advantages and disadvantages of ecommerce for businesses

3.3.5 E‑commerce

Objective

Define e‑commerce, explain its strategic significance, describe how it influences each element of the marketing mix (including the “technology” component), outline the main online promotional tools, and compare the opportunities and threats it creates for businesses.

What is e‑commerce?

Definition: E‑commerce (electronic commerce) is the buying and selling of goods or services over the Internet. It involves online marketing, electronic transactions and the digital (or physical) delivery of products.

Strategic significance: E‑commerce reshapes competitive advantage by lowering entry barriers, expanding market reach and providing data‑driven decision‑making that can alter a firm’s cost structure and positioning.

Impact of e‑commerce on the Marketing Mix

Refer to the standard 4 Ps diagram used elsewhere in the course – e‑commerce adds a fifth “Technology” element that underpins all four Ps.

• Product: Enables wider ranges (e.g., downloadable software, custom‑made apparel) and instant updates of specifications, images and stock levels.
• Price: Supports dynamic pricing, discount codes and price‑comparison monitoring, allowing rapid response to market conditions.
• Place (Distribution): Removes geographic barriers; a small UK boutique can sell to customers in the UAE without a physical shop.
• Promotion: SEO, email, PPC, social‑media and content marketing reach targeted audiences online.
• Technology: Websites, secure payment gateways, inventory‑management systems and mobile apps become essential operational tools.

Internet & Social‑media Tools for Promotion

• Search‑engine optimisation (SEO): Improves a site’s visibility on Google → more organic traffic. Measure: keyword rankings, organic‑visit growth.
• Pay‑per‑click (PPC) advertising: Paid ads on Google, Bing or social platforms generate immediate clicks. Measure: click‑through rate (CTR), cost‑per‑click (CPC) and conversion rate.
• Email marketing: Newsletters and personalised offers encourage repeat purchases. Measure: open rate, click‑through rate, sales per email.
• Social‑media marketing: Instagram, TikTok, Facebook, etc., for product showcases, influencer collaborations and targeted ads. Measure: engagement (likes, comments, shares), follower growth, ROI of paid campaigns.
• Content marketing: Blogs, videos, tutorials build brand authority and improve SEO. Measure: time on page, bounce rate, lead generation.

Opportunities (Advantages) of e‑commerce for businesses

• Wider market reach – Sell nationally and internationally without a physical premises.
  Example: A handmade jewellery maker in Wales ships to customers in Japan via an online store.
• Lower operating costs – Savings on retail space, staff, printed catalogues and postage (when using digital delivery).
  Example: An e‑book publisher eliminates printing and warehousing costs.
• 24/7 availability – Online shops operate round the clock, increasing sales opportunities.
  Example: A fashion retailer records sales spikes at midnight in different time zones.
• Personalised marketing – Customer data enables targeted promotions and product recommendations.
  Example: Amazon’s “Customers who bought X also bought Y”.
• Faster order processing – Automated inventory, payment and invoicing systems speed up the sales cycle.
  Example: Instant confirmation emails after a purchase.
• Reduced inventory holding – Drop‑shipping and just‑in‑time ordering minimise stock levels.
  Example: A dropshipper never stores the product themselves.
• Improved customer service – Live chat, FAQs, self‑service portals and automated order‑tracking enhance the buying experience.
  Example: Real‑time chat answers product‑size queries instantly.

Threats (Disadvantages) of e‑commerce for businesses

• High initial investment – Costs for website design, secure payment gateways, hosting and IT infrastructure.
  Mitigation: Use phased development, start with a hosted platform (e.g., Shopify) and upgrade as sales grow.
  Example: Setting up a PCI‑DSS compliant checkout system.
• Technical problems – System crashes, cyber‑attacks or connectivity issues can halt sales.
  Mitigation: Regular backups, redundancy (mirrored servers) and robust cybersecurity policies.
  Example: A DDoS attack disables an online store for several hours.
• Intense competition – Low entry barriers lead to many rivals and often price wars.
  Mitigation: Differentiate through unique value propositions, superior service and brand storytelling.
  Example: Numerous sellers on a marketplace offering identical phone accessories.
• Limited personal contact – Absence of face‑to‑face interaction can reduce trust for some customers.
  Mitigation: Offer virtual consultations, detailed product videos, generous return policies and click‑and‑collect options.
  Example: Customers reluctant to buy high‑value items without seeing them first.
• Logistics challenges – Managing shipping, returns, customs duties and delivery times can be complex.
  Mitigation: Partner with reliable couriers, use fulfilment centres and provide clear tracking information.
  Example: International orders delayed by customs clearance.
• Dependence on technology – Ongoing maintenance, software updates and staff training are required.
  Mitigation: Schedule regular updates, maintain a service‑level agreement with the platform provider, and train staff annually.
  Example: Regular updates to the e‑commerce platform to fix security bugs.
• Legal and regulatory issues – Must comply with data‑protection, consumer‑rights and tax legislation (relevant to the “External influences on business activity” section of the syllabus).
  
  • Data protection – GDPR (EU) or local equivalents require secure handling of personal data.
  • Consumer protection – Distance‑selling regulations give customers a 14‑day right of withdrawal.
  • Taxation – VAT/GST must be charged correctly on domestic and cross‑border sales.
  Mitigation: Implement a compliance checklist, keep records for the statutory period and use automated tax‑calculation software.
  Example: A UK retailer must charge VAT on sales to EU customers and retain records for 6 years.

Comparison of Opportunities and Threats

Cross‑functional impact of e‑commerce

• Operations: New logistics arrangements (dropshipping, fulfilment centres) and real‑time inventory control.
• Finance: Faster cash‑flow from electronic payments, but also ongoing costs for IT support, cybersecurity insurance and compliance.
• People: Creation of roles such as digital‑marketing specialist, web‑developer, data‑analyst and e‑commerce manager; need for staff training in online customer service.
• IT & Systems: Ongoing maintenance of the website, integration with ERP/CRM systems and data‑analytics platforms.

Key Points to Remember

1. E‑commerce expands market reach but requires a robust digital infrastructure (website, payment system, security).
2. Cost savings from reduced physical premises can be offset by technology, logistics and compliance expenses.
3. Customer trust hinges on secure payment gateways, clear return policies and reliable delivery.
4. Integrating online and offline strategies (e.g., click‑and‑collect) combines the strengths of both channels.
5. Understanding the impact on each element of the marketing mix helps businesses adapt product ranges, pricing, distribution and promotion to the online environment.
6. Evaluation of e‑commerce decisions should always consider both the opportunities and the mitigation of associated threats.

¹ The syllabus does not require calculation of price elasticity; any reference to it is for contextual understanding only.