The roaring success of Amazon and other eCommerce businesses, coupled with rising internet access globally, has been an inspiration to many online entrepreneurs.
The increasing shift to online shopping has attracted much attention and changed the business landscape as we know it. New online stores are opening daily, and most offline businesses have an eCommerce website.
The low entry cost of setting up an eCommerce store, in comparison with a brick and mortar store, and the quantity of potential customers reachable, seems a major fit for the ambitions of the typical small business person.
But this optimism blinds many to the challenges of running an eCommerce business. Therefore, without the right research, it’s easy for businesses to fall under.
To prevent you from being part of that statistic, we’ll be bringing you eCommerce advantages and disadvantages that you have to consider before setting up your online store or adding an eCommerce site to your physical business.
The Groundbreaking Advantages of eCommerce
eCommerce has recorded astounding growth in the last decade, accounting for between 11 and 14% of American retail sales. Much of this growth has been due to the inherent benefits of eCommerce.
These advantages are:
- A bigger market
- Flexibility in changing market conditions
- Lower operating costs
- Analyzing consumer behavior
- Cheaper digital marketing
- Personalized customer offerings
Let’s explore each of these in further detail.
A Bigger Market
Many online retail stores can get customers outside their localities and their country of residence.
Customers are not restricted to waiting for certain items to be available in their own locality. All customers need to do is visit an online store and get their items shipped to their residence.
It’s also an opportunity to grow your small business, as you can increase your customer base beyond your locality. This is what Specialized, an online mountain bike retailer has been able to achieve with their products available globally.
Lower Operating Costs
Unlike a physical store, there are no overheads like building, rental, and maintenance when operating eCommerce.
Pro-Tip: It’s also easier to bootstrap an online venture.
An online retail business’s major start-up expense is building and hosting a website. In fact, the upfront cost of this can be up to $9000.
However, even if funds are limited, you can join an eCommerce marketplace like Shopify, eBay, or Magento to host your small business.
You can also outsource most of the labor and inventory operations, further reducing your operational costs. This situation enables online businesses to have a greater chance of being profitable, and offer their customers competitive retail prices.
If you deal with digital products like books, software, and music, you can run on a very minimal expense, with one of the few costs coming from intellectual rights to produce these products.
Flexibility in Changing Market Conditions
eCommerce outfits are agile enough to react to changing consumer trends. With a majority of their business operations outsourced, an online business can make the required changes to adapt to new market conditions.
This agility also enables them to scale their operations quickly. Unlike physical businesses, an eCommerce store can modify its operations more easily to serve fluctuating customer demand.
Sometimes, this change might involve changing your business model. This situation happened to Odeo, a podcast platform that evolved when Apple’s iTunes launched in 2006. Today, Odeo has become Twitter, one of the top social media sites globally.
Analysing Consumer Behavior
Getting information about an individual customer’s behavior is much easier with an online business. There are many digital analytical tools available for this purpose.
These tools can track and analyze the browsing and shopping habits of online shoppers on your site.
You can get to know what marketing and pricing strategies are achieving the best returns. With this knowledge, you can tweak your system to drop low-performing strategies and concentrate on maximizing the winning strategies to grow your business.
This information can help your eCommerce site serve your customers better by improving their customer experience, a success factor for any business. It also enables the customization of the online shopping experience.
Cheap Digital Marketing
You don’t have to break the bank to market your online retail offerings. With the myriad of digital marketing solutions available, you have a wide array of ways to attract potential customers to your online store.
Many of these marketing techniques, like social media marketing, email marketing, and content marketing are cheap and affordable, so you can find a digital marketing strategy that will fit your pocket.
An example of an online business that has grown without using traditional marketing techniques like billboards and TV adverts is Beardbrand. It has grown its customer base over the years using content marketing. This quote from CEO Eric Brandholz says it all.
There is another marketing advantage online businesses have over offline businesses: retarget marketing.
Retarget marketing involves marketing techniques and promotions aimed at individual shoppers based on their online habits. It provides special promotions for individual customers, especially those who have visited but haven’t made any purchases.
Did you know? You can learn more about how to market effectively online and other aspects of internet-based businesses with eCommerceFuel, a community of highly successful 7-figure+ online entrepreneurs.
