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How Does eCommerce Work?: A Guide for Dummies


Ecommerce can be both old and new. It might be something revolutionary, that is changing the way business transactions are made but still, it’s a business model that’s very much similar to physical retail which has been the way for centuries.

And both points are valid. Ecommerce retains much of its physical retail counterpart. What makes it a breakthrough is that it’s operated digitally and introduces certain business elements that are unique to itself. Here’s a peek into how ecommerce works.

Selling a Product or Service

This is basically the heart of trading or commerce. There needs to be an exchange. One side of the party pays money, while the other one provides the service or product in exchange.

Ecommerce has now matured to a point that almost all the stuff you see being sold in physical stores can also be seen on ecommerce websites. More popular examples include apparel, toys, grocery, cars, books, and gadgets.

Ecommerce even ushered in an era of selling new product categories. A good example is digital goods. These include software, eBooks, music, and other products that can be made available in digital form. Ecommerce has also enabled faster and easier transactions.

Accepting Orders

Once a customer has finished browsing over the products you have on your site and has selected the items he or she wants to buy, there should be a mechanism in place to accept the order. The part that manages this process is commonly referred to as the shopping cart.

The shopping cart takes note of the items that are being purchased and regularly updates the order database. It also performs these other tasks:

  • Computes the appropriate taxes and levies
  • Processes discounts like coupons or other promotions
  • Captures delivery and billing address of the buyer
  • Upsells to the customer by suggesting similar products
  • Ensures that the terms of service, as well as other sale conditions, are relayed and accepted by the buyer
  • Creates codes like tracking, order, and invoice numbers to properly identify the transaction
  • Presents to the customer the available delivery options as well as the related fees
  • Forwards the customer to the payment facility or gateway
  • Redirects the customer to the download page of downloadable digital goods.

Accepting Payment

In a business-to-business (B2B) environment, some ecommerce sites provide credit for the corresponding purchases (e.g. net 15, net 30). Most of the time, a transaction in ecommerce require transacting money.

This particular process is handled by another piece of software in ecommerce referred to as the payment gateway. It presents available payment options, accepts customer identification details like credit card numbers, and authenticates the customer via a CVV code, a password, or multiple authentication factors.

Delivering The Product

A successful ecommerce business is highly dependent on effective logistics. One of ecommerce’s significant disadvantage is the inordinate and indeterminate delay in delivering and receiving goods.

An ecommerce business should ensure that the customers get the correct product in good condition and within the period that he expects it. Logistics is considered a specialized function which can be outsourced from logistics service providers.

Pre and Post Sales Service

A customer will require both pre-sales and post-sales service. Before he buys, he might have questions about the product and its features that are not discussed in detail in your ecommerce site.

These questions can be about accessories and customization. Once the sale is done, he might have questions on basic and advanced usage, enhancement or repair of the purchased product.

Managing Reverse Logistics

In a perfect ecommerce world, the customer buys the product and the provider delivers. End of story. But it’s not usually the case. There’s no such thing as a perfect product.

Products can get damaged or stop functioning within the warranty period. Or the wrong product is delivered to the customer. These product issues and delivery errors trigger what is called the reverse logistics process.

This gives a customer the option to ship the product back to the seller. Whether the customer or the seller’s shoulders the shipping cost is dependent on the contract stipulated during the sale.

Ecommerce is composed of different processes connected together. Each one of these processes should be managed skillfully to ensure business success.

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