E-commerce entitiesUnderstand 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 e-commerce.

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?

ManufacturersSome 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 retailersSome 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 ofthe business should offset the costs and the ref o re thebusiness'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 entitiesOne 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 providersNot 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 entitiesSome 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 surmount- trust 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 especiallycompetitive 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?