E-commerce

EBay’s core competency and how it relates to their chosen strategy.

            The company’s core competency is the fact that it has been able to efficiently provide a market for products that usually have no efficient distribution system. The inefficiency in the distribution system is based the fact that there usually is no adequate information such as where to get the goods or the amount of money one is supposed to pay for them. In conjunction with this is the fact that eBay has been able to establish itself as a company whose that can be trusted because of its principles that have over the time guaranteed safety of the goods to both the buyers and the sellers. The company guarantees high transaction protection hence minimum fraud loses to its clients. Its goal and objective of providing an efficient market using the development in information and technology has also made EBay competent. The company did this by providing an online platform through which individuals can trade, this has greatly helped reduce and even eliminate to some extent the inefficiencies that existed before in markets especially of them goods the company deals with.

            Providing online platform for trade is important for the company’s strategy to go global. The current rapid development in technology affects every aspect of humans. This implies that all disciplines have been technologies including trading. E-commerce thought not very common is gaining ground (Martin, 1995). Most consumers now prefer online shopping because the many advantages it offers including the one of being able to buy goods from far off places without having to travel. This proved to be effective especially in goods and services that are being traded across international borders (Seybold, 2001). The kind of goods the company deals with are examples of goods that be traded internationally and also have potential of being very expensive. This implies that a medium of connecting individuals from different countries can be provided by the online platform while the safety of the large amounts of money that may be involved is assured by the company’s reputation of guaranteeing low fraud loses. The company’s competency hence provides high chances of it succeeding if it goes global.

How eBay has decided to configure and coordinate its value chain?

            Business organizations do value analysis so that they determine and understand any constraints to the improvement of their performance or their competitive advantage (Usaid Wiki. 2009). Value analysis also involves identifying opportunities and eliminating or analyzing the constraints before investing is one of the ways of doing this is by analyzing the end market which eBay seems to have analyzed, identified the possible constraints and laid down solutions for them.

            EBay seems to have solutions to all the anticipated problems and challenges.  Some of the solutions the company has are valid and will work. In fact they increase its opportunity of succeeding in its globalization strategy. Others however are beyond the company as it can not control them. They are dependent on other external factors and as such pose as a risk to the company’s strategy of going global. The company however seems to be future oriented. The management understands that the development in information and technology is causing most if not all people globally to turn to technology for almost everything. E-business is also gaining popularity and especially in terms of online shopping (Porter, 1999). The company is counting more on the future than the present. This is evident from the fact that it remains optimistic in spite of it having bought the websites expensively and making very little even after two years. Most of its configurations are based on the future possibilities such as internet being available to more people, individuals having web-enabled phones. It can be concluded that eBay decided to configure and coordinate its value chain the way it did because the company foresees more use of e-commerce in future, more internet coverage, increased online shopping and increased demand and need to sell for the kind of goods it deals with globally. EBay believes that individuals in the developing countries need market for artefacts while those from rich developed countries need a place they can buy them from hence coordination of its value chain.

Whether to characterize eBay’s value chain as virtual or real? Why?

            I would characterize eBay’s value chain as virtual. This is because most of the solutions the company offers to the possible challenges and problems are beyond its control. For example, when faced with governmental trade regulations such as that one of France, the company maintains that it will solve it by stating that it is a United States based company and as such can not comply with the regulations. This can obviously not work as companies operating in foreign countries have to comply with the host country’s regulations in order for them to be allowed to operate. The company also is depending on future developments such as individuals having web-enabled phones, or going to cyber-cafes in the event they have no internet at their homes. This is limited as not all regions in the world have internet network. Neither can all individuals especially those in developing countries who may be potential sellers can afford the web-enabled phones (Peterson, Balasubramanian & Bronnenberg, 1997). The goods involved can be expensive especially where jewellery is concerned and not much trust is given to e-commerce especially in Asia where the company is targeting. Asian countries also have a negative attitude and distrust for anything American. Most of its solutions to anticipated challenges in the end market are re shaky hence a virtual value chain.

If eBay’s strategy is different from what it was ten years ago. Why?

            The strategy is different from what it was ten years ago. This is mainly attributed to the development in technology that has taken the world by storm. Technological developments especially in information and technology have made several things such as e-commerce which includes online shopping possible (Chaudhury & Kuilboer, 2002). The number of people able to access internet has also increased as the network infrastructure has developed. Internet cost has also reduced making communication cheap and fast. Besides this, more people are now ICT literate than it was ten years ago (Peterson, Balasubramanian & Bronnenberg, 1997). This implies that they understand how it functions hence can trust and use it. The strategy therefore has higher chances of succeeding now that it would have ten years ago.

Implications to the challenges identified in the case have for eBay’s strategy – today and in the future.

            Most of the challenges depend on global development.  In the event that the world continues to develop at a fast rate as it currently is in technology and specifically in information and technology, then the company’s strategy will yield fruits (Chaudhury & Kuilboer, 2002). The development however has to be worldwide, not just in the developed but the developing countries as well. More people need access to internet as it is the basic tool eBay is dependent on. Popularity and trust of e-commerce has to increase for this strategy to bear fruits now and in future. More individuals especially those in Asia have to trust Americans as business partners. For as long there is the distrust and hatred then the company can not succeed especially in the Asian countries. The company has to ensure that it establishes exceptional relationships and maintain it principles that are based on trust if it is to succeed with the strategy.

Word Count: 1240.

List of references

Chaudhury, A., & Kuilboer, J. (2002). e-Business and e-Commerce Infrastructure. New York,     NY: McGraw-Hill

Martin, J. (1995). The Great Transition: Using the Seven Disciplines of Enterprise            Engineering. New York: AMACOM.

Peterson, R. A., Balasubramanian, S., & Bronnenberg, B. J. (1997). Exploring the           implications of the Internet for consumer marketing. Journal of the Academy of            Marketing Science, 25, 329–346.

Porter, M. E. (1999). What is strategy? Harvard Business Review, November-December,            61-78.

Seybold, P. (2001). Customers.com. Crown Business Books. New York, NY: Random House.

Usaid Wiki. (2009) Value Chain Analysis. / retrieved 8th May 2009 from             <http://apps.develebridge.net/amap/index.php/Main_Page>

Business Administration

1. How would you contrast Amazon’s business design with that of Barnes ; Noble before Barnes ; Noble went online? From a customer’s prospective, what are the advantages and disadvantages of each design?

Customers shop by visiting Amazon.com, they can search and purchase a lot of books at once. They don’t need to visit off-line stores so they earn convenience. Also, When customers have a difficulty buying books or living far from the bookstore, Amazon makes them save their time. But, company has to pay to finance sales like delivery fees or something and has to provide less price to attract customers. Also, When the computer system break down, the company can not make a deal because Amazon is really connected to the Internet. That’s the serious problem. Physical bookstores such as Barnes & Noble can have enough selection of books. The customers can find out the product sampling and can read some parts in advance. Since they see the products, buyers remember and memorize the books easily. Also, Barnes & Noble has large spaces to accommodate visitors. So, they can use the advertising space on popular site when the new items are released. By attracting a lot of people effectively, the profit might increase easily than using on-line. However, The visitors have to go to bookstore when they don’t have enough time and have to wait for a long time if the bookstore is full of people. So, The customers might spend time-wasting.

2. Will Amazon continue to be successful against “click -and-mortar” competitors, such as Barnes ; Noble?
Making the customer’s on-line experience warm and pleasant is a key Amazon.com strategy. It means the service which Amazon has is really brilliant. Amazon is really thinking about customers’ behavior and mind, I think the company will grow more and more by having a lot of satisfied visitors. First of all, because of high individual advice, Amazon can get a high customer satisfaction. The site retains information on each customer and it can recommend books based on the past purchases of buyers
with similar histories. They know the next action of visitors, so the company increases their sales efficiently. Secondly, the site provides close relationship services between customers and company. The site allows readers to post their own reviews of books, offer profiles of authors, and includes staff recommendations. So, it can share a relationship with the company. This kind of systems make people have a useful information and let them purchase the books for a long time through Amazon.com. Third reason, Amazon.com has Just in time system that can reduces a lot of inventory. It means that Amazon.com can avoid the overhead and carrying charges associated with a large inventory. They offer the right products immediately when customers want, so they don’t have to make an effort to occupy books. Because of that, Amazon can produce the book which is out of print. Like these reasons, Amazon.com can attract visitors easily and continue to be successful over and over.

3. Is Amazon.com a model for the future of retailing?

Amazon.com is a definitely progressive model for the future of retailing because they have a good electronic network. These day, Internet is crucial element in our society. In fact, The potential of the Internet is great enough to allow for businesses that would never have started during the brick-and-mortar rules of yesteryear. Internet-based commerce, which requires no physical retail outlets of any size, is changing the shape of the bookselling industry. Electronic system makes Amazon grow widely. The available approach that reduces needless time between customers and company enables them much closer. Since Amazon.com is using collaborative filtering system, the customers can save their information securely. So, the next time, it only takes a single mouse click to complete an order. The customers feel convenient and efficient and Amazon.com makes it very easy to buy a book on-line. Some people think Amazon.com is unpredictable to manage the company, but I think Amazon.com has a potential possibility to cover many of its operating expenses or other things.

AMAZON. COM Q. 1: A. Analyze Amazon. com using the competitive forces and value chain models. Five competitive forces shape fate of firm According to Porter’s Five Forces Model, in my opinion, competition has increased overall as a result of the internet and e-Commerce. The internet and IT has made it possible to both focus on the top and bottom lines and market share is expanded and costs are cut. Many products and services exist just online, major companies have gone online to successfully augment the brick and mortar corporations, and the playing field is all the way to edges of cyberspace, wherever that is Traditional competitors

Amazon has strong competitors like online retailing stores and a large number of physical stores(Books, Grocery,Electronics,Video games etc). Examples : Barnes & Noble, Inc. , Wal-Mart. com USA, LLC (privately held), Catalog & Mail Order Houses High – As search engines are becoming the first choice for consumers when shopping on-line e. g. Google. This increases the opportunities for other retailers. High – There is an increasing amount of dotcom companies due to the little capital needed to start up. Smaller niche affiliate online stores when combined create even more competition

New market entrants Threat of new entrants is high when it is easy for new competition to enter the market. As the technology is increasing and facilitating the businesses more and more so it is becoming easier for any business to start online retailing operations. Low – For online established retailers a strong brand image generates consumer trust. Low – Economies of scale – Retailers that have refined technology and processes and are able to buy in bulk can offer the lowest prices. This is a major competitive advantage as there is much choice online.

