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Electronic Commerce (E-Commerce)
Chapter 1: Introduction
- Background information
Electronic commerce has revolutionised the entire process of business operation and transaction itself in the day-to-day business. The growth of electronic commerce is mainly with the technological advancements and the innovative methods of sales and conducting transactions over the Internet. Alongside, the increase in the competition and the continuous globalisation of the business organizations with the presence of conglomerates both at the national and international markets has created the need for electronic commerce as an alternative to leverage growth in business and generate revenue. Retail sector in the UK accounts for a major portion of the nation’s annual revenue. The increase in customer demand for new products as well as the flexibility for shopping online, the electronic commerce has made a tremendous impact in the actual form of retailing itself.
In this report, the author aims to analyse the impact of electronic commerce over the retail sector and the extent to which electronic commerce has reached the general public.
- Aim and Objectives
The aim of this report is to analyse the impact of electronic commerce on TESCO Plc: the leading retailer of the UK. The research is accomplished through the following objectives
- To analyse the growth and impact of electronic commerce in the business society of the UK.
- To research the effect of electronic commerce on the retail sector as a whole
- To conduct a case study analysis on TESCO Plc using secondary data resources
- To conduct a primary research analysis on the electronic retailing approach of TESCO Plc
- Critically analyse the impact of the electronic commerce on the entire retail sector.
- Justification for the research
The increase in the competition and the globalisation with the presence of big players like the Wal Mart, Marks and Spencer, etc., the competitors in the retail sector are increasingly leveraging the internet for not only the web-presence but essentially for generating revenue. The fact that the supermarket chains in the UK are facing stiff competition and TESCO Plc being the leader in the UK supermarket segment of the retail sector has deployed the electronic commerce to reach a larger segment of customers in the UK. The research mainly aims to throw light on the fact that the electronic commerce mode of business is viable in the case of Supermarket chains where the products are mainly consumable and easily perishable as opposed to other segments of the retail sector like clothing and footwear.
- Research Methodology
The research embraces both the analysis of the secondary data as well as the primary data in order to provide both the qualitative and quantitative analysis of the topic under debate. A critical analysis on the research methodology is presented to the reader in the later chapters of the report. The research relies on the first hand data collected through questionnaire for justifying and analysing the secondary research information gathered through the academic resources like journals, books and market reports.
1.5: Chapter Overview
Chapter 1: Introduction
This is the current chapter where the reader is introduced about the topic and the research aim and objectives.
Chapter 2: Literature Review
This chapter begins with a generic overview of the electronic commerce in the business sectors of the UK and its contribution in achieving competitive advantage through leveraging increased revenue. This is then followed by the analysis of the electronic commerce in the retail sector with focus on the supermarket chains in the UK. This section presents the reader with the current situation of the supermarket chains and the different methods by which the competitors are striving to gain competitive advantage. This is then followed by a critical analysis of the TESCO Plc and their implementation of the electronic commerce in the UK.
Chapter 3: Research methodology
This chapter presents the reader with a critical analysis of the quantitative research methodology and the approach of the author to conduct the research for the topic under debate.
Chapter 4: Data Analysis and Evaluation
The information Gathered through the secondary and primary analysis are critically analysed and a comprehensive discussion on the impact of the electronic commerce on TESCO Plc is provided. The discussion focuses on analysis the relevance of the primary information with the secondary research data in order to establish whether or not the research has achieved the objectives of the report. The statements established in the literature review and the academic research are evaluated against the primary research information gathered in order to create derive on a concrete conclusion.
Chapter 5: Conclusion and Recommendation
The objectives stated are analysed in this chapter. A conclusion is then derived on the research conducted so far. Constructive recommendations are then provided to further enhance the research.
Chapter 2: Literature Review
2.1 Electronic commerce: A Generic Overview
Efraim Turban et al (2004) says, “ Electronic commerce has revolutionised the traditional business process of buying and selling on the high street shops by deploying the Internet and technology to reach a vast customer base”. The increased use of Internet by the general public and the growth of information technology products to support effective and service transaction over the Internet have apparently fuelled the growth of electronic commerce. This statement makes it clear that the electronic commerce has achieved a key position in the business process of an organization. The critical factors that contribute the growth of electronic commerce are identified by Hudgins-Bonafield and Christy (2003) as follows:
Growth of Internet: The Internet has seen a tremendous growth in the past five years making it a potential place for communicating to many customers both efficiently as well as cost effectively. The process of e marketing by which a customer over the Internet is reached through electronic mails or other form of adverts in the websites that attract the attention of the target customers eventually conducting a potential sale. The fact that the Internet can effectively communicate to a mass segment of people irrespective of age, cast, colour or sex makes it a potential tool to promote the products and services offered by n organization. The initial perception of web-presence as identified by Efraim Turban et al (2004) was drastically replaced by the initiative to conduct business transactions across the Internet itself.
