As online retail sales rise with each passing year, more and more small businesses are turning to e-commerce as a way of boosting their revenue in the post-COVID landscape.
This article will explain what e-commerce is, how it works and the benefits and pitfalls that you should be aware of.
- What is e-commerce?
- How does e-commerce work?
- What are the benefits of e-commerce?
- What are the disadvantages of e-commerce?
- Are there different types of e-commerce?
- Is it hard to set up an e-commerce website?
What is e-commerce?
E-commerce is short for electronic commerce and refers to a business model in which you sell products and services over the internet, whether via:
- Links provided in email newsletters
- Retail e-commerce platforms such as Etsy
- A website with e-commerce capabilities
This can include physical and downloadable digital products, as well as bespoke services.
Perhaps the best-known example of an e-commerce website is Amazon.
This multibillion-dollar company started as an online bookseller out of founder Jeff Bezos’ garage. It’s since become a household name and can dispatch virtually anything to any corner of the world.
Of course, not every business can or should expect to reach the same heights as Amazon. But this example shows us the potential that e-commerce holds.
How does e-commerce work?
If you’ve ever bought a gift for someone, booked a hotel room or ordered food online, you’re already familiar with how e-commerce works.
When a customer visits an e-commerce website and buys something, the site will check the store database to see if that product is still in stock.
If so, the site will then process the e-commerce transaction using a payment gateway that checks the customer’s card details with their bank’s merchant system. Any important authentication checks will be performed here to ensure maximum security.
Provided all is well, the merchant system will authorise the transaction and the order will be placed.
The customer will then receive a notification that their order was successful, typically through your website and a follow-up email, and you will receive the purchase order.
From there, you’ll need to deliver the goods using the most appropriate means at your disposal. This can include:
- Using your national postal service
- Hiring a third-party courier
- Delivering them yourself, depending on your budget and where the order has come from
If you choose drop shipping as your business model, you won't need to deal with shipping at all. With drop shipping, the product is shipped to the customer directly from your supplier.
What are the benefits of e-commerce?
By turning your website into a digital extension of your shop, you’ll open up a world of opportunities for your business. Here are just a few advantages that e-commerce offers:
A much bigger pool of customers
Since you’ll be promoting your goods on the internet, this means that anyone, anywhere in the world can browse and buy your products.
What’s more, because your virtual store will be open 24/7, customers:
- Won’t be restricted by closing times
- Will never have to wait in a long queue
- Can shop at their own convenience
Should you decide to sell through online marketplaces like Amazon and Shopify, you can even use their delivery services to dispatch your products.
Combine all this with the right e-commerce marketing strategy and you could open the floodgates of e-commerce sales for your business. Discount coupons, promotional videos, email newsletters, blog articles — the options are endless!
More efficient shopping
Have you ever gone to the shop but found that the item you want just isn’t in stock? With an e-commerce website, your customers know immediately if a product is unavailable, as it will be listed as ‘sold out’ on your site.
E-commerce sites also make it easy for your customers to find what they want quickly.
Again, think about all the times you’ve gone to a physical store and spent hours browsing through the crowded rails looking for the right item.
It’s even worse during sale seasons when the racks are a hodgepodge of end-of-line items in all sorts of shapes, colours and sizes. With an e-commerce store, your customers can use the search facility to seek out the precise item they’re looking for.
You also make the shopping process more efficient with an online store by showing your customers options or complementary items on your product pages.
Online retailer ASOS, for example, features as many as 15 items in its ‘You might also like’ section.
Lower operating costs
Physical stores come with big overheads. You’ll need to:
- Rent floor space or a self-contained building
- Pay business fees to the local council
- Get insurance such as public liability insuranc
Don’t forget you’ll have your utility bills to pay, too — electricity, water, heating. In all, it costs an eye watering £172,000 to set up a bricks-and-mortar shop in the UK.
Yes, there are costs included in setting up an e-commerce store, but they’re much lower. You’ll need:
- A domain name
- An e-commerce builder (or the cost of a web developer if you’re not the DIY type)
- Some online security tools
Unless you have someone build your site for you, it’s possible to get all of these for less than a few hundred pounds for your first year.
What are the disadvantages of e-commerce?
As with any venture, there are risks that you should be aware of when setting up an e-commerce outfit. Here are a few:
Sudden surges in orders and returns
Ambition may be the path to success, but that path is paved with mistakes. By opening your online shop to the entire world, you could also be opening yourself up to an overwhelming number of orders — all at once.
Shipping to the whole world can also cause headaches. It’s important to put some serious thought into your shipping methods before you launch your website. Be upfront about your typical shipping times, so customers know exactly what to expect.
