Running an e-commerce business is one of the popular ways to make money today, either as a full-time vocation or side hustle. This article examines the advantages and disadvantages of e-commerce for store owners and consumers.
- An e-commerce business uses the internet to sell goods and services.
- You must examine the pros and cons of e-commerce to see if it’s the right fit for you,
- Low startup costs, extensive market reach, and a quick shopping process are some of the advantages of e-commerce.
- Disadvantages of e-commerce include potential security threats, increasing competition, and logistics challenges.
- Small business owners and customers can benefit a lot from e-commerce,
What Is an E-Commerce Business?
An e-commerce (electronic commerce) business uses the internet to sell goods and services. The e-commerce business relies on online stores on self-hosted websites or e-commerce portals to offer goods and services to customers. The buyers use internet-enabled devices such as computers, smartphones, and tablets to purchase these goods and services.
Virtually all goods and services can be traded online, including tangible products like fashion wear and intangible products like online coaching. As the world’s population increases its time online, e-commerce will continue to disrupt the commerce industry.
E-commerce occurs in various forms and between different types of parties. Each form can be classified as a type of e-commerce. Some of the popular types of e-commerce are:
- Business to Consumer (B2C): B2C businesses sell directly to end users. They could be selling physical products such as electronics or services such as manicures. Most businesses in the e-commerce space are B2C businesses.
- Business to Business (B2B): B2B businesses also sell to end users, but their targets are other businesses and not individuals. As such, the products within this e-commerce sector are often tools and products that companies need to operate. Some B2B businesses sell to only businesses, while others may also operate as B2C businesses. For instance, web hosting companies sell their products to consumers and other enterprises.
- Business to Government (B2G): In B2G e-commerce, companies offer their products and services to government agencies. Businesses in this space are rarely popular since they do not have to advertise to the general public. However, a B2B business may also operate in the B2G area if they meet the preset requirements.
- Consumer to Consumer (C2C): Consumers can also sell to other consumers. This space typically includes reselling used items, primarily via online auctions and social media.
- Consumer to Business (C2B): C2B e-commerce happens when consumers provide valuable services or products to businesses. These services can be in the form of performing online tasks or giving feedback. In return, the consumers get compensated via personalized services and discounts.
- Business to Business to Consumer (B2B2C): B2B2C is a collaborative space in which a company engages the services of another business to get its products to the end user. It could be a generic smartphone manufacturer using an intermediary retail business to sell its products to end users.
Is E-commerce Right for You?
Starting an e-commerce business can be an exciting journey, but it can be challenging. That’s why you must examine the pros and cons of e-commerce to see if it’s the right fit for you. There is a lot to consider before starting an e-commerce business. Some of these include:
- Competition: Thanks to the rise of cheap web hosting services and beginner-friendly website builders, anyone can start an e-commerce website. All they need is a product to sell, a willing audience, and a way to receive payment and ship goods. While that might be an advantage, it also works against you. The low barrier to starting an e-commerce website has saturated the market, especially if you use the B2C model.
- Niche targeting: The best way for a small online business to thrive in the e-commerce world is to focus on a small segment of the buying population. Even Amazon started selling books before becoming the one-stop shop for virtually everything. Targeting a niche audience means you have fewer businesses to compete with, and you can concentrate your efforts on a narrow audience, increasing your chances of success.
- Choosing the right platform: Your platform can accelerate your business growth or hinder it. If you are a small business with low capital, you’re better off using an online marketplace like Amazon or eBay. These platforms allow you to set up an online shop for free. If you have a few dollars to spare, sign up for an entry plan on e-commerce website builders such as Shopify or Wix. Regardless of your choice, you should advertise your business on social media and even start a blog to attract more customers.
- Payment and delivery logistics: You must sort out payment channels and delivery methods. If you are selling physical products, you must work out how to ensure the goods reach the customers in good condition. If you are trading digital products or services, you have fewer issues with product delivery.
If any of these points look like an impossible challenge, you should review your decision to start an e-commerce business. However, that doesn’t mean you should give up. Many successful online entrepreneurs started with few things in place but were ready for the challenge.
What Are the Advantages of E-commerce?