Security and Data Protection: The presence of strict laws enforcing the data protection and privacy of information along with the legal restrictions and guidance to conduct transactions over the Internet in a secured fashion is the major accelerating force for the growth of electronic commerce especially by providing the customers with the confidence and faith of severe action against any fraudulent activities or misuse of personal/financial information. This initiative of the government as not only encouraged the customers but especially the business organizations competing in the market to identify new customers and reach a wider demography with their products.
Growth in Technology: The growth of Internet was mainly due to the tremendous growth and innovation in Information Technology products that enable secure and fast transaction over the Internet. The growth of high-speed communication systems like Integrated Services Digital Network (ISDN) and security systems like Asynchronous Transfer Mode (ATM) etc., has immensely contributed for the unrivalled growth of Internet and Internet based business initiatives across the globe. Furthermore, the presence of sophisticated IT architectures like .Net Framework, etc., has further eased the process of developing applications and software packages that enable secure communication and transaction over the Internet thus providing the customers with the ‘Peace of Mind’ about the security of their information.
Convenience Factor: Emma Janson and Robin Mansell (1998) say that the customers opt for electronic transactions more due to the convenience associated with the process of shopping itself thus reducing the snag of commuting to the high street shops and eliminating congestion in busy places like London. Alongside, the authors further stress that the convenience is not only the physical rest but mainly the time factor whereby a customer can place the order for a product over the Internet at anytime he/she finds it convenient thus eliminating the major issue of time keeping and scheduling more important activities effectively. This convenience factor was also justified by many authors including Efraim Turban et al (2004). This justifies that the electronic commerce and especially the growth of commercial transactions have grown tremendously through appealing to the continence factor of the customers.
Innovation in Business and Competition: The growth of information technology has also opened the doors for innovative methods like data mining and Customer Relationship Marketing whereby an organization can identify potential customers and tailor its products based on the customer needs purely by means of the customer information held in their databases has apparently increased the competition to sky-high levels in every sphere of business both within the UK as well as across the globe. The companies competing in the market have thus started deploying the Internet as a potential source of revenue through the extensive implementation of the electronic commerce technologies.
Reduced Operating Costs: Emma Johnston (2002) says, “ The costs involved with the operating of the stores in the high-streets and costs associated with the labour are greatly reduced by the one-time investment on the electronic commerce technology to deploy a robust and secure system in their company websites for conducting commercial transactions. The fact that the costs associated with the maintenance of the IT system so deployed is comparatively low to the costs associated with the establishing and management of stores/offices at numerous geographical locations. Alongside, the costs associated with the storage and transportation of the products to the stores are also eliminated in the electronic version of the business where the company holds the products in a central location in most of the cases with the manufacturer itself. This obviously reduces the financial overhead for an organization thus enabling it to invest upon more constructive areas for business development.
The aforementioned factors make it clear that the electronic commerce is increasingly replacing the trivial method of business transaction itself thus revolutionising the entire business process itself.
Electronic commerce is broadly classified into two major areas as identified by Efraim Turban et al (2004). They are
Business-to-Business (B2B) Electronic commerce: This is the type of electronic commerce that enables transaction between two business organizations over the Internet. This kind of transaction is mainly conducted between companies and the banks with which they operate their finance and commercial transactions. Alongside, the commercial transactions between organizations increase the speed as well as the security of the transaction thus enabling quick response to a critical situation in the business as identified by Glenn J. McLoughlin (2002). Since this report is focused on the analysis of the retail business where the transaction is with the consumers comprising the general public, a detailed analysis of B2B electronic commerce is out of the scope of this report.
Business-to-Consumer (B2C) Electronic Commerce: This is the process of electronic commerce where the commercial transaction is conducted between the consumers in the general public with the company selling the products and services. The transaction in primarily through the plastic payment (i.e.) payment through credit/debit cards or through electronic money transfer. It is evident that electronic commerce is achieved only when the transaction is conducted online over the Internet. The B2C mode of commerce is the one that is deployed in the retail sector business organizations which is discussed in the next section.
