E-COMMERCE
TABLE OF CONTENTS
1.0
INTRODUCTION
Wigand (1997) defines E-commerce as denoting: "the seamless
application of information and communication technology from its point of
origin to its endpoint along the entire value chain of business processes
conducted electronically and designed to enable the accomplishment of a
business goal. These processes may be partial or complete and may encompass
business-to-business as well as business-to-consumer and consumer-to-business
transactions”
There are four basic types of E-commerce
relationship namely; Business to Business E-commerce (B2B E-commerce), Business
to Consumer E-commerce (B2C E-commerce), Administration to Business (A2B
E-commerce), and Administration to Citizen (A2C E-commerce).
While all four of these E-commerce types are of importance to the growth
of the information economy, this paper focuses on the first type of E-commerce
implementation: B2B E-commerce alone by comparing on two existing B2B internet
transaction companies namely JD.com and Tmall.com.
1.1
JD.com
JD.com Inc. (hereinafter as JD), formerly
360buy, is a Chinese electronic commerce company. It is one of the largest B2C
online retailers in China by transaction volume before opening their market to
Malaysia customers through Pos Malaysia. The company was founded by Richard Liu
in 1998. Its B2C platform went online in 2004. JD started as an online magneto-optical
store, but soon diversified by selling electronics, mobile phones and
computers. With its headquarters stationed in Beijing, JD also operates
subsidiaries in Shanghai Guangzhou, Chengdu and Wuhan, located in East, South,
West and Mid China. JD is a pure internet retailer, with a self-operated online
business. The company ranks second in value terms in China’s online retailing
(Euromonitor, 2014), combined with running a third-party platform for other
merchants. JD continually seeks to diversify its products to appeal to its
target customers. As of 2014, there were over 60,000 third party sellers on
JD’s online marketplaces; but the sales revenue from those third-party
merchant’s accounts for a small proportion of the total sales (JD.com Inc.,
2015). JD runs a nationwide logistics network, operated by its own staff instead
of a third party logistics network, to achieve same-day and next-day delivery
services for customers in different areas, with a real-time package tracking
service and reliable service standards The national fulfillment infrastructure
consisted of a network of 124 warehouses
with an aggregated gross floor area of approximately 2.2 million sq.
meters in 40 cities and 3,201 delivery stations and pick-up stations in 1,862
districts and counties across China as of December 2017 (JD.com, Inc., 2017).
1.2
Tmall.com
Tmall.com (hereinafter as Tmall), a
subsidiary of China’s largest online retailer Alibaba Group, focuses on
business-to-business (B2C) online retail. Tmall was first introduced by Alibaba
in April 2008 as Taobao Mall, a dedicated B2B platform within Alibaba’s
consumer e-commerce website. In 2010, Alibaba launched an independent web
domain, Tmall.com, to differentiate listings by its merchants, who are either
brand owners or authorized distributors, from Alibaba’s consumer-to-consumer
(C2C) merchants.
In 2014, Alibaba launched Tmall Global, a
platform for international brands which offers products directly to consumers
in China. Tmall Global allows Chinese consumers access to branded products
sourced and fulfilled directly from overseas. In addition, consumers may
directly settle payments with the international merchant in Renminbi through
Alipay, Alibaba’s international settlement service, which is the Chinese
equivalent of PayPal. Tmall ranked number one among all Chinese B2C retailers
in 2014 in terms of transaction volume, with a gross merchandise volume of 30
billion yuan – about four times the amount facilitated by JD, its closest
competitor. Tmall accounts for a 61.4% share of the B2C online retail market in
China, followed by JD’s 18.6% and 3.2% of Suning (iResearch, 2015).
In 2017, with the coloboration with
Malaysian government, Tmall through Alibaba subsidiary opening their business
to Malaysian market. Malaysian customers are able to shop with Tmall using
credit card or Alipay which is also can be made through local bank like CIMB.
The international moves that set up online stores on Tmall Global benefit from
the exposure to the hundreds of millions of visitors on Tmall and Taobao
Marketplace (Alibaba’s C2C website), enabling them to establish their brand
awareness in China without the need for a physical presence in China. International
merchants can register, set up an online store through Tmall Global, and be
able to use registered trademarks from jurisdictions of their home countries.
Foreign brands on Tmall Global consist of brands from the whole world,
including Costco from the U.S., Countdown from New Zealand, Lottemart and
e-Mart from South Korea, RT-Mart from Taiwan, Fresta from Japan, King Power
from Thailand and Lazada from Malaysia.
