E-Commerce Course Description
This E-Commerce course is an Open Educational Resource presented by RM Nisperos. The course is used as a resource for the Introduction to E-Commerce Certification Course of the University of the Philippines Open University.
We will dive into the world of Electronic Commerce, or E-commerce as we will later refer in succeeding topics. This topic starts off in laying the context on what is e-commerce, how e-commerce began and how it evolved into what we know now. You will discover a deeper understanding of what e-commerce is and how it is different from the traditional physical business.
E-Commerce Expanded Definition
What is electronic commerce or simply e-commerce? Most people narrowly define it as the selling of physical goods via the internet or retailing via the internet. The definition of e-commerce is the buying and selling of goods and services via electronic technology without physical contact between the seller and the buyer. Before the advent of the internet, the technology used to be landline telephones and mobile phones.
Anything electronic transaction that is for selling or buying can be said to be e-commerce. We won’t know what technology will happen in the future that could supplant the internet which drives electronic commerce. But for this era, we’ll just settle at the internet as the main enabler of electronic in the Philippines through there is still e-commerce made through telephone calls and Short Message Services (SMS).
It is easy to understand that e-commerce is the transaction that uses electronic means while the traditional commerce is the face-to-face exchange of goods and services. That delineation used to be the norm but in today’s time that is now blurred by the fact that sophisticated businesses use the internet to power their physical stores. If you look into it transaction is technically done via electronic means but there is a face-to-face interaction between the seller and the buyer and even the concerned goods or services. Our definition of e-commerce is strictly for buying and selling transactions done electronically without physical interaction between seller and buyers.
It is common practice for a business to have an online store coinciding with their physical store. Any customer can either purchase depending on their preferences. Take into consideration Cebu Pacific Airlines. They have online booking website where you can buy flights and even make check-ins. Cebu Pacific also have mobile applications in Android Playstore and Apple iTunes where you can also book and check-in flights. Complementary to those mentioned, they also have physical stores where you can buy flight tickets depending on the availability. They also have satellite offices and resellers where they utilize the system used by the website for ticket reservations.
In our definition, we should consider not only the online booking website but also the android and the iTunes mobile application as e-commerce since both facilitated transactions via electronic technology (internet) without physical interaction between seller and buyer. It is noticeable in entrepreneurs consider only the online booking website as e-commerce but not the mobile applications. In reality, it is still e-commerce though more sophisticated in the electronic medium used.
The transactions in the Cebu Pacific physical store should be considered the traditional brick-and-mortar setup while the satellite offices and resellers that utilize the same technology used by websites and apps as a hybrid between the two. The difference of the hybrid isn’t really noticeable in Cebu Pacific. It can be, however, can be obviously noticeable in a more technologically advanced example in the form of Amazon Go where customers can enter a store, get all the things they need and just leave the store without checking out in the queue. The hybrid store was made possible by electronic technology that is connected to the store full of cameras, to their amazon account and their bank accounts. Well, it’s too much of an example for e-commerce here in the Philippines but I hope you get the point.
Electronic commerce is the buying and selling of goods and services through electronic means and without physical interaction between the buyer and the seller. With its origin starting from Electronic Data Interchange and Electronic Fund Transfer (EFT), e-commerce today boomed into a lucrative industry where everything you can imagine can be now be bought via the internet.
E-Commerce Customer Journey
In general, how e-commerce works are similar to traditional physical stores. Customers go to the store of their choice, pick what they desire, pay for their purchases and enjoy what they bought. This is the timeless cycle that customers go through when dealing with any kind of business. In e-commerce, however, the means have expanded from just the physical retail shop to an array of digital and electronic means.
This complex means to purchase goods and services resulted in more choices for customers that made their buying experience more pleasurable and convenient. Imagine, buyers can do is access their laptops, tablets, and mobile phones to purchase. They don’t need to dress up and travel to stores selling the same things he/she bought. While these innovations make e-commerce simpler and convenient to buyers, it has become more complex for sellers since it added processes in the realm of information technology, database management, digital marketing, website and application development, and administration.
According to Business2Community, Customer experience is all about omnichannel today. The traditional customer lifecycle that followed a sales funnel pattern is now replaced by a shopping journey that is stretched over different touch-points. To communicate across all channels, e-commerce businesses need to connect those touch-points with an omnichannel technology to fulfill customers’ increasing demand for instant information on any subject matter. The image below illustrates the communication between various channels involved in completing the digital customer lifecycle today.
IMAGE FROM BUSINESS2COMMUNITY
State of Philippine E-Commerce
E-commerce adoption has been increasing the past few years according to the Department of Trade and Industry. It is estimated by DTI that the e-commerce industry to grow further by at least 100% in years to come. Though the Philippines has made strides in terms of domestic e-commerce adoption, the Philippines is ranked 89th worldwide when compared with other countries in terms of the readiness to engage in e-commerce.
According to the publication of United Nations Conference on Trade and Development (UNCTAD), the Philippines ranked 9th in the UNCTAD’s B2C E-commerce Index 2016. In comparison, neighboring Malaysia ranked 4th among developing economies in the region and 10th among such economies worldwide.
