Home Syllabus Class Sessions Worksheets LEXs Contact Instructor Student Progress
Return to Class Sessions

 
"Pay me now or pay me later...but pay me; sorry, we don't accept virtual cash".
  Ragmar Bosephus, Web Accountant

Sales Transactions & Taking Orders

An online sales transaction becomes a contract when one party offers "consideration"...which means that some or all of the product or service is delivered or some or all of the payment is received.

As the customer begins shopping at your site, items are put into a "Shopping Cart". Once the customer clicks on a "Checkout" link, the shopping cart choices are noted and additional choices are made by the customer, such as shipping, method of payment and so on.

So far, the seller, you, has offered your merchandise and services through an online catalog, the customer has made item, quantity, and other choices, but there is no contract, nothing delivered and nothing received. The contract is established once the customer finishes the checkout process and hits the submit button...and payment is sent.

Once the contract is established, legal issues arise regarding your rights and obligations and customer rights and obligations, such as returns and exchanges, credit card charge backs, delivery promises, the collection and use of customer information, and so on. (see Legal Issues Session 10)

A typical Check-Out process usually involves several consecutive pages for the customer to go through.

1a. Shopping Cart Filled

  • Product
  • Price
  • Size
  • Color
  • ability to make changes

1b. Click Proceed to Checkout

2. Sign-in OR New Customer Data
  3. Ship To
Choose your shipping options 4. Shipping Details
5. Select Payment Method
6. Review and Place Order
Generate an Invoice 7. Auto Responder
Details to Add
  • Billing Calculations
  • Discounts
  • Coupons
  • Gift Items
  • Others?
 


The process involves the following steps, and of course, in an eCommerce solution you have many options as to how to do each step. However, the options should be chosen to suit your customers and to give your customers choices.

Steps to Sales Transactions & Taking Orders
  • Customer Order Placing Options
  • Billing Calculations
    price
    discounts
    transportation
    taxes
  • Auto-Responding/Invoice Generation and communicating with your customer
  • Types of "Money" & Cash Settlement
    B2B vs. B2C
    Prepaid
    Real Time Payment
    Checks Online
  • Cash Settlement/Payment System
  • Shipping & Order Fulfillment
  • Return and Exchange Policy

Customer Order Placing Options

M.O.T.O. - Snail Mail (Post Office)/Telephone Order (900, toll or 800)

Many orders initiated online are completed off-line through more traditional M.O.T.O. About 60% are completed by phone. Much of this is due to customers being dissatisfied with the order process set up for the Web site - it is poorly or inadequately designed. However, customers have concerns even if you design an easy to use and navigate online ordering process:

  • customers may have questions
  • customers are concerned about security issues
  • customers want to speak to a real person
  • customers don't want to change buying habits
  • customers want assurance that the order is received and processed
  • customers want to personalize the buying process
  • customers are using the site for research and other sites for comparison but not for ordering
  • merchant wants to personalize the order process

    http://www.value-audio.com/ | http://www.audiogon.com/

For these customers, give full and accurate ordering information and provide a printable form for them to use in ordering either by mail or to read information from when using the telephone. For you, the business owner, encourage online ordering, perhaps even with discounts or incentives, and get an email address to encourage comfort with future online communication.

Also, 800 numbers are free of charges for the customer, but you need to figure it into your business expense projections.

Pay-Per-Call: Federal regulations do not allow selling of products via 900 numbers but do allow you to sell access to your Web site via 900 numbers. The customer calls the 900 number for a set fee and is given a password to enter your site. However, this is a relatively expensive option and includes Billing company fees. More importantly, 900 numbers have a bad connotation and are generally associated with adult sites.

http://www.ehow.com/how_2000343_900-phone-number.html
http://paypercall.com/

Time-Billing: Charging the customer for time spent at your website.

BSA Pro
Timeslips

Fax

Customers need this to work all of the time. So, you must always have your fax machine on and full of paper or set up fax/modem software and always have your computer on or choose a Web host that accepts and stores fax files. However, the customer must also have a fax machine or fax modem. If they have a fax machine, they will likely have to disconnect from the Internet to access their phone line and they must have a printer to print out the order form that they will fax. You need to make the steps very simple, few and clear for the customer to follow. eFax.com is an online fax service for sending and receiving faxes via your computer using a local or toll free number. It uses both email file attachments or fax software at yours or your customers convenience. eFax.com http://www.efax.com/

E-Mail

You should, and in fact must, include an email address by which a customer can order, even if you include phone or other options. World Wide customers might be doubling the price of ordering or doubling your expense of accepting orders by using phone.

