The e-Commerce Revolution
Should you run an online-shop?
A frequently asked question among retailers is, what type of distribution channel should they use to sell products and services online. If you intend to start your own e-commerce business you come up with the idea to launch your own e-commerce portal (online-shop) or to sell on other e-commerce portals (online marketplaces). Both types come along with advantages and disadvantages.
If we go back 10 to 15 years, online marketplaces such as Amazon, eBay, Rakuten … did not exist. And even though they would have existed, sales was too little to compete with traditional marketplaces like shopping malls. But then the era of smartphones revolutionized the buying patterns of individuals. As consequence, those traditional marketplaces have been affected tremendously as the shift to online marketplaces had started. Nowadays billions of smartphones are used to purchase products or services online. Apps have boosted and transformed this buying pattern, and made e-commerce apps to the most installed apps on smartphones and tablets. In fact, e-commerce faces a change itself as mobile devices enable people to purchase anything at any time anywhere. The upgrade of e-commerce is the so called m-commerce (mobile). But it’s not only m-commerce, also desktop sales (e-commerce) grew rapidly due to the internet infrastructure and smartphone, tablet, computer technology.
Before the evolution of e-commerce to m-commerce, websites had been the sole selling point. Hence companies used marketing strategies to approach the mass like e-mailing (newsletters) and search engine optimization (Google, Bing, Yahoo). At a certain time, online marketplaces like Amazon grew and businesses realized its potential. Since that, more e-commerce platforms emerged such us eBay, Rakuten and many more. Hence the focus shifted to these platforms, investing in technology and pumping a vast amount of money into advertising to promote e-commerce platforms. As result, these e-commerce portals got far better brand equity than any sole e-commerce portal like online-shops. But let’s discuss the advantages and disadvantages of e-commerce portals.
Advantages of Using e-Commerce Portals (such as Amazon)
1. Footprint
Studies of 2015 say that 65 million people in India buy online and that this number is going to increase. That means, you could penetrate a steadily growing online market and receive more page views if you use e-commerce portals rather than your own online-shop.
2. Brand Building
The more positive reviews you get from satisfied customers that buy your products or services the more likely they show up better positioned on search pages. That results in imprinting your brand in people’s mind. For instance, 5 years ago several kitchen appliance brands did not exist. They built up a solid brand due to the exposure they received in e-commerce portals such as Amazon. But that does not mean, any company has the potential to take advantage by simply placing any product on e-commerce portals. The quality of products and services and value added services are the key to such success.
3. Ease of e-Commerce
To sell products and services on e-commerce portals is quite easy. That makes Amazon, eBay, Rakuten … to preferred distribution channels for non-technical persons. Then if you are not quite equivalent to a professional graphic & web designer nor to an IT professional such us programming and server hosting then building your own e-commerce portal won’t be that easy. Of course you can learn it yourself with the right amount of time, budget, and your own capabilities. But why should you challenge yourself by investing in too much afford while you could use those resources that already exist?
4. Negotiation with Portals
There are several options within the e-commerce portals to increase the sales of your products. The easiest way is to buy banner advertisements to promote your business and specific products. In addition to that, sponsored tags might push your products higher up. If you are a new company you might think e-commerce portals such as Amazon do not pay much attention. But if you set a higher marketing budget for your new company the product managers take better care of you and your products. That might result in better sales comparatively to other new companies.
5. Outsource Packing & Shipping
Especially during the start-up stage e-commerce companies should take advantage of third parties or fulfillment companies in order to save on resources and lower the risk of investments. Outsourcing packing and shipping allows you to focus on your core competencies and save investments for marketing. For instance, Amazon offers fulfillment services (so called FBA) such as warehousing, shipping and returns. That gives you lesser headaches. You simply take care of inventory and procurement.
6. Volumes
Business men appreciate e-commerce as they achieve high volumes of online sales. In comparison, physical distribution such as retail stores in urban cities mainly reach people around 5 km while you could approach an entire country or use international shipping through online marketplaces. Hence it attracts many start-ups and business people to get their part of the high volume.
Disadvantages of Using e-Commerce Portals (such as Amazon)
1. Price Competition
Once you have started to placing products online like on Amazon, you automatically expose your offerings to competitors. There are many competitors selling a similar product or even the same just using different labels. Even though you decide to go for a unique product, it does not take long until other companies launch the exact same product. Maybe they use OEM or white labeling, but for sure, they will offer their products at a lower price than you do. If it was easy for you to start your e-commerce by using Amazon or other distribution channels, why shouldn’t other businesses do the same? Hence you need to focus on your promises, policy, performance and brand image. The better you do so, the harder it will be for your competitors to get your customers. Anyway, price competition will be there for sure!
2. No Large Products
If you intend to sell large or heavy products you might get headaches as fulfillment services by online marketplaces such as Amazon have their focus on average handling packages. For instance, you can’t use Amazon’s Easy Ship for a product above 8 kg and they don’t offer fulfillment for products above 30 kg. This is due to a lower number of customers that buy large or heavy products. But it does not mean you can’t start your e-commerce business. You simply need to hire a third party fulfillment provider.
3. High Returns of Products
Even though you achieve high volumes of online sales, at the same time you have a higher rate of customers that return products. This is due to the circumstance that e-commerce purchases do not allow customers to see and touch it like you can inspect it in retail stores. To ease decision making, you should have true and detailed product descriptions, photos, certificates and so on. In addition to that, buying online is still considered with the fear of receiving defect products. As consequence, e-commerce portals offer easy replacement and returns of products to customers. Selling products on e-commerce portals, you will always have a higher rate of returns than you offline stores have. The more returns of products you have the more it affects your costs for accountancy and other problems emerge such as receiving damaged product returns.
4. Profitability
Profitability is affected through online sales. The main reasons for this fact are that you might already operate at a very low margin due to visible competition online or your operating expenses are quite high in online sales due to storage, third party fulfillment, transportation costs, and high rate of product returns.
If you take all advantages and disadvantages of selling products and services on existing e-commerce portals or on your own online-shop in consideration, you have to face the tremendous size of online sales through online marketplaces such as Amazon, eBay, Rakuten …. The trend of buying online is unstoppable and the vast shift of people adapting to new buying patterns is a potential that no company should miss out! That means, if you do not sell your products online, your competitor will – and why not using Amazon and your own online-shop? Even though you launch a unique or technical product, you still can own your own online-shop whilst using other distribution channels as well. E-commerce has been upgraded to m-commerce and people have adapted to new buying patterns. Take advantages of resources that already exist and make decisions wisely if you want to grow a successful e-commerce company.