IMAGE FROM INQUIRER
In determining the rankings, UNCTAD enumerated the following indicators:
- Share of Individuals using the internet – This is the percentage of citizens that uses the internet as compared to its population
- Share of individuals with credit card – This is the percentage of citizens that uses the internet as compared to its population
- Secure internet servers per 1 million people – This is the number of servers or hosting, critical in facilitating electronic commerce, per 1 million people
- Postal reliability – This is the reliability government-owned postal service
Out the said criteria, a business to consumer e-commerce index value is calculated that is used to rank the 137 countries included in the study.
Based on the results, Philippines only have 40% users of the internet as compared to its population. While the Philippines are considered the social media capital of the world, most Filipinos living in the provinces are still laggards in terms of using the internet. Though the rating is currently low as compared to other countries, the outlook is positive. As the population transition from the traditional to the digital era, the internet penetration is seen to improve in the future.
Credit card penetration is only 3%. Other sources, such as Business World Online and Philstar, reports a credit card penetration rate of 11.4 in 2015. While the figures differ, it can be concluded that it still below our neighboring ASEAN countries particularly than that of Malaysia which reports 20% credit card penetration rate.
Servers, a critical component of electronic stores, are still sourced mostly overseas since the servers per 1 million Filipinos are only 52. These servers provide an ecosystem to host electronic stores. The more limited, the more tendencies of merchants to continue doing brick and mortar businesses. For some, having electronic stores means outsourcing to more reliable servers located outside the Philippines.
The postal service, on the other hand, seems to be incapable of serving logistics requirements of local e-commerce shops as evidenced by the 48 reliability index. The UNCTAD report can be quoted in saying that “E-commerce companies in the Philippines partner with local courier companies or have their own delivery trucks.” This results in expensive costs in logistics or simply sending parcels to customers. This is also the reason for the numerous third party couriers present in the Philippine market.
While the indicators point that the Philippines still have ways to go in terms of e-commerce adoption. The growth in recent years is undeniably significant. It is clear the e-commerce industry in the Philippines has grown over the years, yet it is still in its early days.
With the continuous acceleration of internet adoption, the proliferation of smartphones and internet connection improvements, expansion of the online consumer base which is very conducive to the further growth of the industry is expected sooner as we expect it.
According to Inanc Balci, CEO at Lazada Philippines, a leading e-commerce marketplace, “It is early days of e-commerce in the Philippines. It has been growing quite fast in the last four years. There is a huge market to be penetrated while the entry of new e-commerce firms, as a result of the industry’s progress, helps further boost the growth of the market,”
E-commerce continuously been transforming the way consumers shop and businesses reach their markets. The Filipinos still think that physical interaction is their no.1 option in purchasing products and services. Undeniably, e-commerce is creeping in the minds of the Filipino consumers due to the benefits it offers. According to the Visa eCommerce Consumer Monitor 2014, as much as nine out of 10 Filipino consumers go online to shop at least once a month. Benefits such as convenience (58%), price (47%), and deals (46%) are being cited as top reasons for online shopping.
With the low indicators of conducting business-to-consumers of the Philippine E-Commerce Industry paired with the markets’ positive trend, opportunities are plenty for both existing traditional business and new business to pursue e-commerce. With government intervention, which will be discussed in the next chapter, the outlook for the Philippine E-Commerce Industry became more robust.
See the latest state of e-commerce here
Philippine E-Commerce Policies
The landmark E-Commerce Law was passed on June 2000 signaling the start of an e-commerce era for this Philippines. The law gave official government recognition to various electronic transactions circulating in the Philippines. Since then, laws have been passed to regulate as well as improve the e-commerce industry in the Philippines. While an E-Commerce business is considered by the government as a typical business in the Philippines, there are additional laws that apply. The most recent of which is shown in the video above.
Philippine E-Commerce Laws
E-Commerce Law of 2000
Ever since the E-Commerce Law was enacted in 2000, a lot of law and policies was enacted as its implementing guidelines. Government commissions and committees, public-private councils and government offices were created to execute the said implantation guidelines. Though its initial implementation focused on the development of the BPO industry, the succeeding laws passed eventually was to promote and regulate e-commerce focused on the Filipino mass market.