2.0
ELEMENTS IN
BUSINESS-TO-BUSINESS (B2B) MODEL
2.1 Exchange (B2B Hub)
Exchanges or B2B hubs is an independent
digital electronic marketplace where suppliers and commercial purchasers can
conduct transactions. Exchanges have garnered most of the B2B attentions and
funding because of their potential market size.
For buyers, B2B hubs make it possible to
gather information, check out suppliers, collect prices, and keep up-to-date on
the latest happenings all in one place. Sellers, on the other hand, benefit
from expanded access to buyers. The greater the number of potential buyers, the
lower the sales cost and the higher the chances of making a sale. Some sites
also have experienced higher average revenue per buyer.
Thus, marketplaces make it significantly
less expensive and time consuming to identify potential suppliers, customers,
and partners, and to do business with each other. As a result, B2B hubs can
lower the following costs:
·
Product Costs - A cost incurred by a
business when manufacturing a good or producing a service. Product costs
combine the cost for raw material and labor.
·
Transaction Costs - This is the cost of
making a sale or purchase. For instance, the cost for a corporate purchasing
agent to place an order typically starts at RM100.
·
Inventory-carrying Costs - This is the
cost of keeping a product on hand or in a warehouse.
There are two types of marketplaces:
i.
Vertical Marketplaces
These marketplaces serve specific
industries, such as the steel, aerospace, automobile, chemical, floral, or
logging industry. Mainly, vertical marketplaces supply a smaller number of
companies with products and services or specific interest to their industry.
ii.
Horizontal Marketplaces
These marketplaces sell specific products
and services to a wide range of companies. Horizontal marketplaces supply
companies in different industries with a particular type of product and
service, such as marketing-related, financial or computing.
2.2
E-Procurement
E-Procurement is where a firm creates and
sells digital market where sellers and buyer transact for indirect inputs by
earning fee for market -making services, supply chain management and fulfilment
services.
Ariba.com is an example of how an
e-procurement firm is works. Ariba.com creates a unique web-based platform,
called Ariba Commerce Cloud, which includes applications for spend management,
collaborative finance management and sales acceleration management. This
platform connects to more than 300,000 global business, and claim to be one of
the largest web-based trading communities in the world.
2.3 Infomediary
The term infomediary was originally coined
by Hagel and Rayport (1997) to describe a new breed of company that would act
as custodians, agents, and brokers of customer information and marketing it to
businesses on consumers' behalf while protecting their privacy at the same
time.
Today, although the privacy-protection
aspects of their proposed definition have not necessarily come to fruition, there
are a number of companies whose business model is premised upon gathering
information about consumers and selling it to other businesses. A
vendor-oriented infomediary sells the information it gathers to vendors who use
it to target products, services and promotions to particular consumers.
Vendor oriented infomediaries can be
classified into two basic subcategories:
i.
Audience Brokers
Audience brokers capture information about
customers and use it to help advertisers reach the most appropriate audiences
for their advertising. A leading example is Google AdSense.
ii.
Lead Generators
Lead generators gather customer data, from
which they then create customer profiles and preferences. They then direct
vendors of products and services that fit these customer profiles to the
customers. For example, AutoTrader operates a national network of auto dealers
to whom web users are referred to in return for a fee per lead.
3.0
ANALYSIS OF TMALL AND JD
BUSINESS MODEL
3.1 Value Proposition
JD sells a large variety of products with
15 categories, from the common merchandise most online retailers provide, such
as home appliances and books, to products and services most American online
retailers don’t sell, such as insurance quotes, fund, lottery tickets, fresh
fruits and travel plans.
JD targets young and middle-age customers
who are accustomed to shopping through mobile platforms and computers. Unlike
America’s established retail market, China’s modern retail market formed as
late as the 1990s; as a result, there are no established retail brands like
Wal-Mart, Macy’s and Nordstrom in the market. Due to the short history of
Chinese retail markets, Chinese customers easily embraced online shopping when
e-commerce emerged in the 2000s. If comparing the penetration rate and the transaction
value of online shopping between China and the United States, China’s online shopping
market is larger and more advanced.
Tmall caters to online and mobile
consumers looking for branded products and a premium shopping experience. It is
a trusted platform for consumers to buy both homegrown and international
branded products unavailable from traditional retail outlets. Brands and
retailers operate their own stores on Tmall’s platform with unique identities, enabling
sellers to control their own branding and merchandising. As of March 2016,
there were over 140,000 brands on Tmall (Alibaba, 2017). Because of the large number
of global brands and the stringent requirements for merchants to operate on Tmall,
an online store on Tmall has become a validation of quality, allowing merchants
to take advantage of Tmall’s significant traffic to build brand awareness.
