Want to Know Everything There Is to Know About E-Commerce? Let Us Tell You
As a result of the boom in e-commerce, more and more traditional businesses are also making the leap into the digital world. This allows them to reach a much larger audience and broaden their business horizons.
If you are also considering taking the step of creating a company to market your products or services online, there are several things you should know before you begin. To succeed in your digital journey, it is important to undertake specific e-commerce training, such as the one offered by the free Amazon Despega programme.
To begin with, this guide will provide you with a complete definition of e-commerce, its origin and history, the different e-commerce models that exist and how they are classified, and their main advantages and disadvantages.
We will also give you some basic guidelines to help you set up an e-commerce business and get started in online sales, as well as many tips and guidelines on how to make your e-commerce business
a success, thanks to elements such as marketing tools, the right fulfilment strategy and effective inventory management.
What is e-commerce?
Electronic commerce or e-commerce is the process of buying and selling products and services over the Internet.
Customers of this business model, which has taken off in the last decade, can make purchases from a mobile device, tablet or computer, as well as from smartwatches and digital assistants, such as Amazon Echo devices.
All you need is an Internet connection and you'll be able to visit all kinds of digital stores with a truly infinite range of products and services, from food and fashion to household appliances and books. If the product in question exists, there is an e-commerce store that sells it. And it's just a few clicks away.
E-commerce should not be confused with e-business, which encompasses all kinds of companies that operate on the internet and that use communication technologies to conduct their business and improve their efficiency and reach through marketing tools, for example. In other words, e-business is not just limited to buying and selling products but also includes other activities that form part of a business's operations.
E-commerce: the past, present and future of commerce
There is no doubt that digital commerce is still booming. And not just in Spain; this type of business has seen global growth since the beginning of the coronavirus pandemic in the first quarter of 2020. In Spain, for example, 23% of all purchases in 2020 were made via the Internet. In fact, by the end of the first year of the pandemic, e-commerce became the solution that allowed us to continue making our day-to-day purchases while taking care of each other.
The inability to go out and the closure of physical establishments in many countries are some of the causes that have led to this increase in the use of the Internet for shopping.
However, although many users have only recently started buying online for the first time, e-commerce actually dates back to a century ago, around 1920, with the beginning of catalogue sales in the United States. With this new business model, it was possible to purchase a product without physically seeing it or having to travel to a physical point of sale.
This innovation provided advantages for both parties, since the customer did not have to travel and the brand had the opportunity to sell its products to potential customers residing in other locations.
Subsequently, the increase of telephones and televisions in homes, the appearance of the first credit cards and the exchange of electronic data made it even easier for companies to sell products without direct contact with the customer.
Television sales, which took off in the 1980s, became an improved version of catalogue sales, as television advertisements offered greater realism and a much more detailed description of the functions and features of the product being advertised.
But, without a doubt, the greatest revolution in e-commerce was the arrival of the Internet in homes in the 1990s. As it expanded, the first online shopping portals were born, which organised products into categories. Over the years, the increase in the use of the Internet and the emergence of more and more platforms to make online purchases have gone hand in hand.
Today, the global turnover of online sales continues to grow year after year, and e-commerce has become a hugely important channel when it comes to shopping. In 2019, 75% of all Internet users worldwide had made an online purchase, half of whom confirmed that they had done so via a mobile device.
This upward trend means that not only are more and more people deciding to buy through the Internet but that, as a result, different e-commerce models have also emerged, as explained below.
What types of e-commerce are there?
Depending on the actors involved in the purchase and sale of products and services, e-commerce is divided into different classes:
On the one hand, we have business-to-business or B2B e-commerce. In this model, transactions are made between companies
operating on the Internet; that is, the end customer is not involved. Most wholesale or distribution businesses belong to the B2B model.
On the other hand, business-to-consumer or B2C e-commerce is carried out between the company and the end customer. A consumer visits an e-commerce store to purchase a product or service for themselves.
