What is E-Commerce?

The term e-commerce was coined in the 1960s. With the rise of e-commerce, buying and selling goods through data transmission, the introduction of electronic data interchange made it possible. Fast forward fifty years, e-commerce has changed the way society sells goods and services.

E-Commerce has become one of the most popular ways to make money online, and it is also an attractive opportunity for investors. For those interested in purchasing an e-commerce business, this article aims to provide an introduction to e-commerce, including the reasons for its popularity, major distribution models, and a comparison of the major e-commerce platforms available.

What is e-commerce?

“E-commerce” and “online shopping” are often used interchangeably, but their core e-commerce is broader than this: it embodies the concept of online business, combining a variety of different services, such as online payment, reservation of flights, etc.

E-commerce has seen rapid growth since its inception, with e-commerce sales expected to increase to US $ 599.2 billion by 2024. In March 2020 alone, the COVID19 outbreak caused e-commerce sales to shoot up by 25%. The power of e-commerce cannot be underestimated because it continues to permeate daily life and present great opportunities for large, medium and small businesses and online investors. You don’t have to look far to see the potential of an e-commerce business.

For example, Amazon has set standards for customer-facing websites and lean supply chains. Small and medium-sized companies alone sell more than 4,000 items per minute.

Why do people “shop online”?

Lowest price:
Items listed on online stores are usually much cheaper to manage  than traditional physical stores. Operating an online store usually requires fewer employees, because a web-based management system allows owners to automate inventory management and does not necessarily require warehousing (we will see later).

Therefore, e-commerce business owners have the ability to pass on operating cost savings (in the form of product or service discounts) to consumers while protecting their overall profits. Also, with the rise of price comparison websites, consumers have more transparency in terms of prices and can compare prices, usually by shopping from online stores.

Accessibility and Convenience:

Unlike many offline stores, consumers can access e-commerce sites 24 hours a day. Customers can read information about services, search for products and place orders at any time. In this sense, online shopping is very convenient and gives consumers greater control. Plus, people living in more remote areas can order at home with the push of a button, saving time in shopping malls.

More Choices:

In the past two decades, the growth of online shopping has been largely based on greater choice. Since brand and product options are nearly endless, consumers are not restricted by supplying specific products in local towns, cities, or countries. Items can be sourced and shipped globally. Interestingly, a recent study found that consumers are starting to get frustrated with e-commerce sites that offer too many options. No matter how you look at it, more options can be a good thing in the long run.
Of course, e-commerce has great benefits for consumers, but it is also very useful for businesses.

Here are some of the reasons that companies have quickly entered this field.

Why Do Businesses Want To Sell “Online”?

Higher profit margins:

Installation costs and ongoing operating costs, such as rent, heating, electricity, storage (if operating a direct selling model), and inventory management, are generally significantly reduced or are eliminated in other ways. Additionally, customer service and other management tasks can be automated or outsourced at relatively low cost. Therefore, compared with operating offline business, selling through online stores can usually get higher profits.

Scalability:

For physical businesses, owners are usually limited by the number of people who can actually enter the store at any time. There are no restrictions on online transactions. Operating an e-commerce business means entering a truly global market. In addition, the online platform allows rapid upgrades. With the advent of social media and content marketing, as well as the option of using pay-per-click (PPC) to drive traffic and conversions, it can quickly expand to new regions or markets. A good example in practice is Choxi, a company that achieved 1,023% revenue growth in just one year.

Consumer Insights/Technology:

E-commerce companies often collect large amounts of customer data. By tracking every element of consumer behavior, e-commerce business owners can understand, adjust, and improve the customer’s shopping experience, thereby making data-driven decisions to increase conversion rates and sales. With the rapid development of technology, it is very important for online retailers to correctly use tools such as Google Analytics to understand customers’ shopping habits; obtaining information from these data has unique advantages that cannot be obtained by offline stores. Those who use the right systems and technologies can see their businesses grow extremely fast.

After you understand the benefits of running an e-commerce business, it is time to turn your attention to the different types of e-commerce businesses available.

E-Commerce Compliance Models Overview

The three main compliance models associated with e-commerce determine the role of retailers and how products are stored and distributed to end users. These models have a significant impact on a company’s operating characteristics, its day-to-day operations, and overall operating profit margins. The three main
models are:

  • Direct Selling Model

In the direct selling model, the e-commerce business does not actually occupy the goods for sale. The store owner does not maintain an inventory of products, nor does he have any inventory. Instead, the order will be shipped directly to the manufacturer, and the manufacturer is responsible for storing the logistics.

 

  • Traditional Order Fulfillment Model

Bulk purchasing is arguably the closest to the traditional offline retail model. In fact, business owners (retailers) buy inventory directly from wholesalers at discounted prices, charge a certain profit for each product, and then decide to ship it directly to consumers.

 

Advantages of Direct Selling Model vs Traditional Order Fulfilment Model 

Eliminates Inventory Risks:

One of the biggest disadvantages of operating offline retail or agentless e-commerce businesses is that, generally speaking, inventory must be sourced with anticipation. Of course, buying stocks costs money and there is no 100% guarantee that they can be sold, so business owners have inherent risks. However, drop shipping usually does not require any initial investment in inventory.

