Understanding the e-Commerce Industry

To understand the e-Commerce industry one must understand the e-Commerce value chain. The value chain has three main stages: order processing, payment management and delivery. The payment management underpins the value chain. The lack of an effective payment solution has stymied integration of the stages in the local e-Commerce value chain.

Order processing is the process of selecting, ordering and delivery of an item to the shipper. Generally, this function is managed using a shopping cart. For example, ECWID, Shopify and WooCommerce. The shopping cart has two parts: the front end (or store front) and the back end. Customers see the store front; it facilitates item selection and order placement. The back end allows the seller to manage the product catalog, customer information and order status. Tied to this is the warehouse function to manage inventory. Customer support is important to handle queries and order issues.

Payment management deals with payment collection. Third party payment systems, like Paypal, facilitate online payments using credit or debits cards. Payments are processed through intricate layers of security, authorization and third parties (financial institutions) to the transaction. There is usually a delay between the payment by the customer and the receipt of funds by the vendor. This can take weeks and other hidden fees can increase the transaction cost for the seller. Other means of collecting payments include COD or bank deposits.

Delivery gets the paid order to the customer. This process can be handled by the seller or by a third party service. The latter can provide online tracking information for packages. The key to delivery is time and cost. Standard delivery times are normally free or at a low cost. Faster delivery is more expensive with customers paying a premium for same day delivery, if possible. Free service can be used as a sweetener to encourage sales. It is important to understand the economics of free delivery and how it impacts your profit.

A critical aspect of delivery is packaging. Packaging can reduce weight and increase space usage thereby reducing cost. Packaging has evolved into a science with Amazon recently revamping its packages for optimal use. Finding the right package sizes is important. Generally, sellers do not have the volume or capital to invest in packaging, nevertheless, it is a very important consideration. Finding packaging suppliers with the right sizes and fillers is also important.

Assurance is given to the customer through a process called chargebacks. A chargeback occurs when funds paid to the seller are reversed and returned to the customer’s account. This normally arises from dissatisfaction by the customer. The reversal is not issued by the seller but by the payment processor. The payment processor acts as a guarantor providing additional comfort to the customer. Chargebacks works against the seller but it is a cost of doing business from using a payment mechanism that increases sales.

In subsequent posts I will explore each of the stages in detail.