Low – Strong experience in the online retail industry gives e-retailers advantages in terms of cost and customer loyalty. High – Capital requirement entry is a low for online businesses’ as cost of lease premises is minimal. Substitute products and services High – Physical stores and touch, feel, hear factors. High – Renting products online instead of buying them is increasing in popularity. This is a major concern for Amazon in their book sales as online retailers such as Textbookflix. com and BookRenter. com are providing much cheaper options than buying.

High – The internet is a “Global Market”, consumers can substitute any product by purchasing from companies overseas where products are cheaper, but of good quality. Low – Catalogue/mail order although not as popular still a substitute to online buying. Customers/Buyers High – There is a large variety of online shops and comparison websites to compare best prices. Buyer power is higher when buyers have more choices. Businesses are forced to add value to their products and services to get loyalty. Many loyalty programs include excellent services that customers demand on-line.

Customers want to solve their problems and many times they are more successful on-line than on-phone. Also, we see internet savvy businesses springing up offering more valuable goods and services at lower costs. Now with the advent of eBay, many people are assuming roles as drop shippers. Individuals can have a thriving business selling goods of larger companies without having to carry inventory. Suppliers Low – For standardized products that are easily available supplier power will be low. High – Specialized products and brands increase switching costs for buyers so the suppliers have higher power.

With Amazon products such as the Harry Potter books are exclusive from publisher. High – Online shops making it easier for publishers/ brands to sell directly to consumers without a third party (e. g. Blackwell’s), suppliers may not need Amazon. High – If there is a concentration of suppliers for certain products in the industry rather than fragmented. Low – Global shipping has increased the amount of suppliers available. Value Chain The value chain analysis undertaken examines the operational effectiveness of activities that enable Amazon. om to perform better than its competitors. Amazon. com configures its value chain activities to create unique value for customers, reduce its costs of carrying out these activities and reduce the cost of its customers’ transactions. SUPPORT ACTIVITIES Firm Infrastructure Huge central customer data warehouse available to all business units. Central planning function. Amazon. com has a single Technology platform with services being incrementally distributed to other worldwide locations, thus reducing costs by leveraging investments. Human Resource Management Amazon. om offers employees unique benefits such as medical, paid time off and stock grants and relocation allowances. Such a strategy means warehouses could be located in economically cheaper areas yet these benefits can attract highly skilled workers. For example in Kentucky, Amazon. com offers a decent rate of pay of about $11 – $12 thus reducing cost of labour. Amazon. com sources expertise from highly experienced workers from other competitors such as Walmart. Technology Development High investments in technology development to leverage new but unknown opportunities in digital sales of music, books and videos.

For example being able to quickly digitize media for direct online sales/download or for “Search inside the book” service. Using standard hardware systems from HP to reduce cost of maintenance and compatibility Building an IT strategy, IT infrastructure and Data Centre on Linux open source software thus reducing cost of technology development. Renting computing resources to other companies reduce total cost of Ownership Procurement Using the Strategic Business Unit – BookSurge to keep a rich inventory of digital copies of books so as to make this readily available for customers through print-on-demand and reduce time of delivery.

Specially built distribution centres, warehouses and fulfillment centres to increase the speed of order processing thus avoiding transaction costs. PRIMARY ACTIVITIES Inbound logistics Highly reduced returns to suppliers (such as unsold books and media) due to available accurate forecasting technology Laseter et al (2000). Efficiently gathering information about customer experiences to inform service inputs and inventory controls. Operations Easy and fast payment systems Online customer contact and feedback. 24hour warehouse operations to meet customer demands. Outbound logistics Close proximity to motorways e. g.

UK Fulfilment Centre in Bedfordshire located next to M1. Ability to aggregate orders bound for specific locations. Marketing & Sales Discounts and price reductions made available with suggested product mixes. Similar products recommended to customers interactively. Interactive shipping and parceling price calculations. Free delivery based on single transaction spend. Service Free returns policy within 30 days. Uses marketplace to increase channel and range of goods through 3rd parties and customers. Price comparison of new products with used products in marketplace shops. B. How has it responded to pressures from its competitive environment?

They responded with a continuous innovation in business strategy and information systems. Its business innovations are all driven by huge investments in information systems. There were three million titles in print, and any one physical bookstore could only stock a fraction of them. A “virtual” bookstore offers a much larger selection of titles. Amazon. com was able to charge lower prices than physical bookstores because it maintained very little of its own inventory (relying instead on distributors) and did not have to pay for maintaining physical storefronts or a large retail sales staff.

Amazon also introduced Amazon. com Auctions (similar to those offered by eBay), and zShops (online storefronts for small retailers). To service these new product lines, Amazon significantly expanded its warehouse and distribution capabilities and hired large numbers of employees. C. How does it provide value to its customers? In 1995, former investment banker Jeff Bezos took advantage of new business opportunities created by the Internet by setting up a Web site to sell books directly to customers online. Amazon. com provided online synopses, tables of contents, and reviews to help with selection.

Amazon tried to provide superior customer service through e-mail and telephone customer support, automated order confirmation, online tracking and shipping information, and the ability to pay for purchases with a single click of the mouse using credit card and personal information a customer had provided during a previous purchase. This was called “1-Click” express shopping, and it made the shopping experience even more convenient. Q. 2: Describe Amazon’s evolving business strategy? Amazon has changed its strategy for the last 13 years.

They started from a way to sell books over the internet directly to customers, They offered so many things with time as : a. A much larger selection and lower prices b. Great customer support via telephone and e-mail c. Customer’s ability to connect with real people d. The creation of “1-click” shopping e. In 1998 began selling music and video products They set a goal of being a biggest virtual retail company. Their scope includes lean inventories, low head count, and significant cost savings over traditional bookstores and other retail competitors.

Also in early 2000 they lowered prices, gave free shipping, and offered e-commerce to customers in order to increase profit. They improved their efficiency and became a profitable corporation. Q. 3: Why did the company change its strategy? Amazon kept changing its strategy throughout its existence to compete better. To be a successful player in the market a company especially an online retailer needs to have the ability to adjust according the changing situation of the market. Due to continue adjustments in its business strategy Amazon was able to get profits in less than ten years and getting a continuous profit in the recent years.

They changed their strategy timely and in order to keep the company growing they need to change the business strategy according the current market and by keeping in view the competitors. Q. 4: Do you think Amazon can continue to be successful? Explain your answer. Amazon is one of the biggest online retailing company and is famous for providing textbooks and reading materials for purchase. People do not surf on internet in great deal to find another online retailing company because the Amazon has created an image in the minds of the users and they are confident that they will get a great deal at Amazon.

Personally I would gladly use Amazon as It has developed a trust level over the years. As for as the success of the Amazon is concerned I think Amazon will keep getting success in the future and they will continue to deliver for their investors. If the senior management is flexible and creative they will be able to adjust in any economic situation. There will always be a great number of students and other people who needs books and other reading materials. Amazon with a good history and good steady revenue and customers also support my point more solid in regards to their continual success.

English law has long been recognized as respecting freedom of contract. In other words, the state has not, generally, laid down legislation which has interfered with the freedom of parties to agree the terms of their contracts. In more recent years, there have been a number of inroads into the principle of freedom of contract, particularly with respect to consumer protection. It very much remains the case that English law does provide parties with considerable flexibility both as how they conclude contracts and the terms that they include.

Offer and acceptance

In order for a contract to be binding under English law it requires an offer, acceptance, intention to create legal relations, consideration and capacity. With regard to electronic commerce, the contractual requirements need careful consideration.

Offer

A supplier offers an unconditional offer which could be accepted by any potential customer. If the customer informs the supplier that he or she accepts the offer ,there will be a binding contract. On the other hand, the supplier could provide to the customer what is known in legal terms as an “invitation to treat”. This is not a binding offer, but an “invitation” for the customer to make an offer, which the supplier can then accept.

It is very important for suppliers wanting to sell goods through on line to ensure that their websites and other on line advertisements are interpreted as invitations to treat. If a supplier’s website constituted a formal offer to provide certain services or goods, the supplier may be in breach of the local laws (both civil and criminal) if there are certain kind of customers who would not ordinarily be entitled to make the purchases which are being offered.

For instances, the sale of alcoholic products to minors and guns or other weapons into all countries, when some countries restrict more carefully the circumstances in which guns or other weapon can be purchased.

Acceptance

English law is generally very flexible about how an offer can be accepted. Acceptance could be communicated by an acknowledgement (e.g. email) or by physical act such as the shipping of the goods. What is more uncertain under English law is when acceptance takes place – particularly in an Internet contract.

The general rule is that an offer is not accepted until acceptance is communicated to the offeror. So far there is no case relating to this rule which applies to contracts made over the internet. But however, there is case law which applies to other instantaneous forms of communication, such as telexes and facsimiles, provided that such communications are sent during the business hours. With the global use of electronic trade, the question of when each business day begins may be difficult to determine – particularly when the customer cannot easily work out where the server accessed is based.

The major exception to the general rule on acceptance concerns acceptance by post. In the majority of cases, acceptance takes place when the acceptance is posted and not when it is received by the offeror. The “postal” rule means that the contract will already have been made and the offeror will be bound to complete his obligations, provided that the other party can prove that the acceptance letter has been posted.

In some ways, notwithstanding its instantaneous nature, acceptance by electronic means does have similarities to postal acceptance. A common carrier will assume the responsibility in transmitting the message (in this instance the carrier is the Internet Provider). With this kind of communication, it is not easy to determine the receipt with respect to email sent over the internet. What this means is that the sending party will not know when or if the acceptance has been received.

Given the fact that it is not clear when acceptance of an offer will occur, any supplier should take care to consider how and when acceptance will take place. This has long been the principle adopted in EDI contracts, and those doing business on the Internet have to ensure that they do not leave anything out for questioning later in the contract. Any supplier should have no difficulty in exercising control over the manner in which the only contracting process is conducted.

Unlike the Internet most real world contracts are formed on a person to person basis, either by a face to face conversation or verbally over the phone. By contrast, most Internet contracts are remotely made, impersonal and above all automated. If there is any ambiguity or uncertainty over the transaction but a more likely issue to whether there was a contract at all.

Contract terms and liability

English law gives the contracting parties the freedom to set many of the terms upon which they will contract the business. But this will be subjected to two areas where the law will imply terms. First, certain terms will be implied by statute. Secondly, the law will imply terms just to give “business efficiency” to a contract. This happens where either parties have forgotten to deal with an issue expressly in circumstances where they would have done so had they thought about the issue at the time f the contract was finalized.

