E-commerce and common terms

E-commerce is the process related to buying and selling of services and products over internet or online.  The process employs mobile phones, computers or similar gadgets to carry out the transactions. . In e-commerce various activities like technology,  logistics, fund transfer through digital modes, digital marketing,  online transactions, supply chain management, automated data collection, data mining,  analytics etc come together.  Internet or World Wide Web plays the most crucial role in this mode of business.  The most frequent terms used in e-commerce are mentioned below:

Gross merchandise value

Gross merchandise value is the term used to denote the total value of good sold over a specific period. This is arrived by calculating total price of products and services sold to customers in a specified period.   This is one of the most common terms used to compare the reach various e-commerce firms. Chinese e-commerce giant Alibaba had GMV of $768 billion for the year ended March 2018. This means that total price of products sold over a period of 12 months ended March 2018 was $768 billion. 

Online marketplace and inventory models- Two models employed in e-commerce

Two different models are employed in e-commerce to meet the demand of customers. In a marketplace model, an e-commerce firm runs an information technology platform which acts as a facilitator between buyer and seller.  The digital network acts as a medium for the buyer to reach the seller. eBay is one of the most established  e-com player in this segment.  In contrast, in an inventory model, e-commerce entity owns the goods and services and the same is sold to buyers directly. 

In India, Government has allowed 100% Foreign Direct Investment (FDI) in the market place model. But FDI is not allowed in inventory model. 

Customer acquisition cost

Customer acquisition cost is the cost connected with attracting a consumer to digital platform to buy a product or service. Just like a product is marketed, the digital platform also needs to be marketed to create awareness. This is done by using online marketing, advertisement through various media, analytics, data mining etc. The total cost incurred is the expenditure for research, marketing and advertising.  The value of customer gained should be able to compensate the  cost incurred for acquiring the customer. 

Pay on delivery / Cash-on-delivery

In e-commerce, purchase can be made on two modes. Making payment at the time of ordering the product or service is the most common practice in developed countries, as the business model is already matured. In many countries, including India the normal practice in business is to make payment on receipt of goods or services. To cater to the requirement of such segment of  customers, e-commerce entities have introduced cash on delivery mode. In this method, cash needs to be paid only when the product is delivered to the buyer. 

Another variant of this mode is Pay on delivery.  In this  modeconsumer can make payment through debit / credit cards or through internet banking at the time of delivery,  apart from payment in cash. Amazon offers this option also to consumers.

Fulfilment centres

Fulfillment centres  enable  e-commerce merchants to outsource warehousing and despatching. In this mode, merchants send products to fulfillment centres and the outsourced service provider ships the products based on the order placed by consumers. This enables merchants to save cost, reduce rent for   storage space and  escape from  the burden of managing inventory. 

Drop shipping

In drop shipping method, the online seller does not store  or stock products it sells. When a consumer places an order, the store procure the item from a third party and orders to ship it directly to the purchaser. The difference between drop shipping and the standard model is that in drop shipping mechanism seller  has online presence only and  displays the items and  does not stock or own inventory unlike in the other model.

Gross margin

Gross margin is parameter that helps to measure the  performance of  business firm  in sales.  Gross margin is expressed in percentage. It is obtained by 
(Total sales revenue – Cost of goods sold (COGS))  / Total sales revenue and converting the result into percentage.  

The gross margin represents the portion of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services it sells.

Repeat order rates

Repeat orders means the same customer ordering another product or item through the digital platform. This indicates loyalty of the customer towards the entity.

Sales , returns

Returns or items sent back have been a big challenge for online retailers. Normally, seven day’s time is allowed to a purchaser to return the product if not satisfied. No penalty is imposed for this return. A returned item increases  supply chain cost of the e-seller as the transporation cost cannot be recovered from purchaser. It also affect the value of  the product, as repacking and quality checks are to be carried out before another sale. 
 

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