Here are some of the advantages of starting an e-commerce business
Low Startup Costs
Depending on your needed resources, you can start an online store with less than $100. There are cheap yet reliable shared hosting solutions that will cost you at most $50/year with their starter plans. Most of these solutions include free domain registration for the first year. You can get a free website builder too. When compared to the costs of starting a physical business, e-commerce is always cheaper.
Extensive Market Reach
With e-commerce, you are unlimited by your locality. You can be in Europe and sell your products to someone in North America or Asia. The entire internet is your marketplace. Even physical stores are now setting up online stores to reach more people and increase sales. The only limit to your reach is your marketing strategy and delivery channel.
Your online store stays open 24/7. It doesn’t matter if you are using an online marketplace, hosting your online store, or using a social media account to sell. Your store will only be down if your platform or hosting provider has server issues. These issues are rare and only last for a few minutes when they happen.
The best part about setting up an online store is that you don’t have to be online for trade to happen. Many tools automate the buying process (and delivery process if you sell digital products or use dropshipping or print-on-demand e-commerce models). You can also use chatbots to resolve customer issues around the clock.
Customer retargeting means showing ads to people who are already listed in your database or have visited your website. The idea behind it is that people who have already shown interest or purchased any of your goods will respond well to your ad. Brick-and-mortar stores don’t have this advantage.
Easier to Scale
You can scale an online store by increasing your inventory, your marketing and upgrading your hosting plan. All of these can be done in a few hours, depending on the nature of your business. You don’t need to rent extra physical space, hire more employees or start a second location, even if you are targeting a new geographical area.
Personalized Shopping Experience
Customers want the stores they frequent to remember their preferences and recommend products that align with their tastes and shopping habits. With cookies, you can track each customer’s online behavior and customize your online store to their needs. You can even set their favorite category page as their homepage when they visit your website.
Less Invasive for Customers
Many people get apprehensive when they are examining products they want to buy. For instance, some people may feel weird browsing the other gender’s underwear section when shopping for a gift for their significant other. With online shopping, customers can check the goofs on your store from the privacy of their devices.
The best e-commerce websites come with analyzing tools to see how many customers your store receives daily. You can break down the report to see which products get the most views, your best-selling products, how much time customers spend on your website, and their location and browsing device. These data allow you to streamline your operations, inventory, and marketing strategy to save costs and increase profits.
Able to Process Multiple Orders at Once
With e-commerce tools and sufficient hosting resources, you can build an online store that can handle thousands of visitors and process hundreds of orders without slowing down. Even if you are using the cheapest hosting plan provided by your web hosting provider, you will still be able to process multiple orders at once without needing extra hands.
Easier to Encourage Impulsive Buying Habits
You can tap into people’s impulsive buying habits with an online store. Just show them beautiful graphic images of the products they are interested in. They may browse your other inventory if they don’t buy the product. Most people will do so until they find something they like that fits their budget. If they add those items to a cart but do not finalize the purchase, you can send them “abandon cart emails” to remind them of the products that caught their fancy.
Quick Shopping Process
An online store provides a quick shopping process, from visiting the store to completing payment. You can also speed things up by allowing store visitors to see their online shopping cart and purchase items with a single click. This 1-click model works well with low-priced products. The quick process from browsing to checkout doesn’t allow customers time to second guess their choices.
Reduced Cost of Hiring and Training
You don’t need to hire staff if you are a small online store operator. You can use e-commerce tools for processes like customer support and inventory management and hire the rest on a need-to basis. If your business expands and you need to hire more labor, the cost would be less than hiring and training staff for an on-site business.
No Need for a Physical Storefront
Your e-commerce store can exist without a physical address. As long as you offer a good web experience and deliver high-quality products, most shoppers won’t care if you are located within their state or on another continent.
E-commerce allows you to track logistics from when the customer orders to when they receive the goods. If you rely on a third party to fulfill orders, such as dropshipping and print-on-demand, you can check your account on the other party’s website to track the shipment.
What are the Disadvantages of E-commerce?
Here are some of the disadvantages of running an e-commerce business:
Potential Security Threats
Online stores are as prone to attack as physical stores. You must secure your online store by securing your login details. You must also learn the best practices to secure your website and customer data and prevent cyberattacks. Thankfully, many web hosting providers provide security tools for enhanced security. But if you are hosting a large website, you may need a secure web hosting provider plan.