According to Janet Toral of Digital Filipino, the salient features of Republic Act 8792 are:
- It gives legal recognition of electronic data messages, electronic documents, and electronic signatures. (section 6 to 13)
- Allows the formation of contracts in electronic form. (section 16)
- Makes banking transactions done through ATM switching networks absolute once consummated. (section 16)
- Parties are given the right to choose the type and level of security methods that suit their needs. (section 24)
- Provides the mandate for the electronic implementation of transport documents to facilitate the carriage of goods. This includes documents such as, but not limited to, multi-modal, airport, road, rail, inland waterway, courier, post receipts, transport documents issued by freight forwarders, marine/ocean bill of lading, non-negotiable seaway bill, charter party bill of lading. (section 25 and 26)
- Mandates the government to have the capability to do e-commerce within 2 years or before June 19, 2002. (section 27)
- Mandates RPWeb to be implemented. RPWeb is a strategy that intends to connect all government offices to the Internet and provide universal access to the general public. The Department of Transportation and Communications, National Telecommunications Commission, and National Computer Center will come up with policies and rules that shall lead to a substantial reduction of costs of telecommunication and Internet facilities to ensure the implementation of RPWeb. (section 28)
- Made cable, broadcast, and wireless physical infrastructure within the activity of telecommunications. (section 28)
- Empowers the Department of Trade and Industry to supervise the development of e-commerce in the country. It can also come up with policies and regulations, when needed, to facilitate the growth of e-commerce. (section 29)
- Provided guidelines as to when a service provider can be liable. (section 30)
- Authorities and parties with the legal right can only gain access to electronic documents, electronic data messages, and electronic signatures. For confidentiality purposes, it shall not share or convey to any other person. (section 31 and 32)
- Hacking or cracking refers to unauthorized access including the introduction of computer viruses, which is punishable by a fine from 100 thousand to maximum commensurating to the damage. With imprisonment from 6 months to 3 years. (section 33)
- Piracy through the use of telecommunication networks, such as the Internet, that infringes intellectual property rights is punishable. The penalties are the same as hacking. (section 33)
- All existing laws such as the Consumer Act of the Philippines also apply to e-commerce transactions. (section 33)
Data Privacy Act of 2012
Tells every Filipino that “Except for the purposes authorized under this Act, any person who obtained access to any electronic key, an electronic data message, or electronic document, book, register, correspondence, information, or other material pursuant to any powers conferred under this Act, shall not convey to or share the same with any other person. Learn More by clicking here
Consumer Protection Regulation – Transactions through E-Commerce
E-Commerce merchants are required to adopt fair and reasonable business practices. Sell products that meet quality and safety guidelines. These products are authorized to be marketed in the Philippines having the necessary permits or licenses. Learn More by clicking here
E-Commerce Advertising Regulations
Some of the basic regulations on advertising affecting e-commerce are:
- Selling of gift certificates can not have an expiration date
- Only registered business can do sales promotions, with or without purchase required
- Companies that conduct sales promotion without a permit or may have done neglect in the course of its promotion can be contacted by the consumer for resolution of the issue.
- E-commerce site owners are expected to practice fair and truthful advertising.
Cybercrime Act of 2012
This law aims to address legal issues concerning online interactions and the Internet in the Philippines. Among the cybercrime offenses included in the bill are cybersquatting, cybersex, child pornography, identity theft, illegal access to data and libel. For more info click here
Tax-Related Guidelines on E-Commerce Businesses
E-Commerce Business Owners are required to issue invoices or official receipts to customers. Give acknowledgment receipt for the amount received from payment gateways. Pay the commission of payment gateways net of withholding tax. For more detailed explanation visit here
E-Commerce Drivers and Inhibitors
The success and failure of Philippine e-commerce hinge on the factors enumerated in the UNCTAD report which is internet capabilities, credit card penetration, domestic servers or postal service capabilities. While these are macro factors that should be improved by the government, there are a lot of specific factors that should be considered by the private sector.
The following factors in this topic should concern small and big e-commerce players to improve not only the probability of their e-commerce ventures but also the improvement of the e-commerce industry as well. Bill Anckar listed and briefly explained the most commonly beneficial and detrimental factors (directly quoted from the study):
Accessibility and convenience. The possibility to shop anytime, from anywhere is the most obvious and most commonly cited advantage of e-commerce, and was found to be the most important perceived consumer benefit of Internet shopping in empirical studies by Jarvenpaa and Todd (1996- 1997) and Kangis and Rankin (1996).
Global choice. Since the boundaries of e-commerce are not defined by geography or national borders, consumers will benefit from a wide selection of vendors and products – including a wider availability of hard-to-find products (Benjamin & Wigand 1995, Hoffman et al. 1995, Alba et al. 1997).
Online delivery. For digital products, the whole commercial cycle, including distribution, can be conducted via a network, providing instant access to products immediately when a need arises.
Test and trial online. Digital products can be tested over the Internet prior to making purchase decisions, reducing uncertainty.
The real-time nature of the medium. The Internet can provide consumers with up-to-the minute information on prices, availability, etc. (cf. Franz 2000).
Time savings. Consumers may benefit from the shopping process being faster in the marketspace than in the marketplace as a result of the rapidity of the search process and the transactions (Wigand & Benjamin 1995, Krause 1998).
Possibilities for comparison shopping. By allowing consumers to shop in many places and conduct quick comparisons of offerings and prices (Hoffman et al. 1995, Hart et al. 2000), Internet marketplaces have the ability to reduce search costs for price and product information (Bakos 1998, Strader & Shaw 1999, Rowley 2000, Bhatt & Emdad 2001). Access to extensive information. An important consumer benefit is the access to greater amounts of dynamic information to support queries for consumer decision-making (Hoffman et al. 1995, Alba et al. 1997).
Privacy and anonymity. The Internet has the potential to offer consumers benefits with respect to a partial, or even a total privacy and anonymity/pseudonymity (Parsons 2002) throughout the purchasing process.
Competitive prices. By embracing e-commerce consumers may benefit from price reductions as a result of increased competition as more suppliers are able to compete in an electronically open marketplace (Turban et al. 1999), as a result of reduced selling prices due to a reduction in operational/transaction costs (Brynjolfsson & Smith 2000), and manufacturers internalizing activities traditionally performed by intermediaries (Benjamin & Wigand 1995).
Availability of personalized offerings. Consumers can benefit from IT-enabled opportunities for personalized interactions and one-to-one relationships with companies, which allow for products, services and Web content to be customized more easily (cf. Peppers & Rogers 1999, Brown 2000).
