Small Businesses that Use Online Retailing - Essay Example

Small Businesses that Use Online Retailing Student’s Name: Course: Tutor’s Name: Date: Introduction Online retailing has become an important method of selling products or services to the virtual community, who would otherwise face limitations accessing the physical outlets of the retailer. Such limitations include time, distance, and convenience (Andam, 2003). On the retailers’ side, online retailing has allowed small businesses to overcome some of the market entry barriers posed by huge marketing budgets and other market inefficiencies that favour the established and well-financed businesses (Andam, 2003). It is however worth noting that despite the advantages that online retailing has for small businesses; there are also challenges that the small-scale retailers have to face especially considering that online retailing is open to the large and well-established businesses, just as it is open to the small-scale ones (Srinivasan, Anderson and Ponnavolu, 2002). This paper hence seeks to identify the benefits and costs incurred by small businesses that utilise online retailing as a marketing and selling channel. In order to give a balanced view of the online retail business and its effect on small businesses, the paper will also identify the benefits and costs that online businesses that do not use online retailing sustain. Additionally, the paper will analyse the effects of online retailing on the financial management of existing small-scale businesses. In the end, the paper concludes by observing that online trading is a marketing and sales avenue that any retailer, regardless of size, cannot ignore if it wants to remain competitive in the contemporary business environment. Benefits of online retailing by small businesses Virtualisation, which is defined as “the phenomenon in which transaction processes are conducted electronically while products remain predominantly physical”, is one of the main opportunities that small businesses have in regard to online retailing (Tse & Soufani, 2003, p. 307). Through virtualisation, small businesses are able to connect with an increased number of customers, which would not have the case if the retail business was only physical. Small businesses can also connect to vendors and suppliers hence reducing the amount of time and cost spent in doing businesses. Virtualisation also enables small businesses to communicate with the customers in more detail and accuracy. Enhanced communication means that online retailers can understand, and hence respond to customer requirements more easily when compared to the pre-internet business environment. The ownership of brands by brand communities is also a rising trend that could help small businesses in developing their products and services in a manner that attracts increased acceptance among consumers. Tse and Soufani (2003) for example argue that small businesses can enjoin customers in virtual communities as co-developers of products or services, as this would lead to the production of products or services that are more acceptable within the online market. Conventionally, large and well-established retailers could use their monetary wealth to market their physical outlets and the products therein. This led to a situation where information in the public domain (either through paid advertisements or through well-crafted public relation campaigns) favoured the same big business retailers, thus disadvantaging the small business retailers. With virtualisation however, such asymmetry in information dissemination can be corrected since small business retailers have as a good a chance as the big retailers to establish an online presence (Lucking-Reiley & Spulber, 2001). Another opportunity for small businesses in online retailing is the unprecedented possibility of reaching customers in different geographical regions, which would otherwise be out of reach for the small business retailers (Lucking-Reiley & Spulber, 2001; Tse & Soufani, 2000). As Amit and Zott (2001) observe, virtualisation has converted the world into one global market for all businesses irrespective of their sizes or marketing budgets. In order to make efficient use of such a wide market however, the small business retailers who sell products need to set up physical distribution channels. Service retailers, especially those dealing with information and media can however disseminate the same to customers with relative ease (Srinivasan et al., 2002). The reduction of transactional costs in businesses is another benefit that small-scale online retailers are able to access. Such costs include those associated with communication and marketing and those associated with manual record keeping (Srinivasan et al., 2002). Notably, the tedious routine that was previously the normal among sales and marketing staff has now been replaced with technology-aided methods, and this means that people who held such positions can now concentrate on devising effective marketing and account management strategies (Slade, 2000). Costs The main entry costs that small businesses incur when commencing online retailing are mainly associated with setting up the online store. In the start up phase, the business owner has to ensure that the website is properly designed in a manner that attracts and retains customers’ attention. Additionally, the website needs to have security features in order to inspire trust from customers as a safe place to conduct their online purchase (Shim & Rice, 2001). The second possible cost in small business retailers is associated with acquiring customers. According to Parthasarathy and Bhattacherjee (1998), “the search costs associated with identifying new customers, start-up costs involved in setting up new accounts, and time spent by customer service and technical support personnel in initiating new customers to the service” makes acquiring new costumers on an online retail platform an all-expensive affair (pp. 362-363). In addition to the costs of acquiring new customers, online retailers intent on guarding existing customers from leaving are likely to engage in practices that enhance customer loyalty. In the online environment, such practices could include click through rewards, repeat purchase discounts and flyer programs. Such practices cost the business some money, although the cost could be relatively insignificant compared to the benefits they could bring to the business (Parthasarathy & Bhattacherjee, 1998). Other costs that an online small business retailer incurs are associated with building an online presence. As Werbach (2000) notes, “the rise of the information economy” has made business networks increasingly essential for any business that needs to have an online presence. Becoming part of a network, or even setting up and popularising an online network has its fair share of associated costs. Among the ways that small businesses can become part of online business networks for example, is by establishing strong customer relationships, and even going a step further to encourage customers to form relationships bound by their common interest in the products or services sold by the business entity (Andam, 2003). A retailer may put up a blog site to encourage customers to share their experiences about their product experience. Such a step would however come with monetary or otherwise costs to the retailer. In addition, the retailers may need to employ a skilled person to leverage the criticism and opinions given by customers against the bigger need to develop products or services that meet customers’ needs (Andam, 2003). Benefits and costs for retailers who do not engage in online retailing Small businesses owners who choose to use the old and tested method of retailing mainly benefit from the traditional marketing perspectives of producing the right product or service for an identified market, packaging it, pricing it appropriately, and distributing it through new or existing channels to the target consumers (Toomey & Wysocki, 2009). In marketing, they use strategies that are well tested such as mass media advertising, product promotion or door-to-door marketing among others. The major benefit of such a form of retailing is that they are still able to take advantage of the huge consumer numbers who shop from physical outlets (Lee and Tan, 2003). According to Andam (2003), a significant number of people in both the developing and developed countries cannot access the internet. Others perceive shopping from physical outlets as a social activity that they cannot give up. A significant percentage of other consumers do not perceive electronic platforms as secure places to conduct transactions. Hence, they prefer purchasing items from physical stores rather than risk exposing their financial information on websites whose reputation cannot be verified (Lee & Tan, 2003). The main costs associated with failing to adopt online retailing in an increasingly digitalised world include the fact that marketing is done through traditional media, which could be expensive. Ideally, a small business retailer needs to foot the costs of the physical retail outlet, the cost of distribution, and the cost of marketing the product using traditional methods (Lee & Tan, 2003). Effect of online retailing for financial management in small businesses For small business retailers, online retailing arguably presents them with mixed fortunes in relation to financial management (Lee & Tan, 2003). Figuratively, online retailing casts small businesses into the deep end of electronic payment systems where digital financial instruments such as electronic cheques, credit or debit cards, or digital cash are in use (Andam, 2003). Overall however, financial management is easier and fast when compared to the manual form of financial management as online retailers are able to use electronic means of fund transfer to facilitate payments for products or services purchased from the online stores. Additionally, online retailing enables placements of orders by customers, invoice generation, and receipt generation upon payment. Retail banking is also an option that the small businesses can use in the online retailing environment. Such practices make financial management much easier for the small businesses. However, the possibility of fraudsters hacking into the online retail database maintained by businesses remains a permanent threat, especially to financial managers. Any leakage of financial information to undeserving people could expose the business to potential losses (Toomey & Wysocki, 2009). Regardless of the related costs that small businesses may incur in relation to online retailing, recent trends in the retail sector indicate that more people are appreciating the convenience, ease of use and efficiency of buying products or services online. Hence, small businesses that are intent on increasing their potential markets ought to consider giving online retailing a try (Toomey & Wysocki, 2009). References Amit, R. & Zott, Z. (2001). “Value creation in e-business.” Strategic Management Journal, 22(6/7): 493-520. Andam, Z. R. (2003). “E-commerce and e-business.” E-Asean Task Force Report. Retrieved October 27, 2011 from: http://www.apdip.net/publications/iespprimers/eprimer-ecom.pdf. Lucking-Reiley, D. & Spulber, D.F. (2001). “Business-to-business electronic commerce.” Journal of Economic Perspectives, 15(1): 55-68. Parthasarathy, M. & Bhattacherjee, A. (1998). “Understanding post-adoption behaviour in the context of online services.” Information Systems Research, 9(4): 362-379. Slade, M. (2000). “Business to business: Sales? The internet will handle that. 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Journal of Business Research, 56, 877-885. Srinivasan, S.S., Anderson, R. & Ponnavolu, K. (2002). “Customer loyalty in e-commerce: an exploration of its antecedents and consequences”. Journal of Retailing, 78 (1), 41-50. Read More