Impact of Online Shopping on Environment and Gross Domestic Product - Literature review Example

Literature Review On Online Shopping Upon Prices And How Did It Helped the Economy Table of Contents Literature Review 3 Online Shopping Trend 3 Online Shopping Preferences 4 Price Dispersion 6 Online Shopping and Consumer Saving 7 Online Shopping Impact on Inflation 9 Online Shopping Impact on Productivity 10 Impact of Online Shopping on Environment and Gross Domestic Product (GDP) 12 References 14 Literature Review Online Shopping Trend Al-Mowalad & Putit (2012) stated that the emergence of the internet and technology has allowed individuals to conduct shopping online without giving up comfort of their home. In the recent years, there has been a rapid growth in the buying and paying of items via shopping websites. Accordingly, it is stated that online shopping has revealed commendable growth worldwide. In this regard, it is stated that more than 20% of the internet users are engaged in buying items via shopping websites. Online shopping trend in developed countries such as in the United States has further been advocated to upsurge by 45.9% while other regions of the world has also demonstrated massive increase in the online shopping trend (Al-Mowalad & Putit, 2012), Saprikis & et. al. (2010) suggested that the rapid increase in the number of internet users across the world has paved the way for many business organizations to avail the underlying opportunities imbued in it. Along with the increase in the population of the internet users, online shopping is also observed to have a significant impact on the consumer buying behavior as well as on the overall economy. In the present era of digitalization, information communication technologies (ICT) are omnipresent and people are inclined towards making the best possible use of available ICT. With the continuous growth in the digitalization, Saprikis & et. al. (2010) firmly stated that online shopping has emerged as a medium for transaction between firms and customers (Saprikis & et. al., 2010). Nanehkaran (2013) noted that there lays various reasons for the growth of online shopping trend. In this regard, it is propounded that decrease in transaction costs, easy execution of business, increased access to product and service information, low prices of final goods and services as well as flexibility to compare prices are the major driving factors for the unprecedented growth of online shopping witnessed by the world today (Nanehkaran, 2013). Online Shopping Preferences Kim & et. al. (2004) stated that consumers use different strategies while considering a shopping environment based upon the purpose or tasks of a certain shopping trip. In this regard, it is suggested that while certain customers are driven by cognitive or informational stimulation other customers seek sensory motivation in the consumption experience (Kim & et. al., 2004). Notably, Katawetawaraks & Wang (2011) suggested that the internet in the modern era has offered numerous benefits to people. People are using the internet for various purposes including searching of information, communicating and more importantly buying goods and services. In addition, Katawetawaraks & Wang (2011) asserted that online shopping has become more popular amid the present population and people across the different geographic locations are widely accepting online shopping for purchasing products and services. It has been argued that the process of making purchasing decision is similar for both online and offline shop. However, shopping environment and marketing communication form the major bases of differences between the online and offline shopping choice. Similar to Nanehkaran (2013), Katawetawaraks & Wang (2011) expounded various reasons behind the rapidly growing trend of online shopping. Correspondingly, lower price of products and services, convenience and speed have been articulated as the prominent forces. One major stimulating factor articulated by Katawetawaraks & Wang (2011) includes the aspect of price. Accordingly, it has been stated that consumers’ willing to conduct online shopping are primarily motivated by the flexibility associated the comparison of prices across the different websites and find products with lower price than purchasing from physical stores. In this regard, it is stated that online shopping enables consumers to grab the best deal which motivate them to engage in online shopping over physical store (Katawetawaraks & Wang, 2011), Constantinides (2004) suggested that increasing opportunities offered by the online shopping to retailers has resulted in higher penetration of new firms to this industry. Accordingly, the increased rate of penetration has resulted in augmenting the level of competition within the industry. Thus, it has become challenging for this retailers to attract customers towards their products and services. Major consideration is placed by the online retailers on understanding the mechanism of virtual marketing as well as consumer behavior in the current highly competitive business environment. Moreover, it has been ascertained that online retailers are making use of different persuasion tools to stimulate online customers towards their products and services. It has been ascertained that online retailers are widely ensuing flexible pricing strategies to draw the attention of customers their products. It has been further observed that price sensitive customers are more inclined towards conducting online shopping due to the flexibility of executing price comparison searches (Constantinides 2004). Gligorijevic (2011) stated that during the last decade, there has been a considerable migration from physical retail model to online shopping stores and it has been estimated that the trend will continue to grow in the later years as well. Accordingly, it is noted that this changing trend is particularly due to the shift in the customer preferences towards online shopping store over traditional store. It is propounded that purchasing decisions of customers are firmly related with the price differences. Gligorijevic (2011) highlighted that due to the significant price differences between the physical and online shopping store