Understand the impact of e-commerce on organisationsUnit 8 - Learning Objective 2

Learning objectives

By the end of the session all learners will be able to identify:

The benefits and drawbacks of E-Commerce

Benefits

Global marketplaceE-Commerce allows users to sell to a global audience and target consumers worldwide. This allows consumers to buy products from all over the world from their own home.

Traditional ‘brick’ shops can only realistically target a local audience in a limited distance from the store. For a ‘bricks’ store to target users from further afield they would need to set up a store in that region.

24/7 Trading

With online trading there is no need to staff the store at all hours and trading can be done at all hours of the day 365 days a year regardless of time zones and location, all you require is access to the internet.

Websites can be automated so that no staff are required to make sales. All transactions can be taken and acknowledged without the need for staff.

Low Cost Start-Up

To start up a ‘bricks’ store what would you need to do?

Buy/Rent a locationPurchase stockHire StaffPay Utility Costs (electricity , water, internet etc.)

New business will have to pay all of the fees up front, before any profit has been made, making the start up costs high.

Online stores are likely to not have as expensive start up costs. How will they differ?

Fewer Staff (one person can run it all)No Location/premises needed

As the company grows over time the ‘click’ company may chose to move to a premises and employee more staff but not normally to the extent of a ‘bricks’ business.

ActivityCompare two businesses in the same field of retail.

As an example the online bookseller Amazon may employ more staff, but its turnover is significantly higher than that of the traditional store Waterstone's. Waterstone's is paying a higher proportion of its revenue for shop space, utilities (electricity, heating, etc.) and customer facing staff than Amazon, which results in Amazon enjoying considerably higher profitability.

What have you found out?Why do you feel that this is the case?

Competitive Edge

If two company's equal in all aspects other than that one trades online and the other does not, who is likely to be more successful?

Search Functionality

Being able to search on a website saves a lot of time and hassle as a posed to searching a physical store for a product.

Pricing

For ‘bricks and clicks’ companies there tends to be a difference between the price of their products in store and online. Online trading allows for Fluid pricing meaning that prices can be increased or decreased quickly, depending on circumstances. Online stores often feature sales and promotions to encourage shoppers to move to this method of purchasing as it is normally more profitable for them due to the fact that they do not need to pay for renting shop space, utilities bills or employing staff to serve customers face to face. By making a saving on these aspects of the business, they can pass this on to the customer.

Online stores can take advantage of fluid pricing ,which is much more difficult in traditional stores. For example, when selling airline flight tickets, as more are sold and fewer are available, the tickets could become more expensive as the demand rises. This could make more profit for the business. Alternatively, when selling products such as holidays, as the time draws closer, the price can be reduced to ensure that all places are sold. This can benefit the business as, although they may not earn as much as desired, they are only losing a proportion of the cost of each place, rather than the full cost if it were not sold at all.

E-commerce businesses generally have more freedom with pricing as they have lower overheads than traditional businesses.

Gathering Customer InformationLearning about customers can be key to customers increasing their profit. Information gathering is key to a successful business. It is difficult to gather information or shopping trends about customers in a traditional store.

Can you think of a method ‘Bricks’ stores use to gather information about their shoppers?

Loyalty cards these allow the business to track what is being purchased by an individual customer.

When shopping online, customers need to register as members to purchase products or services. Businesses can find out a lot about their customers and tailor their services to suit. For example, when someone wants to purchase from Amazon, as soon as they log in they are greeted with a personalised message and a list of products they might like to buy based on previous purchases.

Other Income Sources

Online stores have the opportunity to increase their income by selling advertising space on their sites.

Drawbacks

Despite there being many positive reasons to use online shopping there are also a number of negative points that must be taken into consideration.

Customer Confidence

Customers confidence is the biggest issue holding online trading back, customers uncertainty as to the safety of online trading is something that needs to be addressed.

Advertising

Advertising can be used for the wrong reasons and consumers shopping preferences and can be sold to other companies and used to tailor marketing towards them. Pay-per-click advertising is where a website hosts an advert and benefits by earning money every time a user clicks the advert. This may be masked as a useful link for the user, but the motive for the clicks company is to increase there own profit.

Lack of human contact

Some customers are deterred from purchasing online because they cannot speak to anyone from the business. They find this impersonal and prefer instead to shop in traditional stores. Customers are also wary of buying clothes on line because they are unable to try them on before they buy.

Delivery issues

When going to a traditional shop, customers have the option to take their purchases home immediately. When shopping online, they have to wait until the purchases are delivered.

International legislation

When selling online, businesses are subject not just to legislation in the country of origin, but also to the laws in the countries where the customers live.

Legislation for e-commerce is a very complex area, onethat is still being defined. For example, in the UK, you have to be 18 to buy alcohol, but in the United States you must be over 21 in all states. However, it would be quite possible for a business based in the UK to sell a case of wine over the Internet to a customer aged 18 in the United States.

Which law should be followed, UK or US?What other products can you think of that could cause similar problems?

Product description problems

Some customers worry that what is described on the e- commerce site might not accurately reflect the real product. This is especially difficult for colours, as different computer systems may display colours slightly differently. The quality of the original picture of the product shown on the website is another factor. E-commerce sites can exaggerate their descriptions of products, which may put some people off buying on line.

How many of you have been dissatisfied with something that you have bought on eBay?

Security issues

Perhaps the biggest worry for customers is that their financial details will not be safe- that the business will use them in some unauthorised way or security may be insufficient, resulting in their identity being stolen by criminals.