When the agents involved in the purchase of the product or service are two consumers, it is C2C (consumer-to-consumer) e-commerce. This type of business is usually considered more as a platform to advertise second-hand products than as a regular online store. The main advantage of the C2C model is that it favours the reuse of products, such as clothing, and the option to purchase them at a lower price.
The fourth model, where the consumer is also the origin, is the C2B (consumer-to-business) model. Unlike C2C, where both actors are consumers, the destination of C2B transactions is the company, that is, it is the customers themselves who generate value for companies.
A clear example of this e-commerce model is affiliate programmes, in which an e-commerce customer receives a payment or benefit for sharing a link to an online business when another customer makes a purchase from the store in question. These links are often promoted on blogs, forums and social media, and are an important part of the marketing strategies of many digital companies today.
The business-to-employee or B2E e-commerce model involves a company and its employees; that is, transactions are carried out internally. This model is very common in large corporations that can offer their workers advantages such as discounts and offers for good performance or for meeting objectives.
Finally, there is an e-commerce model that also includes the government: government-to-citizen or G2C e-commerce allows consumers to pay fines or taxes, for example, as well as carry out administrative procedures such as requesting and sending official documents.
What are the different types of e-commerce model?
Now that it's clear that e-commerce is here to stay, if your intention is to create your own digital business or achieve global reach in your existing online store
, keep reading.
The concept of a business model refers to the way companies generate value. In addition to the traditional system of buying and selling products or services, companies that operate online also use other models such as:
This is a widespread model in e-commerce that is based on the company that sells the product to the customer not having said product in stock, but rather acquiring it from a third party, who ships the product directly to the end customer. In this model, e-commerce acts like a shop window.
This is an online service that brings together buyers and sellers. Buyers have access to a wide range of products and services, and sellers can reach a multitude of potential buyers.
Auction portals are electronic stores that connect consumers with either businesses or other consumers in exchange for a percentage of the sale when it occurs. The main advantage for sellers is the wide reach of their ads.
This model arises from combining the words "free" and "premium" and consists of offering basic service packages free of charge but with advertising, and paid premium packages, which offer more features and usually eliminate disadvantages such as ads.
This model is widely used on entertainment platforms, where a product or service with restricted access is provided for a fixed monthly or annual fee. In the case of Amazon, its paid subscription programme, Amazon Prime, already has more than 150 million subscribers globally. The platform aims to double that figure in just five years.
What are the advantages and disadvantages of e-commerce?
Like any revolution, e-commerce has many advantages for society, although there are also certain drawbacks. Below is a brief analysis of the most noteworthy pros and cons:
- The disappearance of geographical boundaries: With e-commerce, companies have been able to reach even the most remote places. People who lived in rural areas now have the option to get any product or service delivered to their door without the hassle of having to travel long distances.
Similarly, companies have been able to increase their potential customer base.
- Reduction in time spent buying: As distances disappear, shopping time is also reduced, as customers don't have to go to a physical store. In just a few minutes, they can visit dozens of online stores in search of the perfect item, with all the convenience and savings that provides.
- 24-hour availability: E-commerce operates without set opening hours or holidays, in contrast to the often limited hours of conventional commerce.
- Increased clientele: If there is one thing that the Internet offers, it's visibility. As such, many companies have succeeded in boosting their sales thanks to online advertising, social media and a comprehensive network-based marketing strategy.
- Ease of finding products: E-commerce has undoubtedly made it easier for customers to find the right product for them. Online sales platforms provide a huge catalogue of products, allowing customers to compare many different items at the same time.
- Ease of advertising products: Sellers have also come up with a solution that streamlines the process of marketing a product. A few photos or videos are enough to present any item to the market.
- Easier entrepreneurship and maintenance: Setting up an online store is completely different to opening a physical establishment, in particular in terms of cost. In addition, maintenance costs are also lower.
- Resistance to take the plunge: Many consumers, especially older ones, are very reluctant to jump into online shopping. The fear of not seeing the product in person and of Internet scams are the main reasons for them rejecting the change.
- Inability to test the product: The resistance we mentioned in the previous point is often due to potential customers not being able to see or touch the product before buying it.
