E-commerce: features and de­vel­op­ments

E-commerce, elec­tron­ic commerce, internet, and online commerce: all these terms stand for the buying and selling of goods or services using elec­tron­ic in­for­ma­tion tech­nol­o­gy. While the internet is the core tech­nol­o­gy, other forms of digital data trans­mis­sion and pro­cess­ing are also used, such as mobile radio, elec­tron­ic customer databases, or ac­count­ing software. What is e-commerce, what ad­van­tages and dis­ad­van­tages does it have, and what are the current trends in online commerce?

In addition to the purchase trans­ac­tions itself, elec­tron­ic commerce includes all processes that initiate and execute a purchase. An online shop functions as a central sales platform on which prospec­tive buyers can not only browse the product range but also order and pay via a digital system. An elec­tron­ic inventory control system registers the sold products and updates the stock. An RFID chip tracks the shipping route while CRM systems make it possible to stay in touch with the customer.

The more precise de­f­i­n­i­tion of e-commerce considers it as just one element of an e-business; an e-business includes all automated business processes in which elec­tron­ic in­for­ma­tion and com­mu­ni­ca­tion tech­nolo­gies are used. The objective of using largely automated business processes is to make work more efficient and increase sales.

Digital tech­nolo­gies form the basis of elec­tron­ic commerce. Both providers and customers exchange data digitally as part of e-commerce, for which, many different tech­nolo­gies can be involved: the spectrum ranges from radio tech­nol­o­gy (e.g. Bluetooth) to highly complex systems based on ar­ti­fi­cial in­tel­li­gence (AI). In addition to com­mu­ni­ca­tion tech­nol­o­gy, such as the internet and telephony, elec­tron­ic databases and text pro­cess­ing software are also used, social media and tele­vi­sion serve as ad­ver­tis­ing channels, payment trans­ac­tions are processed via online banking, and chat bots take over customer service. This creates a wide­spread digital in­fra­struc­ture of wireless or wired networks. The common de­nom­i­na­tor is the fact that spatial distances are overcome. E-commerce makes it un­nec­es­sary for consumers to go, for example, to shop in a physical store, or to seek face-to-face advice. However, sometimes this com­plete­ly replaces the physical contact aspect of the shopping ex­pe­ri­ence.

The purpose of online commerce is to optimize sales processes to generate more turnover for companies. The aim is to make all sales-related op­er­a­tions more efficient and to reduce all as­so­ci­at­ed costs. With the help of the internet, many companies have gained new sales channels with online shops, mar­ket­places (e.g. Amazon), or auction platforms (e.g. eBay). Through social media, digital ads and newslet­ters, busi­ness­es can gain new customers and maintain existing ones with rel­a­tive­ly little effort by using an automated CRM system.

Online retailers often decide which tech­nolo­gies and sales channels they use depending on the industry and business objective. It is by no means necessary to dig­i­tal­ize all processes. There is a growing trend towards multi- and cross-channel marketing, which uses a number of selected channels at the same time. A furniture store, for example, can gain customers with an online presence but should retain a sta­tion­ary store, or at least a showroom, where customers can inspect their favorite kitchen line or pick up furniture ordered online them­selves to save on shipping costs.

One of the key elements of elec­tron­ic commerce is the strategic co­or­di­na­tion of all channels. The elec­tron­ic tech­nolo­gies used must be in­te­grat­ed as precisely as possible with the supply chain – from logistics and marketing to customer service. For example, a product ad­ver­tised on the website must be in stock in the warehouse.

Elec­tron­ic commerce serves to increase ef­fi­cien­cy. For example, online commerce speeds up sales processes, as customers can easily browse through the range of products from their smart­phone or computer and order at any time. By au­tomat­ing processes, computer-supported systems can both save time and reduce personnel costs. And if you don’t have a physical store, e-commerce means you don’t even have to pay rent. The dis­tri­b­u­tion of digital offers via the internet is far cheaper than the dis­tri­b­u­tion of offers via post offices or other com­pa­ra­ble service providers. In addition, companies can also use e-commerce in order to, for example, cost-ef­fec­tive­ly open up new markets across regions.

E-commerce allows any kind of business trans­ac­tion. For example, trans­ac­tions can be processed in both B2B areas (business to business) as well as B2C (business between companies and consumers).

Companies can benefit from e-commerce in many ways. The ad­van­tages include the following:

• Over­com­ing spatial distances: the internet makes retailers in­de­pen­dent of a fixed sales location. They can open up new sales markets across different regions or countries. Although the dis­tri­b­u­tion of physical goods continues to require the expansion of logistics ca­pac­i­ties, new locations do not need to be opened. Online com­mu­ni­ca­tion can even eliminate the need for business trips. For online consumers, the advantage of e-commerce is that they can choose from a huge range of products and compare quality and prices directly.
   
