Our business environment is changing every second in an Internet economy driven by e-commerce.
The Internet economy
Back in the old days change was something you give back when someone buys something from your shop. Today change is part of a retailer’s life and the way he or she adapts to it may be the difference between success and failure.
Digitalization has changed the way that business is done. It changed the rules of the business market and resulted in an Internet economy. The arrival and establishment of the Internet during the latter part of the previous century changed the way retailers do their business.
Retailing becoming e-tailing
The onset of the Internet economy resulted in terms such as “bricks and mortar”, “clicks and bricks”, and “clicks only”, which describes the physical environments in which retailers are doing business today.
“Bricks and mortar” describes a retail outlet at a fixed location in a shopping mall. The retailer relies on human traffic for business and makes use of non-interactive ways to communicate with his or her customers through print, radio, or television.
“Clicks and bricks”, on the other hand, refers to a “bricks and mortar” retail concern that also does e-commerce. “Clicks and bricks” retailers prefer their physical locations but also want to have their share of the e-commerce customer base and low costs of doing business.
A “Clicks only” business does its business via the Internet, with a minimum investment in infrastructure and the business can easily be run from the entrepreneurs’ home. These retailers communicate interactively with Internet users globally using Internet marketing techniques such as social networking.
Retailers doing business interactively via the Internet is fast taking market share away from the traditional, localized retail shops.
Advantages of doing e-commerce retail business
Traditional retailers (“Bricks and mortar”) now realise that they should change their business model. To this end e-commerce Internet models “bricks and clicks” and “clicks only” give them opoortunity to survive and grow.
The advantages of e-commerce retailing over traditional retailing are:
- Improvement in the performance of retailers such as better business performance; lower transaction costs; and better working together with business partners.
- E-commerce facilitates easy entry for retailers into new markets and extension of their existing markets;
- Retailer using e-commerce have the ability to offer product prices lower that the traditional retailers;
- E-commerce retailers can offer the online customers a greater choice of products;
- Customers are permitted to customize their orders online from e-commerce retailers;
- Online customers may help the e-commerce retailer by online interaction about new product development, product improvements, and so on.
- E-commerce retailers do not need to carry inventory and can make money only by facilitating a transaction for a manufacturer or retailer.
An alternative view of the Internet economy
In this article thus far, a rather positive and hassle free picture of e-commerce in the Internet economy has been put forward to the reader. There is, however, the other side of the Internet economy:
Thomas Neo and Geoffrey Parker (2005) describe the Internet economy as “chcharacterized by heavy expenditures on marketing and advertising, fierce competition, a few firms earning large returns with most incurring losses, and a weak or inverse relationship between traditional accounting measures of profitability and valuation”.
Retailers considering entering the Internet market using e-commerce should first analyse the market – its customers, competitors and channel partners. Thereafter, retailers should create an e-commerce business plan (eBizplan) to identify opportunities and threats in the market, and what strategy they will use to use the opportunity or counter the threat.
Neo, T. and Parker, G. 2005. Winner Take All: Competition, Strategy, and the Structure of Returns in the Internet Economy. Journal of Economics & Management Strategy, 14,( 1):141-164.
Sharma, S.K. 2005. Socio-economic impacts and influences of e-commerce in a digital economy, in Kehal, H.S. and Singh, V.P. (Eds.): Digital Economy: Impacts, Influences and Challenges, Idea Group Publishing, London