eCommerce has changed the way the world does business and has given consumers convenience, more choice and lower prices whilst enabling businesses to sell to a global market. There are many advantages to introducing an e-commerce system to an organisation including increased target market and the ability to sell 24/7, however there are also some drawbacks and responsibilities all organisations need to be aware of…
Advantages
Global Marketplace
Consumers can use eCommerce websites to purchases products from all over the world in just a few clicks. This means that the consumer has an abundance of choice in terms of where to buy their products. For example, if a consumer wants to buy an Apple iPhone, they can do so directly from the Apple UK website. Alternatively, they could buy an iPhone on Amazon or The Carphone Warehouse or any mobile phone operator’s website. This is all made possible thanks to eCommerce and trade arrangements between Apple and UK retailers / operators or indeed retailers all around the world. A global marketplace therefore presents an opportunity to an organisation. Opening up a global market using eCommerce means access to more customers and potentially means more sales and profit.
24/7 trading
Due to the ‘always on’ nature of the internet, the consumer knows that they can place orders for goods or services at any time of day or night. This flexibility means that consumers can use eCommerce websites in their own time, on their own terms and aren’t under pressure to order things within a limited time frame.
If a consumer works night shifts and can’t typically visit a shop between regular 9-5 opening hours, they can still purchase products from that shop provided the shop has an eCommerce website which enables them to order goods online and have them shipped / collected at a time that suits the consumer. The shop therefore doesn’t lose out on sales and the consumer can still get the product / service they wanted to create a win / win situation.
Low start-up and running costs
Unlike a traditional ‘bricks and mortar’ business which requires rent, light, heat, water, shop displays, public liability insurance, purchasing stock and hiring staff, an eCommerce website doesn’t require those high, up front costs. The only upfront cost required is for the programming and design of the website along with hosting and maintenance / admin of the website.
Once developed, an online store can handle payments and orders automatically 24/7 which reduces staff costs and the overheads normally involved in ‘offline’ sales such as cash registers, paper receipts, printed signage / labels etc..
ongoing eCommerce costs may include staff and marketing (which could include SEO, data analysis, content marketing, PPC ad campaigns and social media marketing). These costs however typically pale in comparison to the cost of running a traditional ‘bricks and mortar’ business which have much higher fixed costs.
New Marketing Models and Opportunities
Traditional marketing for a business may include billboard ads, flyers, newspaper ads or attending trade shows or exhibitions. With a website, it’s much quicker and easier to advertise to a very specific group of people online using pay per click ad services such as Google Adwords or Facebook.
If a business sells flowers in the London area, they can request that only people in London see their ad. They can also request that only people using desktop computers can see the ad that are over the age of 30 and are male. They can run these ads at certain times of day for a certain duration, on certain dates.
Most eCommerce businesses also have a presence on social media to market themselves and their products. Many businesses run competitions and give away small prizes at random to users who like, share, comment or tweet about the businesses photo / competition / profile. This results in the user’s network of friends seeing the competition and possibly wanting to enter also. The net result for the business is a huge increase in exposure to their brand on social media which may result in more visits to their website and more sales.
Many businesses also encourage customers to sign up to newsletters and send them regular exclusive offers and coupons as it is estimated that it is 60-70% easier to generate a sale from an existing customer than it is to generate a sale from a new potential customer (source: Marketing Metrics).
Drawbacks
Consumer trust issues
The complete lack of human contact using an eCommerce system can sometimes lead to trust issues from consumers towards an organisation. Within seconds of visiting a website, a consumer has already started to judge the organisation and thought about whether they can trust it and whether the organisation looks credible. Constant scam stories, online credit card fraud along with identity theft leave many consumers skeptical when handing over personal details to a new, unfamiliar eCommerce website so it can sometimes take time for an organisation build up a good reputation as a trustworthy, reliable website.