customers are steadily moving towards conducting online shopping. Subsequently, the author has further evidently propagated that almost 30 per cent differences in the prices of products and services offered tend to exist within the online stores in comparison with physical stores. Accordingly, it is stated that customers avail the opportunity of reduced cost in the form of 30 per cent less for the products and services while shopping online as compared to offline shopping (Gligorijevic, 2011). Price Dispersion Pan & et. al. (2004) defined price dispersion as, “as the distribution of prices (such as range and standard deviation) of an item with the same measured characteristics across sellers of the item at a given point in time, has attracted considerable research attention” (Pan & et. al., 2004). Accordingly, it has been stated that price dispersion in the current retail segment including both online and offline is an important aspect that has a significant impact on the customers’ purchasing behavior. Chellappa & Sin (n.d.) suggested that similar to offline store, price dispersion also remains in online shopping store. However, it has been argued that the level of price dispersion is lower in online shopping store than the offline store. Accordingly, it has been articulated that lowered search costs and increased price transparency are the major reasons that have resulted in smaller price dispersion in online shopping store than offline store (Chellappa & Sin, n.d.). Pan & et. al. (2004) further admitted that consumers’ engaged in online shopping are able to search and list all the sellers’ prices as well as other information which facilitate them to make head-to-head comparison which is not possible in the case of physical store. As a result of lowered price dispersion, online shopping has become more widespread among the global customers (Pan & et. al., 2004). Online Shopping and Consumer Saving Lean & Song (2008) propagated that household savings and economic growth are correlated. An increase household savings is identified to positively influence the economic growth rate. Furthermore, it has been argued that household savings are the major accelerator of the high economic growth (Lean & Song, 2008). Chu & et. al. (2008) further noted that consumers reveal different price sensitivities while they shop online or offline. Accordingly, it is affirmed that the prices of final goods and services offered by online shopping firms are relatively less than the physical stores selling the same products or services (Chu & et. al., 2008). Correspondingly, customers are in the position to save considerable amount while they engage in online shopping which would have otherwise not been possible while shopping through physical stores. Besides, it has been propagated by Andam (2003) that firms dealing in online shopping are offered with the benefit of reduced costs which result in increasing the productivity of the overall business. At the same time, it is affirmed that customers are provided with numerous opportunities such has reduction in transaction costs, time saving and more importantly, customers are eligible to compare the prices of products at relative ease which facilitates in selecting the lowest price for the products and services intended by consumer to purchase. Thus, online shopping increases the ability of the customers to purchase intended products and services at its lowest price and promotes cost saving behavior among the consumers which indirectly contributes towards the economic growth (Andam, 2003). According to OECD (1999), evolution of online shopping has changed the way of conducting business. Accordingly, it has been gradually replacing the traditional intermediary functions as well as facilitating in creating new and stronger customer-business relationships. Besides, it has changed work procedure and also created opportunities for new channels of knowledge diffusion, and human interactivity. At the same time, online shopping has resulted in refining the skills of workers. It is also claimed that online shopping has increased the interactivity in the economy. Online shopping has offered small businesses in an economy to expand their reach to larger customer base and over expanded geographical locations relatively at lower costs which has further contributed towards increasing the competitiveness of the economy in the global arena (OECD, 1999). In addition, OECD (1999) revealed that the business model of online shopping is simple and can be easily adopted by retailers. To that end, it is ascertained due to the large adoption of virtual marketing, it has a significant impact on the economy particularly on productivity and business costs. Besides, establishing online store is ascertained to be relatively cheaper than the physical store. Online shopping stores are driven by the “just-in-time” approach which positively leads towards the reduction of inventory costs. Moreover, it is articulated that virtual marketing enables seller to place considerable information about the products and services offered to customers, which eventually increases the efficiency of sales process. It is also articulated that online retailers are able to reduce distribution costs to almost 50 to 90 percent. It is advocated that online shopping offers friction free markets as well as radically contributes towards reduction in the production costs (OECD, 1999). Online Shopping Impact on Inflation Li (n.d.) noted that inflation is one of the strong determinants of economic growth in the contemporary economic environment. Accordingly, it is noted that high rate of inflation has a strong and negative impact on the economic growth and performance (Li, n.d.). In this regard, Ma’aruf & Abdulkadir (2012) further claimed that online shopping has a considerable impact on reducing the pressure of inflation. Accordingly, it has been stated that online shopping in the recent times has experienced significant growth and popularity globally. It is believed that such growth in the e-commerce has potential to improve efficiency and productivity of any economy. Accordingly, it has been stressed that the constant growth in the online shopping has progressively contributed towards downward