James Davis Advantages and Disadvantages of E-commerce Bus 107 Debra Wilson November 22, 2010 Abstract In today’s economy, business moves at a rapid pace and shows no sign of slowing down. Many of the revolutionary changes that have taken place and supplied this economic engine with fuel are due to electronic commerce. The introduction of the computer into the workplace has brought about manifold changes and seemingly unlimited possibilities for merchants. This new technology offers many advantages for businesses but there are disadvantages as well. Each company must weigh the pros and cons while determining what direction they will take.Advantages and Disadvantages of E-commerce Electronic commerce is a fundamental part of today’s business world.
It has undergone many changes since its inception and will continue to do so. The information technology field has always moved rapidly and businesses must align themselves with these changes in order to remain competitive. E-commerce has many advantages and has transformed business, as we know it. Although fewer in number, there are also disadvantages associated with e-commerce. The advantages of e-commerce are great in number and have quite a range of variation.
E-commerce is still fairly young but has brought manifold changes in the way business is conducted. Businesses great and small have taken advantage of the new opportunities afforded by electronic transactions. As we move on in the twenty first century, we will see more and more participation and advancement in this very important field of commerce. Firms are interested in e-commerce because it can increase profits. There are countless opportunities for increases in sales and also decreases in cost. In the past, businesses were limited to a physical location.
Now that business can be conducted electronically, this is no longer a factor.Anywhere on the globe that has a connection is now a potential customer. Individuals can be reached but also groups of people called virtual communities are now paying customers. A virtual community is a gathering of people who share a common interest but instead of gathering in the physical world, they gather on the Internet.
(Schneider, 2010) E-commerce increases purchasing power for the buyer. In business-to-business applications, competitive bids can be efficiently obtained as well as negotiation of prices and delivery terms. Both speed and accuracy of exchange information is accelerated which can reduce costs.Many costs have been reduced by companies, such as handling sales inquiries and determining product availability.
New suppliers and business partners can also be identified through the Internet. Prices can be compared side-by-side and choices can be made within a shorter time frame. (Schneider, 2010) This can reduce many of the front-end costs that are incurred in the traditional business. Procurement staff can be smaller, therefore reducing costs. E-commerce provides buyers with more variety from a larger number of sellers. Buyers can now search for products twenty-four hours a day, seven days a week.
Purchasing power for the individual consumer has also increased exponentially. One can sit at a computer and shop anywhere in the world for any available product. (Weinclaw, 2008) E-commerce may allow for a more centralized location that could reduce inventory demand. Turnover rates will also be increased. For example: In 1998, the turnover rate for Barnes and Noble was 3.
2 per year as opposed to 20. 7 per year for Amazon. A company may also be able to purchase land at a remote location for less money and save on construction costs as well. The business could be built more for efficiency of employees and not for aesthetics.
If the business could function as a warehouse-style operation, it would be enabled to hold more products and be set up to sell according to volume and not category. There would be no need for a display area or checkout lines and the parking lot could also be reduced in size. The quantity of traffic and amount of pollution would also be reduced. (Boyer, 2001) E-commerce increases the speed in which transactions take place. Customers no longer have to wait in line to purchase items but can now securely complete transactions online. Customers do not have to travel to pick up their merchandise but can have it shipped directly to them.
If a customer needs to contact the business, this can be done quickly via e-mail. Most companies now provide adequate information so that customers are able to place their own orders and answer their own questions (FAQ). This is called self-sourcing and it encourages consumers to do some of the work normally done by the business. This reduces costs and errors while also engaging the consumer. Example: Fed-Ex was a pioneer in the use of online tracking.
They allowed customers to enter a tracking number on the Fed-Ex web site and monitor their packages. This removed the operator from the transaction, cut expenses, and satisfied the customer.It is also common for companies to set up account profiles for customers that reduces errors and speeds up processing. Businesses can add new features to their products and services such as updates, activities, or new products.
Many companies spend large amounts of money to encourage consumers to visit their web site. Contests and prizes are often used to prompt return visits. (Boyer, 2001) E-commerce allows companies to increase the specialization of their employees and streamline their operation. The number of service technicians can be reduced and the needs of customers can be responded to more quickly.Sales support and order-taking processes can also be minimized.