The B2C mode of electronic commerce is a very sensitive issue for the companies involved because of the reason that the entire process of ordering and payment transaction is not face-to-face and hence the need to develop the confidence among the customers to rely upon the Internet services to use their credit/debit cards or other plastic payment option to conduct the transaction across the Internet. Efraim Turban et al (2004) argues that the B2C mode of electronic commerce must not only address the customer demand but also develop the reliability of the entire process through efficient management and secure processing of payments. This makes it clear that the B2C mode of electronic commerce must address security as well as flexibility issues in order to gain sustainable competitive advantage in the market.
Furthermore in this mode of electronic commerce, a negative impression created among one customer is enough to ruin the entire system itself because of the fact that the consumers always demand 100% reliability with respect to the payment and transaction issues both in the traditional face-to-face shopping as well as across the Internet.
2.2: Electronic Commerce in Retail Sector
Retail Sector, as mentioned before forms a major portion of the total UK revenue and also drives the economic growth of UK. The Keynote Market Review (2003) on the retail sector in UK has further justified that the retail sector contributes to 30% of the total employment in the UK alone thus making it a competitive and innovative area of business. The retail sector also acts as the link between the consumer and the manufacturer even though the methods of direct marketing and wholesaling are increasingly popular within the UK. This makes it clear that the retail sector business is not only an evergreen business but also the one, which is ever changing in nature in order to meet the stiff competition and innovation through globalisation. Alongside, it is also clear that the customer demand is the major driving force for the retail sector business as identified by Philip Kotler (1988). The fact that the customers demand quality products at competitive prices has apparently given rise to the growth of supermarket chains like TESCO Plc, ADSA Plc, etc who specialize in selling quality products at highly competitive prices.
Electronic commerce in general has tremendously grown in the retail sector segments like clothing and non-perishable products like books, footwear, etc. The growth of the Amazon the US based online book retailer in the UK that has led to the fall in sales at the traditional booksellers like Water stones Plc and WH Smith in the UK reveals that the electronic commerce has indeed tremendously grown in the retail sector. The concept of e retailing has grown mainly due to the factors that were discussed in the previous section. The increase in the charges associated with the shop-floor maintenance, labour and other charges through the presence of stores in the high street, the companies are increasingly reducing the cost overhead by leveraging the e retailing on their websites. Alongside, the increase in the competition in the retail sector ha apparently created the need to identify a new method of conducting business that can reduce the costs as well as reach the customer more conveniently. This need was satisfied by the B2C electronic commerce over the Internet.
Apart from the factor of convenience, the growth of e retailing was mainly because of the online promotions and exclusive offers for online orders that were promoted by the retailers as identified by Joanne Banks (2004). The fact that the customers are increasingly attracted towards bundle offers and opt for products that give more value for their money was effectively harnessed by the retailers to enhance their e-retailing strategy that not only reduces the cost overhead but also leverages revenue at a comparatively lower operating cost. This justifies the growth of the electronic commerce in the retail sector.
The aforementioned factors further clarify the suspicion about the customer interest in the e retailing. This is evident from the success of the Amazon, Virgin and other electronic retailers who pioneer in the B2C category of electronic commerce. Alongside, even though the potential for high-street retailing is not entirely eliminated, the number of online shoppers is increasing in number, which is evident from the market survey conducted by Keynote (2005).
The above arguments have revealed that the electronic commerce mode of transaction has been successful in the retail sector where the products and services being sold are non-perishable items. But the sales of perishable items like food products and other products is a challenging issue because of the fact that the company selling the product must be aware that the items being ordered by the customer must be delivered as quickly as possible in order to satisfy their needs as well as maintain the product quality.
The supermarket chains in the UK contribute to a major portion of the revenue generated in the retail sector business. The BMRB survey conducted on the supermarket chains in the UK (2004) reveals that more than 45% of the total revenue generated in the retail sector is generated through the supermarket chains in the UK. Alongside, Joanne Banks (2004) has further argued that the competition in the supermarket chains in the UK is intense due t the fact that they not only compete on the grounds of price but mainly on quality and service offered to the target customers. The increasing demand of the customers to have easy access and quick service at the shops has apparently forced the supermarket chains to establish the electronic retailing option on their websites. ASDA Plc initially introduced the online service after it was taken over by Wal Mart; The super market giant from United States of America.