The main terms implied by statute in contracts to sell goods is the Sale of Goods Act 1979. This terms will imply to any contract that:

* the goods will be of satisfactory quality;

* where expressly or impliedly known by the supplier, the goods will be reasonably fit for the buyer’s purposes;

* where goods are sold by reference to a description, the goods will correspond to that description. This term is particularly important for internet sales where a buyer may make a purchase of certain goods having visited a supplier’s website.

If a supplier provides services, the implied term for the services will be that they will be dealt with “reasonable skill care”, and within a reasonable time frame (Supply of Goods and Services Act 1982).

Under the Unfair Contract Terms Act 1977, these terms cannot be exempted in any circumstances with respect to consumers. Sometimes in the contract for a business, a supplier can exclude liability for breach of these implied terms where it is “reasonable” to do so.

Not only the Unfair Contract Terms Act 1977 in which the implied terms under the Sale of Goods Act can be exempted, but the Act also imply other liability can be limited as far as the services concerned. The main provisions deal with:

* liability for death and personal injury – this cannot be exempt under any circumstances;

* liability in negligence other than for death and personal injury – this can be exempt where reasonable;

* liability to a consumer – this can be exempt only where reasonable (except in the case of liability for breach of the terms implied under the Sale of Goods Act;

* liability when dealing on the supplier’s standard terms and conditions – a supplier can only be exempt liability to his customers where it is reasonable to do so;

There are a number of matters with regard to the reasonableness that the court will take into account when questioning each case individually. The questions are undoubtedly related to the insurance carried by both parties; what other sources were open to customers; and whether the buyer knows or ought to know the exclusions and limitations clauses incorporated into the contract.

If there are any ambiguities in the terms of the contract, the court will be in favour of the customer. And the supplier will be left to prove that his exclusions are to be reasonable with respect to doing the business.

No doubt that many online contracts will incorporate standard terms and many sales will be directly to consumers, the Unfair Contract Terms Act will play a role in determining the exposure a supplier may face in providing the services or goods using the Internet as a communication mechanism. The UCTA will only be using the English law system for a contract of consumers if they are based in the UK and for a contract where there is a choice of law other than English law, when it is selected for the purposes (mainly or wholly) of trying to avoid the effect of UCTA.

Apart from the Unfair Contract Terms Act, there is one exception with regard to the contracts conducted over the Internet. It concerns the international supply contracts where the offer and acceptance of the sale of goods take place in different countries or the goods are physically shipped from one jurisdiction to another. Many companies wishing to sell goods through the Internet could use this exception whereby the purchaser accesses the server to order goods from other location which is outside of the English jurisdiction. It should be realized that this exception can be applied even where the English law is governing law of contract.

When a contract is considered to be an international one, the Unfair Contract Terms Act will not intervene and a supplier is free to limit or exclude his liability without having to look at the UCTA to see whether if it is reasonable to do so. Although it is likely to apply to sales to businesses only in the light of certain parallel consumer legislation – the Unfair Terms in Consumer Contracts Regulations 1994.

In addition to UCTA, any supplier considering doing businesses over the Internet must also bear in mind the impact of the Regulations when dealing with the consumers. These Regulations incorporate into English law of the European Community Directive on Unfair Terms in Consumer Contracts, which provides the entire states of the European Union cases in which it is unfair to limit or to exclude certain rights of consumers by contract terms. If the terms of the contract is considered to be unfair, then it will be declared as void.

Furthermore, the Regulations could assist the consumers if the consumers are asked to pay a penalty in the event they fail to complete their contractual obligations and when the supplier restrict the consumers’ legal recourse in the event of a breach (for instance, by making the consumer go to arbitration). It is for this reason that it was suggested that the international supply contract with the exception in UCTA will only be of real benefit to those selling goods to businesses.

Furthermore, there are also other helpful pieces of legislation which a consumer can depend on:

* The Consumer Credit Act 1974 – if a customer has paid for the goods by credit card and the value of each item is �100 or more then the credit card company assumes the same responsibilities as the supplier does and a consumer can make a complain to them.

* The Misrepresentation Act 1967 – may give a customer the right to return goods and have his money back if he/she has been told something factual about them that made him/her decide to buy but which turns out to be untrue.

* The Trades Description Act 1968 – if a seller makes a particularly gross misrepresentation about an article or if he or she is regularly misrepresenting the qualities of any goods then this may warrant a complaint to and investigation by Trading Standards who have the power to prosecute.

* Misleading Prices Regulations – the law does not control prices as such but does requires that prices are accurately displayed or advertised. If a seller has incorrectly displayed a price a customer cannot force a sale at that price but it may warrant a complain to Trading Standards.

So how can businesses conducting sales over the Internet protect themselves from the inevitability of pricing errors? Hence thousand of orders can be placed with online retailers before they can detect the problem. When the prices are incorrectly displayed and contracts are formed, the sellers are forced to choose between accepting that price as a financial loss in goodwill or trying to consider the contracts under the doctrine of unilateral mistake.

Otherwise to avoid the contracts to be binding with customers with the incorrectly pricing, the sellers should employ protective methods of contract formation that assist them to prevent loss.

The risks and costs of pricing errors

Many online errors result from the fact of proofreading mistakes and software problems, but a lot of mistakes keep increasing because many sellers online tend to change their prices more often than normal and convenience high street stores [1]. Furthermore, online businesses execute sales automatically and therefore lose the added safety of having the human eye confirm the price.

The Internet, with all the richness of information resources, can cause some harm. Many of the online shopping combine with chat rooms, emails and bulletin board which in turn can result in a flood of orders and thousands of sales being processed before the sellers is able to pinpoint and correct the mistake. For instance, in 2001, Kodak offered a �329 digital camera for �100 [2]. At the time the case was decided that Kodak’s automatic confirmation email formed legally binding contracts [3], and in the end, the company was forced to honour the sales. The incident caused the company substantial losses of more than �2 million [4]. Kodak argued that, if there was a contract formed, that contract could be void by reason of “mistake” (i.e. the price of the goods offered was so low that there was obviously a mistake).

Kodak’s refusal to fulfill orders was widely reported. The common law view was that Kodak would lose any actions brought against it because 1) its standard terms were unfair to the consumer; 2) a camera worth �300 being sold as a special offer for �100 was not an obvious mistake; and 3) Kodak’s reply not only to acknowledge the sale, but used the words “this contract”, Kodak forced to accept the orders.

In another example involving Argos, a catalogue online retailer, who advertised a TV on its website for �2.99, one one-hundredth of its normal price. Argos received orders worth over �1 millions, none of which were acknowledged. Argos argued that there was no contract between the customers and itself, because Argos did not confirm any orders as far as the product concerned. The case was decided confidentially and it is believed that Argos did not fulfill the majority of those orders.

The equitable doctrine of unilateral mistake

When the online seller make honest and honourable mistake on pricing which result in big losses, their mistake could be considered based on the doctrine of unilateral mistake. What this means is that one party’s mistake could make the contract voidable when the mistake concerns a basic assumption on which the contract was formed and has a material effect on the agreement that is adverse to that party [5]. Furthermore, the effected party must prove that: a) the mistake is such that enforcement would be unconscionable, or b) the other party had reason to know the mistake or should have known that the price was a mistake [6].

An unconscionable contract is defined as “no man in his senses, not under delusion, would make….and which no fair and honest man would accept….” [7]. The contract, if was formed, must cause hardship to the effected party [8]. In addition to this, the court would look to see whether the sale would cause the seller a big loss and not merely a diminished profit [9].

Alternatively, the online seller could also prove that the customers had reason to know or ought to know that the price was wrong [10]. “Reason to know” means that a person “has a duty to another” and “he would not be acting adequately in the protection of his own interests were he not acting with reference to the facts which he has reason to know” [11].

Rescinding the contract is the only remedy option under the unilateral mistake; it is not a basis for reformation [12]. It means that the seller cannot ask the customer to go ahead with the sale at the actual price. But instead, the seller must cancel all customer’s order and re-offer the good at the actual price. However, after the re-offering the good the customer might not show any more interest in purchasing it.

In some instances, the court might refuse to order rescission. The court will consider whether one party has so detrimentally relied on the contract it would be inequitable to order rescission [13], will be prejudiced by rescission [14], or cannot be returned to the status quo [15]. Furthermore, the court might refuse to rescind the contract when the mistake resulted from the seller’s negligence or lack of due care [16].

Case of an e-seller policy

Amazon.com provides an example of an online seller who has incorporated a policy into its website to deal with potential pricing mistakes. It provides a direct link to its pricing policy from its term of use. In its term, Amazon states that the price of any products is not confirmed till the customer completes the order. Additionally, Amazon further states that the items in the catalogue may be mispriced and the price will be verified before it’s sent out. If the actual price is lower than the stated price, Amazon will charge the lower price and ship the good. On the other hand, if the actual price is higher, Amazon will either contact the customer or cancel the order and notify the customer of its cancellation.

Despite all these precautions, however, Amazon has been involved in a number of argument concerning the incorrect pricing. Recently, in the UK Amazon made a mistake in advertising iPaq handheld computers priced at less than one fiftieth of the retail price. But fortunately, Amazon has managed to avoid big losses because its conditions of sale explicitly stated that the contract is not formed till the good was dispatched, giving Amazon the right to cancel most of the orders it has received.

The contents of its conditions’ statement were the same throughout. On the same token, in America, Amazon mistakenly put on sale a memory module priced at 10% less than the actual price and DVD’s priced at 75% of their list price. Amazon in America emailed notices to customers, in according to their pricing policy, requesting if they could pay for the actual price of the products or cancel their order completely. Several customers filed complaints to the Federal Trade Commission and the Better Business Bureau. But it is not clear how these complaints have been resolved.

Conclusion

In short, to avoid losses caused by pricing errors, online seller can employ a few measures ensuring that his business is protected. One of the thing the seller should do is he should include the terms and conditions in the contract stating that he reserves the right to cancel orders and an explanation that the customer’s order only constitutes an offer, which the seller can accept by charging the customer’s credit card or by dispatching the good. In addition, the customer should be required to assent to those terms and conditions by clicking “I accept” during the checkout process.

The English cases indicate that the terms of a contract are binding if a seller has made sufficient efforts to bring the terms to the attention of the buyer and if the parties agree to the terms. It is very important that the buyer who buy things online ought to see and accept the terms before an order is placed. However, the terms should allow the sellers to reject orders at any stage before dispatch. Any automatic response to an order ought to let the buyer know that a binding contract has not been entered into and the price is subject to change until it is shipped. Although these precautions has taken place, a seller online may still face potential litigation and consumer complaints, concerning any incorrect prices confirmed by auto-reply emails.