Highly Competitive Industry
The low barrier to entry has made the e-commerce space one of the most competitive industries in the world. You are competing with both small businesses and established e-commerce brands. You can reduce the competition by focusing on a niche segment.
Shipping logistics includes getting the goods to your customers on time and in perfect condition. Shipping logistics is a problem since you’ll rely on a third party to deliver. Using established shipping carriers to reduce disappointment can cost more than regular delivery companies.
Limited Connection with Customers
With an online store, you do not interact directly with the audience. Your shoppers interact with the website, and then you process the orders from your end. This limited connection doesn’t allow the personal feel most people get when they frequent physical stores. You can mitigate this by using personalized shopping experience strategies, but they can’t replicate the feeling of seeing and talking to your customers.
Downtime Means Losing Customers
As much as we hate to admit it, downtime happens. Most web hosts will offer compensation if your website is down beyond a specific period. But this compensation hardly covers the loss you incur. Most customers will click away if your website is down and may never return. Furthermore, they may even share their negative experiences with their close circle, preventing them from visiting your site.
Customers Can’t Try the Items
Many customers prefer walk-in stores because it allows them to see how the items would fit them. The articles could be fashion accessories, wearables, or home furniture. With an online store, the customer has to trust that what they see in the description is what they’ll get. If one shopper shares a lousy review, other customers will use their review to judge the product since they cannot examine the item in person.
Customers Demand Quick Responses
We live in a digital age of fast food, cars, and deliveries. If you can’t respond quickly to a customer’s query and deliver their goods on time, they may move to a competitor’s site. Some will even drop a negative review before leaving. As such, the pressure is on you to respond and deliver quickly while maintaining quality.
Compulsory Sign-In Puts Customers Off
You need a database to process orders, resolve issues and provide personalized service. One way is to require customers to sign in before they complete an order. This sign-in can put customers off, especially if they have to go through multiple pages. You can mitigate this by using 1-click checkout.
Limitations of E-Commerce
While e-commerce offers a lot of freedom, flexibility, and scalability, it also has its limitations. These limitations are obstacles that can hinder the smooth running of your online retail business. You must prepare for these top three limitations before starting an e-commerce business.
Since e-commerce deals with technology, you must invest in tools and services to make your online store work. The technical limitations are more pronounced if you use a self-hosted e-commerce website. However, even those using sales portals like Amazon must carry out technical setups before they can begin selling.
Furthermore, you will have to invest in electronic gadgets such as personal computers and high-speed internet connectivity. Depending on your location, these things cost a pretty penny.
The third and more important aspect of the technical limitation is security. You must set up transaction protocols and prevent cyber attacks on your site and visitor data.
- Compliance with Business Policies - There are many legalities and policies to comply with depending on your choice of platform, nature of operations, and location. For instance, if you’re using an e-commerce portal like Amazon, or eBay, you must understand and comply with their business policies. You must do so to avoid having your business suspended temporarily or permanently. Payment processors also have rules that you must comply with.
- Licensing and accreditation - The nature of your online business might require you to get a license and accreditation. For instance, if you sell healthcare products such as drugs or medical consultancy, you should show that you have the required training and certifications.
- Data Laws - Your country or the country of your target audience might have rules regarding how you access, store, and use customer data. You may also have to comply with taxation laws and anti-laundry requirements. For instance, Europe recently adopted the Digital Services Act (DSA), which all businesses operating within the European Union must comply with. The DSA requires all internet platforms to explain to users how they moderate content, use automated tools, and the number of content moderators they use for each official EU language. The act also mandates platforms to conduct third-party audits to assess their compliance with the regulation.
Warehousing and shipping could be a major nightmare if you don’t sort it out before taking orders.
Whether you are the original manufacturer of the goods or a reseller, you must ensure the products are well-packaged and carry your branding.
Shipping can eat into your profit, especially when you go for high-end shipping carriers. Some online stores sidestep this by putting the shipping cost on the customer.
Warehousing requirements are a big issue to be resolved. You must ensure that the warehouse costs do not put a hole in your pocket and are well secured against human and natural elements.
How Does Running an E-commerce Store Benefit Small Business Owners?