Email Strategies and Concerns
  • Some customer browsers may not support forms
  • Create a form and instruct customers to copy and paste it into the email message
  • Create a form and instruct the customer on how to save it as a text file and import or attach it to the email or print it to "snail mail" it
  • Create several email addresses for different customer functions:
    • requests for further info
    • online ordering
    • customer support and service
    • subscription to a listserv or newsletter
    • etc.
  • Include the email address in case the customer's browser isn't able to or isn't configured to open an email window automatically when they click on the email link:


Web Form

You can create an order form that  can be sent securely if you use a secure server and if your Web Host supports the interactive "language" in which it is created. You can create forms by:

  • using authoring software like Dreamweaver
  • Coding with Peral, Java, Javascript or using pre-coded modules
  • CGI scripts or applets

Some Web sites use a two-form system that splits the customers order between two forms where half the credit card number can be sent on one and the other half on the second form. Is this safe? Well, yes, mostly! Credit card companies consider it safer in this online form than in the real world. The credit card companies accept the risk of fraud just like in the real world. AND, very few people know how to commit online fraud, millions know how to commit real world credit card fraud.

Secure Shopping Cart (Basket)

Now, for the best, most customer friendly, and the most logical, AND the solution of the future, you can:

  • buy shopping cart software
  • rent shopping cart software
  • use a Web host provided or freeware script
  • create and install your own shopping cart software

To make it a secure system you will take the following steps.

Step Cost
Set up the shopping cart and secure checkout Purchase a template system average $200 to $1,000 and up for; Build a system costs $0 (D.I.Y.) or Programmer charges $2-10,000 or more; Rental system averages $30-100 monthly
Obtain Domain Name hosting  $7 registration fee yearly; $5-25 ISP setup fee, $5-10 monthly
Obtain Website hosting (space) $5-20 setup fee, $10-30 monthly
Obtain secure server hosting $10 setup fee, $10-30 monthly
Internet Access (56K, DSL) 56K = $15 monthly (don't even think about it!)

DSL/Cable/Satellite = $20-60 monthly + phone line; router and modem $75-200

Digital Certificate and authentication Verisign $400/year per server, $300 per year thereafter per server

Merchant Service Providers (Real Time Cash Settlement Provider)
info | info2 | info3 | info4

Credit Card Comany Fees
More Info
  scroll to CC's


CyberCash $40 setup fee, $40 monthly plus 20 cents per transaction


Credit Card company transaction fees 0.05%-5%

Approximate Total:    Fees: $400-$1400

Monthly: $35-$150 plus $.20 per transaction

Security issues with Credit and Debit cards:

Debit | Basics | Merchant Basis | Merchant2 | Best Practices |
Detailed Merchant Tips |

Reasons for Abandoning Online Shopping Cart
High shipping prices
72%
Comparison shopping or browsing
61%
Changed mind
56%
Saving items for later purchase
51%
Total cost of items is too high
43%
Checkout process is too long
41%
Checkout requires too much personal information
35%
Site requires registration before purchase
34%
Site is unstable or unreliable 31%
Checkout process is confusing 27%
Source: Vividence - November 2001

What Makes a Good Shopping Cart?

  • Collects and describes chosen items
  • Indicates quantity selected
  • Indicates Options Chosen
  • Gives item prices and totals
  • Allows changes to any of the above
  • Saves shopping cart content between sessions
  • Allows quick access and return to where you came from
  • One click to check out system and easy return back to shopping cart
  • Others?

Billing Calculations

price - Like any business, you need to have set prices or negotiate prices. If you offer product/service versions or options, it is even more important to have accessible price information for the customer. Whatever system you use should make it possible for customers to see a running total based on per item and quantity chosen.


discounts - You may offer sales prices, specials, good customer discounts, free delivery, quantity discounts that are cumulative or non-cumulative and other price deals as you would in any selling situation. Legally, you can change price at any time  with proper notice under the Uniform commercial Code.
U.C.C. - ARTICLES 1-9 http://www.law.cornell.edu/ucc/ucc.table.html


transportation - The cost of shipping a product isn't necessarily the amount you will want to charge your customer. You may want to average transportation over customer types, distance, minimum quantities ordered, or simply absorb some of the cost in the interest of good customer service.

