Basics of E-commerce.

Imagine this, you are ordering something from, say, Amazon or Flipkart, or any other site you usually shop from, and you are wondering, “How does this thing work? What all things are involved here?”, well, hello there! My fellow nerd, in this article, we'll walk along your every click and hopefully, by the end of this read, you’ll have a basic top-level understanding of how any eCommerce application works.

Shopping Spree

Say, you just moved into a new city, and after a lengthy and frustrating house hunting, you finally found the one you would be happy to rent or buy out. Congrats!! but you still have a lot of things to get done, and probably, getting all mundane household things are at the top of your list. So what do you do? You fire up a shopping app on your phone, and on you go!

Catalogues and Collections

As soon as you open up that app, the first thing you usually do is sign up, you give them your email address, phone number and the current address you stay in, and after you happily fill everything up and click on that signup button, a generic loading screen appears for a while, and, bravo! You are in, seeing products and you begin your shopping. Now, hold on a second, let us take a step back to that loading screen for a moment here, shall we? A lot of things happened behind that generic loading screen you just saw, let’s walk them through. Behind the scenes, your application is trying to load something called a Product catalogue.

What’s that? You may ask, well even though the name is self-explanatory, but, it needs more context. There’s a high chance that the service provider whose app you are using might be serving many different customers all at once, customers from different states, countries etc. Customers in different regions would have different needs, and likings, depending upon culture, environment, purchasing power, climate etc. So, it is better to better show products best placed and suited for customers from that particular region, rather than showing all products available to all your shoppers. Hence in order to handle that, your service provider usually bundles products into a catalogue and shows it to them, and that’s a product catalogue for you. Indian customers would be viewing the Indian product catalogue, and Europeans would see the European one. This helps your service provider to launch a specific product in a particular region and do market research for each product available, or show products depending upon the regional seasons or festivals. That product catalogue data is now processed and shown on your screen.

But that doesn’t end there, each catalogue would have a large number of products in them, sometimes 1000s or so, we just can’t expect the customer to just go through each one until they find what they are looking for, they would probably run off! and, your service providers absolutely do not want that to happen, so in order to make it easier for a customer to narrow down their target product, they break a catalogue down into something called Collections.

Collections are similar products grouped together.

For example, Fashion would include all clothing-related products, Electronics may include products like phones, laptops etc. You get the zest of it. So, say, you as a customer wants to buy kitchen utensils, you can just browse through the Kitchen accessories collection in your assigned product catalogue and start seeing around.

Collections, could then be broken down into sub-collections, it helps if the quantity of all the products are large and just catagorizing them into a collection of similar products won’t help, in that case you zone in further out looking for additional similarities and make sub collections out of it.

Here’s what our mental model about Catalogues, Collections and Sub-collections should look like,

Now, say, your phone is pretty beat up and you are looking for a new phone, you go to the “Electronics” collection in your catalogue, and in that, you hunt for the “Phones” sub-collection and you go scrolling through all the different phones available for you to buy, after a while of doom scrolling, you finally found the one you like, what happens then? We’ll talk about that in the section below.

Products and SKUs

After browsing through all phones, and comparing a few, you finally found the one with the right price and has all the things you are looking for, you are now given an option to choose, which model, size or colour you want to go with. You now go on choosing among the available ones.

What you are essentially doing here is that you are selecting an SKU from the product of your choice. SKU stands for Stock Keep Unit.

A product is comprised of one or many SKUs.

Let's first understand what SKUs and Products are. Say, you are buying a phone and for simplicity's sake, there is a phone named “Phone 1”, and it has two colours, Red and Grey, and, two storage options available are 8GB and 16GB. Now, with the available data, you can make combinations out of it, you have two colours and two storage options, which bring the total combinations to four (2 x 2), which would be:

Product and SKUs, Image 1

Now, please note, the product Phone1 has, four SKUs within it, please don’t pay attention to the SKU code field as of now. Say, you go for the colour Grey.

As soon as you as a customer clicks on the colour “Grey” the SKU space narrows down to all SKUs which have the colour grey, which now would be two. Next, you go on to see the storage options, say, you selected the one with 16GB, as soon as you select that option, the system maps your choices to an SKU which satisfies all your choices, and voila, the system finds it, with SKU with code, P1Grey16.