Small brick-and-mortar store owners can benefit immensely from starting an e-commerce store. While the starting requirements can seem like too much, the benefits far outweigh the gains. Here are some advantages small business owners can gain from running an e-commerce store.
Customer buying analytics
In a physical retail store, tracking what a customer buys is problematic since most customers prefer to leave as little information as possible, and many make cash payments. However, this data can help you create personalized recommendations for each customer. With online analysis tools, you can glean data such as:
- How many times does a customer visit a particular page?
- How many clicks does each product or offer get?
- How many times do customers check out a specific product or offer?
- How much does a customer spend shopping in your store?
- How many web visitors leave your site immediately without making a purchase?
- What products customers frequently purchased together?
You can group these data to help you promote sales and boost customer engagement.
Search Engine Traffic
With most users using search engines such as Google to find what they need, you are missing out on traffic if you don’t have an online version of your store. With a compelling e-commerce store, you can attract more customers to your physical store.
Customers who prefer to shop in person frequently use search engines to find the best stores nearby. By leveraging SEO tools such as page load speed and mobile friendliness, you can attract these people to your online presence and, ultimately, your physical store.
Automated Marketing Engine
Marketing has evolved beyond traditional methods like advertising in newspapers and TV shows. While these forms of advertising exist, they are hardly suitable for small business owners. Digital marketing offers a cost-effective and straightforward way for businesses to meet a broad audience and expand their customer base. However, to fully harness digital marketing, you will need an online store.
An online store comes with automated marketing and sales tools to attract customers to your store and boost sales. Once someone clicks on your ad, they will reach a dedicated landing page and make their purchases in two or three clicks. This simplified process beats someone driving you to your store to make a purchase.
Improved Customer Experience
One advantage an online store provides over a traditional retail store is convenience. An online store allows people to buy any time of the day from anywhere in the world. They can do so from the comfort of their home, in transit, or during their lunch breaks. This convenience underpins why e-commerce sales are growing by the day.
You can create an impressive online shopping experience for your customer with cookies and data. You can create a personalized home page for each customer based on their shopping habits. You can also make customized recommendations and send these recommendations to their email. Another approach is to implement 1-click checkout, so a customer only needs to make one click to purchase goods from your online store.
You can also augment the shopping experience by offering flexible return policies and virtual try-ons to ease the worry most people have when shopping for goods they cannot try on.
Better Mobile Usability
The number of smartphone users is on the rise around the world. People now use their smartphones to browse the internet, make appointments, attend meetings, and even improve their lives. It only makes sense for them to browse online stores from their smartphones. As such, any business that fails to have an online presence is effectively short-changing itself.
With the highest user experience and easy-to-use channels, such as mobile-friendly websites and a dedicated mobile app, you can effectively put your business ahead of the competition.
What Are the Pros of Online Shopping for Consumers?
Online shopping offers a lot of benefits for consumers. These benefits include convenience, wide variety, and easy price comparison across multiple stores.
With e-commerce, consumers can shop from anywhere and at any time. Instead of seeking time to visit a physical store, they can use their mobile devices or computer to shop while on the go, during their lunch breaks, or even in the middle of the night. All they need is an internet connection.
With simple clicks, consumers can browse the shelves of tens or hundreds of stores. This allows them to get the exact items they are looking for. They can access all of these varieties without leaving their location. While they may be able to access types in physical stores, they will have to spend time moving around.
Most customers shy away from asking for prices, especially if they are unsure if they can afford the product. Online shopping allows them to get multiple prices from a wide range of stores without speaking to anyone. They can compare prices with quality to make a more informed purchasing decision.
E-commerce has allowed online savvy business owners and entrepreneurs to become hugely successful. However, like every other endeavor, it has its advantages and disadvantages. From a general standpoint, the advantages of e-commerce outweigh its disadvantages.
With the right tools and research, anyone can start an online business and gradually scale it to become successful. However, launching an e-commerce business is a serious decision and requires an immense investment of your time and resources. It would be best to weigh the pros and cons and assess how you can handle the limitations and challenges that come with the terrain.
If you want to get started, you need a head start. Check out our lineup of the best web hosting providers and website builders. You can also check our guide on How to start an e-commerce business.
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