- Increase in the price of the product due to shipping costs: Buying a high-priced item is usually not a problem. But things change when what we're looking for is a very low-priced product that isn't worth the high shipping costs.
- Customer loyalty: The impersonality of the purchasing process and the enormous amount of competition make customer loyalty an arduous task. Businesses need an appropriate marketing strategy that differentiates them from their competitors.
Steps to create your own e-commerce business
As with the creation of any business, the most important thing is to carry out an analysis of the environment. Is there a lot of competitiveness? How can I stand out? What are the legal requirements for the type of business I want to create? These are just some of the questions you need to ask yourself.
If you have already decided you want to open an online store that operates 24 hours a day, every day of the year, without having to have a physical establishment for your customers to visit and with all the advantages mentioned above, all that's left is to find out what steps you need to take to create it:
1. Choosing a brand, logo and domain
The same things you would need for any conventional business, but instead of physical premises you'll have an Internet domain, which will be the virtual store that your customers will visit. If you already have a physical store, you probably already have a brand and a logo, so you are only a click away from registering your brand.
2. Setting up a content management system
A content management system (CMS) is a type of software that will allow you to manage, organise, publish, edit and delete the contents of your web store.
In relation to the CMS, you'll need to make a selection of the products or services that you want to sell in your store.
3. Finding a good hosting service
Your website will be your virtual store and shop window. If it fails, your store will fail and be closed to the public, which will harm your business. That's why it's important to invest in a suitable hosting service that offers great storage possibilities, bandwidth, ease of use and a high level of integration with other applications.
It is also recommended that the hosting service provides excellent customer service so that any problems with the website can be resolved as soon as possible and it can continue to serve your customers.
4. Ensuring an attractive design and interface
It is worth investing a little money to ensure you have a striking interface that is easy to use, that makes you stand out and where the products are easy to find. In addition, the registration or purchase process should not be tedious so as not to deter more impatient shoppers.
5. Providing information to customers
6. Deciding on payment methods
When the customer has already decided to buy your product, it's important that you offer payment methods that match their preferences. Nowadays, payment by bank transfer has been relegated in favour of gateways for credit or debit card payments, as well as virtual wallets such as PayPal.
7. Choosing your shipping methods
In the world of immediacy, customers are increasingly motivated to buy if they know that their order will be delivered as soon as possible. In many cases, this immediacy goes as far as receiving the product the day after purchase. As a result, using a logistics service
that provides this type of service will make your reach much greater.
8. Creating a marketing strategy
To ensure greater reach and to be visible to your target audience, it is advised that you develop and implement an appropriate marketing strategy. Posting on social networks or blogs, sending newsletters, and employing referral programmes or affiliate links are just some of the techniques most used today to increase sales and build customer loyalty.
How can you make your business a success? Marketing, fulfilment strategy, stock, etc.
Starting an e-commerce business from scratch may seem simple, but making it a success is a much more complicated task. It requires certain knowledge or resources that are often better to outsource to specialised people or companies:
- SEO: Or how to increase traffic to your website. The answer is with search engine optimisation (SEO) — the process of improving search engine positioning or search engine optimisation to give a website greater visibility.
How is this achieved? Mainly through the use of a blog on the website where posts include keywords that allow the website to rank high in search engine results.
- Social media: Some social networks, such as Instagram, can massively increase the reach of a marketing campaign. Ads on this social network are aimed at very specific target users based on characteristics such as age, sex, interests, etc.
- Pricing policies: E-commerce businesses make the most of important events in the year to launch great deals and promotional campaigns marking special dates: Valentine's Day, Christmas, Black Friday, Cyber Monday and Mother's Day are some of the most important dates of the year.
- Traffic analysis: Some tools, such as Google Analytics, can provide a lot of data about the people (and, therefore, potential buyers) that visit your online store. Knowing information such as age, gender or place of residence can help you to focus your marketing strategy more appropriately.
Whether you decide to implement it internally or outsource some or all of it, creating or updating a fulfilment strategy is a complex process, so it is essential that you choose a fulfilment company that meets your needs and those of your end customers.
What is e-commerce fulfilment?