The social nature of the purchasing process. Since consumers differ in their social disposition, many customers may find an impersonal purchasing situation desirable for social reasons or simply because they find the verbal contact with a seller time-consuming. Moreover, the lack of physical sellers creates a sales setting where there is virtually no pressure to buy (Zellweger 1997).
Quality evaluation. On the Internet, it is more or less impossible to make sure, beyond doubt, those (tangible) products have the desired features (e.g. design, material, color, fit), giving rise to a quality evaluation barrier to e-commerce. Empirical findings by Kangis and Rankin (1996) showed that the need to feel and touch was the dominating disadvantage for all home-shopping services.
Security risks. It has been suggested that transaction security (such as the credit card number being picked up by third-party hackers) is mostly a perceptual problem in e-commerce (Rose et al. 1999). Nevertheless, the fact remains that it may be one of the more complex barriers to be overcome (Zwass 1996, Alridge et al. 1997, Reedy et al. 2000), as studies show that adopters, as well as non-adopters of Internet shopping, have security worries (Furnell & Karweni 1999, Udo 2001, Fenech & O’Cass 2001).
Lack of trust in virtual sellers. The fear of fraud and risk of loss has commonly been cited as a significant barrier to B2C e-commerce, with empirical research findings supporting this assumption (see Jarvenpaa & Todd 1996-1997, Furnell & Karweni 1999, Hoffman et al. 1999, Vijayasarathy & Jones 2000a).
Delivery times. In tangible product categories, any home-shopping method involves delivery times which means that the Internet is at a disadvantage to physical stores as it fails to meet the customers’ need for instant gratification (Vassos 1996). Consumers may thus be reluctant to wait for the delivery of ordered goods for days/weeks if the same product can be collected immediately in physical outlets.
Lack of personal service. While e-commerce offers great opportunities for one-to-one marketing, it significantly reduces or even puts an end to the personal service (human-to-human contact) characterizing traditional commerce. This may, as suggested by research by Kangis & Rankin (1996), be an impediment to e-commerce for many consumers.
Lack of enjoyment in shopping. Many consumers find the shopping experience – looking, feeling, comparing – in retail stores relaxing and enjoyable (Jones, 1999). As the feeling of amusement and relaxation is unlikely to be as marked in electronic settings, e-shopping can hardly be seen as a substitute for the leisure experience associated with conventional shopping (Phau & Poon 2000).
Hard to find what you are looking for. The difficulty in locating stores/products/information on the Web (cf. Jarvenpaa & Todd 1996-1997, Rose et al. 1999) emerges from limitations of the user, search engines used, or poor site usability.
Time-consuming nature. As noted, e-commerce may offer consumers savings in time. In practice, however, using the Internet for commercial purposes may prove to be too time-consuming for many users (see Anckar & Walden 2002). There are multiple reasons for this: (i) difficulties locating Web sites/products/services (Hofacker 2001); (ii) registration procedures required to access services; and (iii) making price comparisons (cf. Reedy et al. 2000).
The cost of entry. Cost of acquiring a computer, etc.
The cost of use. Internet access fees.
Limited Internet/ computer experience. Reluctance/difficulties operating computers and/or browsing the Web.
Poor connection speed. Due to low bandwidth connections, using the Internet may be time-consuming, and thus frustrating.
Philippine E-Commerce Roadmap
The DTI Secretary said that, “Platforms like Alibaba have opened up markets to hundreds of millions of MSMEs in China contributing to the alleviation of poverty by creating jobs to the economy. We should follow that track in the Philippines…Through the Internet, they are able to find customers and they’re able to export and they don’t have to deal with customs. This kind of e-commerce platform is what we have to promote. That will be a big boost to our MSMEs.”
The E-Commerce Roadmap, spearheaded by the Department of Trade and Industry, addresses the identified factors that impede the development of the Philippine e-commerce industry both in the macro and micro view. The government highlights the roadmap’s importance as an integral piece in catalyzing growth and globalization, especially for micro, small, and medium enterprises (MSMEs).
This landmark policy for the e-commerce industry of the Philippines provides opportunities for established businesses, MSMEs and Filipinos wanting to start an e-commerce business. Since 99.6% of Philippine enterprises are made up by micro, small, and medium enterprises (MSMEs), they will largely benefit from this initiative. By participating and engaging in e-commerce programs and projects, Philippine MSMEs can have more opportunities to grow their income resulting to a good economy as well. This also decreases the chances of failure which is high for new businesses and MSMEs.
According to the DTI, The roadmap’s main objective is to contribute 25% to the Philippines’ gross domestic product (GDP) by 2020 (from 10% in 2015 based on estimates made by iMetrics Asia Pacific Corporation). Specific objectives of the e-commerce roadmap are the following:
- Cybercrime enforcement and protection
- 40-50% of internet users doing e-commerce
- 100,000 Micro, Small and Medium Enterprises doing e-commerce
- Fast and competitive internet access
- Online and connected government (G2G, G2B, G2C, G2E)
Specifically, the e-commerce roadmap identifies the specific areas that the government will prioritize and improve to achieve the grandiose objectives mentioned above.
