of the largest and most established companies in America.

Retail giants such as Kmart and Wal-mart — hoping to cash in on the dotcom frenzy — spun off separate companies to run their e-commerce operations. But many never made it to the initial public offering after the Nasdaq started to tumble in the spring of 2000. Almost as quickly as the dotcom phenomenon took over, the hype over B2C e-commerce dissipated along with the crumbling Nasdaq. Funding for Internet ventures started to dry up and major companies started to reel in their spinoffs, bringing e-commerce initiatives back under the corporate fold.

Is B2C commerce really dead? With so many dotcoms dying, is it worthwhile to move ahead with B2C e-commerce?

B2C e-commerce may be ailing, but it isn't dead. In fact, the North American online retail market is expected to grow 45 percent in 2001 to $65 billion, according to a joint study conducted by the industry group Shop.org and the Boston Consulting Group. And Forrester Research predicts that B2C e-commerce in the United States will grow from $38.8 billion in 2000 to $184.5 billion in 2004.

It's true that 2001 has seen a lot of dotcom carnage. As of June, 330 dotcoms had closed their doors since the start of the year. At the same time, brick and mortar retailers are attracting more online visitors and profiting from multichannel strategies in which they promote their websites in stores and advertise in-store promotions on their websites.

So yes, it's still worthwhile to go ahead with B2C e-commerce. Just make sure you have a business plan that includes profitability not too far down the road.

How should companies organize their B2C initiative?

In the early days, e-commerce initiatives were often led by groups that were separate from the main IT department. The extreme example of this kind of separation was the spinoff model, in which stand-alone Web units were created thousands of miles from company headquarters with entirely new staffs. In these cases, IT leaders at the home office often had little to do with the B2C projects. Increasingly, e-business departments are coming back under the corporate umbrella and CIOs are often in charge.

What are the major challenges of B2C e-commerce?  

  • Getting browsers to buy things — Your e-commerce site cannot live on traffic alone. Getting visitors to the site is only half the battle. Whether they buy something is what determines if you win.

    The so-called conversion rate for B2C e-commerce sites is still fairly low. (Boston-based Yankee Group said in November 2000 that the average rate was 1 percent.) Some ways to boost your conversion rate include improving navigation, simplifying checkout process (such as one-step checkout and easily replaced passwords), and sending out e-mails with special offers.

  • Building customer loyalty — With so many sites out there, how can you build a strong relationship with customers? Here are some tips:

    1. Focus on personalization: A wide array of software packages are 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, which built its own personalization and customer relationship management (CRM) systems, is well known for its ability to recognize customers' individual preferences.
    2. Create an easy-to-use customer service application. Providing just an e-mail address can be frustrating to customers with questions. Live chat or, at the very least, a phone number will help.
    3. Focus on making your site easy to use.

  • Fulfillment — E-commerce has increased the focus on customer satisfaction and delivery fulfillment. One cautionary tale is Toys "R" Us' holiday debacle in 1999, when fulfillment problems caused some Christmas orders to de 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 fulfillment headaches can be eased with increased focus and investment in supply chain and logistical technologies.

What is channel conflict and how can I avoid it?

Channel conflict, or disintermediation, occurs when a manufacturer or service provider bypasses a reseller or salesperson and starts selling directly to the customer. Some sectors, including the PC and automobile industries, are particularly vulnerable, as are service industries such as insurance and travel. Levis, for example, pulled its website after its resellers protested. And in the fall of 1999, General Motors tried to buy back 700 franchises and sell cars direct -mostly to build out a possible Internet channel. But the plan backfired, upsetting dealers and prompting discussions with GM.

Now, some that struggled with channel conflict are finding ways to approach e-commerce without upsetting their salespeople. For example, big car companies and manufacturers such as Maytag are setting up websites that allow customers to decide what they want before being redirected to a local dealer.

Can I make a profit through B2C e-commerce?

Very few pure-play Internet companies have posted profits so far. Web-based retailers have improved their profitability levels but still incur operating losses at an average rate of 94 percent of revenues, according to the Boston Consulting Group/Shop.org survey. As a group, online retailers generated operating losses of $5.6 billion in 2000, the survey said.

eBay has been one of the only pure plays to report profits using generally accepted accounting principals (GAAP). Several online companies, including travel sites Travelocity and Expedia, have reported pro forma profits. When they say "pro forma" they are referring to their operating results, but are not taking into account one-time charges for layoffs and restructuring charges, bad investments and acquisition costs. Priceline.com, the name-your-own-price travel service, surprised some by reporting a net profit (using GAAP) of $2.8 million, or a penny a share, for the second quarter of 2001, compared with a loss of $11.7 million a year earlier.

Do I need a privacy policy for my B2C initiative?

Yes. According to a survey done by the Privacy Leadership Initiative, 82 percent of consumers were paying attention to online privacy statements in April 2001, and that number was rising. Customers may not read the fine print, but they are reassured by the presence of a privacy statement. If you're not sure where to begin, visit the online arm of the Better Business Bureau or the non-profit group TRUSTe. Both organizations offer privacy seal programs. Even if you choose not to join, you can learn about the kinds of precautions you should take and how to explain them to your customers. Once you establish a privacy policy, though, make sure you follow it, or you'll be putting your company at risk for lawsuits and bad press.

Do I have to worry about Internet taxation?

The Internet Tax Freedom Act of 1998, which put a three-year moratorium on Internet taxation, is set to expire in October. Since its passage, Internet sales have been handled in the same way as catalog and telephone sales — if the retailer has a store in the purchaser's state, a sales tax is supposed to be added to the bill. The Supreme Court has ruled that companies cannot be required to collect taxes in states where they have no physical presence. Legislation has been filed in Congress to extend the Internet tax moratorium.

 
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