How eCommerce Works?

Altera Blog

Nov 29, 2024 — 11 min read

eCommerce stands for electronic commerce, which refers to the buying and selling of goods and services over the internet. It has revolutionized the way businesses operate, offering a convenient, global platform for customers to shop and for vendors to reach wider markets.

eCommerce has streamlined transactions online, which has increased the desirability of online shopping. It has simplified processes like shopping, payments, and delivery, creating seamless experiences for users worldwide.

This article will explore how eCommerce works in India, examining the technologies and strategies contributing to its growth and success.

Components of eCommerce

The seamless functioning of eCommerce relies on an interconnected ecosystem of various components that work in harmony to deliver an optimal online shopping experience. These components ensure the smooth operation of an online store, from product display to order fulfillment and secure transactions. Below are a few key essential components of eCommerce.

User:

The user is the end consumer and the heart of any eCommerce system. Their experience significantly impacts the success of an online business. Hence the goal is to create a user-centric platform that converts casual visitors into loyal customers by offering convenience, trust, and engagement.

Key Considerations for Users:

Website Design: Crafting an appealing and easy-to-navigate website is critical for success. Whether emphasizing simplicity for better functionality or showcasing bold designs to reflect your brand, the layout must resonate with the preferences of your target customers.
Navigation: Clear and intuitive navigation ensures that customers can effortlessly explore your product offerings, enhancing their shopping experience. Intuitive menus and search bars enhance the shopping experience, minimizing frustration.
Product Information: High-resolution images combined with detailed, original product descriptions enable customers to make confident purchasing decisions and visualize the products more clearly. Visuals act as virtual touchpoints, bridging the gap between physical and online shopping experiences.
Pricing: Competitive pricing attracts users. Implementing a cost-based pricing strategy involves calculating the cost price, wholesale price, and final retail price to ensure a fair yet profitable offering. Transparency in pricing fosters trust and encourages repeat purchases.

eCommerce Vendors

Vendors are the businesses that sell products or services on the platform. They ensure efficiency in the supply chain, robust warehouse operations, fast shipping and returns, and a detailed product catalog.

Key Vendor Activities:

Product Quality Assurance: Ensuring product quality not only builds trust with consumers but also minimizes returns and complaints. Vendors can seek certifications such as ISO accreditation to establish credibility and reinforce their commitment to excellence.
Pricing Strategies: Regularly evaluating and adjusting prices helps vendors remain competitive in a dynamic market. Strategic pricing should balance affordability for consumers and profitability for the business.
Compliance and Standards: Adhering to local and international eCommerce regulations, including data protection laws and product standards, is essential for building trust and avoiding legal complications.

Technology Infrastructure

Technology infrastructure forms the backbone of eCommerce platforms, facilitating operations, scalability, and security. It includes servers, databases, mobile applications, hardware, and software systems that support the functionality of an online store.

Key Components of Technology Infrastructure:

Servers and Hosting: High-performing servers are critical for hosting websites and managing user requests. Many businesses opt for scalable hosting solutions with expandable RAM to handle varying levels of traffic seamlessly.
Software Systems: Tools for managing inventory, taxes, orders, and customer relationships streamline backend operations. Advanced software solutions enable automation, reducing manual intervention and errors.
Security Measures: Strong security protocols, including SSL certificates, encryption, and firewalls, protect sensitive customer information from potential threats. These measures not only mitigate potential cyber risks but also help establish trust with users.

Internet/Network

The internet is the foundation of eCommerce, enabling global connectivity and access to online stores from anywhere. India had 78% internet penetration (1.12 billion users) as of January 2024, according to DatarReportal. Different network types support various eCommerce operations, depending on the required speed, reliability, and accessibility.

Types of Networks Used in eCommerce:

Internet: Facilitates the global reach of eCommerce platforms, allowing users to shop across borders.
Intranets and Extranets: Used for internal communication and external collaboration among vendors, suppliers, and business partners.
Mobile Networks: With the rise of mobile commerce (m-commerce), mobile networks enable users to access eCommerce platforms on the go, enhancing convenience.