• Time efficient pur­chas­ing process: e-commerce allows for instant shopping without delay. In­ter­est­ed buyers do not have to visit a physical shop to purchase a product. Instead, they can order items around the clock either from the comfort of their home or while on-the-go. As soon as the order has been placed, consumers will receive a con­fir­ma­tion e-mail via the shop system. Service providers can also offer their services online: for example, a travel agency can advise in­ter­est­ed parties online and accept bookings.
   
• Elec­tron­ic commerce reduces trans­ac­tion costs: e-commerce may eliminate the need to open new company and warehouse locations. Inventory, cash, and shop mon­i­tor­ing systems automate inventory and cash flow man­age­ment. This fa­cil­i­tates the co­or­di­na­tion of different company de­part­ments and offers room for new business models. To increase competing power, small- to medium-sized busi­ness­es can now enter into part­ner­ships with online service providers. Instead of using their own online shop they can opt for Amazon Mar­ket­place or the online auction platform eBay. Here, busi­ness­es can outsource parts of their sales and at the same time, benefit from the high reach of such mar­ket­places.
   
• Simple omni-channel and multi-channel marketing: it pays to connect the online and the offline worlds and to take advantage of multiple channels. By using both an online store and social media alongside your physical store, there are more touch­points for the consumer to decide or act upon your offer.
   
• High-reach ad­ver­tis­ing: social media, blogs, and a company website provide cost-effective ways to draw attention to your offer. Companies active on Facebook benefit from the network’s wide reach. Search engine marketing and online ad­ver­tise­ments can often be suc­cess­ful­ly im­ple­ment­ed with a small ad­ver­tis­ing budget as opposed to tra­di­tion­al print or TV ad­ver­tise­ments. Ad­di­tion­al­ly, online ad­ver­tis­ing is easier to per­son­al­ize than tra­di­tion­al ads.
   
• More customer proximity: social media allows busi­ness­es to establish personal contact with potential customers and to improve the company image. Tracking and analysis tools are useful for busi­ness­es in order to collect personal in­for­ma­tion and create precise customer profiles. This makes it possible to plan ad­ver­tis­ing campaigns and align the product range according to demand. By taking advantage of CRM systems busi­ness­es can easily stay in touch with customers.
   
• High customer sat­is­fac­tion: e-mail support, online contact forms, or instant chats eliminate customers’ in­hi­bi­tions when it comes to seeking advice. This recent tech­nol­o­gy allows customers to make inquiries around the clock and get quick answers in return. Sim­pli­fied ordering and payment processes reduce the effort for companies and customers alike.

Despite the many benefits of e-commerce, it can also have a number of dis­ad­van­tages for companies and customers. Whether or not these arise, depends largely on which industry a business is in and what capacity it has.

• Complex im­ple­men­ta­tion: building a digital structure takes time and money. Not every small retailer has the necessary know-how or the human and financial ca­pac­i­ties to set up an e-commerce store and regularly manage social media channels.
   
• Effort and expertise for ad­ver­tis­ing: the extent to which online marketing saves costs depends on the industry. In highly com­pet­i­tive markets, companies also have to vie for attention on the web. A one-time-only ad campaign with Google AdWords simply won’t suffice. While smart­phones and social media have shortened users’ attention span, pro­fes­sion­al search engine marketing, in turn, often requires expertise or more costly support from a spe­cial­ized agency. In this sense, small companies often cannot compete with large cor­po­ra­tions.
   
• Increased com­pe­ti­tion and pricing pressure: global online trading is in­creas­ing the number of com­peti­tors. If supply exceeds demand, the companies in question will be under enormous pricing pressure. Price com­par­i­son websites make it easy for consumers to choose the cheapest offer. In the fashion sector for example, low-cost pro­duc­tion fa­cil­i­ties in Asia are in­creas­ing­ly taking over their entire dis­tri­b­u­tion operation, even without in­ter­me­di­aries. They often waive customs and shipping costs for their customers and offer their products on the internet at an un­beat­able price. Depending on the industry, this makes it very difficult for most local companies to compete with such price wars and turn a profit.
   
• Lack of personal advice: not all online retailers can provide a 24-hour customer service or have the resources to integrate service chatbots into a website. In contrast to a fashion boutique, there is no direct contact with customers. In most cases, from the customers’ per­spec­tive, a sales con­sul­ta­tion by trained personnel is more valuable and target-oriented than, for example, an online chat. E-commerce cannot replace on-site, face-to-face con­sul­ta­tions, es­pe­cial­ly for products and services that may require a great deal of ex­pla­na­tion, for example, with trekking equipment or medical devices.
   
• The demise of stores: the booming internet trade comes at the expense of the brick and mortar retail stores. According to The Atlantic, 2017 saw, amongst other things, the closure of 100 Sears’ stores, the liq­ui­da­tion of Sports Authority, and the bank­rupt­cy of Payless. The continued decline of the brick and mortar stores, will leave cities desolate.
   
