2. The benefits of e-commerce
• This presentation focuses on:
• The global/local marketplace
• 24/7 trading
• Start-up and running costs
• Search facilities
• Pricing opportunities
• Gathering customer information
• Alternative income sources
3. The global marketplace
• E-commerce has allowed a global marketplace to develop
• Online businesses now have access to customers worldwide
• This means customers now have the opportunity to purchase
products from all over the world from the comfort of their own
homes
4. The local marketplace
• In contrast, traditional stores can only realistically target a local
customer base, which is limited to the location of the business
premises
• To attract customers from further afield, it needs to set up another
store in that region
5. 24/7 trading
• Worldwide trading online means that there is no
store needing to be staffed
• Trading can be carried out day or night and in
different time zones around the world
• Unlike a traditional business, there are no closing
times
• Because websites can be automated, no staff are
required to make sales
• All orders and money transactions can be taken
(and acknowledged) automatically
6. Start-up and running costs
(Traditional store)
Setting up and maintaining a traditional store involves:
• Buying or renting a location
• Purchasing stock
• Hiring staff
• Paying utility costs (electricity, gas and water etc)
• For a brand new business, these costs have to paid upfront
before any profit has been made and this means that the
start-up costs are high.
7. Start-up and running costs
(Online store)
An online store does not have such high initial costs:
• Possibly no premises to purchase
• Fewer staff (sometimes only one person running the whole
business)
• A growing e-commerce business may choose to move to
larger premises and employ more staff, but usually not to the
extent of a traditional business
8. Comparison of traditional and
online business in the same field
• The online bookseller Amazon may employ more
staff but its turnover is significantly higher than that
of the traditional store Waterstones
• Waterstones is paying a higher proportion of its
revenue to its employees than Amazon
• This results in Amazon enjoying a considerably
higher profitability
9. Amazon / Waterstones
Comparison.
Amazon Waterstones
Purely online store More than 300 stores
12,000 full and part-time staff 4.500 booksellers
Net annual sales: £4.3 billion Net annual sales: £414 million
Sources: www.amazon.com and www.waterstones.com – all figures based on financial year
2005 - 2006
If there are two businesses, equal in all aspects
except that one trades online and the other does
not, the online business may be more successful,
as it has the competitive edge by giving customers
more flexibility to purchase.
10. Search facilities
• In a traditional store, if you want to find a product, you might need to
search the aisles or ask a shop assistant. Most e-commerce stores
provide a search facility which:
• Allows products to be found in just seconds
• Is convenient no matter how many products are stored
• Benefits the customer by allowing them timely retrieval of information
11. Pricing opportunities
• For ‘bricks and click’ businesses, generally there is a price
difference between the traditional stores and the online store.
• There may be online discounts to encourage shoppers to move to that
method of purchasing
• Online stores can also take advantage of fluid pricing which is much
more difficult in traditional stores
• For example…
12. Fluid pricing examples
• For example:
• When selling airline tickets, as more are sold and fewer are available,
the tickets could become more expensive as demand rises – this could
make more profit for the business.
• Alternatively, when selling holidays, as the time draws closer, the
prices 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 costs.
E-commerce businesses generally have more freedom with pricing as
they have lower overheads than traditional businesses.
13. Gathering customer
information
• Information is the cornerstone of all businesses and learning
about the customers can be key to increasing profit.
• It is difficult to gather information about customers
shopping in a traditional stores – one method is to use
loyalty cards that allow the business to track purchases
• Online customers need to register as members to purchase
products or services,
• This allows the business to find out a lot about their
customers and tailor their services to suit
• As an example, when someone wants to purchase from
Amazon, as soon as he/she logs in, he/she is greeted with a
personalised message and a list of products he/she might
like to buy based on previous purchases
14. Alternative income sources
• Once a business has an e-commerce facility, additional sources
of income become available to it. For example:
• Pay-per-click advertising – this may navigate the customer
away from the site but each click on the advert would still
gain money for the business
• Can you think of any other ways that an e-commerce facility
could generate income?
15. Further reading
• Textbooks:
• Chaffey D – E-business and E-Commerce management, Second
Edition (FT Prentice Hall, 2003) ISBN 0273683780
• Lawson J – Information Technology Practitioners (Book1), Second
Edition. (Heinemann, 2007) ISBN 9780435465490
• Malmsten E, Leander K, Portanger E and Drazin C – Boo Hoo: A
Dot.com Story from Concept to Catastrophe (Arrow Books Ltd,
2002) ISBN 0099418371
• Vise D – The Google Story (Macmillan, 2005) ISBN 1405053712
• Websites
• www.ico.gov.uk International Commissioners Office
• www.w3.org World Wide Web Consortium