Reliable network options such as fiber optics, DSL, and mobile internet ensure fast and uninterrupted access to eCommerce websites.

Web Portal

The web portal acts as the virtual storefront of an online business, offering a platform for users to interact with the brand, browse through products, and complete their purchases.

Features of a High-Performing Web Portal:

Responsive Design: A responsive web design ensures the platform is accessible and visually appealing across all devices, including smartphones, tablets, and desktops.
Core Functionalities: Essential features like a shopping cart, product search bar, and user accounts are crucial to enhance the overall user experience.
Content Management: eCommerce platforms must allow easy updates to product listings, promotional content, and customer reviews to keep the website dynamic and engaging.

Payment Gateway

Payment gateways enable secure online transactions by connecting the customer’s preferred payment method to the vendor’s account. The platform provides diverse payment methods, including credit/debit cards, UPI, e-wallets, and cash on delivery, while utilizing encryption to secure transactions.

Key Features of Payment Gateways:

Security: Advanced encryption methods and fraud detection mechanisms ensure the safety of sensitive payment data.
Versatility: Support for multiple payment methods, such as credit cards, digital wallets, and bank transfers, caters to diverse customer preferences.
Ease of use: A simple checkout process reduces abandoned carts and improves customer satisfaction.

By understanding and optimizing these components businesses can create successful eCommerce platforms that cater to modern consumer needs.

What is an eCommerce website?

An eCommerce website serves as a digital marketplace where users can buy or sell tangible goods, digital products, or services, eliminating the need for a physical store.

It serves as an online marketplace where businesses and consumers can interact. This facilitates transactions that involve the transfer of funds, data, and logistics. This type of website acts as a hub for conducting various commercial activities in the digital realm.

How eCommerce Websites Differ from Physical Stores

The primary distinction between eCommerce websites and physical retail stores lies in the medium of operation. Unlike traditional stores, eCommerce platforms operate entirely online, providing customers the flexibility to browse, shop, and pay without visiting a physical location.

Key differences include:

Accessibility: eCommerce websites are available 24/7 and can be accessed from any device with an internet connection.
Wider Reach: These platforms can cater to global audiences, breaking geographical barriers. It provides greater opportunity for businesses to grow.
Lower Overheads: Without the need for physical infrastructure, eCommerce businesses often have reduced operational costs.

How does eCommerce website work?

An important aspect of understanding how eCommerce works is to understand how eCommerce websites operate. It works through a seamless combination of website code, databases, and third-party applications, such as payment gateways, to provide a secure, efficient, and user-friendly shopping experience.

User Access and Browsing:

Shoppers visit an eCommerce website using various devices, including smartphones, laptops, tablets, and smart TVs. They may find the website through search engines, paid advertisements, social media, referral links, or direct navigation.

Dynamic Content Rendering:

When a customer accesses an eCommerce site, the website connects to its database to retrieve data such as product categories, descriptions, pricing, dimensions, images, and user-generated content like reviews. This data is used to dynamically render the pages customers' view, ensuring they have access to the latest product information.

Adding Items to the Shopping Cart:

As customers browse, they can add products or services to their virtual shopping cart. The shopping cart feature keeps track of chosen items, their quantities, and the cumulative cost, allowing customers to continue shopping or proceed to checkout at their convenience.

Checkout Process:

When a customer is ready to finalize their order, they are directed to the checkout section of the platform. Here, they provide:

Shipping Information: Delivery address and preferences.
Payment Method: Payment options usually include credit/debit cards, digital wallets, and other payment methods.
Order Review: Customers confirm product details, costs, and shipping charges before finalizing their purchase.

Payment Processing:

After submitting an order, the payment information is securely encrypted and sent to a payment gateway, such as PayPal, Stripe, or other third-party processors.

These gateways handle the payment transaction securely, ensuring compliance with PCI Data Security Standards. The eCommerce website does not store sensitive payment details unless it adheres to strict regulatory requirements.

