We will dive into the world of Electronic Commerce, or E-commerce as we will later refer in succeeding topics. This topic starts off in laying the context on what is e-commerce, how e-commerce began and how it evolved into what we know now. You will discover a deeper understanding of what e-commerce is and how it is different with the traditional physical business.
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What is electronic commerce or simply e-commerce? Most people narrowly define it as the selling of physical goods via the internet or retailing via the internet. The definition of e-commerce is the buying and selling of goods and services via electronic technology without physical contact between the seller and the buyer. Before the advent of the internet, the technology used to be landline telephones and mobile phones.
Anything electronic transaction that is for selling or buying can be said to be e-commerce. We won’t know what technology will happen in the future that could supplant the internet which drives electronic commerce. But for this era, we’ll just settle at the internet as the main enabler of electronic in the Philippines through there is still e-commerce made through telephone calls and Short Message Services (SMS).
It is easy to understand that e-commerce is the transaction that uses electronic means while the traditional commerce is the face-to-face exchange of goods and services. That delineation used to be the norm but in today’s time that is now blurred by the fact that sophisticated businesses use the internet to power their physical stores. If you look into it transaction is technically done via electronic means but there is a face-to-face interaction between the seller and the buyer and even the concerned goods or services. Our definition of e-commerce is strictly for buying and selling transactions done electronically without physical interaction between seller and buyers.
It is common practice for a business to have an online store coinciding with their physical store. Any customer can either purchase depending on their preferences. Take into consideration Cebu Pacific Airlines. They have online booking website where you can buy flights and even make check-ins. Cebu Pacific also have mobile applications in Android Playstore and Apple iTunes where you can also book and check-in flights. Complementary to those mentioned, they also have physical stores where you can buy flight tickets depending on the availability. They also have satellite offices and resellers where they utilize the system used by the website for ticket reservations.
In our definition, we should consider not only the online booking website but also the android and the iTunes mobile application as e-commerce since both facilitated transactions via electronic technology (internet) without physical interaction between seller and buyer. It is noticeable in entrepreneurs consider only the online booking website as e-commerce but not the mobile applications. In reality, it is still e-commerce though more sophisticated in the electronic medium used.
The transactions in the Cebu Pacific physical store should be considered the traditional brick-and-mortar setup while the satellite offices and resellers that utilize the same technology used by websites and apps as a hybrid between the two. The difference of the hybrid isn’t really noticeable in Cebu Pacific. It can be, however, can be obviously noticeable in a more technologically advanced example in the form of Amazon Go where customers can enter a store, get all the things they need and just leave the store without checking out in the queue. The hybrid store was made possible by electronic technology that is connected to the store full of cameras, to their amazon account and their bank accounts. Well, it’s too much of an example for e-commerce here in the Philippines but I hope you get the point.
E-Commerce History
Electronic commerce is the buying and selling of goods and services through electronic means and without physical interaction between the buyer and the seller. With its origin starting from Electronic Data Interchange and Electronic Fund Transfer (EFT), e-commerce today boomed into a lucrative industry where everything you can imagine can be now be bought via the internet.
Here is a video to show the brief history of e-commerce:
E-Commerce Customer Journey
In general, how e-commerce works are similar to traditional physical stores. Customers go to the store of their choice, pick what they desire, pay for their purchases and enjoy what they bought. This is the timeless cycle that customers go through when dealing with any kind business. In e-commerce, however, the means have expanded from just the physical retail shop to an array of digital and electronic means.
This complex means to purchase goods and services resulted in more choices for customers that made their buying experience more pleasurable and convenient. Imagine, buyers can do is access their laptops, tablets, and mobile phones to purchase. They don’t need to dress up and travel to stores selling the same things he/she bought. While these innovations make e-commerce simpler and convenient to buyers, it has become more complex for sellers since it added processes in the realm of information technology, database management, digital marketing, website and application development, and administration.
According to Business2Community, Customer experience is all about omnichannel today. The traditional customer lifecycle that followed a sales funnel pattern is now replaced by a shopping journey that is stretched over different touch-points. To communicate across all channels, e-commerce businesses need to connect those touch-points with an omnichannel technology to fulfill customers’ increasing demand for instant information on any subject matter. The image below illustrates the communication between various channels involved in completing the digital customer lifecycle today.