E-commerce fulfilment companies are responsible for receiving, processing and delivering orders to customers. The process is similar to that of dropshipping, since the seller contracts all the above tasks to a third party, who is in charge of fulfilment. This eliminates the need for a warehouse to store stock and reduces shipping costs.
In order for orders to be fulfilled, items must be in stock. Inventory storage keeps products safe and allows operators to view product availability in real time.
However, fulfilment centres are not simply warehouses, where products to be kept for a long time, such as stock for the following Christmas, are stored; they are a place where orders are processed, prepared and shipped quickly.
Inventory management is an important part of the order fulfilment process, so it is essential to have e-commerce software that allows you to see at a glance what stock is available and when it will need to be replenished.
Stock storage can be one of the biggest problems for any e-commerce business, especially the smallest ones. These businesses usually start with private spaces, such as personal storage units or even space inside the owner's home, being used to store stock. However, if the online store grows or if further growth is expected in the future, alternatives need to be considered.
But renting storage space tends to skyrocket a company's fixed costs. The need to hire staff to manage stock often goes hand in hand with renting a warehouse. In these cases, it is usually advisable to choose one of the following strategies:
- 3PL e-commerce fulfilment
In this option, the e-commerce business buys inventory in bulk to prevent the accumulation of stock and, consequently, the need for a warehouse or staff to manage such stock.
On the other hand, with dropshipping, the company removes itself from the fulfilment process and responsibility for this lies directly with the manufacturer.
Some of the advantages of this model are smaller up-front investment in inventory and the availability of more time to focus on other tasks such as developing the marketing strategy, without the need to deal with or worry about logistics.
However, this model also has drawbacks, such as the lower profit margin that results from the need to stick to dropshippers' target prices. In addition, competition becomes fierce because every day the number of advertisers for similar products soars, given how easy it is to enter the dropshipping market.
Given the growth of e-commerce and all its potential, it's a good time to open an online business.
Ultimately, creating an e-commerce business will largely depend on the circumstances and characteristics of the existing traditional business or the business idea, if it is new.
For everything you need to know about how to start selling on Amazon, check out our article
, which will help you decide whether to take the plunge into the digital world with your business.
What does "e-commerce" mean?
E-commerce consists of buying and selling products over the Internet.
Is e-commerce the future of sales transactions?
Everything seems to point that way. The transformation has been very striking over the last decade, but the COVID-19 pandemic and the global lockdown has shot e-commerce purchases through the roof.
What type of e-commerce works for my idea or business concept?
Practically everything can be bought and sold over the Internet. Improved logistics and courier services make it possible for any product, regardless of its size, characteristics or needs, to arrive at the destination quickly and in the right conditions.
Deciding which type of e-commerce is right your business will depend on who your target group is (end customer, another company, your company's employees, etc.).
What do I need to do to set up my online store?
- Choose a brand name and domain
- Select a hosting company
- Choose an e-commerce CMS tool
- Set up payment methods
- Organise logistics: warehouse, dropshipper, shipping methods, etc.
- Analyse the market to establish your marketing strategy
- Create marketing campaigns
- Regularise the legal status of your e-business
Do I need to make a big investment?
The best thing about setting up an online business is that they don't require large investments to start trading. By not requiring a physical store, you save on leasing or buying premises, as well as the cost of supplies and furniture. The investment will therefore be much smaller than if setting up a traditional business.
Will my e-commerce business succeed if there is a lot of competition in the sector?
It all depends on the analysis you make of your competitors and the tools you use to differentiate yourself from them. Do you offer the same product? Are your prices lower? Do you have a better offer regarding payment or shipping methods? Are your delivery times shorter?
How should I advertise my new online store?
There are many techniques for advertising an online business. Some of them include:
- Writing a blog
- Social media advertising campaigns
- A referral programme
How can I improve the positioning of my e-commerce store?
Since competition is often fierce, the key to improving the positioning of your online store is in search engine optimisation and search engine marketing. Find out the keywords related to your business and use them in the titles and descriptions of the products being sold on your online store and in blog posts to make your store rank better in search engine results.