You may follow the catalog model where it is common to charge a set fee based upon the dollar amount of merchandise ordered, often expressed as a percent with a maximum limit.

Many parcel services including the U.S. Postal service, FedEx and UPS have opened their shipping tables and database to link to your Website and calculate shipping  or even interfaces with eCommerce Software solutions and shopping cart products to enter the calculations depending upon customer choices of overnight, 36-48 hour, or 3-5 day delivery speeds. Most parcel companies are basing their rates on distance, mode of transportation or weight of merchandise.

PO boxes may be a problem for transportation. Customer should be informed if this is a transportation issue for the shipper. You need a policy, clearly communicated to customers, on transportation charges and issues for:

 
  • Transportation charge included in the selling price or as an added item (like tax)
  • How to calculate the transportation charge - by order size, quantity, distance, average charge, set fee, use carrier's fee charts, etc.
  • Carrier options (FedEX, UPS, Postal, etc.
  • Delivery speed
  • Return options and handling of fees
  • PO Box issue addressed


taxes - Sorry, but you are required to collect and pay taxes under State law for the state from which you operate. If you can deliver your product or service online and do so only in that manner, then under the Revenue and Taxation Code section 6203 rules of "nexus" ("physical presence doing business," aka: PE or Permanent Establishment), you do not have the sufficient minimum  nexus requiring sales tax collection.

Otherwise, if you are a retailer engaged in business in California, you are said to have sufficient nexus and must collect State, county and municipal retail sales taxes. Like a catalog mail order business, if the product is mailed to California residents you charge tax, if out of state, you do not. If you have a presence in other states, you would be required to collect taxes there as well. So far, having only a server in a state is not considered a sufficient nexus for taxation.

Another issue is that Congress has an Advisory Commission on Electronic Commerce studying the taxation issue based on state sales tax, no tax or a compromise position. Currently a few state's have amended their sales tax laws to say that Internet sales are not exempt from their current law. California has done this with CA AB 1614. There has been some discussion of a Federal taxation. Under the Internet Tax Freedom Act (ITFA) passed by the U.S. Congress in 1998, there is a three year moratorium on any new Internet taxation.

Taxation Questions
  • Is sales tax applied by the location of the server that hosts the Website or the location of the purchaser?
  • What if the product is intangible, e.g. digital film that is processed and downloaded?
  • What about international boundaries, customs duties and other taxes?
  • Will you pay one tax in a store and a different tax via Web sales?
  • Who is responsible for sales taxes, the buyer or seller?
  • What is a "level playing field? in regards to taxes"
  • What about anonymous transactions and e-cash?

btw (By the way.) The retail sales tax law states that the business has the right to be reimbursed (collect) retail sales tax from the customer but that the business actually owes the retailer sales tax.

Also, your business is required to file for a resellers permit whereby you are designated as a retailer and subject to the nexus tax interpretation or as a wholesaler or manufacturer and therefore exempt.

Auto-responding/Invoice Generation & Communicating With Your Customer

Many customers feel uncomfortable ordering online. It is crucial that they get an order confirmation so that they are assured that the order was placed and that the terms and costs were what they wanted. Include a way to print this and print an invoice. Include contact information in case the customer has questions.

Shopping carts and CGI forms are easy to set up with an autoresponse confirming the order. However, not all are interfaced with the catalog, order form, billing or inventory databases, thus, they may not include the details of the order for items, options, price, etc. They may only confirm receipt of the order. Generally, the Web host must provide a POP mail account for autoresponders to work with a database and text file system.

Customers have many questions during your shopping, ordering and payment processes. They also have questions after the order has been submitted about billing, order status, service, help, returns, and more. With Web technology you have many ways in which you and the customer can communicate. This includes ways for your customers to communicate with other customers and interact with them as well.

Communicating With Customers - It's Good Customer Service
Rate the transaction newsletter surveys
FAQ bulletin boards forms
knowledge databases fax back autoresponders
links chat rooms email addresses by department/function
phone numbers discussion physical location to visit

Types of "Money & Cash Settlement" or Payment Systems

Make sure the customer can chose real time secure money transfer OR a manual payment system. Offer both!

