How e-Commerce affects relationships between entities and their customers

Welcome to Information Management: The E-commerce Relationship Shift!

Hello! Today, we are exploring a fascinating part of the HKICPA QP Information Management module: How e-commerce changes the way companies (entities) talk to and deal with their customers.

Think about how your parents used to buy things—maybe visiting a physical store, talking to a salesperson, and paying cash. Now, think about how you buy things on your phone at 2:00 AM. That shift isn't just about technology; it's about a fundamental change in relationships. Don’t worry if some of the technical terms seem a bit heavy; we will break them down into simple, everyday ideas together!

Did you know? In the "old days," businesses often didn't even know who their customers were unless they were "regulars." Today, a company might know your birthday, your favorite color, and what you’re likely to buy next before you even know it yourself!

1. Disintermediation vs. Re-intermediation: Cutting out the Middleman

One of the biggest impacts of e-commerce is how it changes the "chain" of people involved in a sale. In the curriculum, we call this the Supply Chain.

Disintermediation (Cutting the Middleman)

This happens when a company sells directly to the customer, bypassing wholesalers or retailers.
Analogy: Imagine you want a specific brand of sneakers. Instead of going to a department store (the middleman), you buy them directly from the brand’s official website.
Why it matters: It usually leads to lower prices for you and higher profits for the company because they don't have to share the money with a "middleman."

Re-intermediation (Creating New Middlemen)

Sometimes, the internet is so big that we need new "helpers" to find what we want. These are e-marketplaces or infomediaries.
Example: Websites like Expedia or Trivago. You don't buy the hotel room *from* them (they don't own the hotel), but they act as a new digital middleman to help you compare prices.
Key Takeaway: While e-commerce "kills" some traditional middlemen, it creates new digital ones that provide value through information and convenience.

Quick Review Box:
- Disintermediation: Producer -> Customer (Direct)
- Re-intermediation: Producer -> Digital Platform -> Customer

2. Personalization and Customization: The "Segment of One"

In traditional business, companies used "Mass Marketing" (one message for everyone). E-commerce allows for Personalization.

What is Personalization?
It is the ability of a company to use data to treat every customer as an individual.
Example: When Netflix says, "Because you watched this movie, you might like these...", that is personalization. They are using your historical data to build a relationship with you.

What is Customization?
This is when the customer chooses exactly what they want.
Example: Going to a website and "building" your own laptop by choosing the RAM, screen size, and color.
Relationship Impact: This makes customers feel more "connected" to the product because they helped create it. It builds Customer Intimacy.

Memory Aid: The "C" vs "P" Trick
- Customization = Customer chooses.
- Personalization = Platform predicts.

3. 24/7 Connectivity and Two-Way Communication

In the past, if you had a problem with a product, you had to wait until 9:00 AM to call a customer service line. E-commerce has changed the timing and direction of communication.

1. Always-on Accessibility: Customers expect to browse, buy, and get support 24/7. If a company isn't "online," the relationship might suffer as the customer moves to a competitor who is.
2. Two-Way Dialogue: Relationships are no longer just the company shouting at the customer through a TV ad. It’s now a conversation.
- Reviews and Ratings: Customers provide feedback that other customers see.
- Social Media: Customers can tweet at a brand, and the brand responds. This makes the entity seem more "human."

Common Mistake to Avoid: Don't assume e-commerce relationships are "colder" just because they are digital. Often, they are more intense because the communication is constant!

4. Customer Relationship Management (CRM) Systems

To manage thousands of digital relationships, companies use CRM software. Think of a CRM as the company's "Digital Brain" that remembers everything about you.

How CRM improves the relationship:

• Tracking Interactions: If you call support, they already know what you bought yesterday. You don't have to repeat yourself!
• Targeted Rewards: Companies can send you a discount code on your birthday (Loyalty Programs).
• Predictive Analytics: Using MathJax, we can think of it as: \( Probability(Purchase) = f(Past Behavior, Preferences, Demographics) \). In simple terms: They use your past to guess your future!

Key Takeaway: CRM allows a massive global corporation to act like a small "mom-and-pop" shop that remembers your name and your favorite order.

5. Switching Costs and Customer Loyalty

This is a critical concept for your exam. Switching Costs are the "pain" or "cost" a customer feels when they try to move from one company to another.

E-commerce creates a paradox:
1. Lower Switching Costs: It is very easy to click a different tab and buy from a competitor. This makes customers less loyal.
2. Higher Switching Costs (Lock-in): Companies try to stop you from leaving by making their "ecosystem" really useful.
Example: If all your photos are on Apple's iCloud and all your music is on Apple Music, it is very "expensive" (in terms of time and effort) to switch to an Android phone. This is called Digital Lock-in.

Summary of Relationship Effects (Mnemonic: "D.A.T.A.")

To remember how e-commerce affects relationships, remember D.A.T.A.:

• Directness: Selling directly (Disintermediation).
• Analytics: Using CRM and data to understand habits.
• Two-way: Moving from "shouting" to "conversing" (Social media/Reviews).
• Availability: 24/7 access breaks down geographical and time barriers.

Final Quick Review

Before you move on, make sure you can answer these three questions:
1. What is the difference between Disintermediation and Re-intermediation?
2. How does Personalization help a company keep a customer?
3. Why do e-commerce companies try to increase Switching Costs?

Keep going! You're doing great. Understanding these shifts is the key to mastering the "Role of E-commerce" section of your Information Management exam. You've got this!