E-Commerce: Benefits and Limitations

By | November 25, 2011

After billion dollar dotcom evaluations in the west, now the dotcom craze has hit the eastern part of the world, more so in E-commerce. Almost every second person in the Asia-Pacific region is upbeat about it.

What is E-commerce?

E-commerce is ‘commerce on the internet’. Commerce is, quite simply, the exchange of goods and services, usually for money e.g. When you buy something at a grocery store, you’re a part of a commerce transaction. In the same way, if you sold your real estate, you are again a part of commerce though from a different angle. Replicate this on the internet, it becomes E-Commerce and yes it’s over 100 billion $ industry in the US alone.

What drives E-commerce?

Let’s say John wants to buy a Fandroid Phone, so he goes to store ABC. After searching over 1000s of products, he could not find the one he was looking for. So he goes to the counter and tells the guy at the counter “I did not find the Fandroid Phone, can you get it for me”. The counter guy says, “We don’t have that product in stock sir”. So after 10 minutes of searching plus commuting time, John didn’t get anything, he leaves the store for another store to buy it. John had to spend over an hour looking for the product at store ABC.

How does E-commerce step in?

Say John log on to www.ABC.com to buy a Fandroid Phone. He enters the item in the website search bar and viola there it is right in front of him in 2 minutes along with the details of the product, the price, discounts and any promotions applicable. The system says that the product is out of stock, but if you order it then it will be delivered in 7 business days instead of 2.. What happened here?

Retailer ABC has an inventory management system which is linked to his supplier’s system, so when the inventory management system finds out that an order for a product, which is out of stock, has been placed then a notification to the procurement team is sent. The procurement team then checks the inventory in supplier’s portal and places the order.

A single click on www.ABC.com just saved John more than an hour.

Advantages for store ABC

  • John is a happy customer.
  • The store did not have to dedicate any physical person to attend to the John.
  • The store’s business driver got notified by the system and communicated the need to the procurement team asap.
  • The production team in turn communicated the requirement to the Store’s supplier via a single click without even needing to talk on the phone or visit the office.

In a single day if there are hundreds of customers looking to buy products through a store then one single click just saved many people a lot of time and money.

Let’s assume that John is looking for a promotional price on Fandroid Phone in store ABC. John goes to store ABC but doesn’t find any promotions and come back. Unknowingly store BestDeal has a promotion running on Fandroid Phone,but BestDeal team has no way of knowing that John walked into ABC looking for a promotion on Fandroid Phone.

How e-commerce steps in?

Let’s say John searches “Willing to buy Fandroid Phone at a discount” on Google. Store ABC does not have that promotion but Store BestDeal has, and this listing pops up right on top of the Google search page. John see’s the link, clicks on it and orders Fandroid Phone.

Thus E- commerce enabled customer acquisition through a single promotion and a single click.

The biggest benefit of E-commerce is its reach. One E-commerce store can reach out to internet customers across the globe e.g. A person sitting in Africa might be aware of amazon.com.

Benefits:

  • Large increment in sales.
  • Increasing profits.
  • Opportunity to increase the market from regional to national to finally international.
  • Lowers operation costs.

However just like every coin has 2 sides, there are a few limitations as well. Below are the limitations categorized under technical and non-technical.

Technical Limitations:

  • Cost of the technology: The cost of implementing a functional e-commerce store can run into millions of dollars, hence a bottleneck for many small stores who wish to run a fully capable e-commerce store.
  • Constantly evolving software tools and technologies: E-commerce stores require considerable on-going investment in technology to keep up with the market.
  • Integration of digital sales and non- digital sales.
  • Integration of new e-commerce technologies with present IT infrastructure of the business.
  • Limited penetration of the Internet: The internet still has not touched the lives of many individuals. Lack of knowledge restricts a large number of people from using the internet and understanding online transactions.

Non-Technical Limitations:

  • Customer’s fear of sharing their personal information on the internet.
  • Vulnerable to cybercrimes and frauds.
  • Higher cost of employee training required than required in a brick and mortar store.

Even though there are these thought provoking limitations on E-commerce but its advantages far outweigh the limitations. If apt technology and approach is used customer trust can easily be built over the internet. No wonder the e-commerce industry is predicted to reach 60 billion$ in Asia pacific alone while in the west, it is already a 300 million $ + industry.

About the guest post author: The Author is a product manager at Taaza Ads that acts as a solution for sellers, buyers and traders where users can post ads for free describing their products or requirements under appropriate categories. He has been managing Study Nation and has previously been involved with a variety of e-commerce projects in India.