The Internet is undoubtedly will grow in importance and it is no more than a tool of communication just like the telephone, telex or fax. Furthermore, electronic contract is becoming more common and right now a substantial percentage of both commerce and consumer contracts is concluded in cyberspace. Although e-commerce contracts suffer some problem, but they can be overcome by applying the three basic questions, when was the contract concluded? What are the terms of the contract? and where is the contract governed? These questions would help us to deal with any contract whether it is formed electronically or by more traditional means.

“It is the moral equivalent of being given too much change in a supermarket and pocketing the money instead of handing it back” ( Bill Thompson, technology analyst).

DISSERTATION REPORT ON

Vaibhav Joshi is a bonafide student of MIB IV semester of the Master’s Degree in International Business of Institute of Management Studies, Dehradun under University Roll No. He has completed his/her dissertation work entitled Marketing of general insurance products (with reference to Iffco tokio general insurance under my guidance). I certify that this is his original effort and has not been copied from any other source. This project has also not been submitted in any other university for the purpose of award of nay degree.

This project fulfills the requirement of the curriculum prescribed by H. N. B. Garhwal University, Srinagar for the said course.

I recommend this Dissertation work for evaluation and consideration for the award of degree to the student.

General insurance business in the country was nationalized with effect from 1st January, 1973 by the General Insurance Business (Nationalization) Act, 1972. More than 100 non-life insurance companies including branches of foreign companies operating within the country were amalgamated and grouped into four companies, viz. the National Insurance Company Ltd. , the New India Assurance Company Ltd. , the Oriental Insurance Company Ltd. , and the United India Insurance Company Ltd. with head offices at Kolkata, Mumbai, New Delhi and Chennai, respectively. General Insurance Corporation (GIC) which was the holding company of the four public sector general insurance companies has since been delinked from the later and has been approved as the “Indian Reinsurer” since 3rd November 2000. The share capital of GIC and that of the four companies are held by the Government of India.

All the five entities are Government companies registered under the Companies Act. The general insurance business has grown in spread and volume after nationalization. The four companies have 2872 branch offices, 1373 divisional offices and 95 regional offices spread all over the country. These companies also have 44 overseas offices spread over 25 countries. The market share of Government-owned insurance companies stood at 79. 93% as on March 2005. MAJOR POLICY CHANGES Reforms In Insurance Sector

Insurance sector has been opened up for competition from Indian private insurance companies with the enactment of Insurance Regulatory and Development Authority Act, 1999 (IRDA Act). As per the provisions of IRDA Act, 1999, Insurance Regulatory and Development Authority (IRDA) was established on 19th April 2000 to protect the interests of holder of insurance policy and to regulate, promote and ensure orderly growth of the insurance industry. IRDA Act 1999 paved the way for the entry of private players into the insurance market, which was hitherto the exclusive privilege of public sector insurance companies/ corporations.

Under the new dispensation Indian insurance companies in private sector were permitted to operate in India with the following conditions: Company is formed and registered under the Companies Act, 1956; The aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed 26%, paid up equity capital of such Indian insurance company; The company’s sole purpose is to carry on life insurance business or general insurance business or reinsurance business. The minimum paid up equity capital for life or general insurance business is Rs. 100 crores.

The minimum paid up equity capital for carrying on reinsurance business has been prescribed as Rs. 200 crores. The Authority has notified 37 Regulations on various issues which include Registration of Insurers, Regulation on insurance agents, Solvency Margin, Re-insurance, Obligation of Insurers to Rural and Social sector, Investment and Accounting Procedure, Protection of policy holders’ interest etc. Applications were invited by the Authority with effect from 15th August, 2000 for issue of the Certificate of Registration to both life and non-life insurers. The Authority has its Head Quarter at Hyderabad .

Detailed information on IRDA is available at their web-site www. irdaindia. org

GENERAL INSURERS

1. National Insurance Company Limited
2. New India Assurance Company Limited
3. Oriental Insurance Company Limited
4. United India Insurance Company Limited
5. Export Credit Guarantee Corporation
6. Bajaj Allianz General Insurance Co. Ltd.
7. ICICI Lombard General Insurance Co. Ltd.
8. IFFCO-Tokio General Insurance Co. Ltd.
9. Reliance General Insurance Co. Ltd.
10. Royal Sundaram Alliance Insurance Co. Ltd.
11. TATA AIG General Insurance Co. Ltd.
12. Cholamandalam General Insurance Co. Ltd.
13. HDFC Chubb General Insurance Co. Ltd.
14. Agricultural Insurance Co. of India Ltd.

REINSURER

1. General Insurance Corporation of India

Insurance Ombudsmen: One of the major areas of concern of the Government has been the efficient customer services in the insurance sector.

With a view to ensure expeditious redressal of public grievances relating to the settlement of the claims, the Government has introduced a system of Ombudsman in the Insurance Sector with effect from 11th November 1998. Insurance Ombudsmen are currently located in 12 cities. Each Ombudsman is empowered to redress customer grievances in respect of insurance contracts on personal lines where the insured amount is less than Rs. 20 lakhs.

MARKETING – GENERAL INSURANCE INTRODUCTION:

Marketing is the Marketing side of Commerce – company efforts to communicate about, promote, and sell products and services over the Internet.

E-marketing is a type of marketing that can be defined as achieving objectives through the use of electronic communications technology such as Internet, e-mail, Ebooks, database, and mobile phone. It is a more general term than online marketing which is limited to the use of internet technology to attain marketing objectives. E-mail marketing is one of the most effective ways to keep in touch with customers. It is generally cost-effective, and if done properly, can help build brand awareness and loyalty. At a typical cost of only a few rupees per message, it’s a bargain compared to traditional direct mail or more .

In addition, response rates on e-mail marketing are strong, depending on the industry and format. Response rates for traditional mail averages tend to be very low. One of the benefits of email marketing is the demographic information that customers provide when signing up for your email newsletter. Discovering who your customers really are – age, gender, income and special interests, for example – can help you target your products and services to their needs. Effective marketing, planning and promotion begin with current information about the marketplace.

Visit your local library online, talk to customers on toll free through & telemarketing and SMS service as latest development, study the advertising of other businesses in your community, and consult with any relevant industry associations through internet. This interactive tool will help to assess your e-marketing strengths and weaknesses in the demographic area. Online marketing is marketing on the Internet. It is a type of e-marketing, which in turn is a type of e-commerce. Internet marketing is a component of electronic commerce. Internet marketing can include information management, public relations, customer service, and sales.

Electronic commerce and Internet marketing have become popular as Internet access is becoming more widely available and used. Well over one third of consumers who have Internet access in their homes report using the Internet to make purchases. Some of the benefits associated with Internet marketing include the availability of information. Consumers can log onto the Internet and learn about products, as well as purchase them, at any hour. Companies that use Internet marketing can also save money because of a reduced need for a sales force.

Overall, Internet marketing can help expand from a local market to both national and international marketplaces. Commerce has redefined the marketplace, altered business strategies, and allowed global competition between local businesses. The term “electronic commerce” has evolved from meaning simply electronic shopping to representing all aspects of business and market processes enabled by the Internet and other digital technologies. Today’s business emphasis is on e-commerce – rapid electronic interactions enabled by the Internet and other connected computer and telephone networks.

Rapidly business transactions and unparalleled access to information is changing consumer behavior and expectations. Many small businesses assume that the Internet has little value to them because they feel that their product or service cannot be easily sold online. But inexpensive information processing and electronic media can help most small businesses provide better, faster customer service and communication.

• Why is insurance necessary?

The question contains the answer within itself. After all, life is fraught with tensions and apprehensions regarding the future and what it holds for the individual.

Despite all the planning and preparation one might make, no one can accurately guarantee or predict how or when death might result and the circumstances that might ensue in its aftermath. We are not saying that life and existence are constantly fraught with danger and uncertainty. But then it is essential that you plan for the future. The chances for a fatality or an injury to occur to the average individual may not be particularly high but then no one can really afford to completely disregard his or her future and what it holds.

People generally regard insurance as a scheme when and where you have to lose a lot to gain a little. Nevertheless, insurance is still the most reliable tool an individual can use to plan for his future. What is General insurance? This is an attempt to help understand some basic concepts of general insurance in order to help identify insurance needs and to facilitate decision making process. General Insurance is all about protecting / covering against all kind of insurable risks. General insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event.

General insurance typically comprises any insurance that is not determined to be life insurance, and is called property and casualty insurance. The reason to provide conceptual knowledge on general insurance products – health insurance, motor insurance, travel insurance – to empower one to take a final decision. We have touched upon topics like why one should insure, how much insurance one need, the policies that suit best, points to ponder while reading the fine print, identify the insurance needs etc are covered. This is a sincere attempt to take one through the basics and to unravel the complexities of general insurance.

System whereby individuals and companies concerned about potential hazards pay premiums to an insurance company, which reimburses (in whole or part) them in the event of loss. The insurer profits by investing the premiums it receives. Some common forms of insurance cover business risks, automobiles, homes, boats, worker’s compensation, and health. Life insurance guarantees payment to the beneficiaries when the insured person dies. In a broad economic sense, insurance transfers risk from individuals to a larger group, which is better able to pay for losses. IFFCO-TOKIO General Insurance (ITGI).

ITGI is India’s trusted insurance company. It simplifies customer’s life by providing them tailor made products and quality services, thus helping them take informed investment decisions. It is a joint venture between The Indian Farmers Fertiliser Co-operative (IFFCO) and its associates and Tokio Marine and Nichido Fire Group, the largest listed insurance group in Japan. ITGI was incorporated on December 4, 2000 and has its head office in Gurgaon, Haryana. We are among India’s top three private-sector general insurance companies with 92 offices and a country-wide network of 480 exclusive point of presence.

In our constant effort to provide our customers with “the life they deserve”, we offer a wide range of over 40 uniquely customized policies covering a wide range of customers, from farmers to some of India’s largest automobile manufacturers. We see ourselves as a “people’s company”; our principal aim is to provide benefits for the common man who traditionally lacks knowledge and access to quality insurance products. To achieve this, we have leveraged the deep knowledge of IFFCO by studying 600 of the country’s 602 districts before drawing up our business plan.

We closely follow the rigorous global financial standards of the Millea group, combining sound financial management with rapid growth. ITGI is the only private general insurance company in India to have made five consecutive years of profit. We are also one of the few to report underwriting profits within four years of operations. We also believe in focusing on creative solutions to provide optimum service to our customers. We are the only company in the country to have a 100%-owned distribution channel to service our retail customers.