Interacting with these successful business owners and the learning resources on the site can boost your online business.
Personalized Customer Offerings
Offline businesses have to offer their products en mass, providing little opportunity for personalization. But an online venture can offer this perk to its customers at affordable prices.
Research has shown that customers love personalized experiences, as it shows the business respects them enough to provide attention. It’s also proven to increase the customer conversion rate.
This approach is possible due to the online analytical tools available to entrepreneurs for information gathering. It also further enhances the convenience of shopping online.
The Shocking Disadvantages of eCommerce
It looks like it’s all benefits and no drawbacks with online businesses. But like every other venture, eCommerce has its pros and cons. Its disadvantages include:
- Lack of human touch
- Absence of tactile experience
- Stiff competition
- Security breaches
- Logistic challenges
- Internet access
Let’s take a closer look at these.
Lack of Human Touch
Many people like the experience of interacting with sales associates in a physical store. They feel online shopping is too cold and impersonal. This is one of the top disadvantages of eCommerce.
The situation can be exacerbated when the virtual customer service agent or chatbot doesn’t solve an issue for a customer quickly — or there is a misunderstanding.
There have been instances when the customer service bots have done the opposite of the customer’s request due to a failure of the bot’s artificial intelligence.
This factor makes it challenging to sell high-end products and services, requiring personalized human interaction online.
Absence of Tactile Experience
In a brick-and-mortar store, the ability to touch and feel the product you intend to purchase is a big part of the retail shopping experience. Unfortunately, the absence of this experience is one of the major disadvantages of eCommerce.
An eCommerce website has only a screen to show its offerings. Even high-quality video and the most appealing arrangement of its online offerings cannot fully compensate for missing the tactile experience.
Technologists are working on how to replicate the senses of touch and smell onto the web screen. But it’s looking like a very tall order, and its expensive price tag might put it out of the reach of many small business outlets.
The ease of entry into eCommerce has brought many entrepreneurs into this space. However, customer growth has not matched the growth of online businesses. This mismatch has intensified the fight for market share among online stores.
Many online ventures have offered incentives like free shipping to outmaneuver their competitors. The stiff competition is also driving down the prices of the offerings of the typical eCommerce store, making it difficult to achieve profitability.
Many online businesses bid fiercely for the most relevant keywords on Google to be among the top results on internet searches. This situation makes these keywords quite expensive and out of reach for many small business ventures.
There is also the presence of the behemoth of the eCommerce industry, Amazon, which controls almost half of the online retail industry in America. With an expanding catalog of 12 million products, they are a hard act to overcome.
There are frequent news items on security breaches in online companies. These incidents occur when hackers target a vulnerability in the security architecture of an eCommerce venture, which they exploit to steal vital information.
These breaches involve the theft of private customer details, trade secrets, and the interception of financial information like credit card details.
They pose a challenge for any online retail company. Fallouts from such incidents include customer compensation, possible litigation, and the loss of customer trust and brand reputation. These attacks also increase the costs of online security.
Fulfilling customer orders is a major pivot of any online store. Shipping a product to a customer has to be handled properly.
With physical stores, a customer can take their product home immediately. But ordering a product from an eCommerce site takes time, a situation that goes against the instant gratification ethos of most people.
Since shipping is usually outsourced to a third party, you exert little control over how the customer receives their ordered product. This aspect is a major disadvantage of doing business online.
Shipping could take longer than expected due to circumstances beyond the logistic company’s control. It’s also possible the ordered item gets damaged in transit, a situation that no customer wants.
Misplaced and wrong orders are also other challenges that improper logistics handling can cause. With payment not being received until the customer gets the item, this situation can erode customer trust and bring financial ruin to an online retail outfit.
Shipping costs are another logistical challenge. Many customers balk at paying for shipping, and offering free shipping can eat deeply into profit margins.
Delivering a great online shopping experience requires your retail outfit to provide many features and functionalities to enhance it. These include customer interactivity on different levels.
Unfortunately, poor broadband internet infrastructure can hinder your customers from enjoying this interactive experience. These features are heavy and need high-speed data to function properly.
The growth of the mobile internet also means you have to design your site to be mobile-friendly. It is important customers can use their mobile devices to shop at your store.
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