• Payment and data security: internet users tend to shy away from online shopping for security reasons and would rather not share personal in­for­ma­tion and payment data online.

Online commerce has been booming for years and with the latest tech­no­log­i­cal de­vel­op­ments, it continues to gain momentum. Statista reported the 2017 online sale of physical goods in the United States at 409,2 billion U.S. dollars and a projected worth of 638 billion U.S. dollars in 2022. Apparel and ac­ces­sories retail alone has a projected worth in 2021 of 121 billion US dollars.

Online shopping is by no means limited to the younger gen­er­a­tion. Age dif­fer­ences are playing less and less of a role in e-commerce: many over 65 years of age have an affinity for the internet. According to the Bitkom survey, 79% of this age group have made at least one online purchase. With that in mind, companies that tailor their marketing strate­gies specif­i­cal­ly towards younger digital natives waste a lot of customer potential. Older people buy a lot of their med­ica­tion online and have it delivered to their door, but when it comes to clothes and shoes, they tend to prefer brick and mortar shops. By contrast, 14 to 29 year olds are much more likely to go on an online shopping spree.

In­di­vid­u­al­iz­ing the shopping ex­pe­ri­ence is a growing challenge for many online shops. The trend is therefore going towards personal offers and ad­ver­tis­ing. Many users want to purchase a tailor-made gift voucher or book a very special trip. Loyal customers expect discounts, an in­di­vid­ual approach, and ap­pro­pri­ate shopping rec­om­men­da­tions. Analysis and tracking tools like Google Analytics make it possible to collect personal data. By reg­is­ter­ing the purchase and surfing behavior of your customers, you can per­son­al­ize their next visit to your online shop. Retailers can learn more about their customers’ product pref­er­ences as well as the prices they are willing to pay for specific products.

There is also a lot of progress being made in the virtual reality field. This tech­nol­o­gy allows users to fully immerse them­selves in a product world. One example of this is the furniture store IKEA’s immersive showroom. This allows customers, who are perhaps still undecided about certain products, put together their home fur­nish­ings virtually and, for example, test which fabric up­hol­stery looks good on the living room sofa depending on what time of day it is.

Online shopping via mobile devices is in­creas­ing. Within a few years, the number of mobile purchases has more than doubled. To keep up with the trend, it’s important to design websites re­spon­sive­ly, i.e. adaptable to different output formats. This sim­pli­fies nav­i­ga­tion via the small display of mobile devices and shortens loading times. According to Statista, almost 82% of larger online shops already offered their products via mobile shops in 2016.

At times, even bad network settings can cloud mobile shopping, but with the new 5G mobile com­mu­ni­ca­tions standard, mobile customers will continue to gain in im­por­tance. Ad­ver­tis­ing that reaches consumers around the clock in the mobile sector is becoming in­creas­ing­ly lucrative as a result. Geo-targeted data also improves targeting, allowing companies to make location-based offers or lure customers to the nearest store.

Despite these de­vel­op­ments, however, the sta­tion­ary trade has by no means had its day. More and more customers prefer to switch between online and offline services. Om­nichan­nel marketing has become the order of the day. Even pure online retailers in­creas­ing­ly sell their fashion in outlets while others offer showrooms. The “click and collect” service allows customers to test a product, get personal advice, or pick up goods ordered on the internet without shipping charges. Sta­tion­ary shops and service providers are in­creas­ing­ly offering the pos­si­bil­i­ty of ordering over the internet or receiving advice via Skype. There are some shining examples of om­nichan­nel brands that have seam­less­ly in­te­grat­ed numerous channels into their marketing campaign to stay ahead of the com­pe­ti­tion.

By using multiple channels, busi­ness­es can reach more prospec­tive buyers and attain a higher level of customer sat­is­fac­tion. A seamless tran­si­tion between online and offline is also ensured by various in­no­va­tions in the field of the internet of things. In­di­vid­ual products or entire product shelves are sent to smart­phones via so-called beacons, which are based on radio tech­nolo­gies. An app registers the signal, provides the customer with exact product in­for­ma­tion, and draws customers’ attention to the ap­pro­pri­ate shelf – e.g. for organic food.

The internet of things will open up com­plete­ly new op­por­tu­ni­ties for e-commerce in the future. The number of everyday things per­ma­nent­ly connected to the internet and smart household ap­pli­ances is already in­creas­ing. For example, a smart re­frig­er­a­tor uses sensors to indicate when certain foods are running low and can order them in­de­pen­dent­ly. IoT devices maximize per­son­al­iza­tion in online shopping and ad­ver­tis­ing, as they can identify users’ shopping patterns and trends.

In warehouse man­age­ment, as part of elec­tron­ic commerce, goods equipped with sensors and connected to the internet fa­cil­i­tate work processes. They keep track of stock in real time to prevent popular products selling out.

E-commerce will therefore continue to gain in im­por­tance thanks to ongoing progress and in­no­v­a­tive tech­nolo­gies.