Independent reviews, celebrity endorsements, social media comments can help an organisation to build trust with consumers along with establishing a social media presence and reaching out directly to customers on social media sites such as Facebook and Twitter. If customers see that there are real, trustworthy, talking, humans with faces behind a website, then they’re more likely to trust the organisation and place orders.
Delivery Issues
Shipping costs can be expensive for a business, especially if the items being shipped are bulky and heavy. Quite often any savings a consumer may make when buying products online are negated once the shipping costs are factored in. In order to encourage consumers to buy online, organisations will often give the consumer free shipping if they place an order over a certain cash amount. This has the double effect of ensuring the consumer orders more products but also giving the consumer better value (if they think they’re getting delivery for ‘free’ when it would normally cost something).
Most eCommerce websites provide shipping options via third party delivery companies (such as DHL, FedEx, Royal Mail). Should any issues arise with delivery i.e. damaged goods in transit, late delivery times or non delivery of items, it reflects poorly on the organisation that the consumer bought the products from, even if the organisation itself had no control over the delivery process. This can pose some problems for an organisation as the consumer will contact the organisation that sold the goods who then in turn need to deal with the shipping company whilst also refunding or reshipping the consumer.
Lower Prices
Due to the fact that consumers can easily compare the prices of products and services on other eCommerce websites, that makes it easy for consumers to figure out where they can get the products they want at the cheapest price.
Price plays a huge role in enticing consumers in to shops and on to eCommerce websites and as a result, retailers often try to undercut each other and sell products at a price cheaper than their competitors both to attract consumers, keep existing customers loyal and also to use it in marketing material i.e. “cheapest price guaranteed” or “we’re cheaper than xyz rival for this product”.
If an eCommerce store’s prices are consistently lower than the competition (with the same level of service and support), consumers will often talk on social media, forums, blogs and product comparison sites and share deals or links to that organisation’s store, thus helping to generate more publicity.
If lots of organisations are selling similar products, it becomes difficult to maintain high profit margins and so whilst lower prices are great for consumers, they can make it difficult for organisations to compete.
Security Issues
Security often plays a hidden but critical role in the running of any successful eCommerce website. Website security often gets overlooked by customers, management and even developers but as soon as a security breach occurs, everyone will know about it and it becomes PR nightmare for any organisation to deal with. When it comes to security, prevention is always better than cure.
If credit card data or personal information information is stolen, not only does that place consumers at risk of having funds stolen from their accounts but it also means that consumers will lose all confidence in the organisation and the negative publicity will damage the organisations reputation to the extent it can hurt profits and in some cases lead to the organisation having to shut down or re-brand.
All eCommerce websites need to be using an SSL / TLS certificate to encrypt data being transferred between client and server. Manual and automated security checks should be run on public & private facing website pages to ensure only the intended users / user roles can access and execute limited commands on specific sections of the website.
Ports, firewalls and software should all be up to date and only allowing appropriate users and traffic to access appropriate data and the organisation should also have a clearly defined and enforced security procedures such as strong passwords for users, not writing passwords down and sticking them on monitors / desks, enabling two factor authentication (especially for users with lots of privileges), deleting / removing access for staff who are no longer with the organisation etc…
Legislation
All countries have their own individual regulations which can cause problems when it comes to operating an eCommerce business. For example in the UK there are several acts all UK based businesses must follow including the Data Protection Act 1998, Computer Misuse Act 1990, Consumer Credit Act 1974, Freedom of Information Act 2000. All of these acts protect consumers and help prevent the likes of junk mail and misuse of personal details.
EU based eCommerce websites must also comply with the Cookie Law which is a piece of privacy legislation that requires websites to get consent from visitors to store or retrieve any information about them on a computer or mobile device.
As of 2015, any company selling virtual goods or services to EU customers must also charge VAT at the rate where the customer is based and not where the company is based. This means a company must either register for VAT in the country where their customer is located or alternatively register with MOSS (Mini-One-Stop-Shop) system which handles VAT due across all 28 EU states.
All of this type of legislation is something which businesses must be aware of and failure to comply with it could result in fines, audits and costly legal cases.