Called IFFCO-TOKIO Insurance Services Ltd (ITIS), this subsidiary has 273 employees and is present in 68 cities. ITIS is an example of an indigenously developed best practice that will be replicated in other Millea Asia subsidiaries. Innovation has also played a significant part in making us a dynamic industry leader both in India and globally. We are the first company in India to underwrite mega policies for a fertilizer and an automobile client. This comprehensive policy is based on international rates and optimizes the premium outflow for clients even as it offers a one-stop, all-risk cover. Our Performance | Profitable growth: Our commitment to innovation and customer service has helped us consistently raise the bar on our performance. We strongly believe in profitable growth: Our rapidly reducing Earned Income Loss Ratio (EILR) is testimony to this |[pic] | ITGI’s sound financial management has been achieved in a period of fast-paced growth.

Our gross written premium (GWP) has grown from Rs 58 million in 2000-01 to Rs 5 billion in 2004-05. Policy issuance growth has jumped more than 20 times between 2002 and 2004.

We have also consistently demonstrated our commitment to shareholder value: return on equity for 2004-05 was 14. 72%, up from 9. 58% the year before. Our unqualified audit reports reflect the rigorous, global standards of accounting. ITGI voluntarily maintains strong institutional checks and balances. An investment committee of board members and senior executives scrutinizes all major investment decisions.

An in-house audit committee audits all the branches and suggests ways to improve their functioning. Finally, there is an executive committee of senior management that monitors policy decisions. All these have ensured that ITGI has established a reputation for the highest standards of corporate governance. ‘Customized’ satisfaction: Our bi-annual customer satisfaction surveys – another unique feature at ITGI — indicates the speed and fairness in handling policy-holders’ claims. This is backed by robust IT infrastructure that is robust enough to handle large volume of more than 3,00,000 documents.

All ITGI’s branches and distributors are networked. This not only enables a detailed and accurate analysis of the company’s performance based on specific parameters, the web-based claim response system has enabled the speedy settlement of claims, achieving a 90% claim settlement ratio Insurance Distribution Channels: Markets in Transition INTRODUCTION :- Risks are inherent in every aspect of life. They are present in whatever we do everyday and all businesses face the threat of losses that may never occur. Worrying about these possibilities hardly makes life pleasant.

Of course, it is impossible to eliminate risks – but they can be controlled, lessened or minimized. That is exactly what risk management is all about. We at ITGI have established a proficient risk management team to provide customized, need-based solutions. Armed with a high level of domain knowledge in a wide range of industry verticals, our risk management experts identify and evaluate the risk exposures of your facility or business to provide a comprehensive risk management solution based on your special needs.

As a part of our value-added services, we also provide recommendations for loss reduction and risk mitigation and continuously update you about international best practices. ITGI caters to almost all areas of risk management. Below is a list of some of our mainstream services: Underwriting survey/Loss control Survey/Risk management survey Natural hazard risk evaluation Business continuity planning Business interruption and interdependency risk analysis Marine loss control surveys Safety management Risk assessment studies/Safety audits

Consequence analysis study. The insurance marketplace is undergoing a transformation that may eventually lead to significant changes in how consumers purchase insurance products. A variety of distribution channels are currently used in this market place, and some insurers utilize a combination of distribution channels. These include the Internet-led channels, company-led channels, bank-led channels, and agent-led channels. Of these distribution channels, the most discussed and anticipated channel is the Internet-led channel.

The widespread diffusion of the Internet has created an explosion in the growth of electronic channels, including direct channels as electronic markets, or “electronic intermediaries over which multiple buyers and sellers do business”, and other cybermediaries . Prior to the advent of the Internet, most purchasers of insurance products used traditional agent-led distribution channels such as direct writers or independent agents. Given its reliance on traditional channels, the insurance marketplace has only recently begun to reflect this broader growth in electronic channels.

The Internet was expected to have a major negative impact on the traditional agent-led distribution channel. However, consumers have not shown a marked preference for purchasing insurance product via the Internet. Currently, less than two percent of insurance products are purchased via the Internet. Although less frequently used, company-led distribution channels through mediums such as direct mail or telephone call centers have seen increasing growth. While an agent is still required in this setting, this person typically does not meet with the insured.

With the passage of the Financial Modernization Act of 1999, growth of the bank-led channel was predicted for the U. S. market. The results of a recent American Bank Insurance Association survey indicate that insurance represents a very small percentage of total bank revenue, but bankers predict an increase in marketing efforts. While it is true that insurance purchasers today have more options available than they did five years ago, it is unclear if and when these channels will dominate existing insurance distribution channels. Several obvious factors that impact on a channel’s adoption are consumer.

Insurance Distribution Channels: Markets in Transition Attitudes and preferences. In particular, it may be that consumers consider insurance products to be more complex than originally thought. Consumers still do not view even personal lines insurance products to be commodity products. The purpose of this paper is to discuss the transitions that are occurring in property/liability insurance distribution channels. As part of this discussion, we describe some of the factors that are impacting on the adoption of alternative channels (e. g. the Internet), provide an overview of the academic literature on innovation adoption and insurance distribution channels, and comment on the near-term future for insurance distribution channels.

EXPECTATIONS V. REALITY

The growth of the Internet has led to a great deal of speculation and discussion regarding its potential impact on traditional distribution channels. For example, the meeting topic for the 2000 International Insurance Society meeting was “The Power of Leadership in the Knowledge Millennium. ” Part of the focus of the presentations at that meeting was on the changing channels of distribution.

Some trade publications during that time period included articles suggesting that insurance agents were faced with the strong possibility of being replaced with a more efficient and less-costly Internet-led distribution channel. The same was true for travel agents during that time period. Interestingly, the experience of insurance agents and travel agents has been very different. The travel industry has indeed seen a growth of the Internet-led distribution channel for a wide variety of travel-related purchases including plane tickets, hotel reservations, and car rentals.

Examples of cybermarkets operating today include Expedia, Travelocity, and Orbitz. Additionally, sites like Priceline. com allow consumers to make offers for various travel services including airline travel. Other sites, like SkyAuction. com, create an auction market for travel services. Finally, consumers can purchase tickets online directly from airlines. As the Internet-led channel has grown for travel-related types of services, travel agents have come under increasing pressure and airlines have reduced the commissions paid to travel agents.

In some cases, the agents are no longer compensated by the airlines to serve as a channel intermediary. For example, Delta Airlines recently announced that it would no longer pay commissions to travel agents. 2 Insurance Distribution Channels: Markets in Transition The experience of insurance agents has been much different. Recent figures suggest that online sales accounts for less than 2% of total premium volume. Although there have been some changes in the areas of commissions and production requirements, agents continue to be the primary distribution channel for insurance products.

A recent National Underwriter article reported the results of a survey of four insurance industry associations (the National Association of Independent Insurers, the National Association of Mutual Insurance Companies, the American Insurance Association, and the Alliance of American Insurers). All four of these associations indicated an expectation that the traditional agent-led distribution channel will continue to be a major distribution channel for insurers.

While the adoption rate of the Internet as a distribution channel has been low, we have seen widespread adoption of the Internet as a support channel. Insurers are using the Internet to provide general information on financial services products (e. g. , insurance, investments) and planning involving the use of these products, to provide specific information on the company and its product lines, to provide administrative support to its policyholders, and to serve as a prospecting and communication tool for its agent-led channel. For example, Celent Communications surveyed major U.S. property/liability insurers regarding Internet usage. The six main usage areas were

•  agent access to quotes,
• agent extranet,
• policyholder account access,
• customer live quotes,
• customer quote request, and
• agent locator.

Of these six, the two most frequently used were the agent locator (over 60%) and the agent extranet (approximately 40%). These results clearly indicate that for property/liability insurers, the web is being used as an information or communication tool, as well as a prospecting tool for insurers’ agents.

INNOVATION ADOPTION

To gain a better understanding of what factors tend to drive the adoption of one channel over another, it is helpful to examine some of the existing literature on innovation adoption and insurance distribution channels. The Internet Channel One factor that leads to the adoption of an innovation is how widespread it is. Rogers (1995) suggests that widespread diffusion of an innovation will lead to significant changes in the enviorment. 3 Insurance Distribution Channels: Markets in Transition

As noted above, we have seen widespread diffusion of the usage of the Internet in both the travel and insurance industries; however, the adoption patterns have been quite different. The ability to reduce the transactions costs of interaction between buyers and sellers has always been acknowledged as a central motivation for the use of the web . Predictions of disintermediation and cybermediation are typically based on the reduced transaction costs of electronic interaction between sellers and buyers; for example, in book retailing or online stock trading.

Trust is another factor that drives or affects the adoption of the Internet-led channel and others examined privacy and security as it relates to choosing an Internet channel. The widespread popularity of online stores or online auctions provides some indication that consumers trust the channel sufficiently to provide personal and financial information via a secure part of the channel. Additionally, secure support channels like Paypal have been created to provide secure payment channels for purchases. Technological improvements alone cannot safeguard a company’s digital risks.

Whether managing the risk of a computer virus, electronic theft of confidential information or the loss of business interruption due to a computer attack, a Total Risk Management Approach is required which combines best in class technology, risk information and insurance.

MOTOR INSURANCE INTRODUCTION:

Speed has become the essence of life in the present day economic and social conditions. Every body wants everything fast enough to enjoy the fruits of any labour which has been put in. In this labour man is being replaced by machine in almost all spheres of activity. The latest is Computer trying to replace the human brain.

Though it is impossible to achieve the speed of thought, the human efforts will always endeavor to achieve that speed. When we talk of speed, Motor Vehicle is perhaps or sure enough, a tool used by majority of human beings in every walk of life as aid, either to transport himself or to transport material useful for his existence. As a means of transport, Motor vehicle is of immense importance in respect of both the human amenities and the commerce. The number of vehicles on the road has been on increase and it is quite likely that it may over-flow the capacity of the road and parking places.

Many vehicles are required to be kept in the streets at night and thus are exposed to various risks from human elements as well as natural elements. The number of persons holding driving license is increasing and the employers with all the care they may take in choosing a good driver. Do get reckless driver on their pay roll which fact comes to the knowledge only when a serious accident, sometimes involving loss of life happens, and are thus exposed to risks.

MOTOR INSURANCE CONTRACTS

Motor Insurance Contracts are subject to the basic principles applicable to property and liability insurance in general, These principles are- ) Utmost good faith: Contracts of Motor Insurance are governed by the doctrine of utmost good faith. The doctrine imposes a legal obligation on the proposer to disclose material facts to the Insurers. The use of proposal forms is compulsory and the declaration clause in the form converts the common law duty into a contractual duty of utmost good faith. The effect of this is that the answers given in the proposal become warranties. The answers are required to be literally true and correct. Any wrong answer, irrespective of its materiality, will render the contract violable by Insurers.

