Benefits and Costs of E-Commerce – Evaluation

There are several obvious advantages and disadvantages of E-Commerce. Look at the four companies and discuss how you would use E-Commerce to support their marketing strategies:

1. Company One is a successful commercial bank with a very well-known and popular brand. It has decided to launch a new online brand which uses online technology as a channel to market its current portfolio of services. Specifically, employing a new and energetic branding theme pitched at youth segments.

2. Company Two is also a commercial bank. However its strategy is to use the Internet as a way of communicating with, and accessing its traditional segments with its existing portfolio of brands.

3. Company Three is a new business that has gained a large amount of venture capital for its innovative business idea. It is employing Web 2.0 technology to build a community of practice for African farmers that currently work in remote regions. But, may soon have access to the Internet in many local towns.

4. Company Four is also a new business. Its owners have seen an opportunity to get jewelry to consumers by building a website which employs E-Commerce technologies.

Finally, the government is going to commission a report into the effects of E-Commerce to inform their future policies. You, a senior civil servant, have been given the task of defining the parameters of the report.

What should the inquiry look at? What are the kinds of social effects, what are the effects on other business or even communities? What is the environmental impact? How would they measure these?

Advantages and disadvantages of E-Commerce to businesses and customers

Let’s now take a look at benefits and costs of E-Commerce from the business’s perspective as well as from the customer’s perspective.

Advantages of E-Commerce

FOR THE BUSINESS: Advantages of E-Commerce to businesses include:

Increased market. Computer ownership and usage are increasing along with rising general technological capabilities of consumers in all countries of the world. E-Commerce helps to ensure more potential customers. The business is able to sell its goods and services to consumers throughout the world which increases customer base. Therefore, E-Commerce is relatively inexpensive when considering the total size of the potential market.
Reduced costs. Selling products online involves lower Fixed Costs (FC) than traditional retail stores as rent of premises does not need to be paid. There is no need to hire full-time sales assistants hence the cost of salaries is either completely eliminated or greatly reduced. Other costs include transactions costs, and other costs of running a physical store. As companies can reach a worldwide audience for a small proportion of traditional promotional budgets, operating costs are significantly reduced by E-Commerce.
New distribution channel. E-Commerce gives businesses another channel of distribution. The Internet provides another source of revenue for many business organizations, especially traditional walk-in stores because customers can now shop online from the comfort of their own home or office. Completion of transactions are speedy. With access to broadband technologies and because of improved confidence in Internet security, the business can now sell to anyone in any part of the world at any time of the day.
Greater flexibility to respond to change. E-Commerce provides greater flexibility for businesses to respond to competitors by making changes to their products much faster. For instance, a company can change prices via its website within a few minutes only instead of printing another set of catalogues. Thanks to E-Commerce, it is also possible to use dynamic pricing charging different prices to different consumers.
Reduced packaging. Updating technical information for innovative products can be done easier online. Product manuals and assembly instructions can be viewed or downloaded from the Internet instead of using the traditional method of printing these guides in several different languages.
Better information about customers. When consumers interact with the websites and make purchases they leave important data about themselves. Businesses can easily collect data and information about customers in order to gain more insight on consumer habits in making purchases. Examples of some useful analytics that can be measured include the number of visitors, the number of clicks, the success rate of web promotions, etc.

FOR CUSTOMERS: Advantages of E-Commerce to consumers include:

Convenience. The Internet is extremely convenient and accessible for customers to use as only access to computer, smartphone or tablet is required. Consumers can order their products from the comfort of their own homes or offices at any time of day and night. Various search functions on company websites make it quicker to find products. Orders are placed very easily online, online payments are fast and secure. When it comes to digital products such as songs, E-Books or software, these products can arrive near-instantaneously when downloaded.
Wider choice. Thanks to E-Commerce, customers are now able to buy goods and services from anywhere in the world which they would not have had access to, if they were only able to use their traditional local shops. Customers have much more choice when shopping online.
Lower prices. Firstly, worldwide competition online reduces prices. Secondly, prices can potentially be lower than in traditional stores as online businesses have lower overheads due to reduced costs of rent, storage, insurance, staffing, etc. Thirdly, customers can save on associated transactions costs such as travel time and transportation costs.
More information for consumers about products. Websites provide consumers with all the necessary information the goods and services available from the business. Consumers can read online about those products as well as read reviews from consumers who have already bought products from businesses.