- Infrastructure: The need for an appropriate supply chain, communications, and applications infrastructure. Deliverables on this initiatives are:
- Investment: The ability to promote and support a range of investment opportunities from Foreign Direct Investment to capital flows;
- Innovation: The ability to foster and support innovation, including the ability to protect innovation and investment in research and development;
- Intellectual Capital: The ability to foster the appropriate skills and training from technological to linguistic to entrepreneurship;
- Information Flow: The ability to use, transfer, and process information – the currency of the digital economy – while promoting privacy and a trusted Internet environment; and
- Integration: The ability to connect domestic industries with the global economy.
Specific Deliverables of the E-Commerce Roadmap are the following:
- Internet Broadband Masterplan
- Updated Telecommunications Law and NTC Charter to be responsive to the demands of users
- New telecommunications players and value added service investments and new players to meet industry standards
- Implementation of Republic Act No. 10667 or the Philippine Competition Act
- E-Government Payment Implementation Plan
- Expansion of National Public Key Infrastructure (PKI) and Digital Certificates for public and private sector
- Allow government agencies to purchase online using electronic payment
- Rules on E-Notary
- Improvement of Internet Governance
- Ratification of United Nations Electronic Communication Convention/Amendments to the E-Commerce Act to be consistent with the convention
- Updated E-Banking Regulations to streamline the process of granting e-banking licenses
- Updated E-payment and E-wallet Guidelines
- Updated E-Money Guidelines
- Enactment of Payment Systems Act
- Implementation of National Retail Payment System
- Updated DTI DAO 10-01 or the Guidelines on the Use of Access Devices for payment of fees, charges, assessments and other revenues due to the government through electronic payment and collection systems of a government entity
- Guidelines for online sales invoice and official receipt issuance
- Accreditation of online sales invoice and official receipt application for use of the public
- Merchant and Consumer complaint online dispute resolution process
- Revised consumer act of the Philippines
- Sales promotions guidelines of Online Promotions
- Online application, approval, payment of sales promotions permits
- Accreditation scheme for data privacy, security and identity verification seal issues
- BIR certificate of registration for websites
- Websites as a business branch
- Philippine trade repository
- ASEAN and National Single Window Project
- Approval of the Customs Modernization and Tariff act
- Philippine Postal Corporation as COD pickup points
- Incentive Package for digital startups
- Amendment of the corporation code to allow “one person corporations”
- Amendment of the retails trade liberalization act
- Creation of a Data Privacy Commission]
- Data Privacy guidelines for the government and in the private sector
- E-Commerce offering in Colleges
- Government training programs in e-commerce
- E-Commerce subjects in K-12 included in the entrepreneurship
- APEC action plan to globalize the micro, small and medium enterprise (MSMEs)
- Establishment of an e-commerce promotion council comprised of the government and private sector
- Establishment of an office dedicated to e-commerce in DTI
- Establishment of official e-commerce indicators.
The e-commerce roadmap provides opportunities for entrepreneurs in improving their business through e-commerce. This initiative of the government provides more reason to prepare for an e-commerce boom in the Philippines.
Pillars of E-Commerce
An e-commerce business journey begins with an understanding of the 4 pillars of e-commerce. These pillars are the critical success factors of any starting or growing e-commerce business. These pillars are electronic store, logistics, digital marketing, and payment gateway.
An e-commerce business is driven by these pillars that act as the foundation of its existence. These e-commerce pillars are like posts that provide strength to a bridge enabling it to support travelers. Absence of any of these said pillars and the e-commerce business will not function properly much like the bridge analogy. The strength of any e-commerce business is not measured by the overall strength of the pillars altogether but the strength of the weakest pillar. It is similar to a supply chain principle where the overall strength is as strong as its weakest link – like a chain-breaking on the weakest chain link.
E-commerce is called as such due to this unique characteristic differentiating them from traditional brick and mortar stores. An electronic store is a marketing channel, platform or tool that is hosted electronically where for merchants can showcase their products or service for which consumer transactions can be generated electronically without physical interaction.
The most common electronic store used in e-commerce is websites. This kind of electronic store is best known for electronic shopping carts where users are allowed to place items. Most of the time, it remembers these items for a predetermined length of time until the items are checked out for payment. Examples of such in the Philippines are Lazada, Zalora, Metrodeal, Cebu Pacific, Lamudi, Carmudi, OLX, and Zipmatch.
Another form of electronic stores is based on social media platforms more prominently on Instagram and Facebook. This kind of electronic store follows the specific features of each social media platform. Like in Facebook stores, it can act similarly to websites since it can have integrated carts that automate the selling process. On Instagram, there aren’t any e-commerce capabilities thus all transactions are conducted online. The benefit in using social media shops is the relationship and trust. Customers are still reluctant to purchase via websites due to fraud and security concerns. The communications lines that a social media has between the seller and customers provide addresses the said concerns. With a big user base of such social media platforms, customers are easy to find. The drawback, arguably, in social media-based stores is the level of control. Entrepreneurs are at the mercy of the platforms.
You can also have an e-commerce business without the need to actually have an electronic store. One can just post their products in e-commerce marketplaces such as Amazon, Lazada, OLX, eBay and other smaller marketplaces. This kind of e-commerce piggybacks on famous marketplaces where traffic and purchases are huge. Analogously, this is similar to distributing products via big retailers such as SM and Robinsons Department Stores. This time, products are listed in marketplaces.