Insurable Interest:

This is the legal right to insure. The essentials of insurable interest are-

i) the existence of property exposed to loss, damage or a potential liability:

ii) such property or liability must be the subject matter of insurance:

iii) such property or liability must be the subject matter of the property or creation of liability and must benefit by the preservation of the property or the absence of liability.

Indemnity:

Insurance contract are contracts of indemnity that is to say, the insured is placed after a loss, as far as possible, in the same position as he was immediately before the loss.

This principle ensures that the Insured does not make a profit out of his loss.

Subrogation & Contribution:

Subrogation is the transfer of rights from the insured to the insurer when the loss or damage to the vehicle is caused by negligence of another person. The Insurers exercise these rights to recover the loss from the person responsible. Under common law subrogation operates only after the claim is paid. A Policy condition, however, provides for subrogation before the payment of the claim. Contribution arises when there is double insurance, that is, when the same vehicle is insured under two policies.

According to Policy condition the loss is shared pro-rata between the two insurers. The Contribution condition is specially worded in private car policies because the owner is also covered for Third Party liability while driving cars not belonging to him. Proximate Cause: The doctrine of proximate cause applies to Motor insurance as to other classes of insurance. The loss or damage to the vehicle is indemnified only if it is proximately caused by one of the insured perils. The doctrine also applies to Third Party claims.

The Third party injury or property damage must be proximately caused by the negligence of the insured for which he is held legally liable to pay damages.

TYPES OF MOTOR VEHICLES:

A Motor Vehicle has been defined in the Motor Vehicle Act, 1939 as a mechanically propelled vehicle adopted for use upon road where the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer but does not include a vehicle running upon fixed rails. For purpose of insurance, Motor vehicles are classified into 3 broad categories, viz ) Private Cars 2) Motor Cycles and Scooter 3) Commercial Vehicles. PRIVATE CARS: These are – a) vehicles used solely for social, domestic and pleasure purposes; b) Cars of private type including station wagons, used for social, domestic and pleasure purposes and for the business or professional purposes(excluding the carriage of goods other than samples) of the insured or used by the Insured’s employees for such purposes, c) Three wheeled cars (including cabin scooter used for private purposes)

MOTOR CYCLES:

a) Motor cycles (with or without sidecars)

b) Auto cycles or mechanically assisted pedal cycles.

c) Motor Scooters (with or without sidecars)

d) A three-wheeler invalid carriage.

COMMERCIAL VEHICLES:

A) Goods carrying vehicles (own goods). These are vehicles used under a Private Carrier’s permit within the meaning of the Motor Vehicles Act, 1939. The Act defines a “Private Carrier” as “an owner of a transport vehicle other than a public carrier who uses the vehicles solely for the carriage of goods which are his property or the carriage of which is necessary for the purpose of his business not being a business of providing transport”

GOODS CARRYING VEHICLES

These are vehicles used under a Public Carrier Permit within the meaning of the M. V. Act. 1939. The Act defines a ‘public carrier’ as an owner of a transport vehicle who transports or undertakes to transport goods or any class of goods, for another person at any time and in any public place for hire or reward, whether in pursuance of the terms of a contract or agreement or otherwise. TRAILERS: Any truck, cart carriage or other vehicle without means of self-propulsion including agricultural implements drawn or hauled by any self – propelled vehicle.

PASSENGER CARRYING VEHICLES:

I) Buses including tourist buses:

ii) Hotel/School omnibuses.

iii) Air-line buses

PASSENGER CARRYING VEHICLES FOR HIRE:

i) Taxis or Private car type vehicles plying for public hire

ii) Private type Taxis let out on private hire direct from the Owner with or without meters and driven by the Owner or an employee of the Owner.

iii) Private car type vehicles let out on Private Hire and driven by the Hirer or any driver with his permission. i

v) Private car type vehicles owned by Hotels and hired by them to their guests. v)passenger carrying vehicles (Motorized Rickshaws).

MISCELLANEOUS AND SPECIAL TYPES OF VEHICLES

1.  Agricultural Tractors Pedestrian Controlled.
2. Trailer fitted as Cinema Film Recording and publicity vans.
3. Delivery Truck – Pedestrian Controlled.
4. Trailers- Duest carts, water carts, etc .
5. Trailers – Fire Brigade and Salvage Corps.
6. Plan Loader.
7. Trailers- Mobile Plant.
8. Trailers fitted as Mobile Shop and Canteen.
9. Trailers – Tar spraying.
10. Trailers- Clearing and Levelling plant.
11. Traction Engine Tractors: Agriculural and Forestry spraying plant
12. Trailers towed by Tractors.
13. Lawn Mowers.
14. Cranes- Trailers and Tractors fitted with Lift apparatus.
15. Hearses
16. Ambulances.
17. Breakdown vehicles
18. Cinema film recording and publicity vans.
19. Dispensaries.
20. Dampers.
21. Dust carts, water carts, road sweepers, etc.
22. Electric Trolleys or Tractors.
23.  Fire Brigade and Salvage corps. Vehicles.
24. Footpath rollers.
25. Fork lift Trucks.
26. Mobile shops & Canteen Vehicles.
27. Mobile Surgeries & Dispensaries.
28. Refuse Carts.
29. Road Rollers.Road Sprinklers also used as Fire Fighting vehicles.Traction Engine Tractors- Tractors used with one or more Angle Dozers, bulldozers etc.
30. Excavators.
31. Levelers
32. Site clearing and leveling plant etc.

TYPES OF POLICIES:

The vehicles mentioned above can be insured under three types of policies:- Act” only policy: This policy provides the minimum cover for legal liability for injuries to third parties or their property damage, as required by the provisions of Chapter VIII of the Motor Vehicles Act, 1939.

Third Party Policy: This Policy provides the cover as under the “Act” only policy and in addition provides cover for higher limits for third party property damage. Comprehensive Policy: This policy provides cover as under a Third Party Policy and in addition provides cover for loss or or damage to the vehicle. Two other variations of cover are available for certain categories of vehicles( e. g. Private Cars) Fire and/or Theft Risk- These policies cover the risks of fire and or theft while the car is in garage and out of use.

Third party and Fire and/or Theft Risks: The Third party policy is extended to cover the risks of fire and/ or theft whilst the vehicle is running and or /in garage.

EXEMPTED VEHICLES:

The Provisions relating to compulsory third party insurance do not apply to any vehicle owned by the Central Government or State Government and used for Government purposes unconnected with any commercial enterprise. Exemptions may also be granted by the appropriate Government for any vehicle owned by:-

a) the Central Government or a State Government if the vehicle is used for Government purposes connected with any commercial enterprise.

b) any local authority;

c) any State Transport Undertaking( for example, where such undertaking is carried on by a State Government or any Road Transport Corporation established under the Road Transport Corporation Act, 1950). The above exemption is made only if a fund is established and maintained by that authority for meeting any liability arising out of the use of any vehicle. The fund has to be established in accordance with the Rules framed under the Act. Types of Motor Insurance Covers: There are two types of cover granted under Motor Insurance.

Policy “A” provides Liability Cover and Policy “B” provides Comprehensive cover. Third Party Policy has been withdrawn from 1st April 1990.

Rs. 6,000/- in respect of any one claim or series of claims arising out of one event. (This is the limit provided by the Act for third party property damage. The tariff however provides for increased limits up to unlimited liability for T. P. property damage, at additional premium).

b) Policy “B” – Comprehensive Policy is wider cover. In addition to covering the insured’s legal liabilities to third party, both for bodily injury and damage to property, this policy covers loss or damage to the vehicle- &/or theft of vehicle and/or accessories whilst fitted thereon –

a) by fire, explosion, self-ignition or lightening;

b) by burglary, housebreaking or theft;

c) by riot and strike;

d) by earthquake (fire and shock damage);

e) by flood, typhoon, hurricane, storm, tempest, inundation, cyclone, hailstorm, frost;

f) by accidental external means;

g) by terrorist activity;

h) whilst in transit by road, rail, inland waterway, lift, elevator or air;

i) by landslide / rockslide

The Recital clause of both form of policies states-

(i) that the proposal and declaration shall be the basis of the contract of insurance and are deemed to be incorporated therein. ii) that the insured has applied to the company for insurance and has paid or agreed to pay the premium as consideration for the insurance afforded by the policy for the period specified. The contract is not to “pay” the loss to the insured but to “indemnify” him against his loss. Protection and Removal Costs: If the motor car is disabled by reason of loss or damage covered under the policy, the insurer will bear reasonable cost of protection and removal to the nearest repairers and of redelivery to the insured but not exceeding in all Rs. 1,500/- in respect of any accident.

Authorization for Repair The insured may authorize repairs necessitated by damage covered under the policy, provided that:- (a) the estimated cost of such repairs does not exceed Rs. 500/-

(b) the insurer is furnished forthwith a detailed estimate of the cost, and

(c) the insured gives the insurer every assistance to see that such repair is necessary and the charge reasonable. Exclusion under “own damage”

Section I – FOR PRIVATE CAR ‘B’ POLICY

(a) consequential loss, depreciation, wear and tear, mechanical or electrical breakdown , failures and breakage; and

b) damage to tyres unless the motor car is damaged at the same time when the liability of the insurer is limited to 50% of the cost of replacement;

(c) any accidental loss or damage suffered whilst the insured or any person driving with the knowledge and consent of the insured is under the influence of intoxicating liquor or drugs.

NET PAYABLE PREM. HYPOTHECATION ( IF ANY ) AUTHORISED SIGNATORY FIRE INSURANCE GENERAL RULES AND REGULATIONS:

These rules and regulations are applicable to all sections of the Tariff. POLICY Only Standard Fire and Special Perils Policy (hereinafter referred to as Policy) with the permitted “Add-on” covers (as appearing under Section VIII) if any, can be issued. Note: – Unless otherwise specifically provided for, this tariff is applicable to land-based properties only. The wording of the policy shall be as shown in Section II of the Tariff.

Policy (ies) should be read together with proposal forms(s), scheduled specification, endorsements, warranties and clauses as one contract. Policy (ies) covering Buildings and/or contents shall show block wise separate amounts on (i) Building (ii) Machinery and accessories (iii) Stock and Stock-in-Process and (iv) Furniture and other contents. It is permissible to exclude Storm, Tempest, Flood and Inundation group of perils (hereinafter referred to as STFI) and/or Riot, Strike, Malicious Damage perils (hereinafter referred to as RSMD) at inception of the Policy only by deleting the relevant perils from the Policy.

