The New CFO Financial Leadership Manual, Second Edition

Chapter 22. Electronic Commerce

Though e-commerce no longer enjoys the fanatical following it had during the technology bubble of a few years ago, it remains a unique approach to developing a new sales channel. As such, it would be incorrect strategy for the CFO to completely ignore e-commerce as a new sales medium without some prior knowledge of its advantages, architecture, business model, and related issues, which include required structural changes and legal and insurance problems. This chapter provides that information.

Advantages of Electronic Commerce

When the possibilities of e-commerce in relation to the Internet were first considered, pundits constructed an extraordinarily long list of supposed advantages to this new sales channel. Many of these “advantages” have proven to be false advertising, but the following list of advantages has generally proven to be true for most e-commerce applications:

• Obtain customers from outside normal geographic sales region. If a company sells through fixed retail locations, e-commerce can be used to obtain direct access to customers outside of those locations, while avoiding any “bricks and mortar” investments.

• Offer more products. The range of products that can be offered through a web site can be far greater than what one could find in a traditional retail location, thereby giving customers a clear reason to prefer this sales channel.

• Eliminate sales staff. On-line customers are used to doing their own shopping without any salesperson assistance, ...