Less time/lower ongoing costs:

product transportation requires a certain amount of owner and employee time. Not only does it take time to order inventory, but it also takes time to manage inventory and ensure that the best inventory control is always in place to avoid rejecting orders, all of which can be avoided through the consignment model. Instead, the owner can use this time to manage the company’s overall strategy and ensure that sales targets are met.

Product flexibility:

If you are a retailer, you can flexibly try out new product lines in your online store and sales channels, allowing business owners to “go to the market” faster-if you are looking for an attractive It is proposed to ensure market share. Obtain a unique e-commerce value proposition.

Although the drop shipping model has many advantages, there are some shortcomings that need to be carefully considered:

Advantages of traditional order fulfillment vs Direct Selling Model:

Lower cost of sales (COGS):

The fees paid are lower than direct retailers. Therefore, e-commerce business owners should consider weighing the potential for fixed cost savings with the impact of reduced SKU profit margins per sale. In addition, when expanding the dropshipping e-commerce business, the business often does not benefit from economies of scale like dropshipping services. Whether you sell 100 products or 10,000 products, the marginal cost of using the drop shipping model is the same.

Inventory Management:

Naturally, inventory control can let you know when there is insufficient inventory and you need to reorder to meet customer demand at a specific time. Operating a drop shipping business means relying heavily on suppliers, who must be trusted to maintain best inventory practices and communicate your inventory levels in a timely manner.

Brand Control:

Although drop shipping seems to be the easiest option when considering e-commerce compliance, it is not without its shortcomings. Lost items, poor quality or damaged products may be produced. This is your responsibility as a merchant and handle them properly. In addition, the choice of direct shipping providers may be restricted, thereby narrowing the possibility of diversifying your product supply (early and future). With the traditional model, you can set delivery standards and design all elements of customer service.

Outsourced Compliance Model

Retailers may want to sell products from vendors who do not provide direct selling services. If retailers want to avoid end-to-end compliance (like the traditional model), they can take a hybrid approach using “compliance agencies.” In this model, companies like Shipwire are entrusted to handle the product aspects of the business on behalf of the retailer. Generally, they are responsible for collecting the products from the suppliers, storing the products in their distribution centers, all the packaging and the subsequent fulfillment of the orders (to the clients). This service has a minimum price, return fees and installation fees are common and must be fully weighed in advance.

Dropshipping and Traditional Order Fulfillment Summary

Dropshipping is a good option, especially when starting an e-commerce business. Managing cash flow is easier and the workload associated with compliance is reduced. In other words, wholesaling provides longer-term benefits with higher profits and provides more space for the establishment of truly differentiated brands. If the profit margin of the product is high, the outsourced compliance approach can be used, but should be fully evaluated.

E-Commerce Platforms Overview

After understanding the main e-commerce models, it is important to spend some time thinking about the technology platform on which they operate. When analyzing the online business, the choice of the platform is very important; will determine the basic customer experience, the payment process and the day-to-day handling of orders.

First, a decision must be made between managed installation or custom installation. Going the “colocation” route means that the hosting provider is responsible for maintaining the hardware in its own data center. Custom installation means buying your own hardware. Both have a practical meaning for homeowners, and we present some precautions in detail below.

A comparison: Hosting and custom installation

Technical support:

Hosting cart does not require technical knowledge, you do not need to be a technical expert. As part of the monthly subscription, the hosting company will provide 24-hour technical support (if any issues arise). Custom installation requires the presence of you or a technical developer to resolve any issues that may arise, as the site is self-hosted. This can be costly in terms of fees (if you’re not a techie), especially if a site’s downtime causes lost ecommerce sales. As a site owner, if you can do the maintenance and back-end development yourself, then a custom installation should be fine.

Customization and features:

Host Carts are usually very close, and there is a large roadmap to get features and updates to improve user experience, analysis, etc. over time. All this is included in your monthly subscription. That said, the hosted platform can respond to a large number of clients and free popular features. If you need a lot of personalization or a specific feature, it may be worthwhile to download your personalized route. Custom sites have many benefits, including complete management and personalization of the shopping experience. On the other hand, host templates can not provide the experience you are looking for. If your budget is restricted and requires a relatively standard payment process, the hosted solution must be fine.

Mobile friendly:

By 2022, the global mobile data traffic will reach the monthly Exabytes of 77.6 (since 19.01 in 2018). In most countries (including the United States), smartphones represent mobile transactions more than tablets. For electronic commerce, this is a major change, and it is important to be mobilized to guarantee the best possible and mobilized user experience. Solutions hosted as Shopify Enable mobile devices and tablet devices to find a great aspect. To benefit from personalization and extensions, be sure to talk with developers about the impact of mobile readiness.

Cost:

Host solutions provide high performance at a relatively low cost cost. If you are looking for a custom installation, the custom installation requires some processing fees to install, and you must send and manage hardware and infrastructures that can be very expensive. But on time, the total monthly fee for some platforms is equal to the cost of paying the selected platform. In this way, it is worth considering other compensations, instead of purely expensive.

If the selected solution is preferred, you can change the shopping cart. Companies that are located in the location of the hosted self-guest can automatically be transferred to the host cart at a relatively low cost (according to the level of complexity, the integration number). Also, when deciding which route to take, it is important to proceed and study first when deciding whether there can be a sense sensation now, but as the company grows, it is.

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