Another electronic store could be made via Mobile Applications downloadable in Google Playstore, iOS marketplace and Microsoft apps. While this is a feasible alternative, the Philippines’ adoption to mobile shopping via apps is still not that big. This mostly applies to super niche products and services done by software applications.
Another form of e-commerce that is emerging is Omnichannel. These kinds of e-commerce are the combination of all electronic store alternatives with the traditional brick and mortar stores. The difference is the integration between channels. Customers will have seamless experience shopping even if they change the way they shop. E-commerce Omnichannel provides the same information regardless of the store (electronic and brick and mortar).
Payment gateways are service providers that facilitate electronic payment made by customers via credit cards for the products or services they bought from the electronic stores. Since electronic payments via credit cards are only processed only by issuing and acquiring banks through electronic settlement platforms, there is no way an e-commerce store can process payments on their own. These services in accepting payments from customers are an important function in completing an e-commerce transactions cycle.
Accepting credit card payments is the best practice in accepting electronic payments in e-commerce stores. Due to its complexity and regulatory concerns, a typical small and medium enterprise cannot easily subscribe to standard practice. This resulted in alternative payment gateways to service all e-commerce in all forms and sizes.
Logistics – a field in supply chain management – is the process which involves procurement, storage, and delivery of products and services. Logistics also involves, but not limited to, transportation, fulfillment models, warehousing, inventory management, shipping and product returns and so on. While the e-commerce store showcases the product and services ready for purchase, logistics enable customers to enjoy the benefits of it. At the very least, logistics’ main concerns are for the customers receive their purchases depending on their need, and that at the same time, optimize the profitability of the e-commerce business.
Big e-commerce businesses usually own their own logistics to have full control while some outsource logistics totally through reliable third-party logistics providers. In this section, logistics shall be explained thoroughly.
Marketing is simply getting value by meeting human needs. It is an art and science of choosing and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value. In a general definition, it is meeting human needs profitably through the art of selling.
In e-commerce, it is not enough to just have an electronic store. Entrepreneurs need to educate their target market that their business exists. With the number of e-commerce sites increasing exponentially, marketing is becoming more and more important to obtain target market’s attention.
It is typical of a business hosted electronically to find customers that adopt the technology. A business online should at least have a strategy to target markets spending time on online technology platforms. With the world shifting from analog to digital, e-commerce puts premiums in marketing tactics centered on digital mediums such as, but not limited to, search engines, content websites, social media, and online video streaming among others.
E-Commerce Business Idea Development
This part of the course discusses how to build e-commerce concepts from market segmentation and targeting to mining problems and customer discovery interviews in order to develop a viable idea. With the numerous guides available in the internet on how to start an e-commerce business, the challenge for entrepreneurs is to come up with a good e-commerce business idea and the development of it until it can be worthy of an investment.
9 out of 10 businesses fail to sustain operations after a year of its inception. One of the reasons that are often overlooked is the concept entrepreneurs are trying to pursue. Many attribute the failure to succeed how well the e-commerce pillars are set up. However, a bad e-commerce idea may well set up an entrepreneur to failure.
Market segmentation is classifying customers into groups via attributes and characteristics that are critical to your business. Market segmentation is important in any industry – e-commerce or traditional it may be – because it enables businesses to precisely know how to reach a group of customers with specific needs and wants.
Every good e-commerce business starts with a target market in mind. It is not the creation of a market segment but the identification of the best ones for a better chance of building the next big thing. By using market segmentation, an e-commerce business can narrow its options and layout specific paths to have more probability of success.
While market segmentation is grouping a specific set of customers, market targeting is picking the right customer segments for an e-commerce business to be successful. E-commerce business has every right to choose most, if not all, customer segments. However, choosing specific customer segments enable an e-commerce business to minimize the probability of failure because it can produce or serve a specific set of needs and wants.
Mining for Business Ideas
The internet resulted in lots of information that is a gold mine for e-commerce entrepreneurs. This fact is mostly taken for granted and not properly utilized for market research. Data mining for the purpose of e-commerce business idea development is pattern and idea discovery from the vast public data available 0n the internet.
There are lots of reviews available, market insights and problems waiting to be discovered. This section discusses a new and actionable method to conduct market research to find out the needs and wants of the chosen market segment.
The quest for a successful e-commerce business is a quest for an idea relevant enough to build a business on. But this is easier said than done. Most e-commerce businesses fail to consider what true customer needs and wants are. More often, entrepreneurs have this cognitive bias where they focus on information that tends to back-up their own beliefs about a topic or idea. In an e-commerce business, what customers want is the only thing that matters and not what the e-commerce entrepreneurs think. E-commerce business is not about what the e-commerce entrepreneurs’ passions are, it is about discovering the passion of the customers. A great e-commerce venture is about developing the market first, before developing the business.
Customer interviews are structured conversations with potential customers that teach you a lot about your target audience. For developing an e-commerce idea, it is important to come into contact with potential customers, as quickly and often as possible. Interviews enable to see ideas in the eye of the customers. This will unravel insights and problems that could be of great importance in building your e-commerce business. At the minimum, the customer interviews can validate and falsify the ideas you developed in the previous section. This enables entrepreneurs to quickly find out feedback about their idea even before building their e-commerce businesses.