The deletion shall apply for the entire property in one complex/compound/location covering the entire interest of the Insured under one or more policy (ies) without any option for selection. Reduction in premium rates for such deletion(s) may be allowed as shown under the relevant sections of the Tariff. When these perils are deleted from the scope of the policy, the general exclusions shall include these perils. Terrorism cover will be separate cover which can be granted only in conjunction with RSMD. Terrorism will not be given in isolation without RSMD cover.

Any risk, which has not been provided for in the Tariff, shall be referred to the Committee for rating. Provisional rate of Rs.

2. 50 per mille shall be charged in such cases for covering the risks under Standard Fire and Special Perils Policy. No discounts and/or agency commission shall be allowed on this rate. For add-on covers, additional rates provided in section VIII shall be charged. Rates shown under this tariff are minimum rates. Insures may charge rate higher than those given under the tariff.

VALUED POLICY(IES)

Valued Policy (ies) can be issued only for properties whose Market Value cannot be ascertained e. . Curios, Works of Art, Manuscripts, Obsolete machinery and the like subject to the valuation certificate being submitted and found acceptable by the insurers.

LONG TERM POLICIES

Policies for a period exceeding 12 months shall not be issued except for “Dwellings”. MID-TERM COVER Generally, it is not permissible to grant mid-term cover for STFI and/or RSMD perils. The following provisions shall apply, where such covers are granted midterm: Insurers must receive specific advice from the insured accompanied by payment of the required additional premium in cash or by draft.

This additional premium shall not be adjusted against existing Cash deposits or debited to Bank guarantee. Mid-term cover shall be granted for the entire property at one complex/compound/location covering the entire interest of the Insured under one or more policy (ies). Insured shall not have any option for selection. Cover shall commence 15 days after the receipt of the premium. NB: Endorsement to be issued in this regard The premium rates as under shall be charged on short period scale (as per Rule 8) on full sum insured at one complex/compound/location covering the entire interest of the insured for the balance period i. . up to the expiry of the policy.

PAYMENT OF PREMIUM

Premium shall be paid in full and shall not be accepted in instalments or by deferred payments in any form. N. B. :- It is not permissible to split sum insured of the same property under various policies for different periods of insurance to derive advantage of deferred instalments for payment of premium.

Notwithstanding the above, different policies may be issued for stocks where circumstances necessitate issuance of such policies.

MINIMUM PREMIUM

Minimum premium shall be Rs. 100/- per policy except for risks rateable under Section III and ‘Tiny Sector Industries’ under Section IV where the minimum premium shall be Rs. 50/ per policy. PARTIAL INSURANCE It is not permissible To issue a policy covering only certain portions of a building. Notwithstanding this, the plinth and foundations or only the foundation of a building may be excluded.

To issue a policy covering only specified machinery (except Boilers), parts of machine or accessories thereof housed in the same block/building. N. B. Where portions of a building and/or machinery therein are under different ownership; it is permissible for each owner to insure separately but to the full extent of his interest on the building and/or machinery therein. In such cases, the Insured’s interest shall be clearly defined in the policy.

LOADING FOR “KUTCHA” CONSTRUCTION

Building(s) having walls and/or roofs of wooden planks/thatched leaves and/or grass/hay of any kind/bamboo/plastic cloth/asphalt cloth/canvas/tarpaulin and the like shall be treated as ‘Kutcha’ construction for rating. An additional rate of Rs. 4. 00%o shall be charged for such building(s) and/or contents thereof. Note: – Temporary sheds (attached to buildings) erected during the monsoon solely for the purpose of monsoon protection are permitted without loading provided such sheds are not used for storage purpose.

RULES FOR CANCELLATIONS

For Cancellation of insurance policy. At the option of the insured:-

10. 1. Retention of premium shall be at Short Period Scale for the period the policy has been in force, subject to the retention of minimum premium by the Insurer.

10. 1. 2 During the currency, if a policy is replaced with the same insurer by a new annual one covering the identical property, refund of premium may be allowed on pro-rata basis at the original rates for the sum insured replaced.

10. 1. 3 For the sum insured not replaced, refund must be calculated after charging premium at short period scale on such sum for the time the insurance has been in force subject to retention of the minimum premium by the insurer.

10. 1. 4 In case of short period policies, premium shall be retained at the applicable short period scale. N. B. – In case a policy is cancelled on account of a Government Order or on completion of a “Building in course of construction” or where Buildings are demolished, pro-rata refund of premium may be allowed. At the option of the insurer:- Refund of premium shall be on pro-rate basis for the unexpired term.

MID-TERM REVISION IN SUM INSURED:

Mid-term revision in sum insured shall be allowed as follows: Increase in sum insured: On pro-rata basis Decrease in sum insured: On short-period scale.

ESCALATION CLAUSE:

It will be in order for Insurers to allow automatic regular increase in the Sum Insured throughout the period of the policy in return for an additional premium to be paid in advance. The terms and conditions for this extension shall be as follows. The selected percentage increase shall not exceed 25% of the Sum Insured.

The additional premium, payable tin advance, will be at 50% of the full rate, to be charged on the selected percentage increase. The Sum Insured at any point of time would be assessed after application of the Escalation Clause. Escalation Clause will apply to policies covering Building, Machinery and Accessories only and will not apply to policies covering stock. Escalation Clause will apply to all policies and is not restricted to policies issued on reinstatement value basis. Pro-rata condition of Average will continue to apply as usual. The automatic increase operates from the date of inception up to the date of operation of any of the Insured Perils. Note: – For ndorsement wording, see, Clause F, Annexure A. FLOATER POLICY Floater Policy (ies) can be issued for stocks at various locations under one Sum Insured (The Standard Floater Clause I, Annexure A shall be attached to such policies). Note: – Unspecified location shall not be allowed. Rating: The rate shall be the highest rate applicable to insured’s stocks at any location with a loading of 10%. N. B. 1: In case Stocks in a process block are covered under the Floater Policy and the rate for process block is higher than the storage rate, the process rate plus 10% loading shall apply. N. B. 2: Presence of “Kutcha” construction may be ignored. N. B. : If stocks situated within godown/process blocks in the same compound are covered under floater policy, no floater extra is chargeable.

DECLARATION POLICIES

To take care of frequent fluctuations in stocks/stock values, Declaration Policy(ies) can be granted subject to the following conditions (Standard Declaration Clause J, Annexure A shall be attached to such policies, refer page no:97): The minimum sum insured shall be Rs 1 Crore in one or more locations and the sum insured shall not be less than Rs. 25 lakhs in at least one of these locations. It is necessary that the declared values should approximate to this figure at sometime during the policy year.

Monthly declarations based on a) the average of the values at risk on each day of the month or b) the highest value at risk during the month shall be submitted by the Insured latest by the last day of the succeeding month. If declarations are not received within the specified period, the full sum insured under the policy shall be deemed to have been declared. Reduction in sum insured shall not be allowed under any circumstances. Refund of premium on adjustment based on the declaration/cancellation shall not exceed 50% of the total premium. In case the total sum insured at the risk including 50% of the declared sum insured for declaration policy exceeds Rs. 50crs, the risk will qualify for claim experience discount / loading. (Letter no.

Fire/453[591] dtd 23/05/01) The basis of value for declaration shall be the Market Value anterior to the loss. It is not permissible to issue declaration policy in respect of Insurance required for a short period. Stocks undergoing process. Stocks at Railway sidings. If after occurrence of any loss it is found that the amount of last declaration previous to the loss is less than the amount that ought to have been declared, then the amount which would have been recoverable by the insured shall be reduced in such proportion as the amount of said last declaration bears to the amount that ought to have been declared.

FLOATER DECLARATION POLICIES 1.

Floater Declaration Policy (ies) can be issued subject to a minimum sum insured of Rs 2 Crores and compliance with the Rules for Floater and Declaration Policies respectively except that the minimum retention shall be 80% of the annual premium.

2. Special rates under Floater Declaration policy granted for the stocks of Central Warehousing/ State Warehousing Corporation and Marketing Federation owned by State Govt.

(b) |Standard Fire and Special Perils policy with the deletion of STFI perils only.

c) |Standard Fire and Special Perils policy with the deletion of RSMD perils only.

|d) |Standard Fire and Special Perils policy.

3. Coverage in respect of cover under single policy (floater Declaration policy) for stocks belonging to M/s Central warehouses Corporation lying in General Warehouses, container Fright Stations and bonded Warehouses. Under insurance up to 15 should be ignored. However if the same exceeds 15% at any time the actual under- insurance should be taken into account for arriving at loss. The insured declare the values quarterly or half yearly or yearly basis within 90 days of the expiry of such periods subject to the consent of the Insurer. Special rates granted vide circular no. FT/4/2001should be applied.

Earthquake rating under Floater policy – To compute the base rate by adding the rate for highest Earthquake zone involved to the highest rate otherwise applicable as per tariff provision before applying 10% loading to the same to arrive at premium rate applicable for floater policies covering Earthquake Peril.

CLAIMS EXPERIENCE DISCOUNT/LOADING

Risks having sum insured (on buildings and contents of all blocks in one compound of one complex in one location) above Rs. 50 Crores rateable under Sectio IV, V, VI &VII of this tariff shall attract claims experience discounts/loadings based on the incurred claims experience of all the policies covering the Insured’s interest for the preceding 36 months excluding the expiring policy period. (If there is any break in insurance, available 36 months experience shall be taken into account) as per the table given below.

On renewal of business either by an existing insurer or by a new insurer, a provisional loading of 15% must be charged in all cases where certified details of claims experience by respective insurers are not available. This loading shall be adjusted subsequently on receipt of the exact claims experience. NB: No claim experience discount to be allowed for (i) Silent risk (ii) Floater policy

FIRE EXTINGUISHING APPLIANCES DISCOUNT

The discounts as per the scale given below may be granted by the Insurers to detached or segregated (as per the Committees Building Regulations) blocks of the risks protected by Fire Extinguishing appliances rateable under Section III, IV, V, VI and VII of the Tariff [except for Floater and/or Floater Declaration Policy(ies)] subject to the following: System is erected and tested as per the relevant Regulations of the TAC and a certificate from LPA or TAC accredited Professional(s)/Professional agency (ies) confirming the efficacy of the system and its full compliance with the Committee’s rules is submitted by the Insured.

Note: – Professional(s)/Professional Agency (ies) designing and/or installing the system themselves shall get the system certified by third parties. Pending accreditation of Professionals/Professional Agencies by TAC, Chairman IRDA/TAC, has approved that insurance companies can select Professionals /Professional Agencies satisfying the following norms, to certify FEA. Installation: For Professionals: a. Should be Graduate Engineer with 5 years experience in the Fire Protection field or Diploma Engineer with 10 years related experience. b. Should have handled at least 3 projects for which proposals submitted were approved and full discounts granted for the Fire Protection systems by T AC or Insurance Companies.