The major factors that hinder the growth of B2C electronic commerce in the supermarket chains as identified by Alex Hughes and Suzanne Reimer (2004) are
- Short Life Time of the products
- Time constraints with the delivery of the products
- Issues associated with the storage and distribution of the products
- The need to spontaneously process the electronic payment in order to process the order
- Effective billing and management of the online orders in the supermarket
The aforementioned issues are faced by all the supermarket chains that sell perishable food products as a core segment of their range of products. This further makes it clear that the supermarket chains should not only enable the electronic transaction system but mainly to process the payment accurately in the first instance itself in order to enable the quick processing and delivery of the orders placed over the Internet.
The following analysis on TESCO Plc and its application of the electronic commerce technology aims to throw light on these issues.
2.3: Electronic Commerce in TESCO Plc
About TESCO Plc
TESCO Plc is ranked as the number one supermarket chain in the UK since the year 2003. The company has grown tremendously in the supermarket chain segment of retail business through continuously providing high quality products at unbeatable prices as well as venturing into new areas of business like finance thus establishing an effective cross selling environment. The company’s annual report and financial summary for the financial year ending 2004 have revealed that the total profit before tax and interest has increased tremendously and the organization itself contributes to more than 25% of the total revenue generated by the supermarket chains in the UK. The recent developments in the company include the establishment of the electronic commerce system to conduct online shopping for the day-to-day grocery on their website. The company has also established a strong customer base by effectively utilizing the information held within their systems by leveraging the concept of Customer Relationship Marketing.
Alongside, the company has effectively performed the process of data mining through directly analysing the information from the EPOS (Electronic Point of Sale) Systems installed in their shop floors so as to identify the potential customers and enter new target markets and business segments. The implementation of the file maker systems in line with their point of sale systems to produce store specific adverts and promotion banners has apparently leveraged the company an edge over its competitors in the supermarket chain. The online shopping system established by TESCO Plc is explained below
The company leverages the advantage of the .Net framework architecture in order to conduct live update of the systems as well as quickly transfer the information without any errors between the company website server and the customer. This is essential for conducting the transactions quickly and accurately in the first instance itself. The .Net framework leverages the advantage of integrating every single element of the business information related with a transaction in order to provide accurate results within a short duration. Alongside, the implementation of the live update systems that work on a 24×7 basis providing a fault free environment which leverages the company to provide the exact details on scheduling of the delivery system in their website to the online shoppers. Apart from the .Net architecture, the company has deployed the Oracle based Peoplesoft systems for managing their databases in order to effectively integrate as well as quickly respond to the high demand for the information over the website. The fact that the Peoplesoft database system provides a spontaneous response to very high volume of information requests as well as conduct secure transactions over the Internet through the capabilities of networking with multiple servers over the Internet is the backbone for the successful implementation of the .Net framework by the company in the online shopping system. Alongside, the fact that TESCO Plc has the largest customer base in the UK supermarket chains (Keynote, 2004) further increases the demand for a high-performance system to meet the demand of the customers over the Internet as well as effectively schedule the delivery of the products online.
TESCO Plc with its large number of stores (Superstores, TESCO Extra and small stores) has strategically scheduled the delivery of the products in such a manner that the customer ordering the product can not only expect prompt delivery but mainly fresh goods that are packed in the shops the very same day of delivery as opposed to the delivery through other logistics services. The company pioneers in effectively utilizing its fleet of delivery vehicles (large, medium and small) to reach the customers promptly with fresh groceries that they ordered online. This efficient service is the key for the competitive advantage of the company over its competitors on the online groceries sales. It is worth mentioning, that the company has been involved in the electronic commerce since the dawn of the twenty-first century. But the implementation of the online groceries sales and delivery at the door-step is the strategic move made by the company in the recent past that has not only established TESCO as a leader in the entire retail sector of the UK but also as a pioneer in providing effective customer service with emphasis on value for money both at the shop floor as well as across the Internet.
Apart from the aforementioned factors it is also interesting to note that the company has conducted vast research in the area of electronic retailing of the groceries in collaboration with leading IT consultancies like Accenture UK in order to create an effective and speedy response system that can handle the potential of the online grocers in the UK. Alongside, the Key Note Market review on the electronic retailing in the has further revealed that TESCO has leveraged a major portion of its income through electronic commerce since 2003 and the implementation of the quick delivery system of the groceries purchased online has further strengthened the position of the company in the retail sector of the UK. The annual report of the company reveals that the company has increased its number of stores in the UK as well as implemented the state-of-art system to capture critical information about the market trends in a given geography within UK where a TESCO store is operating through the integration of its electronic commerce system with the central information management system.
