The Internet is a different sales medium with some direct sales and some retail characteristics. Marketers will have to learn new skills and attitudes to be successful.

Any e-commerce solution needs to be functional and secure. Planning is vital, and other papers in this series discuss the business and technical issues that have to be addressed at the planning stage.

Introduction

Electronic commerce over the Internet is predicted to grow at an ever-increasing rate over the next few years, with on-line sales already heading for several billion. Many companies are using this new sales channel, and a few retailers now have established major on-line sales sites. There have been some successes, particularly in technology, business-to-business and niche markets.

This paper has been produced to summarise the basics of electronic commerce, covering on-line catalogues and on-line purchasing. We have not attempted to review the subject of Electronic Document Interchange (EDI) which is clearly related, but is a very specialised subject.

Selling on the Internet

Marketing versus Selling Web Sites

Most companies with an Internet presence have a straightforward marketing site. The objective of the site is to supplement traditional marketing activities, perhaps give additional information, and generally promote the company. There is often a reluctance to give complete product details because the objective is to induce visitors to call or write to the company for more information and thus establish contact.

A selling site is different. The objective is to close the sale electronically with payment (and sometimes delivery) made over the Internet. This type of site will be designed to include comprehensive product information, as visitors will be expected to make a purchasing decision based on the information presented.

Such sites generally have three sections:

• Marketing and added value information. This is aimed at attracting customers, giving them a feel for the contents, and giving them confidence in the retailer.
• The catalogue. Detailed information on product benefits, specifications, and pricing.
• Order processing. This will include a method for specifying and paying for the order. More advanced systems may have a method for the customer to go back into the system to check progress and delivery of the order.

The true electronic commerce site will have all three components in some degree.

Such sites may be stand-alone, or may form part of a larger retailing site called a ‘shopping mall’.

Shopping Malls

Internet shopping malls were set up early in the development of Internet commerce. A shopping mall has a standardised environment into which several merchants are held in a single Web site. They offer advantages to a new on-line merchant:

• A standard environment for setting up the catalogue and arranging payment.
• Someone else is arranging for promotion of the mall as a whole.
• A trouble-free credit card collection mechanism.

However these benefits have not generally materialised. Malls work in the real world because there is something that attracts visitors, generally a large department store. Once visitors arrive, park their cars and start shopping, it is convenient for them to shop at other merchants in that same locality.

The Internet is not like this. It is as easy to visit another shop anywhere in the world as the ‘next’ shop in a virtual mall. People shopping for books are going to search for book sites. If they browse, it is the list of matches to their requirements from a search engine, not an on-line shopping mall.

From the infrastructure point of view, catalogue software and payment processing is now more widely available. Many merchants who started out in a shopping mall have graduated to a stand-alone site.

Building the Business

It is not enough to simply set up the catalogue and electronic commerce programs. ‘Build it and they will come’ has never been an approach that works on the Internet. The site must be promoted both on the Internet and via traditional means.

The biggest single source of visitors is also the cheapest. Registering with a few major search engines will generate over half, perhaps as much as 75% of your potential total traffic.

Other techniques are:

• Negotiating links with other Web sites
• Traditional marketing and PR
• Advertising on search engines and other high traffic sites
• Associate programs by which sites that refer visitors get a commission on sales.
• Once the site is built and registered, look for other ways of building business such as special offers. Visitors can be tracked through the site and offers customised to their interests. These techniques are in their infancy, but are being developed rapidly.

Is this direct marketing?

Direct marketers should also not make the mistake of equating the number of Internet users with a mail shot of that size. If there are 2-3 million potential Internet shoppers, a Web site is not like a mail shot to 2 million people. Only a tiny fraction of these will ever find your Web site and see it at all. The good news is that they will by and large be people interested in your product.

Direct marketers often have difficulty with handling on-line catalogues. The fact of the matter is that if someone visits a site and decides not to purchase, then that is the end of the matter. If someone is sent a catalogue or brochure and decides not to purchase, the merchant can re-send the catalogue, follow up by telephone, and so on. Direct marketers are often loath to lose the degree of control implied in traditional methods.

Is this one-to-one marketing?

Internet selling is not retail, and it is not direct marketing. It has its own characteristics, which are evolving as the technology develops. As we learn more about this area we are finding new innovative ways of building the business, which are unique to this medium. Increasingly we are looking for ways to build a one-to-one relationship with customers using the Internet.

This has to be done carefully. You might be able to tell that you have a repeat visitor, but that person might not like the idea that someone is keeping track of his or her movements. By all means keep records of visitors’ preferences so you can present them with the right special offers when they return. But be subtle – or preferably do this by consent.

This new world will require new attitudes and new marketing skills. It may not be right for every business, but when it is appropriate it can offer a low-cost channel with an outlet in virtually every country in the world.

The On-line Catalogue

The key to a good electronic commerce site is to provide an environment that makes it easy for the customer to navigate through the catalogue of products and ultimately make a purchase. How does this work? In the following section, we take a look at the purchase cycle from the point of view of the customer.

Navigation

The customer must be able to find the product they need without going through endless levels of indexes or menus. The visitor should be able to get to the product they need with very few clicks.

80% of visitors to any site will take one look at the page they arrive on and then leave. It has been estimated that you lose 20% of visitors every time you ask them to link to a new page. Good navigation is essential.

The information must be comprehensive once the customer has located the product of interest. Provide pictures and diagrams to help the customer understand what is being offered.

The Shopping Cart

When the catalogue is small (say less than 20 items), a simple order form will often do the job. However on larger sites the customer will flag products during this browsing session to be added to an electronic ‘shopping cart’. At any point the customer can review the contents of the cart, the cost and so on. This makes it easy for the customer to browse the site selecting products as they go.