E-Commerce Business Model Development
The e-commerce business hinges on technology as its driver for success. With that fact, most traditional business practices apply but not with similar success with traditional brick and mortar stores. Speed and agility notwithstanding the uncertainty in developing online businesses make it difficult for the traditional business practices to fit into the exponentially changing e-commerce dynamics. That said, this topic fits a new set of business planning frameworks that is better suited for the evolving needs of the online e-commerce demands.
Business model is the mechanism that generates value or profit for a business. While the business plan is a document that presents describes goals to achieve a strategy and expected financial performance under a set of assumptions, a business model describes the interplay among critical business areas taking into consideration the uncertainty of the market it operates in.
Business Model Canvas
The Business Model Canvas is a strategic and entrepreneurial management template for developing new or documenting existing business models. It is a visual chart with elements describing a firm’s or product’s mechanism on creating, delivering and obtaining value from a specific set of customer segments. It is characterized by a one-page template that catches all 9 building blocks of a business model. The Business Model Canvas generally provides within the structure of a business plan without too much writing and with the improvisation of a ‘back of the napkin’ sketch.
The Business Model Canvas is popularly used by technology and e-commerce entrepreneurs for business model innovation. It is a district from traditional business planning on three aspects. It provides more focus since there is no need to write hundreds of business plan pages. It is flexible since parts are easily interchangeable due to its visual style. Lastly, it is a communication tool for a team of entrepreneurs understanding the business model of an e-commerce business.
Value Proposition Canvas
The Value Proposition Canvas is an additional canvas within the Business Model Canvas visually zooming in the value proposition and the customer segments building blocks. It is generally a visual business tool that can help you create, design and implement value propositions with respect to the specific needs and wants of your customers.
The value proposition canvas is designed on customer experience and behavioral marketing approach by simultaneously matching unique e-commerce offerings with the motivating factors in buying decisions. It aims to have a perfect fit between what the products and services should have and what the customers demand.
Managing E-Commerce Entrepreneurship
Business in general was characterized by reliance on forecasting and prediction. In fact, this is the heart and soul of business plans where financial forecast is the foundation of all management decisions. For decades, traditional management principles thrived to general management practices that were based on historical experience. As the world becomes accustomed to technology innovations and inventions, the application of forecasts and prediction based management is dwindling especially for technology based business such as e-commerce. Market unpredictability and uncertainty has been on all time high even through the barriers to entry in the online business industry is at all-time low.
Most traditional management is not fully applicable to e-commerce entrepreneurship due to its uncertainty and the fast-paced innovation involved. There should be a framework that is suited for e-commerce entrepreneurship and innovation. This topic discusses an entrepreneurial management framework to leverage on the uncertainty and unpredictability of markets.
Entrepreneurial Management Framework
Entrepreneurial management is a leadership framework designed specifically for twenty-first century uncertainty with the use of a different set of tools that were based on different fields. Though it is not a replacement for the traditional management concepts, it a framework that embraces the rigorous part of innovation management and entrepreneurship.
Developing a business model that makes a profit is not just a creative writing exercise through the visual canvas learned earlier. E-commerce entrepreneurs’ can’t just put their best guesses on the canvases, wait for customers to believe its story and execute right to a tee. Unfortunately, building an e-commerce business does not work this way. The entrepreneurial management framework helps the entrepreneur in fact-finding to quash the assumptions and risks associated with the e-commerce venture.
In the heart of entrepreneurial management is testing the market if there is indeed a demand for the said product or simply checking if there is a product or service to market fit. In making an e-commerce business, we are accustomed to the hit and miss approach where the success is dependent with the market. However, starting an e-commerce venture is also a science and as much as an art. Experimentation for assumptions and riskiest part of the business model is the key if e-commerce entrepreneurs intend to manage the all aspect of starting an e-commerce business.
In conducting experimentation in e-commerce businesses, there are prerequisites needed to be satisfied to be called an experiment and to have the intended impact at the end. It needs a falsifiable hypothesis in which the experiment will try to prove or disprove. It also needs the customer segment to gather feedback and validations. Lastly, there should be an offer to customer segments to force action.
Electronic Store Development
The electronic industry not only in the Philippines but also in the world is continuously evolving at a rapid pace. Previously, e-commerce is purely associated with websites opened in desktops. A few years later, smartphones dominated the market and the emergence of social media that changed the dynamics of the Philippine e-commerce. In this module, electronic store alternatives expanding from websites shall be discussed. Depending on the preference and the target market of every e-commerce business venture, e-commerce entrepreneurs can choose to develop electronic stores through social media such as Instagram and Facebook, e-commerce marketplaces such as Lazada and mobile applications. For existing brick and mortar businesses, Omnichannel shall also be explored.
Website Based Electronic Store
In the Philippines, website based e-commerce still dominates the online market. There is really no choice for a business not to have a website, may it be for selling or just for brand awareness. The Philippine e-commerce industry is still dominated by the likes of Lazada, Zalora and OLX when it comes to the volume of mass market e-commerce transactions. With Filipinos getting more and more acclimated to the use of technology particularly mobile smartphones, businesses need more time to push their products online.
Social Media Based Stores
The turn of the century saw the emergence of social media where people can interact and connect with a friend in an online platform. Different social media platforms emerged but it was Facebook that really stood the best of time. A lot of reports were made about the Philippines being a social media country. According to WeAreSocial.sg, Philippine tops the world in terms of hours spent per day on social media at 4.17 hours per day.