What makes a good Payment Systems and Check Out Page?

  • Gives totals and shows clear invoice of items and options
  • allows editing of items and options or easy access back to shopping cart
  • Adds Billing choices
    • Retail sales tax: if necessary calculates for your city/county/state
    • Transportation choices and prices
    • Multiple shipper/transporter choices
  • Payment choices:
    • Multiple credit cards and remembers data
    • PayPal and others
  • Shipping Address and remembers options once entered
  • Security policy
  • Return and Exchange policy
  • Guarantees, warrantees and insurance
  • Remembers options entered and gives choices next time you purchase
  • Clear submit button; you know you have chosen to act
  • Acknowledges order, printable invoice and returns you to an appropriate page onsite

There are three payment methods that work with the Internet and then the old standby system of invoicing and billing like a Brick & Mortar business typically does.

Let's start with a distinction based upon type of customer. Most B2B sales are of sufficient volume and frequency that credit card transactions are not a reasonable payment system. Business-to-business customers usually want to be invoiced and billed. Consequently, they expect the typical 30 net credit terms that are traditional to B2B transactions. However, they may pay their bill electronically with bank to bank transfers.

Given that, there are four Internet system types:

Digital Cash - a prepaid, digital equivalent of cash. They use software that creates digital money on a hard drive or "smart card." Some companies that are examples of this kind of system are DigiCash (eCash), NetCash, CyberCoins, IBM Micro Payment, Millicent, Smart Cards, Mondex, GeldKarte, and VisaCash. You are said to have a "virtual wallet." They are not popular to this point for general shopping purchases online. Because they simply may not be seen as convenient, reliable or necessary. They apply best to services that bill you for time spent online at a website
PayPal and other payment intermediaries. http://www.paypal.com/cgi-bin/webscr?cmd=p/wel/index-outside. Auction sites helped to popularize some versions of these systems like PayPal and c2it from Citibank and they have become increasingly popular as they improve their services. c2it from Citibank is defunct. PayPal had a rough start and was then purchased by EBAY and was greatly improved in payment utility, fees and float.
http://www.paypal.com/
https://www.c2it.com/C2IT/Login
Real Time Credit Card Transactions (instant-paid) - This is accepting Credit Cards online system that transfers money instantly (almost) into your bank account: requires a Bank Merchant Account, digital certificate authentication, Gateway Account with a cash settlement system. http://www.bankcardusa.com/products.htm
Checks Online - Checks can be accepted by mail, phone, fax, form, or email. All you need is the information from the check and authorization from the buyer for you to sign the check or you can put "signature not required" on the signature line. This essentially creates a bank draft. The FTC allows this with the stipulation that either the buyer must verbally authorize the transaction or a copy of the check must be sent to the buyer as a notice of transaction. Many companies supply software that will print the checks and the copy for as little as a $99 one-time fee and a per check charge of about $1.50 or a small percentage of the sale. On-line Check Systems, Redi-Check, Quick-Checks, WebChek and, of course, Yahoo! - Check Services are some of these service providers.
 

A supporting piece of legislation signed by President Clinton is the legalization and creation of Electronic Signatures. (E-Sign)It overrides many state and federal laws that require paper signatures on legal documents and contracts. It opens up the Internet and WWW for large B2B deals, real estate transactions, insurance and other contractual exchanges. It will use authentication software and digital certificates. Some exceptions include divorces, wills and adoption.

Shipping & Order Fulfillment

Order Fulfillment Options:
1) Self-Order Fulfillment - Buy & Own Products, Handle Inventory; Fulfill Order Delivery/Returns
2) Drop Shipper Order Fulfillment - Don’t Buy Products; Don’t Handle Inventory; Forward Order for Delivery/Returns and Get Billed for Sale
3) Fulfillment Service Order Fulfillment - Buy & Own Products; Don’t Handle Inventory; Forward Order for Delivery/Returns

Order Fulfillment is the process of packaging the order and shipping it AND handling returns and exchanges. You need to either:

  1. Have a facility - you are the e-tailer and buy and handle inventory by setting up a bricks & mortar business with inventory storage and possibly employees, 
  2. Use a drop-shipper - You are the e-tail cataloger, don't have a facility, don't buy and handle inventory BUT relay the order for fulfillment to a cooperating wholesaler or manufacturer (though many do not want to handle lots of small individual shipments) (E-tailers that drop ship merchandise from wholesalers may take measures to hide this fact to avoid any stigma, or to keep the wholesale source from becoming widely known.)
  3. Use a fulfillment service - You are the e-tail cataloger, don't have a facility, you buy the inventory BUT don't handle it. They recieve your inventory and fulfill your obligation to send a person an item or product that the person has ordered by performing the services accepting a forwarded order on your behalf, packaging, labeling, and then shipping the ordered item to the end consumer. (E-tailers that drop ship merchandise from wholesalers may take measures to hide this fact to avoid any stigma, or to keep the wholesale source from becoming widely known.)

When a Customer places an order you need to generate paperwork:

  • Electronic or printed itemized order for pulling the inventory
  • Inventory tracking
  • Order status (shipped vs. back ordered, etc,)
  • An AutoResponse invoice onscreen (include printable version)
  • An AutoResponse email invoice
  • A Packing List
  • A Bill of Lading from the shipper

What is your place in the Distribution Channel?

What kind of business are you and what roles will you play in the marketing channel (aka distribution channel) You can be a retailer (e-tailer in this case), wholesaler or both. You can produce your own products or buy them from the manufacturer or from wholesalers. You can perform functions such as delivery, financing customers, inventory handling and shipping, or you can have facilitators perform those tasks.

For your online business, the big picture is:

  • Logistics - the management of the physical flow of goods between the point of origin and the point of consumption. It focuses on the needs of the end customer but starts with the manufacturer and includes all the tasks necessary to get the "package or product" to the end user/customer successfully. Logistics involves companies that handle the physical:
    • transportation
    • inventory handling
    • warehousing/storage
    • packaging and labeling
    • transportation
    • and sometime the facilitators that make possible the physical movement of goods: insurance, financing and security.

Logistics is a channel of the supply chain which adds the value of time and place utility for all parties.

  • Supply Chain Management - is the bigger picture. It includes all the business participants that are involved in logistics AND all the business participants that create and own title to the goods as they pass from manufacturer to end user/customer. A supply chain system may have TWO PARTS: 1) a distribution channel to transform natural resources, raw materials and components into a finished product, 2) a distribution channel that moves the finished product from the manufacturer until it is delivered to the end consumer.
    • 1) RMS and component manufacturers > Intermediaries > Consumer Product Manufacturer
    • 2) Consumer Product Manufacturer> Intermediaries > Consumer


In eCommerce, you may need to add new intermediaries even if you have an existing business. Why? Well, the current ones may be inadequate to the tasks, inadequate to the scale of business, or you may be reaching new markets or new geographies. Some intermediaries and facilitators necessary to eCommerce include:

Manufacturer/Creator/Performer

Intermediaries Facilitators
  Warehouse/Storage Facility
Retailers Transportation
Wholesaler Merchant Service Company
Insurance Companies

Issue - RMA Module
(Return Merchandise Authorization)

Banks and Lenders
E-tailers Internet Merchant Bank
  ISP (Web Host)
http://www.cruzio.com/
http://www.sasquatch.com/
http://www.attbroadband.com/services/
  Agents/Brokers
  eCommerce Providers
http://store.yahoo.com/
http://www.shopsite.com/
Customers/Consumers

 

A Fulfillment House (service) is a newer type of intermediary that will accept your orders and package and ship the products. Fulfillment services are located throughout the world. Once you set up a relationship, they will accept periodic large shipments from you or from your supplier routed directly to their warehouses. They are then willing to redistribute (break bulk) for smaller and individual order size shipments.