Then there’s the topic of returns. If you’re setting up an online store, you’re probably doing it because you love your products and can’t really imagine anyone wanting to return them.
However, as the old saying goes, you can’t please all the people all the time.
Before you launch your online store, be sure to have a firm returns process in place (here’s a sample).
Editor’s note: GoDaddy’s all-in-one online shop builder includes fast checkout, online payment processing of all major credit cards, Apple Pay and Google Pay, as well as ready-to-go shipping — just select the methods you wish to use.
Cyberattacks are undoubtedly one of the biggest threats that any online business should plan against. No-one is immune to them either, as big e-commerce companies like Adobe, Facebook, LinkedIn and Amazon have all lost customer data to attackers, affecting millions of ordinary people.
More than one-third of UK small businesses have suffered a cybersecurity breach.
The most common types of attacks include:
- Phishing: These attacks send fake emails that look like they’re from a legitimate source. They ask you to provide sensitive information, such as passwords or financial details.
- Ransomware: With this type of attack, hackers take control of your website and require you to pay a sum to get your site back.
- Distributed Denial of Service (DDoS): This is where an attacker overwhelms the server where your site is housed with traffic, preventing anyone from accessing your website.
There are around thousands of attacks every day, with only 14% of small businesses prepared to defend themselves.
If you’re considering a venture into e-commerce, make sure that you have an SSL Certificate and malware scanning and removal on your site.
The technology behind e-commerce sites is so well-developed now that technical issues aren’t too common, but they can happen.
Websites need servers to run. We don’t need to get into too much technical detail here, but in a nutshell, a server is where all the content of your website is stored. When someone types in your web address or clicks on a link to it, your online store is ‘served’ to them.
Occasionally these servers can go down. This ‘downtime’ can be caused by everything from human error to hardware failure. It can even be planned by the server operators to allow engineers to carry out essential updates and security tasks.
Another common form of technical issue can arise when you’re experiencing a sudden demand for your products. Have you ever watched Dragons’ Den, seen a product you like the look of, and gone online to find the company’s website only to find it won’t load?
This is because websites come with resources like RAM, storage and bandwidth. When websites experience spikes in visitors, more of these resources are used up. If there’s not enough, the site can crash momentarily.
Of course, there are easy ways to avoid this situation happening to you that include picking an e-commerce webhosting plan such as GoDaddy’s WordPress e-commerce that allows unlimited visitors.
The loss of face-to-face interaction
Bricks-and-mortar stores allow you to interact with customers face to face, and this comes with multiple benefits.
Firstly, it eliminates any ambiguities from communications because you’re … well, face to face. In the real world, people can read your body language and tone of voice to get the correct meaning of your words. When you’re talking with your customers over emails or chat, it’s easy to be misunderstood.
Secondly, face to face comms reduces a factor call ‘social presence’ — aka the perception that the person you are communicating with is a real human with feelings. When social presence is reduced, customer inhibitions can also be reduced.
When not face to face, customers may reply rudely, especially if they are complaining.
The fact is that some people simply prefer to shop in bricks-and-mortar stores. This may be because:
- They aren’t comfortable with technology
- They like to be able to handle and try on items before they buy them
- They don’t trust online stores
They may have had a bad experience in the past, for example having received a product that was much poorer quality than it looked online. Or perhaps they’ve experienced unacceptable delivery times, or had their identities stolen in a data breach.
In these cases, a lack of human interaction could be the deciding factor that makes them pass on your services.
Are there different types of e-commerce?
Although all e-commerce businesses sell goods or services on the internet, there are several broad types:
- Business-to-business (B2B), in which businesses sell products and services to other businesses. For example, an office chair maker that sells chairs to corporate clients, like banks and call centres.
- Business-to-consumer (B2C), where businesses sell directly to consumers. For example, a cake maker selling cupcakes to members of the public celebrating birthdays, baby showers and weddings etc.
- Consumer-to-consumer (C2C), which is when consumers sell to other consumers online. Think consumers selling their second-hand clothes on eBay or renting out a spare room on Craigslist.
What is the difference between e-commerce and m-commerce?
As we have outlined above, e-commerce relates to the buying and selling of goods and services online.
M-commerce, aka mobile commerce, is a subsection of e-commerce. It refers to the buying and selling of goods and services through a mobile app or mobile-friendly website.
If you’ve chosen to set up a web store using GoDaddy’s easy Online Store builder, your website will be mobile friendly. This means that the layout of your site will automatically shift to fit smaller screens.