Note: Relevant documents (work order/job order/completion certificate) to be attached for verification by the insurance company. c. Expertise should be indicated in specific areas of Fire Protection (Hydrant/Sprinkler/Water spray system etc. )

For Professional Agencies: – a. Should have one or more professionals with requirements of 3 a), b) and c) above. b. The professional agency should be financially sound. Audited financial statements to be submitted for verification by the insurance company. General: (Applicable to both Professionals/Professional Agencies) 1. Selection of professionals/professional agency to be done only at the corporate office of, the insurance company.

Professionals

Professional agencies will not certify any installation in, which they are involved as suppliers, erectors, contractors or consultants. Insurers may be guided by the above-mentioned instructions. (Circular no. FT/4/2002 dtd 10/05/02) The installation is maintained in an efficient working order at all times and an Annual Maintenance Contract (AMC) with an external agency is in force. Note:- Any agency other than the one involved in the installation of the system or a third party having up to date knowledge of maintenance of fire fighting equipment can be approached for AMC.

I believe my hypothesis needs to be strengthened to be better than its rivals. When utilizing the chart on page 64 of our text I do find several areas for improvement. After going through the checklist I believe that a better hypothesis would be made after an Minimal analysis of the percentage of late payments and the minimum credit scores. A hypothesis could then be created that is more specific and testable as well as analyzed against other statistics such as the percentage of late payments for a higher, specified credit score.

If research shows 70% of customers that have late payments have a credit score below 600 a stronger hypothesis would state: If the local car dealership that offers In house flagging requires a credit score higher than 600 for approved financing the percentage of late payments they receive will be less than 70%. Adequacy for its purpose I *Does the hypothesis reveal the original problem condition? I Yes, the problem is a large amount of accounts that are past due. I *Does the hypothesis clearly Identify facts that are relevant I It clearly states facts grading financing approval but does not I and those that are not?

I Include any other facts. Relevant or not. I I *Does the hypothesis clearly state the condition, size, or I It only states that lenient profiles are used, this should be I distribution of some variable in terms of values meaningful I made stronger by listing a specific minimum credit score I to the research problem? I required. I *Does the hypothesis explain facts that gave rise to the need I Yes, late accounts require explanation and analysis to I for explanation? I continue to operate the equines at a profitable level.

I I *Does the hypothesis suggest which form of research I Yes, a causal-predictive study would be appropriate. I design is likely to be most appropriate? I Raising the minimum credit requirement to determine if late I I payments decrease would be appropriate. I *Does the hypothesis provide a framework for organizing I Yes, the hypothesis indicates that statistics should be I the conclusions that result? I analyzed and shown by credit scores and late payments. I Testable I *Does the hypothesis use acceptable techniques? I Yes, the hypothesis Is late payments.

I *Does the hypothesis require an explanation that is plausible I Yes, a plausible explanation would utilize financial applications. I given known physical or psychological laws? I I *Does the hypothesis reveal consequences or derivatives that I The consequence is stated and does not need to be deduced. I can be deduced for testing purposes? I I *Is the hypothesis simple, requiring few conditions or I Yes, no assumptions are required. I assumptions? Better than its rivals *Does the hypothesis explain more facts than its rivals?

Everything is going online, and so is global trade. Where before business owners need to call each other and ask about offerings, entailing a series of time-consuming and effortful paperwork, today trade is just some mouse clicks away—literally. Two global trade websites, Alibaba and Tradexpro, are fast becoming the chosen site by global traders. Not only are these websites user-friendly, they also have the larger membership share and thus a bigger repository of trades for members to choose from. On a more technical note, there are some things to consider for these global trading websites to prosper.

This is where the 7 Cs Framework come in. The 7 Cs are commerce which is the selling and buying of products, community which is the engagement of users to interact within the website, communication which is the response system between the website and the users, connection or the website’s capability to link into other websites, content or the specifics that the website contains, context which is the aesthetic value of the website, and customization or the ability of the website to be changed or modified to suit the differing needs of clients or users.

These factors determine the competence of a website in its industry. While keeping a trade website is becoming more and more an ability of almost every business, some websites still stand out from the rest. These indicators help a website get to the front, while at the same time increasing value for the products being traded as well as for the site. These indicators will similarly be used to study and evaluate Alibaba and Tradexpro, specifically in the manner that they incorporate these 7 Cs and the degree in which they complement each other for the benefit of each website.

Alibaba, Tradexpro, and the 7 Cs Commerce Commerce refers to the selling and buying activities that may be done through a channel, in this case through the website. Alibaba and Tradexpro are mainly focused on this activity in their websites. They are geared to helping suppliers sell their products, and helping buyers find the products that they need. In a sense, these two websites works like an online trade fair where businesses meet and discover each other. (Johnston, 2003) Alibaba and Tradexpro are examples of business-to-business websites.

They are different from ordinary trading or shopping websites because their market is mainly manufacturers, distributors, and resellers. In these sites, products are sold and bought by bulk. There are very minimal opportunities to buy products per piece, or to have products dropshipped, although some traders also agree in these arrangements. Both websites cover international trade, making it possible for member businesses to reach buyers and suppliers globally. This exposes users to a diverse array of contacts to choose from. At the same time, businesses who are members of these trading sites increase their visibility online.

As it accepts memberships from both big and small businesses, the commercial possibilities of these websites are endless. Community An important characteristic of business-to-business website is the ability of traders to interact with each other. This is widely practiced within Alibaba and Tradexpro. The members become intangible units of a community. Here, each member benefiting each other and the website itself. In Alibaba, the community is flourished by private messaging. However, members have the option to not disclose their contact information from free members.

While this is a security practice for traders, this lessens the community spirit within the users. The same private messaging capability is used in Tradexpro. Yet an interesting feature of Tradexpro is the business directory, a user-friendly listing of all members which is not at all exclusive to members. Thus, even non-members can access a company’s contact information without signing up for the site. The community also enjoys a page of news from around the world. Alibaba does not have a definitive directory of members, but it is also serious about keeping the community alive.

It offers forums for members and articles for members to read. Alibaba also issues safe trading journals and tips to its community members. (Alibaba, 2008; Tradexpro, 2008) Communication In relation to community, the communication among members is likely important. With trading websites, companies need not have to rummage through tons of printed letters. Because everything is online, a company just needs to check messages from the website or from the company email client and choose to do two things: respond to clients or block and delete spam messages.

Technology has made communication between businesses easier. However, it has also brought about issues on proper business correspondence. As it may seem impersonal, many businesses are corresponding online without the standard correspondence procedures and etiquettes. To aid this, Alibaba offers templates that users can use in their inquiries. Both Alibaba and Tradexpro also make private messaging exclusive to members to initially filter out bogus messages and spammers. (Alibaba, 2008; Tradexpro, 2008) Communication is the backbone of business. It is the only way the companies can interact and negotiate.

Callahan (2007) points out that at this day and age, more and more people are becoming email-savvy. People prefer to send the free and fast electronic mails than go through all the trouble of writing, enveloping, stamping, and posting the mail. Businesses, thus, have to adapt to this new trend to avoid being pushed over by businesses that are willing to take on the new correspondence trend. Connection Connection is the link outs, and link ins, that a website provides. Both Alibaba and Tradexpro link into internal pages. Alibaba, in fact, gives their members a free page to serve as their website.

Tradexpro offers the same, though calls it catalog instead of webpage. Alibaba links to trade shows, which are great information tool for the members of the sites, and sponsored advertisements from members. These links are likewise internal pages. Tradexpro, on the other hand, offers internal link ins to trade show announcements, but links out to advertiser websites. Tradexpro also has advertisements fed by Google which is a revenue tool for the website. (Alibaba, 2008; Tradexpro, 2008) Content Ferraro (2003) states that content is the top two component of good websites. Content spells the value for the website.

This is where the level of usability of the website to the user lies. Alibaba and Tradexpro pretty much have similar contents. They have buying leads, selling leads, member information, sign up and log in services for members. In each lead, information about the product desired or featured and the member who posted the lead is shown. The difference between the content of the websites lie in the product descriptions. While Alibaba offers very detailed information about leads, with price ranges, packaging, shipping, origin, and certifications applicable to the product or the manufacturer.

Tradexpro takes the descriptions more easily by featuring just the name of the product, origin, classification and description, leaving members free to contact each other to discuss arrangements about the trade. (Alibaba, 2008; Tradexpro, 2008) Content serves as the parameter which will measure how long a user will stay with the website. The more useful the contents of the website are, the longer the user will stay around. The better information there is, the more the user will come back. Like with Alibaba and Tradexpro, electronic commerce websites should mainstream the content of their sites with the purpose of their domains.

Thus, while Alibaba and Tradexpro sells a variety of products—from electronics to undergarments—they are still able to pull together an interesting and useful website for their target markets, which are the traders. Context At first look, Alibaba and Tradexpro are strikingly similar. The color scheme of orange and blue will remind one of the other, though Alibaba’s logo is more creative than the technical font style of the Tradexpro logo. The layout is also similar for both websites. The top-of-page search bar and the scrolling images give users quick access to information from the websites.

The use of pictures by each also resembles the other. Evaluating this, it may be said that the layouts used by Alibaba and Tradexpro are similar because it is a more effective way to present large volume of information. However, it may also be considered as a competitive technique by Tradexpro, who came later in 2003. Alibaba holds its copyright since 1999. (Alibaba, 2008; Tradexpro, 2008) Aesthetics is an important factor for any electronic commerce website. In fact, it is the third top component for a trade website to be successful. (Ferraro, 2003) The look and feel of the website contributes to the ease of its use.

Likewise, aesthetics create the total impression that the website aims to get from the users. Customization In terms of customization, Alibaba and Tradexpro are both very limited. Alibaba users can search through the thousands of products and companies using filters on region, country, category, business type, and export market. Tradexpro is more limited with no filters that can be applied to searches. These limitations make it difficult for users to scan through the database to find a fitting product or company for their requirements.

Yet this does not affect the overall functionality of Alibaba and Tradexpro. With the content straightforward and the context professional and fitting, users should not mind the lack of customization on the use of services.

References

Alibaba. 2008. Terms of use. [Online]. Available at: http://www. alibaba. com/trade/servlet/page/help/rules_and_policies/term_of_use [accessed 31 May 2008] Callahan, P. 2007. Communication breakdown. [Online]. Available at: http://www. practicalecommerce. com/blogs/ecommerce-observer/archives/57