E-commerce today is a way of life for consumers and retailers alike. But choosing the right location is even more critical now then it was in the days when your only decision involved where to place your physical operation. The decision between an e-commerce model and a brick-and-mortar model is one that too few entrepreneurs undertake methodically.
An e-commerce model instead of a brick-and-mortar store (B&M) makes sense for businesses who sell unique products or provide services that don’t require an onsite or physical presence. For other businesses, combining e-commerce capabilities with a brick-and-mortar location in the right way can increase profits and improve overall customer satisfaction. Too many businesses, however, invest in e-commerce capabilities without offering customers anything unique.
Cheers for E-Commerce
E-commerce success story Sherry Rand is a firm believer in the Web’s ability to sell specialty products. She operates Pom Express, which doubled its annual sales of accessories for cheerleading and dance teams every year for the first three years it moved to an e-commerce model. The rest, as they say, is history.
Before adopting e-commerce, Rand operated a B&M that sold team uniforms and general sportswear. "We stretched ourselves way too thin," she said. "I decided to stick with a certain product that I could order and have drop-shipped and not have to worry about inventory." For Rand, e-commerce was a sound decision.
Thanks to the e-commerce model, Pomexpress.com now has customers from all over the world. Rand offers a niche product, but believes that customer service is vital. One of the ways that she differentiates herself from other e-commerce sites is by sending product samples to customers before they order. "We have problems getting samples returned, but it’s worth it, even though it’s an expensive program."
As the Internet has matured, fewer customers are reluctant to embrace e-commerce, but Rand also encourages customers to order via e-mail or telephone. "We try to make it as easy as possible for them," she says. "We want them to feel as comfortable as they can."
That philosophy is critical to e-commerce success, says Martina Boone, Managing Director of The Write Edge. "The online business model rewards businesses who identify the needs of their customers and serve those needs within that customer’s comfort zone." The Web is especially suited to businesses that serve a niche market or serve a specific need that is geographically independent.
Advantages of the E-Commerce Business Model
- Worldwide customer base
- Ability to serve customers 24/7
- Lower start-up costs
- Reduced overhead
- Increased potential sales volume
- Easier repeat business model
- Greater ability to track customer activity
- Improved potential for one-to-one marketing and personalization.
- Better ability to deliver large amounts of product research and information
For businesses, the advantages of e-commerce are clear. Customers, though, still find a lot of compelling reasons to shop at a brick-and-mortar location.
Disadvantages to E-Commerce
- Customers can’t see, touch or inspect products
- Shipping requirements preclude immediate gratification for impulse and sudden purchases
- Cash is not accepted
- Privacy and security may be compromised
- Shipping charges can increase overall price
- Merchandise returns are slower and less convenient
Successful 21st-Century Business Models
E-commerce Only. Businesses who rise to the top of the online market take advantage of the reduced start-up costs and overhead to provide creative alternatives to offset the customer-perceived advantages of B&M shopping. Amazon.com was among the first to offer free and same-day shipping. LandsEnd.com offers a customizable fitting model that lets customers virtually try on clothes before they buy. And EasyGiantExpress.com has built its business around automatically scheduled reordering of consumable coffee products. Service and convenience combined with effective pricing strategies can allow online businesses to succeed even when the products they offer are widely available offline. Promotion is key, however, and an online business's profits must also offset the increased advertising expenses required to attract customers to the site.
Brick-and-Mortar. Offline-only businesses, according to PriceWaterhouseCoopers, stand to remain a "dominant distribution model, as retailers will stay as close to their customers as they need to survive." Customers will always have immediate needs that must be met. If a business can locate and serve enough of those customers locally, a brick-and-mortar model makes perfect sense. Even without e-commerce capabilities, a Web site can help drive customers to the physical location.
Click-and-mortar. Just as many B&Ms have implemented e-commerce as an additional revenue source, many online businesses are establishing, buying, or creating alliances with B&Ms to offer the advantages of both retail models to their customers. Shoppers who prefer to research and browse through the inventory online before shopping offline like these click-and-mortar businesses. The physical location builds brand awareness that can promote the Web site and vice-versa.
Considerations: E-Commerce vs. B&M
- Marketplace. Where the market for a product exceeds the geographic limitations of a B&M, or where a local market is insufficient to support a local business, an exclusively e-commerce model makes sense. Where a small local market might otherwise be prohibitive, the cost of operating a physical retail location could be partially offset by serving an e-commerce site from the same store.
- Cost. It's cheaper to build a Web site than to buy a store building, but it may cost a lot to position the Web site in search engines so that customers can find the site.
- Advertising. Just as retailers choose between increased overhead for a prime location versus an increased advertising budget, exclusively e-commerce sites need strong marketing and promotion plans to attract potential customers.
- Type of merchandise. Not all products sell equally well online. Products that need to be handled or carefully inspected are not suited for e-commerce. A Web site, however, can help to educate customers about these products and help build consumer awareness of the brand and options.
- Size of inventory. By taking advantage of drop-shipping options, an online store can offer a wider variety of products than a B&M, Locally stocked merchandise requires a higher overhead and higher up-front investment.
- Selling price. E-commerce shipping costs can offset the price of some merchandise to make it less attractive than purchasing offline. In other cases, the convenience of buying online or the lack of local availability can make customers more tolerant of shipping costs. Reduced overhead can offset shipping in many cases. Providing the right price point requires assessing the reasons customers will buy as well as the overall cost of the merchandise.
- Customer targeting. Knowledge of the customer is as critical to e-commerce success as it is to traditional marketing. Providing e-commerce capabilities to a customer base that doesn’t shop online guarantees failure as quickly as opening a high-end jewelry store in a run-down shopping mall.
- Product delivery. Customers increasingly research and compare pricing for large or heavy purchases online and then purchase offline. Combining online ordering with local pick-up can provide them the best of both worlds. To assure success, exclusively e-commerce businesses must be able to ship merchandise promptly and economically.
E-Commerce Success
Successful e-commerce ventures recognize that going online makes sense for their business model. Rather than going online because "everyone should be on the Web," they considered how a Web site would serve their customers better and make their business more successful. Setting up shop in cyberspace can expose your product or service to customers around the world instead of just in your hometown. But you must still ensure that those customers will be likely to buy what you want to sell. And then you must be able to sell it to them in a way that they perceive to be at least as easy and relatively risk-free as shopping at their local venues.
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