E-commerce
entities
Understand the effects of e-commerce on society
There are several types of e-commerce entities, for example
manufacturers and retailers, including organisations set up just
to trade on the Internet called e-tailers. Some e-commerce sites
are consumer led or primarily offer information or a service, for
example financial services.
E- tailers
E-tailers are businesses that source products from suppliers and
sell them purely online, such as Amazon and ebuyer.co.uk. Some
of these organisations wouldn't have existed without ecommerce.
There is a minimal need for warehousing if orders are shipped
directly from the supplier to the customer, with the website
providing an intermediary service. This is one of several reasons
why overheads can be lower. However, as prices must be
relentlessly competitive, profit margins can be low. Therefore
these businesses must operate at maximum cost-effectiveness.
Another reason for lower overheads is that e-tailers do not need
shop space, therefore reducing costs of lighting, heating and
other utilities. They often employ fewer staff, resulting in lower
salary costs. A relatively recent development in on line selling
has been the inclusion of second-hand products. For example,
Amazon provides both new and used books, games and other
goods. This development has been encouraged by eBay™, which
specialises in customers using the website to sell their own
items.
Activity
We are going to consider the case study of Amazon.
1 What sort of e-commerce entity is Amazon?
2 Why has Amazon become a very successful business? How has
the company gained and retained its customers' loyalty?
3 How have the lower start-up and running costs of e-commerce
affected Amazon?
4 What impact has Amazon had on traditional book stores?
5 To what extent do you think it is Amazon's responsibility to
consider traditional book stores?
6 What other factors could explain the decline in book sales?
Manufacturers
Some businesses manufacture products themselves and sell
them purely online, such as Dell™. lt is not possible to purchase
a Dell™ computer from a traditional shop such as PC World.
However, they do have physical offices in Bracknell, Berkshire,
employing over 1500 staff and running a huge call centre.
Manufacturers also buy through e-commerce as well as sell.
Dell™ publishes a newsletter which is posted out to all existing
customers in the hope that they may upgrade. Dell™ also uses
direct marketing online by emailing adverts at least once a week
to existing customers.
Manufacturers like Dell™ can afford to sell their products at
lower prices and have more dramatic special offers, because
they do not need to pay for retail premises or for as many sales
staff to sell the products. They can also provide a much more
personalised product, because the computer systems can be
made on demand.
For example, when purchasing a Dell™ computer customers
select every component from a range. This means they receive a
more precise product to fulfil their requirements. As they are
making choices for the product, a running total is calculated so
the customers are always aware of how their decisions are
affecting the total price. At any point during the selection
process, the order can be cancelled or restarted. Once all
selections are made and the product is completely chosen, the
customer can then click to process the order and pay online.
Existing retailers
Some businesses that exist already in the traditional
marketplace with branches all over the country have now
converted to selling online as well. This 'bricks and clicks'
approach can allow companies to enjoy the best of both worlds.
However, it is an expensive process as the business has to be
able to keep financing the traditional store and also pay for the
initial outlay and maintenance of the new on line business. If
done proficiently, the profit from the e-commerce branch of
the business should offset the costs and the ref o re the
business's profits should increase.
Moving from 'bricks' to 'bricks and clicks' can often only be done
by larger, more stable businesses as it can be too risky a strategy
for many smaller businesses . However, some small businesses
do manage to make the transition from purely traditional to
combining traditional and online successfully, usually if they
have a unique product for a niche market.
An example is New Zealand Nature Company, which specialises
in silk and sheepskin products and sells worldwide and focuses
on a target market of sailors and people who take part in
outdoor activities.
Consumer led e-commerce entities
One interesting development of the Internet is the emergence of
consumer-led sites, such as eBay™, where the public can buy and sell their
own items through an auctioning system.
Many sites provide a wealth of information and, although there are
opportunities to make a purchase, this is not in the forefront of the minds
of most visitors to these sites . Many travel sites offer tickets, but to
support this they also provide details of services and may offer to help the
visitor to plan a journey. For example, the National Rail Enquiries website
mainly provides information to train travellers, but also allows them to
purchase train tickets.
Many organisations, such as the BBC and the daily newspapers, have
websites that are a rich source of information on current affairs, as well as
providing learning opportunities and the option to buy products . The
Daily Telegraph, for example, ran a series of articles on novel writing and
provided a message board for interested people to post their comments
and their answers to writing exercises set in the weekly articles . A
business aim of this project was to use the Internet to increase sales of the
newspaper. Links to the websites mentioned in this section have been
made available at Hotlinks.
Service providers
Not all organisations have a product that can be sent to you
through the post. Some, such as EasyJet and Lastminute.com,
provide a service rather than selling a product. Both specialise in
the leisure and transport industry. EasyJet provides low-cost air
travel and Lastminute.com specialises in selling services at very
short notice, for example, flights and holidays close to the time
of departure. Links to the websites mentioned in this section
have been made available at Hotlinks.
Financial e-commerce entities
Some service providers focus on financial services online. For example,
Esure sells insurance and Egg is a purely online bank.
Online banking is an area which has had a huge hurdle to surmounttrust is much more of an issue with a service such as a bank than a
retail business- but it has become an increasingly popular alternative
to traditional banking companies . The main reason for this is that
online banking services offer especially
competitive rates due to the lower overheads and running costs.
Insurance is another service that can be sold online and a new
business has developed from this- searching a number of businesses
for the best deal, such as Confused.com. To use this service, a
customer inputs their details for the type of insurance they want and
Confused.com searches all registered insurance brokers for the best
quote on those specific details . This service is free for customers to
use and a number of companies have signed up to be part of it, in the
hope that it will increase the number of people applying to buy
insurance from them. Links to the websites mentioned in this section
havebeen made available at Hotlinks.
Activity
Consider Tesco as your case study.
1 What sort o f e-commerce entity is Tesco?
2 How has Tesco managed the transition n from 'bricks ' to '
bricks and clicks'?
3 How has Tesco taken advantage of 24/7 global trading on the
Internet ?
4 What impact has Tesco had on retailing in the UK?