3.2 Revenue Model
A firm's revenue model describes how the
firm will earn revenue, generate profits, and produce a superior return on invested
capital. The function of business organizations is both to generate profits and
to produce returns on invested capital that exceed alternative investments.
Profits alone are not sufficient to make a company "successful'. In order
to be considered successful, a firm must produce returns greater than
alternative investments.
Tmall relies heavily on their selling
format known as ‘New Selling Format’. The New Selling Format seems more
efficient because it could trim down the operation costs by outsourcing the
logistics service to some third-party firms. The application of the revenue
model is boosted by China’s rapid economic growth, the amount of deliveries
experienced a speedy growth during the past decade; as a result, the delay of
delivery is very common.
Different to Tmall, JD’s main profit
comes from its direct sales revenue which is the price difference between
purchase price and selling price. To attract consumers, JD carried out
low-price policy for a long time and it sales revenue approximated to gross profit,
so it didn’t make profit in 2010 though its sales revenue was 10 billion yuan.
At that time, Richard Liu, Chairman & Chief Executive Officer, said, “Scale
is more important than profits and larger scale will bring lower purchasing
prices. We will make a breakthrough as long as we improve efficiency and reduce
cost.” JD increases its bargaining power and realizes virtuous circle by making
use of e-commerce’s short payment period. The payment period of traditional home
appliance malls is around 100 days and the suppliers are worried about the cash
flow occupied by retailers. JD makes preliminary judgment on products sales
using the information collected by its own information system; besides, it
carries out informatization management on such processes as order confirmation,
storage, logistics and distribution in order to shorten payment period by the
high efficiency of e-commerce. The short payment period can suppliers’ capital
turnover pressure and JD’s cost of goods purchased so that it can get more
stable cash flow and realize virtuous cycle. In addition, suppliers’ profit can
be further increased because they don’t need to pay slotting allowances, renovation
costs, promotional fees and festival fees.
JD owns more than 30,000 kinds of commodities
which are 10%-20% cheaper than practical stores; its stock turnover is 12 days,
its expense ratio is 7% lower than Gome and Suning and its gross profit rate is
about 5%. In a word, the key to JD’s success is that it does not set up
terminal experienced stores but becomes the online store of Gome and Suning and
provides more economic goods than the two malls.
3.3 Market Strategy
Unlike Tmall, JD focuses on a
self-operated online retailing business although it provides an online platform
for third-party merchants. By comparison, the revenue from its self-operated
sector accounts for over 90% of its total revenue; although the revenue from
the third-party merchants is increasing at an accelerated rate, it only
accounts for less than 10% of its total revenue (JD.com, Inc., 2017).
JD takes the lead in China’s Internet
retailing in terms of advanced logistics system built up and operated by its
own staff members; this is quite different from Tmall, which mainly relies on
third-party logistics companies. To remain competitive, JD has been improving
its fulfilment infrastructure and technology platform, enriching its product
offering and enhancing customer satisfaction so that it can attract new
customers and new orders from existing customers. The company boasts the
largest warehousing system among all Internet retailers, running seven
large-scale logistics centers and 124 regional warehouses across China, with a
total area of 2.2 million square meters as of December 2016, (JD.com, Inc.,
2017).
In 2009, Tmall pioneered November 11th,
known as “Singles Day” in China, as an annual promotional shopping day. Singles
Day was established as an annual promotional event on Tmall to reward consumers
through discounts. On November 11, 2014, Tmall and Alibaba’s other retail
marketplaces generated a Gross Merchandise Volume (GMV) of 57 billion yuan ($9
billion) via Alipay within 24 hours. 43% of the total GMV settled through
Alipay that day was attributable to mobile platforms.
Sellers on Tmall and Tmall Global pay commissions
based on a pre-determined percentage of GMV for Alipay transactions that vary
by product category and typically range from 0.3% to 5%. Tmall sellers also pay
an annual upfront service fee—up to 100% of which may be refunded, depending on
sales volume achieved by the seller within each year. Sellers also pay a
security deposit to back-stop potential claims under Tmall’s consumer
protection programs (Alibaba Group, 2015).
