Considerations for Online Retailing: Merchant Perspective

To determine whether you are ready to move your retail business online, it is useful to review the benefits and challenges on both sides of the coin.

-What will your customers find most difficult to get used to? - How can you make this transition a better experience for them?

-What will your customers gain from buying online? - How will you continue to meet their needs?

-What will be your hurdles? - Is your business prepared to meet these challenges?

-What benefits will you experience by moving your business to the Internet? - How can you take advantage of these benefits?

The degree of challenge and opportunity you experience will depend on your business – your current business practices, your products, your customer service, your competitive position, and your business’s ability to meet change.

Merchant Perspective

Advantages:

Increase Flexibility - Moving your business online will provide you with increased product and service flexibility. For instance, perhaps you have considered expanding your product line but the product you would like to introduce is not feasible for your physical store location because the market is not there. With your online business you have access to a larger customer base and opportunity to expand your product line. You are also open 24 hours/day, 365 days/year enabling you to offer products and services at your customers’ convenience.

Increase Revenue - Because you have access to a larger market, there is greater potential to sell more products. Moving your business online also offers an opportunity to develop new revenue streams. For instance, you can sell advertising space on your site and charge a commission for each impression.

Keep Up With Competitors - Chances are your competitors have a web site. If you do not move your business online, there is opportunity for them to gain market share and develop greater customer loyalty.

Gain an International Presence/New Customers - With a physical store location, you are primarily limited to customers in the geographic region in which you operate. With an online presence, you have access to customers all over the world, enabling you to broaden your market reach and expand your business.

Reduce Communications Costs - Enticing customers to a physical store location usually involves sending out direct mail such as brochures and coupons. This can be an expensive option, particularly since you do not know if you are reaching your target market. With an online site, it is much easier to gather customer information, enabling you to track your customers’ shopping habits and e-mail targeted promotions to them.

Improve Brand Presence - Extending your business to an online environment enables you to solidify your brand, particularly if you can manage your customers’ experience beyond your site and expand your brand presence on the rest of the Web. For instance, perhaps you sell non-leather footwear products online. If it is your goal to brand your company as one that is against use of animal products, you can associate your site with online ads from various associations that support this cause. You can also work to ensure these associations link to your site. By creating synergies between your brand and the ads on your site you can reach your target audience and create associations in the consumer’s mind between the product and some other favorable attribute.

Build Customer Loyalty - The online environment is ideal for collecting customer information, enabling you to effectively reach your customers with targeted promotions or product offerings. For instance, when customers make a purchase with a credit card, they are usually asked to provide their contact information. In addition to their contact information you also know what they bought and can store this data in a database for future promotional campaigns that are based on past purchases and directed towards their needs.

Expand Sales Channels - Providing customers with different avenues through which to buy your products provides them with additional convenience and choice, improving your ability to build customer loyalty and increase sales performance. For instance, some customers would prefer to browse through products online rather than visit a shopping mall to browse similar products.

Disadvantages:

Requires Long-Term Investment - An online site requires regular time and money investments to gain customers and encourage online purchases. For instance, product descriptions require upgrading, new prices and promotions need to be added, links need to be checked and activated, new pages need to be included. The site is never static; it should continually change to effectively reflect the needs of your market, gain new customers and retain old ones.

Greater Price Pressures - With an online presence comes increased competition and a downward pressure on prices. Customers can evaluate various products and their prices on the Internet and will choose the lowest cost item. If you do not offer a product that is of equal or less cost, or fail to prove the additional value that comes with extra costs, they will go to the competitor.

Credit Card Security Issues - Credit card security is one of the biggest issues for online customers. As an online retailer, you will need to ensure you have clear privacy and security policies and processes in place to educate and protect your customers, and encourage them to shop on your site. As well, providing your customers with the option to pay via credit card does not come at a low price. In addition to paying large fees to banks and credit card companies you are also 100 percent liable if you fail to successfully protect your customers’ private information.

Multi-channel Consistency - When you sell your products or services through various channels, it is important that your brand is seamless across all channels, otherwise you weaken the message your company projects. For instance, if you have a brand that is built on exceptional customer service, your site must reflect this high level service as well. The challenge is to determine which strategies and tools can be used to ensure there is consistency in your customer service between the offline and online selling environment.

Logistical Challenges - Operating a retail store online means your business is open to the world. As a result, there are increased inventory and delivery pressures. In the late 90s, explosive growth in Internet sales took online retailers by surprise - demand was greater than supply, inventories were depleted, deliveries were not made on time - and customers were disappointed. If you cannot meet increased demand or deliver the product on time, you are at risk of losing your customers to the competition. To improve your success, operations of the company require integration.

Cultural Barriers - You cannot move to an online environment blind. Before you sell online, it is important to understand your target market. For instance, will your products sell in that market? How can you effectively advertise your site in that market? What payment method does the market prefer? As an example, if you want to sell your products in Asia, credit cards are not as common in Asia as they are in North America, so your site will need to offer alternative payment options, such as e-cash.

Increased Competition - When you have a physical retail store, direct competition comes from other stores offering similar products in the same general location as you. In an online environment, you are competing with retail stores from all parts of the world, which can impact the products you offer and the markets you target. As a simple example, you would not target Australia as a market to sell your alligator products because it’s cheaper for customers to purchase directly from retailers in Australia rather than buy from you.

Raised Customer Expectations - Now that consumers are more proficient at using the Internet and understand what to expect from an online site, they expect a shopping experience that is as good as or better than the one they achieve in a traditional physical store location. They are becoming increasingly intolerant of slow downloads, inconvenient navigation, limited selection, and checkout failure, leading them to go somewhere else if you do not satisfy them.