Now, the system has an SKU code, and as soon as it gets an SKU Code, it goes on to check for the inventory from the warehouse nearest to your address, or in the region close to you. If possible it would try to get reviews from that SKU, and the price of the SKU from the “Price Group” assigned to you. We’ll talk more about price groups in the section below.

Hopefully, that explains to you the concepts involving products and SKUs. A product must always contain SKUs inside it. Take it as a law of nature. The number of SKUs may depend, a product can have one single SKU, like buying a super rare limited product, like a gold statue, which the company only makes one of. Products may have single variants, like pens, for example, they may only have different types of colours. Each company may make it look different from the other but at the end of the day, a pen can only have a single variant, which would be its ink colour, it could be, blue, black etc. A product can also have multiple variants, like in the case of phones you just saw, you can go on to add a third variant, like, RAM storage or whatnot.

But, the most important takeaway from this section should be,

You always buy a SKU not a Product.

Now, let's talk about the price group I mentioned up there, shall we?

Price Groups

Now, you are pretty sure about the choice of phone you are going with and you wanted some input from your friend. You call that person up, and now, your friend is also looking at the same phone, with the same SKU you selected, but somehow, even if you guys are on the same app, looking at the same product and SKU, the prices are different, how? Well, that’s the magic of Price Groups.

Think of it this way, you want your customers to stick with you when they shop for any product. You may want to reward them by showing lower prices than others, say, if they (a.k.a customers) pay for a certain premium membership, or, say, they are customers from an entirely different region all together with different taxes and pricing. If you want to give a discount to a group of customers during a festive season in a particular region, all this, and many other use cases can be handled with the help of price groups.

Price groups are what we get after dividing your customers into groups and showing them a certain set of product prices.

Different price groups show different prices, and customers can be assigned to a price group or moved to a different one depending upon the situation. But, it’s sort of a one-to-one mapping, one customer belongs to one price group only, it may change but, a customer can ever belong to one price group only.

Now, each price group, contains three price lists inside it, list price, sale price and shipping surcharge. The sale price should always be less than or equal to the list price, if the item’s sale price is less than the list price, that item depending upon the situation and your service provider can be considered to be put up on sale.

So, in this situation, your friends might be premium subscribers to your service provider, or just in a different region altogether, so, depending upon the supply-demand, regional taxes, or any internal qualifications, the prices may differ.

Promotions: Upsells and Cross-sells.

Now, after choosing which phone to go with, you went around the app and added a few more items to your cart. Now what? Now comes, the time for offers and discounts. I know you don’t encounter these all so often, but it’s necessary to include them in order to understand the entire flow.

The primary focus of any e-commerce service provider is to grow their business to a wider audience as possible. This means that you need to make sure your frequent customers keep buying from you, and another most important part would be to acquire new customers, which is a really expensive process because you want to bring more customers in, and even if you did, how would we retain them, and keep existing ones happy? Well, one way would be by giving them offers and discounts on most purchases possible.

First, let’s understand what actually Upselling is. Now, imagine a customer is buying something from you, you would want to make sure, that you as an e-commerce service provider, sell as much as possible and to as many customers as possible, and make sure that the customers think that you are in turn provided by the best value, that they won’t get anywhere else. So, in order to sell more, you’ll need to encourage your customer by showing them some similar products, which can match the level of product the customer has an eye on, and at the same time would be cheaper than the ones they have chosen, or, show them some related product which is a bit more expensive, but, in turn, a customer would get a good value out of. Ever heard about, “Buy 2 get and get Third absolutely Free!!”, that is also a type of upselling strategy.

Aim of Upselling is to make your customers buy more of anything that would make their primary purchase better or add more value

Cross-selling is also used for the same reason as upselling, but it’s a bit different. In Cross-selling, you try to persuade your customer into buying products which can, sort of, complement their primary purchase. Like, say in this case, we bought a phone, and your service provider in order to sell you more would then try to show you banners containing products like earphones, phone cases etc. These products would help complement or make your experience with your primary purchase better. On Amazon, or Flipkart it might comes something like, frequently bought together.

Aim of Cross-selling is to make your customers buy products that would complement their primary purchase.

Now, you also may have seen offers on a product level, you can see offers on the SKU level, and order level. There’s a system called closeness qualifiers, which is constantly looking at your purchases. When it sees that you have something over which an upsell or a cross-sell is applied, it notifies you or nudges you to buy more by using something which is called a “partial qualification” message, for example, “You already bought one product, buy one more to get the third absolutely free”. If the user goes along with the generated suggestion, they are rewarded with that offer and are notified using a “qualification message”, for example, “Congrats, you can now add a third item of the same product for FREE!!”.