3.4 Competitive advantage
Tmall’s most important resource is its
brand loyalty which is associated with Alibaba Group, China’s largest online
retailer and one of the top ten global Internet enterprises. Backed by
Alibaba’s aura, Tmall has rapidly increased brand awareness and won a
remarkable market share. Tmall became China’s largest B2B platform in 2012. At
the end of 2015, it took more than 60% market share of the B2B market.
Tmall’s large size is another crucial
resource. Aided by economics of scale, Tmall can reduce operation costs and
improve efficiency due to its big sizes. In addition, Tmall’s scale strengthens
its bargaining power to sellers and third-party logistics companies, in effect
multiplying the profit margin.
Tmall’s third critical resource is
Alibaba’s Alipay versatile payment platform. In addition to low transaction
fees, Alipay provides many services, such as cash management, money transfer,
utility bills payment, and asset management. Remarkably, Alipay provides an
escrow service in which consumers can verify the merchandise before releasing money
to the seller. As a market leader, Alipay has 300 million users and controls half
of China’s online payment market as of 2015 (Alibaba Group, 2015). To increase Tmall’s
transactions, Alipay charges a lower transaction fee for the buyers who shop on
Tmall, offering a critical incentive that boosts Tmall’s sales revenue.
In sharp contrast to most online
retailers, JD operates a nationwide logistics network which includes seven
large-scale logistics centers and 124 regional warehouses across China. The
logistics network is JD’s strategic resource, on which JD established a more
effcient logistics system. Supported by this system, JD guarantees same-day and
two-day delivery for over 90% orders without extra charge. By comparison, most
Chinese online retailers can only promise same-week delivery. Due to this gap
on delivery timeliness, JD enjoys a huge competitive advantage.
JD’s brand and customer loyalty also are
critical resources. Since JD carefully selects suppliers and strictly controls
product quality, in addition to its fast delivery speed, it has become
synonymous/associated with high quality and fast delivery in China. As a result
of its reputation, JD’s private-label products are popular across China.
Overall, JD and Tmall have asymmetric
advantages in terms of resources. In comparison, JD leads in logistics, but
Tmall dominates with its payment platform and support of third-party merchants.
This difference roots in the histories of these two companies. JD started
business in Beijing as a B2C online retailer. Since delivery speed determines
the survival of e-commerce businesses in such a fast-paced metropolis, JD built
its own logistics network in order to become the leader in shipment speed.
Unlike JD, Alibaba Group rose from the C2C market, in which third-party
logistics services are more efficient. Alibaba replicated this business model
to Tmall, its B2B sector. Although it was reported that Alibaba Group started
building its self-operated logistics network in 2015, but some industry observers
have assumed that the self-operated logistics network was only a complement to
its third-party logistics network.
4.0
RECOMMENDATIONS
In this chapter, this paper will outline
4 suggestions to improve the competitive advantage of both company discussed.
4.1 Customer Engagement
Communication is the most vital factor in
e-commerce. Tmall and JD can be directly in contact with the customer through
e-mail and other means such as social networking sites. They can directly
target the advertisements about their new launches and offers to the customers.
Effective customer engagement helps the online retailer to build brand in the
market (Wirtz, 2013). Customers are also assured about the delivery of the
product at their door step and they can return it if they found the piece
damaged or unsealed. Companies are also putting lot of efforts in delivering
the product faster like one day delivery, same day delivery within the city to
keep the users engaged to their respective websites. (Bask, 2012) Pointed out
the importance of logistic companies in the e-commerce markets. He also
mentioned that more number of logistics companies is also tying up with the
e-commerce companies to ensure cost-efficient delivery even to remote
locations.
4.2 Attractive Sales
The products can be offered at a discount
price in the online markets to lure customers. Furthermore, customers who are
more prices sensitive are quickly attracted to the product and they are
comparing other product prices too. To an extent, it is a win-win situation for
both seller and buyer in the e-commerce space. Merchant selling the product is
getting exposure to a wide market and items are sold quickly, whereas consumer
is getting the advantage of cost on the final price and the ordered goods are
being delivered at the doorsteps. As recommends by JagvinderKaur, (2014),
companies can shift to e-commerce for advertising their products online at a
less cost. New businesses of coupon websites have emerged due to the e-commerce
boom (VarunJain, 2015). The online coupons business segment has grown
simultaneously with the e-commerce business and they are pushing the business
of the e-retailers by issuing the discount coupons to the customers.