Order Confirmation and Notifications:

Once the payment is successfully processed, the website generates confirmation of the order. Customers receive details such as:

A unique transaction number.
An estimated delivery date.
A postal tracking number (if applicable).
Notifications are sent to the seller as well, ensuring they can prepare the order promptly.

Order Fulfillment:

Orders are stored in the website’s administrative dashboard and forwarded to the fulfillment team. Order fulfillment may be handled internally by the business or outsourced to third-party logistics providers or dropshipping services. This process involves preparing, packing, and shipping the purchased items.

Delivery and After-Sales Service:

Customers receive their orders based on the delivery method they chose during the purchase. eCommerce websites often provide real-time tracking features to keep buyers informed about their delivery status. Additionally, they offer after-sales support, such as handling returns, exchanges, or queries, ensuring a smooth post-purchase experience.

How To Promote eCommerce Websites?

Running an eCommerce store requires strategic efforts to market and promote the business, attracting new customers and retaining existing ones. Marketing is an ongoing process and can be promoted through these tactics:

Search Engine Optimization (SEO):

Search Engine Optimization (SEO) is essential for improving the visibility of your eCommerce website on search engines like Google. By optimizing product pages with relevant keywords, creating engaging content, and focusing on technical aspects such as page speed and mobile friendliness, you can rank higher and attract organic traffic.

Email Marketing:

Email marketing enables businesses to keep in touch with their audience by sending tailored messages, updates, and promotional content.

Collecting email addresses from users allows you to nurture relationships, send targeted offers, and recover abandoned carts. Using automation tools can streamline email campaigns, ensuring timely and personalized interactions with your customer base.

Pay-Per-Click (PPC) Advertising:

Pay-Per-Click (PPC) advertising is an effective way to quickly increase visibility. You pay for each click on your ad, whether it appears on search engines or social media platforms. PPC campaigns let you target specific demographics and keywords, bringing in relevant traffic and boosting sales

Influencer Marketing:

Influencer marketing leverages the audience of social media influencers to promote your products. Collaborating with influencers who share your brand’s values and target market helps you reach new potential customers. Influencers can create content, share product recommendations, and boost brand awareness, increasing trust and conversions.

Social media marketing allows you to engage with customers on platforms like Instagram, Facebook, and other popular mediums. By posting diverse content, using relevant hashtags, and interacting with followers, you can create a more personal connection with your audience. Paid ads and influencer collaborations also help expand your reach effectively.

Note that these are just a few promotional methods to be leveraged by an eCommerce website. There are many more that people can explore and integrate for efficient performance.

Understanding Conversion Rate for eCommerce Websites

The conversion rate measures how effectively an eCommerce website drives specific actions, such as purchases, by expressing the result as a percentage. It's a percentage calculated by dividing conversions by total website visits.

To calculate the conversion rate for your eCommerce website, use the formula:

Conversion Rate = (Number of Conversions / Total Number of Website Visits) × 100

This calculation can be adapted to measure conversions for different actions, such as newsletter sign-ups or product inquiries.

In eCommerce, the conversion rate often refers to the percentage of visitors who complete a purchase, distinct from the overall rate, which may include other actions like signing up for a newsletter or adding items to a cart.

On average, eCommerce websites typically see conversion rates between 2.5% and 3%. Numerous factors, such as the type of products sold, the website's usability, and implemented marketing strategies, can significantly influence conversion rates.

A common misunderstanding arises from mixing up "sessions" and "users." While analytics tools often track visits as "sessions" and individuals as "users," the conversion rate should always be calculated using sessions, not users.

Regularly analyzing and optimizing eCommerce conversion rates can lead to better user experiences, higher sales, and sustained business growth.

Scope of eCommerce

Below are the key areas that define the scope of eCommerce:

eCommerce Powered by Technology:

eCommerce transactions rely on technology to connect businesses with customers. Web browsers are the most common interface, but other platforms, like mobile apps, also fall within this scope.