Your customers will be able to shop your site on their mobile phones and tablets, as well as their laptops and desktops.
Nearly seven in 10 UK shoppers prefer buying on their smartphones.
Some larger companies with bigger budgets also develop apps to make it easy for their customers shop online. These apps usually come with a few extra benefits for the company.
For example, they allow:
- Deeper personalisation for customers, as they can set and save their preferences in the app.
- Greater convenience — once a customer has your app installed on their devices, they’re even quicker to open than a website.
For the business owner, having an app means you can send alerts to customers notifying them of things like flash online sales and restocked items (with their permission of course).
The future is mobile
There are many benefits of having a mobile friendly e-commerce store, including:
Mobile friendly web stores enable on-the-go buying. Customers don’t have to be sat down at a computer to buy from you, they can purchase anywhere, anytime.
They harness boredom. You need only look around to see that people tend to take out their mobile phones for entertainment when they are bored. This entertainment includes shopping.
Having a mobile friendly website or app allows customers to find you when they are at their most unoccupied:
- Waiting for a friend to show up at a café
- On their commutes to work
- While waiting in a queue at the coffee shop
They enable geo-targeting. M-commerce apps often come with location tracking capabilities. Using wi-fi or GPS-based tech, apps can trace the location of a user and — if the user has permitted it — can send location-based content to them.
For example, let’s say you’ve got the app for a famous burger chain on your phone and have allowed the app to track your location.
You might be walking along the high street one day, when a message pops up on your phone saying you can get a free portion of fries with a cheeseburger. You like the sound of the offer, so you decide against the deli and head for the burger chain.
This is just one example of how m-commerce can change buyer behaviour in real time.
Allowing customers to shop with you on their mobiles can add an extra layer of security.
One of the reasons for this is that m-commerce makes it easy for customers to pay for goods with their mobile wallets. Most reputable wallets deeply encrypt financial information during the payment process. This makes it harder for cyber criminals to hack in and steal private customer data.
What is social media e-commerce?
Social media e-commerce refers to selling products and services through social media sites.
You can now sell professionally through:
This is where many microbusinesses start, as business accounts on social media are both accessible and free.
On Facebook and Instagram, you can set up storefronts to sell products. On Instagram, you can also add shopping tags to your posts and stories. This is a slightly subtler way of selling than the storefront approach. It’s the overall image that gets a potential customer’s attention at first, they notice the product placement later.
There are a few benefits to social e-commerce. Not least, selling on social caters to impulse buyers. Feeds are always in flux, so when a customer sees a product they like in a feed or in a social media advert, there’s an added sense of ‘get it before it’s gone.’
Of course, you can make good use of social media without actually selling products. A marketing effort that focuses on engaging customers by getting them involved in conversations and helping them solve problems can be just as effective. Just make sure there’s a link to your website in your profile.
Is it hard to set up an e-commerce website?
The good news is that launching an e-commerce site is easy. Depending on how many products or services you want to load onto your site, you could be up and running in as little as a few hours.
Before you do anything, you’ll need to have your business plan ironed out.
Once this is all in line, you’ll need a domain to serve as your web address and an online store builder to do it yourself or a web developer to build it for you.
You’ll want to make sure you have lots of imagery on your website. As customer can’t touch and hold your products, they’ll want to be able to view it from all angles, at close range, and in-situ before they make their decision to purchase.
You’ll also want to be sure your website features shipping and returns information, as we mentioned earlier.
Once your online store is published to the internet, you can focus on bringing more people to it.
Now you know what e-commerce is
For entrepreneurs willing to invest the time and energy, e-commerce can be an incredibly rewarding business.
- Give your venture global reach
- Allow you to make sales day and night
- Enable people to buy from you wherever they are
There are a few risks associated with setting up an e-commerce site. These include not being able to control order numbers, cybersecurity threats, and technical difficulties.
There are multiple types of e-commerce, from B2B e-commerce to business-to-consumer. There are subsections of e-commerce, too — for example, mobile commerce, where customers buy products on their smartphones and tablets.
These types are not always mutually exclusive. Some businesses sell to other businesses and consumers, for example. And all good e-commerce websites will be mobile friendly, so that they fall into the categories of both e-commerce and m-commerce.
The choice between having a bricks-and-mortar store and an online store isn’t an either/or one. You can use one to complement the other. Likewise, you can have social commerce sites that complement your e-commerce shop sales, too.
Setting up an e-commerce site can be quick and easy and completed in a day, depending on how many products you plan to sell and who is doing the building.
Ready to launch your own startup? GoDaddy is behind you all the way.
Will Stretton contributed to this article.