Disadvantages of E-Commerce

FOR THE BUSINESS: Disadvantages of E-Commerce to businesses include:

Increased competition. There is extremely high competition in the online space as barriers to entry are reduced and the operating costs of online businesses are heavily reduced. Online competitors can now be located in any part of the world and not just in the local market. This can make gaining market share very difficult especially for smaller business organizations.
Unfamiliarity. Consumers are not able to physically interact with the products which might cause uncertainty in purchase decisions. Additionally, people may be less likely to buy products from new businesses or from those that they do not know. This may lead to higher levels of dissatisfaction due to unmet expectations and frequent product returns. Searching for more information online can be beneficial before making a purchase. But, customers may still want to visit a physical shop to see and test the product, especially when it comes highly advanced expensive items.
Set-up cost. In order to set up E-Commerce operations such as websites, apps or electronic payment systems, which might carry high costs, businesses may need to hire expensive IT specialists. Also, the maintenance costs need to be considered by online businesses such as regular updates to websites, purchasing larger servers, etc. Finally, E-commerce relies on advanced technology which may not necessarily be available to all businesses in all countries around the world. Technological infrastructure might be poor in developing countries with low-speed Internet connections and low computer ownership.
Job losses. Changing from traditional methods of retailing into trading online on the Internet may result in job losses for sales and administration workers. These job losses can be harmful for employee-employer relations and the corporate image. The business may also need to devise appropriate workforce strategies to deal with any redundancies.
Time lag between purchase and consumption. As there is the time difference between purchase and delivery of the online products, customers cannot simply enjoy the product immediately. It will usually take from a few hours to a few days or even weeks before the products are delivered. That is why many fresh foods such as fruits, vegetables, fish, meat or seafood are still sold in retail outlets.

FOR CUSTOMERS: Disadvantages of E-Commerce to consumers include:

Fraud. Consumers fear of fraudulent online activities that might take place such as the seller taking their money without sending the goods. Also, there is no way that buyers can confirm the authenticity of items being sold on C2C websites. Internet security might be another issue as criminals steal identity using other people’s personal details to gain access to their bank accounts, debit cards and credit cards. All these lead to more caution that can potentially limit sales or cost businesses millions of dollars.
Hacking. Information privacy and Internet security issues remain perhaps the customers’ biggest worries that may reduce future business growth potential. As the Internet is prone to hackers, disrupted Internet services and technical breakdowns, consumers may wonder how volatile the online environment is. They may also worry about their personal information, bank account details and credit cards numbers being hacked and stolen.
No personal service. E-Commerce offers very limited opportunities for face-to-face contact between the sellers and consumers. Consumers are not able to touch, smell, feel or try on tangible goods before buying, or talk with shop assistants in person. There may also be limited immediate interaction with the business due to different time zones.
SPAM. This refers to unsolicited marketing messages and online publicity with unethical marketing opportunities. SPAM is delivered to viewers via E-Mails or pop-up advertisements that are widespread. The main purpose of spamming is to advertise a firm’s products such as gambling, bogus financial services or computer software. SPAM can be annoying and waste customers’ time bringing damages to corporate image and reputation.
Returning items. It is inconvenient and expensive to return goods which were purchased online but which do not meet the consumer’s needs or wants, are faulty or different than advertised. Additionally, many businesses may not offer enough support services when it comes to returning items. In some underdeveloped countries, the high cost and low reliability of postal services may reduce the advantages of trading online.
Hidden charges. Additional charges such as shipping fees, TAXes or customs duties may be passed onto the customers. These are usually not included in the product’s listed price. Additionally, credit card companies may impose additional charges for using their services for online payments.
Information overload. Many search engines such as Google, Bing, Baidu and Yahoo! have become very popular to group and filter information. However, there are still many websites that have too much information, graphics and photos causing people to be overloaded. This can make people to visit a physical retail outlet and engage in human interaction to purchase their products rather than buy them online.

Additionally, international E-Commerce can cause major problems for a country’s currency flows. When paying for foreign goods and services via E-Commerce, domestic currencies flow out of the country causing problems such as a fall in the value of its exchange rate and a fall in the country’s currency reserves.

In 2014, Argentina introduced a 35% TAX on its citizens paying for foreign goods and services on credit card. With items ordered through E-Commerce being delivered to Argentina’s customs office rather than to the customer’s home address.

In summary, E-Commerce has essentially cut costs and intensified competition. Hence, businesses can reduce prices yet offer a wider choice to customers.