These technology-driven interfaces enable seamless transactions, allowing businesses to manage sales processes more effectively without requiring face-to-face interaction. Technology enhances scalability and reduces operational costs.

Enhancing Customer Retention:

eCommerce offers powerful tools for customer retention by leveraging data and providing personalized experiences. Gathering insights into customer behavior can offer businesses tailored recommendations, promotions, and targeted marketing efforts.

eCommerce platforms also facilitate faster order fulfillment and improve customer support, which strengthens relationships and ensures repeat business. A personalized approach increases satisfaction, leading to long-term loyalty.

Streamlining Financial Operations:

eCommerce platforms provide businesses with integrated financial tools for efficient accounting, treasury management, and asset tracking. These systems simplify financial processes, ensuring that businesses can manage payments, invoicing, and reporting accurately.

Real-time financial insights help with strategic decision-making, improve cash flow management, and reduce errors. This integration makes financial planning and management more streamlined and accurate.

Supplier Integration and Inventory Optimization:

In eCommerce, supplier integration is key to managing inventory efficiently. By utilizing systems like Electronic Data Interchange (EDI), businesses can coordinate with suppliers in real-time, reducing delays and ensuring that stock levels align with customer demand.

Just-in-time inventory strategies help minimize storage costs while ensuring that products are available when needed, improving both efficiency and customer satisfaction.

Internal and External Business Transactions:

eCommerce incorporates processes and activities that span both internal business operations and external interactions with customers and suppliers. Internally, it streamlines activities like inventory management, order processing, and financial reporting.

Externally, it facilitates business transactions between organizations, customers, and partners. This broad scope of activities supports both day-to-day operations and larger market exchanges, enabling businesses to run more efficiently and connect seamlessly with external stakeholders.

Consumer Oriented eCommerce:

Consumers are the heart of any business that wants to sell products and services to a wider market. Hence, eCommerce should be consumer-oriented and focused on providing a seamless, personalized shopping experience.

This model enables businesses to sell directly to consumers through websites, apps, and marketplaces, offering convenience, product variety, and tailored recommendations.

Consumer-oriented eCommerce aims to build long-term relationships, encouraging repeat purchases and positive reviews, which in turn strengthens brand loyalty and boosts sales.

FAQs:

Q1. What is a Consumer-Oriented Approach?

Ans: A consumer-oriented approach focuses on understanding and meeting customers' needs, preferences, and expectations. The focus is on providing customized experiences, ensuring convenience, and building strong customer relationships to drive satisfaction and loyalty.

Businesses adopting this approach prioritize customer-centric strategies, such as tailored recommendations, responsive customer service, and user-friendly interfaces, ensuring a positive and engaging shopping experience.

Q2. Which Component Comes Under the Mainstream of eCommerce?

Ans: The core components of eCommerce include online store platforms, product catalogs, shopping carts, payment gateways, and secure checkout systems. Other essential elements include inventory management, shipping and fulfillment systems, customer accounts, marketing tools, and analytics.

Q3: How Do eCommerce Platforms Work?

Ans: eCommerce platforms function as digital storefronts, allowing businesses to showcase products or services and manage sales. Customers explore the platform, select items they wish to purchase, and add them to a digital shopping cart for later checkout.

At checkout, payment gateways securely process transactions, and orders are forwarded for fulfillment. Integrated tools handle inventory, shipping, and customer communication, streamlining the entire online shopping process.

Summing Up

eCommerce has transformed the way businesses and consumers interact, enabling seamless global trade with just a few clicks. Its components, ranging from user-focused design to robust technology infrastructure, work together to deliver exceptional shopping experiences. To understand the growing intricacies of new age marketing and how it helps eCommerce, consider the Altera Institute’s 1-year PGP in Applied Marketing.

By leveraging innovative strategies and understanding consumer behavior, businesses can harness the full potential of eCommerce to expand their reach, optimize operations, and foster customer loyalty.

With continuous advancements in technology, eCommerce remains at the forefront of the digital economy, fueling innovation and driving sustained growth in the years to come.