With the said Filipinos in social media platforms, it is fitting that a lot of people started to use social media as electronic stores to sell items. Social media is not only used as a marketing promotion channels but but as actual e-commerce store. Instagram, Pinterest and Facebook are the most used social media platforms.
E-Commerce marketplaces are e-commerce websites that has the capability to accept third-party merchants to sell on their platforms. In the Philippines, examples of such are Lazada and OLX. A business without any capability to do e-commerce can now have it just by partnering with these marketplaces. Marketplaces can find customers online with the merchants building a website on their own. This is a perfect option of businesses that don’t want to brand and market their products and just wanted to sell to keep a modest profit margin. This section shall explore the marketplace alternatives and how to utilize it for the greatest advantage.
With the increasing adoption of smartphones not only in the Philippines but also around the globe, application based e-commerce has seen an uptick. These are applications hosted on ecosystems particularly in Android based Play Store or iOS based Apps Store. Though the Philippine adoption on selling via mobile apps are not yet on the level of social media based or website based, it is worthy to explore due to trend in smartphone capabilities.
Omnichannel e-commerce has been the direction of the future of e-commerce. Omnichannel means doing business across different online e-commerce stores and traditional physical stores that deliver consisted and seamless experience for the customers factoring their different requirements and needs.
Examples are often like these: a mobile app-based e-commerce store matches the responsive design of the website and social media which should thematically reflect the look and feel inside the traditional brick and mortar store. These integrations span from not just marketing but also for operations processes. This is particularly beneficial for existing brick and mortar businesses to provide the best customer experience that also results in bottom-line growth. This section explores the world of omnichannel e-commerce.
E-Commerce Launch and Growth Management
Once an e-commerce entrepreneur has developed an e-commerce store after conducting customer development and experimentation, the next step is to immediately to their target customers from the outset so that they can gain insights and sell more efficiently and potentially faster.
After paying too much attention to the technical aspects of your idea through customer development and experimentation, wrongly assuming that target customers will understand the e-commerce business the same way the founder/s’ understood it can be detrimental to a startup e-commerce business. The principle in the launch is straightforward; communicate with the target customers to educate them about the solution you offer to their needs. Ingredients of these launches are the brand and its components, the promotional pitch, and launch marketing tactics. Often, an e-commerce business needs to treat the launch as another test to see its potential. The only way to measure the launch performance is though quantitative data.
The traditional definition of branding means is that it is a means to distinguish the goods of one producer from those of another. The brand is often confused as a name, term, sign, symbol, or design, or a combination of them that intend to differentiate them from those of competitors. Due to the digital age, the definition of branding evolved to the subjective perception of value based on the sum of a person’s experiences with a product or company that ultimately influences that person’s sentiment and decisions in the marketplace. Branding today in the digital age is the holistic sum of customers’ experiences, composed of visual, tonal and behavioral brand components, many of which are shaped by interaction design.
In launching an e-commerce business, a lot of networking is needed to introduce and even educate the target market of the benefits and value of a startup e-commerce business. It is important to have a quick introduction for the e-commerce business for the purposes of sales and promotions. In these cases, an elevator pitch is very handy. Elevator pitch is a sales or promotional speech that is given quickly that simply define an e-commerce business and its value proposition. It is called elevator pitch mainly because it should not exceed the amount time you spent inside an elevator. It is like giving a speech to a rushing investor and an e-commerce entrepreneur only has 30 seconds to 1 minute to get an investment or at least land an appointment for a future sales presentation.
Legal Aspect in E-Commerce
Businesses are fuel the Philippines economy. About 90% of the business in the Philippines is composed of micro, small and medium enterprises employing the majority of the Philippine labor force. Businesses play a major role in the helping the country in improving its economy through payment of correct taxes and providing employment opportunities. It is the responsibility of every Filipino to pay taxes and legalize the operations of an e-commerce business. Registering a business is the true mark of a responsible Filipino e-commerce entrepreneur.
While the previous topic stated that an e-commerce entrepreneur should mitigate risks through preselling, it is not an excuse not to legalize operations. While it is acceptable not to register in the customer development and market research using the entrepreneurial framework, legalization of a business is not to register or not but a matter of when. Official registration enables the e-commerce business founders to satisfy their duty as Filipino citizens. More importantly, the legalization of a business provides a legal entity for the e-commerce business that will result in better creditability and trust in the eyes of the customers. This module explores the forms of businesses and other legal aspects of operating an e-commerce business.
Forms of Business
The Philippine Constitution states three structure options for new and starting e-commerce businesses. Sole Proprietorship, as the name suggest, is owned by a single person. Partnership, on the other hand, is owned by partners ranging from two to more. Lastly, Corporations are owned by five or more. There are differences and similarities among the structures. The unique characteristics of each structure are suited depending on the situation and objective of an e-commerce business.
Registering Your Business
When an e-commerce entrepreneur finally decided on the structure for the e-commerce business, a process of registration needs to be fulfilled to finally call the business officially registered. Any business needs to file necessary documents in Bureau of Internal Revenue and the Local Government.
New businesses may avail exception to this process through the Barangay Micro Business Enterprise Law where new businesses may not need to pay for specific taxes for two years.