Coupons are also a part of upselling, each coupon would be assigned to customers belonging to one or multiple price groups, they can be used to get offers on a product level, SKU level or order level. Each coupon would have an assigned limit of usage, 99% of the cases it’s one per user.

Common types of promotions generally include

1. Amount Off: For example, get Rs. 20 off on purchases over Rs. 100.
2. Percentage Off: For example, get a 10% discount on purchases over Rs. 100.
3. Buy X get Y free: For example, get the third free on the purchase of two.
4. Free Shipping: For example, add items worth Rs. 200 to your cart to qualify for free delivery.

Your Cart

Now, all the discounts I mentioned above usually happen during the time of product selection or, when you land on the cart page, if it’s an SKU-level promotion then during SKU selection. As soon as you add an item to the cart, there are a few background processes that run in parallel to adding your item to the cart.

The first would be to make a fresh inventory call, now, well why is that? Many people are constantly signing in, and buying off products, maybe many people are interested in the same SKU or product as you are, so, every time you add an SKU to your cart or bag, a new inventory call for that SKU is initiated. SKU is checked if it’s up for individual sale or not, whether is returnable or not, what is the price of that SKU in the price group assigned to you, and if there was any fluctuation in the prices from the time you selected that product to you added that into your cart, if there is, the customer has to be notified with the hiked or reduced price.

Sometimes, even when the product is not in stock in the warehouse near you, where your orders are generally shipped from, some service providers still let you order it, displaying that the item is in stock, those SKUs or products are then termed as backorderable items. All it means is that your service provider is confident enough of procuring that product or SKU from the company that manufactures it and bring it back into their stock, only thing is that you might have to wait a little longer for delivery than the rest of your item. Your other items would be delivered to you on time, probably before that backorderable item, which happens with the help of shipping groups which we would discuss in the next section.

Now, you probably, understood what it means when a product is backorderable, but there is another class of products called pre-orderable products. In order to understand that, say, if a company like Apple, in this case, releases a new iPhone, and, in order to create hype or to get in capital flow in earlier stages of a product launch, they might make those products even when it’s not even out to market yet, this type of products are called pre-orderable products. These products are yours if you buy them, but instead of that SKU, you are actually buying a warranty from the manufacturer, that as soon as this product releases into your region, it would first be delivered to all the people who pre-ordered it and then would be up for grabs for everyone else, if not, you would be refunded back in full.

Your service provider also has to make sure, every time you buy a certain item, the inventory of that item is updated back into the system, which would be the total inventory for that SKU minus one, and if they are low enough, they can notify the user about “Low stock, or, Only a few left” and place an order to the manufacturer for more such items for a refill.

Shipping Groups & Orders

Now, that you have all the items you need, and are happy with whatever discounts you got, you now proceed to checkout or payment. Now, let me ask you a question, there is a high chance that you, dear reader, have ordered something from your app of choice and might have noticed not all items are delivered all at once. Sometimes they are delivered in parts like a few items would be delivered tomorrow and some, the day after.

That is possible because your orders are then further grouped into something called, shipping groups.

Many things go behind a shipping group, first, your items in an order are categorized and grouped together, based on weight, size and availability etc. A shipping provider is notified and the cost of shipping is calculated from the ship from location, all the way to ship to location, it may vary based on item height, weight and size, the delivery time, priority, and extra cost could be added if the item is fragile, or is super expensive to make sure it is not misplaced and damaged, all the way to the cost of shipping chosen by the customer, air, water, freight or land shipping in that region. If your order is divided into multiple shipping groups, all costs are calculated for each group and then added to your shipping charges.

After that, all the associated taxes related to your order, shipping and packaging are calculated and added to your bill amount, and a shipping carrier is finalised. Each shipping group which are to be shipped are assigned a tracking number, which would then be sent out to you order would be attached to each order, which you help you track your shipment.

After every tax and shipping charge is finalised, the discount amounts are reduced from the total, you are then asked to proceed with payment for the final amount. We won’t discuss payments in this article because they are themselves enough to be a huge article so we’ll skip that in this one.

And, finally, your items are shipped, you have a tracking number with you and all you need to do now is wait for your purchases to be delivered to you.