Yahoo! -Fulfillment Services indexes some, and the Yellow pages lists them locally as well.

http://d4.dir.scd.yahoo.com/business_and_economy/business_to_business/corporate_services/customer_service/fulfillment_services/

This link leads to a case study for SCO's efforts to sell its software products via a secure commerce eCommerce site. They used a fulfillment service, had an interesting return policy and made some unique decisions regarding how to evolve the site to make it workable for them based on costs and customer usage patterns.
SCO - Santa Cruz Operations case study in eCommerce

Return and Exchange Policy
(
Return Merchandise Authorization aka RMA)

Customers may want to return a purchase for many reasons:

1. Customer does not want product
2. Product DOA ("dead on arrival") = Broken
3. Incorrect product shipped
4. Product ordered incorrectly
5. Order entered incorrectly
6. Duplicate order shipped
7. X-Cross order - part of what you need was shipped but necessary parts were unavailable or back-ordered

Software exists, called RMA modules, example 2, to help in the processing by generating labels, shipping info, bar coding for transportation and payment, and tracking return statistics for inventory management.

More commonly, the term RMA is used by customers as a verb to refer to the physical act of shipping a defective product back to the vendor, e.g. "I'll have to RMA that computer because it was dead on arrival."

RMAs are also referred to as RGAs (Return Goods Authorization), product returns, and customer returns.

Merchandiser Sales Rights & Obligations

Returns - When a customer wishes to return merchandise you need to do two things: have a policy and comply with the law.

Returns Policies

  • Refunds
    • Cash Refund
    • Credit Card Refund
    • ATM Card Refund
    • Store Credit for Future Purchase
  • Exchanges
    • Same Item
    • Better Item- exchange merchandise + collect additional Revenue
    • Lesser Item - exchange merchandise + Issue refund of Revenue
  • Allowances
    • Issue a Partial Refund (Discount the Sales Price) and Customer Keeps the Damaged or Defective Item

Policy Guidelines

  • Post the Policy Conspicuously
  • Receipt includes printed policy
  • Verbally Communicate the Policy
  • Exceptions
    • Check - no refund until the check has cleared
    • Credit Card - void the sale and avoid fees (charge back) (note: a cash refund would pay back to the customer the full retail price including transaction fees you paid but didn't collect)

California Civil Code section 1792: New Merchandise and products sales laws.

1. A business can clearly state a policy on returns, exchanges or refunds:

  • Post it conspicuously
  • Print it on receipts
  • Verbally communicate it

2. All new merchandise is covered by a 60-day "implied warranty" against defects, unless the item is sold as-is.

3. Excepted are clothing, food and other perishables.

4. Customers are not legally entitled to refunds or exchanges.

5. If a store does not give refunds or exchanges within seven days with a receipt, the state law requires the policy to be posted. Conversely, if no policy is posted you must give a refund or exchange with seven days.

6. Stores are prohibited from knowingly selling defective merchandise.

7. "As-is" and "all sales final" policies can mean just that!

8. Contact the Department of Consumer Affairs with questions or for requesting printed materials.

 

Your return policy may involve the following decisions:

  • Who pays for the return packaging and shipping fees
  • Who pays for the replacement items packaging and shipping fees
  • Restocking fees (often 15%)
  • Boxing (shippers may provide free boxes and tape)
  • email acknowledging the return and including:
    • Labeling and packing list
    • Shipper Call Tags (bar code authorization for shipping to vendor and payment for the shipper)

When you use drop shippers or fulfillment houses, a common practice is for you to charge the customer a restocking fee, and transportation to return and reshipping if exchanged. You also email the customer a printable packing list and a bar-coded return label that the return shipper (UPS, USPS, FedEx) will put on the box (they collect their fee from you the seller out of the money charged to the customer.) Your customer prints the label, takes it to the shipper and the package is shipped.

When you process a return, your RMS module software can help with the following tasks.

 

24/7 is Not Just a Slogan

Sell while you sleep! Perhaps the biggest back end is to realize that your Web business is open 24 hours a day, 7 days a week. Your customers may be anywhere on the planet, in any time zone and shopping at any hour. Day to them may be night for you. Consequently, your plans need to prepare for this customer and this customer's reasonable expectations of service from their point of view. 

Some of the things to include in your site plan AND your business plan are:

  • Automated responses
  • FAQs
  • Phone, fax and address
  • Back end database management integrated with the order process database, the billing/payment system and the order processing/delivery systems (fulfillment system)
  • Trained employees
  • Workday and shift tactics, process and steps
  • Clearly stated information for customers on what to expect in terms of responses, timing, options, customer service and so on.
  • Be prepared to respond to language, culture and icons and images that are not what you are used to
  • Others ______________________________________________


used by permission © Corrina Dilloughery