Example: Cisco began selling online in 1998 and seventy two percent of their sales were conducted on the web. They avoided 500,000 calls per month and saved $500 million in the first year. Today, ninety nine per cent of their sales are online. (Schneider, 2010) Electronic commerce can increase productivity for consumers. Customers can now compare multiple items at once instead of going from store to store.
Decisions can be made quicker and the consumer is more informed. E-commerce allows businesses to be interconnected and share information.Product manuals and specifications can be made available online. Customer service can be reached by e-mail or chat.
(Wienclaw, 2008) Digital products can be purchased and downloaded on the web immediately. The customer no longer has to wait for a catalog or specification sheet but can acquire music, video files, software, and images in seconds. These items cost less than hard copies and one will avoid packaging and shipping costs. Example: Turbo Tax sells tax preparation software in a downloadable format and can be purchased and in use within minutes.
Schneider, 2010) Although lower in number, there are also disadvantages in e-commerce. While many businesses have enjoyed great success over the Internet, some do not fare as well. Some businesses may never be good candidates for e-commerce. There are items that must adequately be inspected up close, such as perishable foods and expensive jewelry.
Customers simply cannot make educated decisions about such items without looking at them first. However, the largest problem today is simply the newness of the technology and people’s reluctance to use it, but this will slowly go away. Schneider, 2010) Many products and services require a large number of buyers to be interested before the business can become efficient and profitable. Example: Online grocer Peapod began by offering their delivery service in only a few cities. As demand slowly grew, they expanded their territory. Businesses can also be subjected to very wide fluctuations in demand that may be difficult and sometimes impossible to keep up with.
If a product or service sells at a much higher rate than expected, serious complications may arise. With millions of potential customers only a click away, this is not unusual on the Internet. Schneider, 2010) Businesses often calculate return on investment numbers before committing to new technology. This is difficult with e-commerce because technology is constantly changing and costs can change dramatically in a short amount of time.
Many firms have had trouble recruiting and retaining employees that are capable of operating in e-commerce. There can also be difficulties in integrating existing databases and transaction processing software from traditional commerce into e-commerce software, and this can also be expensive. (Schneider, 2010) Technical maintenance can be expensive and is absolutely critical.Databases, servers, and communication links provide great flexibility but also present huge challenges to develop and maintain. Many firms do not have employees with the technical expertise to manage complex, twenty-four hour systems. Programmers, network technicians, web designers, database managers, and others must be hired.
Example: Amazon is located in Seattle, close to many leading-edge software companies such as Microsoft. Development and maintenance of web pages and databases can be subcontracted out but this also sacrifices the ability to react quickly to competitive threats and make fast changes to its systems.Technology changes rapidly and companies have to continually invest money for training within the information technology department. They are also regularly faced with decisions regarding upgrades of equipment and software. (Boyer, 2001) Shipping costs also have to be factored in to the cost of e-commerce. Shipments have to be made to thousands of customers instead of to a single store.
Some items are too large to ship while others are fragile and require special precautions be taken.When selling controlled substances such as alcohol and prescription drugs, measures must be taken to ensure the proper person receives the product. Accountability and legality issues must also be addressed. (Boyer, 2001) There are instances when current employees or an employer are a hindrance to e-commerce. Information technology staff may not be competent to initiate and maintain the necessary elements of electronic commerce. Current employees may be reluctant to learn new technical responsibilities and some may not want to make the change.
A business may not be able to acquire the funds to implement e-commerce and management may not be willing to invest. (Perrott, 2006) Businesses face a variety of issues that are disadvantages in e-commerce. Some have legal and cultural obstacles to overcome. Many consumers are still fearful to submit credit card information online. There are consumers who do not like viewing merchandise online but want to observe in person. There are times when communication barriers must be overcome.
On the legal side, laws and regulations have not kept up with the pace of e-commerce and can create their own problems. Schneider, 2010) In conclusion, there are many aspects of e-commerce that must be considered when making a decision to sell via the Internet. New opportunities abound but all areas that may affect the outcome should be approached with wisdom and caution. A thorough investigation by qualified personnel is a wise investment here.
The advantages and disadvantages should be equally assessed and the well being of the company should always come first. References Boyer, K. (2001). E-Operations: A Guide to Streamlining with the Internet.
Business Horizons, 44(1), 47. Retrieved from Business Source Premier database.Perrott, B. (2006). Efficiency and effectiveness considerations in determining strategic and operational paths to ebusiness enablement. Journal of Database Marketing & Customer Strategy Management, 13(4), 300-308.
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