Structured Website layout:
Efraim Turban et al (2004) argue that a customer shopping online will not only demand security and privacy but mainly the easy navigation of the websites with ample help and support to perform the online shopping itself. The fact that customer service is the key for a successful business transaction as well as gaining the customer loyalty makes it clear that the a successful e commerce venture not only demands a robust system to respond effectively to the customer demand but mainly provide an easy to navigate website for performing the process of shopping itself.
In the light of the above argument, an insight into the TESCO website reveals the following results.
- The company has a highly structured website that has classified its products efficiently based on the departments and then provided a two stage categorisation for identifying the actual product itself. The two stages of categorisation are achieved by the providing a short list of hyperlinks under a selected category so as to enable the customer to view the products.
- The website also provides an interactive help system that efficiently guides a new user to quickly get accustomed to the online shopping process in order to encourage the customers to shop online.
- Apart from the easy to navigate system and the help provided online, the company has also established a dedicated call centre service especially to attend to the queries of the online shoppers including support on completing an order as well as serving the customer queries on existing orders and deliveries.
- Alongside, the feature of reserving a delivery schedule before starting the shopping process itself makes it further easier for the customer to decide on the products to prioritise on the order placed. This provides an additional benefit of gaining customer satisfaction as well as a second to none service in the online shopping system to the customers.
The aforementioned statements further justify that the TESCO Plc has apparently gained competitive advantage in the electronic commerce mode of retailing in the supermarket chain segment of the retail sector in the UK. Alongside, the company has not only established the online transaction system for the sale of its retail products but for cross selling of its other services including DVD rental, finance and other services. This complete existence of the company over the Internet has apparently proved successful in gaining competitive advantage in the market.
The above analysis has proved that TESCO Plc has leveraged competitive advantage through strategically deploying the electronic commerce system in its website and conducting transactions quickly in order to provide timely delivery of the products and services. The research conducted so far is based on the secondary information resources and hence to derive on a concrete solution, a primary research in the form of questionnaire is carried out. The next chapter provides a critical overview of the research methodology and the scope.
Chapter 3: Research Methodology
3.1: Quantitative Research
As mentioned before the analysis in the previous chapter was based on the secondary data resources. The information so gathered is qualitative and hence in order to justify the quality of information, a quantitative approach to the primary research in the form of a questionnaire is conducted as part of the research. The fact that quantitative research provides first hand information on a given topic under debate that can provide a measurable result, makes it a natural research option. Alongside, the fact that the quantitative research provides reliable results when conducted over a sizable research group so that after eliminating the irrelevant information, a set of reliable results can be achieved as argued by Creswell J. W. (1998).
3.2: Scope of the Research
Since the information gathering is in the form of a questionnaire, the target group of participants comprise of the general public in the UK and due to the limitations of resources (funds and time), the target group is a randomly selected group of 300 people in the Coventry area. The questionnaire prepared is circulated among the people in the city centre area of Coventry and also among the working class of the UK general public. This is done so because of the fact that the working class segments of the UK not only have a higher disposable income but are also deprived of the time to visit the supermarket in order to purchase their desired products. Even though, the superstores are open in the late hours, the general turnover of the customers is considerably low during the working days when compared to the weekends.
3.3: Analysis details
The information so gathered is analysed using Microsoft Excel spreadsheet package in order to create a comprehensive view of the information gathered through the primary research. Pie charts and graphs of the information gathered are prepared to create a profound understanding of the discussion in the next chapter.
3.4: The Questionnaire
The questionnaire is framed in such a manner that the participants can choose the answer from the choices provided. This will apparently provide an easier classification of the information gathered and also ease the process of answering the questionnaire itself by the participants. Alongside, the questionnaire is limited to fifteen questions focusing only on the electronic commerce of the TESCO Plc so that the participants can quickly complete the questionnaire as well as the analysis can be carried out easily. The personal information of the participants was made optional so as to comply with the data protection and privacy issues. The participants who did provide their personal details were kept confidential and are not mentioned in this report. The questionnaire circulated among the participants is given below for the reader’s view. The results are provided in Appendix 1.
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