4.3 Brick-and-mortar Stores
The main disadvantage of the online
shopping is that consumers can’t touch and feel the product they want to
purchase which is the benefit when it comes to traditional brick and mortar
stores where customers will get the look and feel experience of the item. LathaReddy
(2014), points out that some of the customers are still holding the traditional
shopping because of lack of trust, lack of physical touch, security issues etc
with respect to online shopping. Therefore, Tmall and JD can imitate the moves
made by Flipkart India to have physical stores in every potential area (Viskas
SN, 2014). The physical store can be filled with popular item. In this case,
customers will have the trust on the product as well as the company. They can
view the product in store and can book the same online at their convenience.
It is quite evident from the Flipkart
scenario that big player in e-commerce should coming up with experience stores
of their own which will not only help them in building the brand but also in
providing a touch and feel experience to the customers.
4.4 Mobile Apps
According to (Ghosh, 2015), one of the
country’s online apparel retailers Jabong stated that customers should have the
choice of shopping according to their convenience either on mobile app or
website.
Tmall and JD need to concentrate on
developing mobile friendly websites which make the best use of resources
available on smartphone like screen size, location, QR code or near field
communications.
Companies cannot do away with either apps
or web based app both are going to stay. Companies need to formulate
appropriate strategy having a balanced mix of app and mobile web. The
considerations would be existing customer base, ability and willingness to invest,
current brand presence and technology enablers.
5.0
CONLUSIONS
This paper provides information about an
overall analysis of two leading B2B e-commerce company namely Tmall.com and
JD.com and thereby examines their strategies with respect to E-business and
marketing.
Other than that, this paper also outlined
four recommendations to improve Tmall and JD competitive advantage. The four
recommendation is revolved around the advantage of contemporary sales strategy,
technology advantage and the potential of having a traditional method of
physical stores to attract more customers and building brand image for Tmall
and JD.
Summarily, the overall analysis of both
company is good, but it is facing some tough competition from its global
competitors like EBay and Amazon. But according to this paper analysis if
talking about domestic market for both company i.e China, Tmall is the most
superior E-business portal which is aggressively expanding & planting its
roots deep into the Chinese market & at the same time shifting the mindset
of the people i.e. from going & shopping from physical store to online
stores, which is magnificent.
(3673 WORDS)
REFERENCES
Alibaba Group. (2015). SEC Filing. SEC.gov. Retrieved from: http://www.sec.gov/Archives/edgar/data/1577552/000104746915005768/a2225010z20-f.htm#ei13804_item_16b._code_of_ethics
Bask, A. (2012). E-Commerce Logistics:A
Literature Research Review and Topics for Future Research. International Journal of E-Services and Mobile Applications, 1-3.
Euromonitor. (2014). Alibaba Group Holding Ltd in Retailing. Euromonitor. Retrieved
from: http://www.portal.euromonitor.com.libproxy.chapman.edu/portal/analysis/tab#
Ghosh, M. (2015, May 18). Amazon, Snapdeal & Jabong Refuse to
Follow Flipkart & Myntra’s Mobile Only Approach. Trak.in. Retrieved
from: http://trak.in/tags/business/2015/05/18/amazon-snapdeal-jabong-refuse-flipkart-myntras-mobile-only/
iResearch. (2015). China’s e-commerce
market grew fast in 2014. Iresearch.com. Retrieved from: http://news.iresearch.cn/zt/246308.shtml
JD.com, Inc. (2017). SEC Filing. SEC.gov.
Retrieved from: http://www.sec.gov/Archives/edgar/data/1549802/000110465915028403/a15-5694_120f.htm
JagvinderKaur. (2014). E-Commerce: The
Services on Internet in India Now. International
Journal on Arts, Management and Humanities ISSN No. (Online): 2319 – 5231,
30-33.
LathaReddy, K. (2014). A comparative study
of Traditional Shopping Vs Online shopping. AnnquesT
ISSN: 2321-3043, 37-51.
VarunJain. (2015, January 29). Discount and
deal sites helping e-commerce boom in India. The Economic Times Retail.
Retrieved from: http://articles.economictimes.indiatimes.com/2015-01-29/news/58586391_1_amazon-india-deal-sites-swati-bhargava
Vikas SN. (2015, July 28). Flipkart now
allows to pick up your purchases from 20 offline experience zones. ET Tech
Retrieved from: http://tech.economictimes.indiatimes.com/news/internet/flipkart-experience-zones-in-store-pickup/48248369
Wirtz, J. (2013). Managing brands and
customer engagement in online brand communities. JOSM, 223-240.
