How Does Ecommerce Work? Understand the Nuts and Bolts

Here Are the Moving Parts That Constitute Ecommerce

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E-commerce is a strange animal. On the one hand, it seems like it is the new kid on the block -- one that will revolutionize the way business is transacted online. On the other, its business model often seems identical to physical retail that has been around for centuries.

The truth is that both points of view are valid. E-commerce does much the same as physical retail. However, the fact that it operates digitally, introduces some unique business elements.

Here is how e-commerce works.

A Product or Service Needs to Be Sold

This goes to the heart of commerce. There has to be an exchange of value. If one of the parties to the transaction is paying money, the other one should provide a product or service in return. We have reached a point where almost all goods that sell in physical stores also sell on e-commerce websites -- gadgets, books, automobiles, grocery, toys, and apparel among others.

The e-commerce era has also enabled easy sale of new categories of products. One example would be digital goods such as music, ebooks, software and the like. In addition, e-commerce enables easy transactions in a wide variety of goods such as air tickets and magazine subscriptions.

There Should Be a Mechanism to Accept Orders

When the customer has browsed through your e-commerce website and decided that they would like to buy, there has to be a process that accepts their order.

The software that runs this process is called a shopping cart.

In addition to making a note of what is being purchased and updating the order database, the shopping cart performs several other tasks:

  • computation of taxes and other levies
  • processing of coupons and other discounts
  • capturing the billing and delivery address of the customer
  • upselling to the customer
  • ensuring user acceptance of terms of service and other conditions of sale
  • creation of codes, such as invoice numbers, order number, tracking number and the like
  • presenting customers with delivery options and adding the corresponding fee
  • forwarding customers to the payment gateway
  • (in the case of downloadable digital goods) redirecting paid customers to the download page.

We Need a Payment Mechanism

There are some e-commerce websites, especially in the business-to-business space that might provide credit for purchases. In most cases, an e-commerce transaction involves transacting money. This process is conducted by a piece of software called the payment gateway.

The payment gateway:

  • presents customers with payment options
  • accepts identification details, such as credit card numbers
  • authenticates customers using a password, CVV code, or multiple factors of authentication.

The Product Needs to Be Delivered

I agree with people who say that effective logistics is the key to a successful e-commerce business. One of the most disappointing features of online purchase is the indeterminate and inordinate delay in receiving goods.

As a result, e-commerce businesses need to ensure that the right product is delivered to the customer, in good condition, and within the period that the customer expected.

Since logistics is a specialized function, several e-commerce businesses outsource it to third party logistics providers.

Customers Need to Be Serviced

Customers need to be serviced pre-sales as well as post-sales.

Before the sale, customers might have queries about product features that are not mentioned on the website. They might have questions about customization and accessories.

After the sale, customers might have queries related to the usage, repair or enhancement of the products or services that they have already purchased.

Reverse Logistics Need to Be Managed

There is no such thing as an error-free product.

As a result, some products will be damaged or stop functioning right. Sometimes the wrong product will be delivered. Such error or damage triggers the reverse logistics process. In the usual mode, goods move from the e-commerce business to the customer. In reverse logistics, the flow is in the opposite direction.

Conclusion

An e-commerce business has many moving parts. To be successful, it is necessary for you to manage each one of them skillfully.