Check-out

When the shopping session is complete, the customer clicks on a hyperlink which takes him or her to the checkout page.

At this stage the customer is presented with a list of the goods marked for purchase, the total cost, shipping, handling, tax, etc. The customer can then add shipping instructions, name, address and so on.

The customer is normally given a range of payment options, and some of the more common are discussed in more detail below. The most common is to use a credit card, and the customer enters the card number, name on the card and expiry date.

At this stage the Web site should switch to secure mode. The technology normally used is called SSL (Secure Socket Layer). This means that all communication with the server is encrypted in such a way that eavesdroppers cannot (without disproportionate difficulty) steal the credit card information. We shall discuss this further later, but it is important for customer confidence that the site switches to secure mode as soon as credit card information is requested.

The customer will get visual warning from his or her Web browser that they are in secure mode, a blue key and blue line in Netscape or a padlock symbol in Internet Explorer. There are some older browsers that don’t support SSL but most do.

This technology is widely used and quite well understood by Internet users. Most articles on e-commerce rightly emphasise the need for customers only to give up confidential information in a secure session, and users will look out for it. We believe that it is essential.

It is worth mentioning at this stage that a secure server is not absolutely necessary for bank-approved (and indeed very secure) e-commerce. There is a new British e-commerce product that uses its own Java-based encryption, and therefore does not need a secure server environment.

There are practical benefits here, and the solution is very cost effective and does not require more than a standard Internet server operation. The important issue here in our opinion is that the customer does not get the visual feedback from a secure session (the blue key in Netscape or the padlock symbol in Explorer). So irrespective of the technical merits of this solution, we believe it could adversely affect customer confidence.

It is not enough to be secure – you must be seen to be secure.

More on security later.

Payment and Order Processing

There are a number of catalogue Web sites, varying from large sophisticated book retailers to small ‘mom and pop’ operations. The most popular payment mechanism is payment by credit card, and clearly such payments must be secure. However in a review of a number of such sites, we found that only a minority offered credit card payment over a secure link.

Other options are:

• Credit cards over an insecure link
• Purchase orders only
• Purchaser contacted later by phone or post
• Purchaser prints form and faxes it

The few sites that accept credit card information over an insecure link are almost certainly in violation of their agreement with the bank that is accepting their payments. They are also taking on the business risk of fraud. The risk does not stop at the bank but gets passed on to the merchant. .

Issues for these sites are:

• Perceived non-availability of secure payment methods. We discuss payment methods and security issues below.
• Inability of the design shop that developed the Web site to implement a complex catalogue or secure payment system.
• Difficulty in finding a commercial Web site hosting operation that will offer a suitable secure environment.
• Perceived cost of setting up a merchant server.

Most of these issues are perception rather than reality. There is no reason why a merchant should not be able to offer a fully functional catalogue site with a proper secure payment mechanism. This can be done very cost-effectively.

Security Issues

Why is the Internet different?

There is a widely perceived risk attached to payments made via the Internet, and this perception is in some circumstances justified. This is not like making a phone call or sending a fax. The information sent from the customer to the Web server may pass through many different stages before being delivered. The information is in digital form, and at any stage an unauthorised individual may scan every message looking for credit card numbers (which are easily identified).

The difference between this process and a telephone call or fax is that the scanning process can be automated. It is as easy to check every message as to check a single one.

Secure Socket Layer (SSL)

It is therefore essential that traffic be scrambled (or encrypted), and the standard SSL protocol developed by Netscape provides a high level of protection. The US government views encryption technology as munitions, and therefore the only version of SSL available worldwide is the relatively weak 40-bit version. However, this version is quite strong enough to protect against automated scanning as described above, as it takes over an hour to crack one message.

Browsers that support this technology indicate that a secure session is in progress by showing a dialog box, or in the case of Netscape Navigator by showing a blue key on the screen.

Beyond the Blue Key

Even if the customer is protected by SSL technology, it is clearly important that the information remain secure. Once stored on the Web server, and before being passed to the merchant, the information is at risk from someone breaching security on the server and examining the files. Protection from this can be provided by either:

Encrypting the information stored on the server

Using a ‘firewall’ to protect the information. A firewall is a device (or a piece of software) which limits access to a server to specific types, such as ‘Web traffic only’.

The further stage of sending the information to the credit card processor, and to the merchant must similarly be protected.

The ‘blue key’ which Netscape Navigator provides to show that a secure session is under way is therefore no guarantee of total security, and the reputation of the merchant (or the payment process) is also important.

In an attempt to overcome these weaknesses, the industry has developed the SET specification. SET stands for Secure Electronic Transactions.

SET

The SET standard has been developed to protect payment instructions in transit. A discussion of SET is outside the scope of this document, and we recommend that anyone interested in this subject download the SET business description document from (e.g.) the Visa site (http://www.visa.com).

Planning

Planning is an important part of this type of business, as it is with any business venture. We suggest three main stages to the process:

Business Requirements

Make sure you understand the market, and that you understand the business processes that you need to implement. Select a project manager and ensure that project disciplines are in place. Produce a first-cut budget.

Technical Requirements

Identify the technical requirements you will need to satisfy. Draw up short lists of products and services. Refine the budget.

Selection / Procurement

Finally, select the products and services you need to start the project.

It may seem obvious but it is important to procure products and services only after the business and technical investigations have been complete. Businesses that start by (for example) selecting a software product or a service provider before the business requirements are clear are in danger of not meeting those requirements.

Conclusion

Electronic commerce is a new form of marketing with a predicted explosive growth over the next few years. The technology underlying the market is quite complex, and will become more so as new payment methods and Web technologies come on stream. The marketing approach is also new and different. The key to success is to find innovative ways to use that technology to attract customers and build business.