E-commerce adoption has been increasing the past few years according to the Department of Trade and Industry. It is estimated by DTI that the e-commerce industry to grow further by at least 100% in years to come. Though the Philippines has made strides in terms of domestic e-commerce adoption, the Philippines is ranked 89th worldwide when compared with other countries in terms of the readiness to engage in e-commerce.
According to the publication of United Nations Conference on Trade and Development (Unctad), the Philippines ranked 9th in the UNCTAD’s B2C E-commerce Index 2016. In comparison, neighboring Malaysia ranked 4th among developing economies in the region and 10th among such economies worldwide.
In determining the rankings, UNCTAD enumerated the following indicators:
Share of Individuals using the internet – This is the percentage of citizens that uses the internet as compare to its population
Share of individuals with credit card – This is the percentage of citizens that uses the internet as compare to its population
Secure internet servers per 1 million people – This is the number of servers or hosting, critical in facilitating electronic commerce, per 1 million people
Postal reliability – This is the reliability government-owned postal service
Out the said criteria, a business to consumer e-commerce index value is calculated that is used to rank the 137 countries included in the study.
Based on the results, Philippines only have 40% users of the internet as compared to its population. While the Philippines are considered the social media capital of the world, most Filipinos living in the provinces are still laggards in terms of using the internet. Though the rating is currently low as compared to other countries, the outlook is positive. As the population transition from the traditional to the digital era, the internet penetration is seen to improve in the future.
Credit card penetration is only 3%. Other sources, such as Business World Online and Philstar, reports a credit card penetration rate of 11.4 in 2015. While the figures differ, it can be concluded that it still below our neighboring ASEAN countries particularly than that of Malaysia which reports 20% credit card penetration rate.
Servers, a critical component of electronic stores, are still sourced mostly overseas since the servers per 1 million Filipinos are only 52. These servers provide an ecosystem to host electronic stores. The more limited, the more tendencies of merchants to continue doing brick and mortar businesses. For some, having electronic stores means outsourcing to more reliable servers located outside the Philippines.
The postal service, on the other hand, seems to be incapable of serving logistics requirements of local e-commerce shops as evidenced by the 48 reliability index. The UNCTAD report can be quoted in saying that “E-commerce companies in the Philippines partner with local courier companies or have their own delivery trucks.” This results in expensive costs in logistics or simply sending parcels to customers. This is also the reason for the numerous third party couriers present in the Philippine market.
While the indicators point that the Philippines still have ways to go in terms of e-commerce adoption. The growth in recent years is undeniably significant. It is clear the e-commerce industry in the Philippines has grown over the years, yet it is still in its early days.
With the continuous acceleration of internet adoption, the proliferation of smartphones and internet connection improvements, expansion of the online consumer base which is very conducive to the further growth of the industry is expected sooner as we expect it.
According to Inanc Balci, CEO at Lazada Philippines, a leading e-commerce marketplace, “It is early days of e-commerce in the Philippines. It has been growing quite fast in the last four years. There is a huge market to be penetrated while the entry of new e-commerce firms, as a result of the industry’s progress, helps further boost the growth of the market,”
E-commerce continuously been transforming the way consumers shop and businesses reach their markets. The Filipinos still think that physical interaction is their no.1 option in purchasing products and services. Undeniably, e-commerce is creeping in the minds of the Filipino consumers due to the benefits it offers. According to the Visa eCommerce Consumer Monitor 2014, as much as nine out of 10 Filipino consumers go online to shop at least once a month. Benefits such as convenience (58%), price (47%), and deals (46%) are being cited as top reasons for online shopping.
With the low indicators of conducting business-to-consumers of the Philippine E-Commerce Industry paired with the markets’ positive trend, opportunities are plenty for both existing traditional business and new business to pursue e-commerce. With government intervention, which will be discussed in the next chapter, the outlook for the Philippine E-Commerce Industry became more robust.