movement of inflation pressure. Online shopping is ascertained to have a radical impact on the price setting behavior of sellers. Ma’aruf & Abdulkadir (2012) further articulated that changes in the price setting behavior have lead towards witnessing lower inflation in the short run as well as the faster adjustment of prices pertaining to changing economic conditions. Moreover, it has been identified that more and more firms are engaged in offering online shopping experience to their customers in order exploit the opportunities provided by digitalization process. In this regard, it has been asserted that due to the constant penetration of firms in this industry, the level of competition has become fierce. Correspondingly, due to the increase competition, firms offering online experience are engaged in delivering their services and products at comparatively lower price with at aim to attain greater competitive advantages. Consequently, it is stated that the increased level of competition resulting in lower prices of final products and service sold online have eventually facilitated in reducing inflation pressure (Ma’aruf & Abdulkadir, 2012). Mazón & Pereira (2001) suggested that online shopping has offered greater opportunities for the firms to achieve reduction costs. Accordingly, it is stated that the as compared to physical shops virtual shops have provided an increased level of cost savings particularly eliminating property costs such as leases and acquisition of shop as well as warehouse space along with labor costs. Besides, virtual shop has also reduced the inventory costs for showcasing or immediate delivery. The reduced cost has ultimately benefitted customers in the form of lower cost for the products and services purchased via online sources. Correspondingly, reduced costs and lower prices for the final goods and services have been ascertained to significantly reduce the pressure of inflation (Mazón & Pereira, 2001). Online Shopping Impact on Productivity Willis (2004) stated that within the continuous increase in the online shopping, its influence on the aggregate productivity is perceived to augment. Accordingly, firms dealing with online shopping make extensive use of technology to reduce cost of transactions, advertising, searching inventory holding and transportation. These cost reductions are attained by the online shoppers through the reduction in the amount related to labor required for the execution of each business task. As an outcome, productivity which is measured by output per hour of all the employees is estimated to increase on an average for online shoppers than offline. Responsively, it is stated that increase in the online shopping makes increased contribution to the overall productivity. Nonetheless, Willis (2004) claimed that it is quite difficult to measure the precise measure of productivity associated with online shopping. In this regard, cost saving achieved by online shoppers through enhancements to e-commerce, supply chain management, customer care and labor force optimization significantly contributes towards the augmenting productivity (Willis, 2004). Limthongchai & Speece (n.d.) stated that in the contemporary business environment, the role of the internet has become imperative. Retailers engaged in online shopping are making extensive use of information technology as a source to enhance communication and transactions. Accordingly, the value driven by online shopping is constantly increasing at a rapid pace. Online shopping has resulted in the increased diffusion of technology innovation amid the small and medium enterprises (SMEs). Therefore, it is stated that online shopping has benefitted SMEs with overcoming the weaknesses imposed by the traditional shopping and has facilitated to attain greater flexibility and attract investment. It is believed that such improvement in SMEs has facilitated in increasing the efficiency of the economy (Limthongchai & Speece, n.d.). Bakos (1998) stated that market occupies an imperative place for the success of any economy. It enables exchange of information, as well as goods and service along with payments for the item. Marketing process is predominately related with the creation of economic value for sellers, buyers, market intermediaries and society as a whole. Consequently, it is stated that the emergence of online shopping has facilitated in efficient functioning of market. Accordingly, it is stated that online shopping through increased effectiveness and reduced transaction cost has ultimately led towards achieving “friction free market.” Accordingly, it is stated that creation of “friction free market” has promoted greater economic development as well as it has assisted the economy to sustain considerable growth (Bakos, 1998). Impact of Online Shopping on Environment and Gross Domestic Product (GDP) According to Tehrani & Karbassi (2005), consumers across the world are witnessing dramatic changes in their shopping experience particularly due to the evolution of online shopping channel. It has offered customers with numerous benefits in the form of lower prices due to the reduction in operating costs and market entry cost experienced by firms dealing with online shopping. Also, it has been claimed that from the economy and environmental point of view, online shopping has significantly contributed towards the reduction of energy consumption as well as reduction of environmental emission. Accordingly, it is stated that transformation of traditional shopping to online shopping has shifted the responsibility associated with transportation of goods from customers to online retailers. With regard to ascertaining the prevailing scenario within an economy from environmental viewpoint, it is perceived that rapid expansion in the online shopping trend has contributed towards the reduction of energy consumptions as well as air pollutant emissions. Moreover, it is advocated that online shopping has dramatically reduced the fuel consumptions which would have otherwise depicted inverse outcome with the reliance on traditional shopping pattern. Hence, it has benefitted customers and economy with efficient management, reduced waste, and more efficient delivery system as compared traditional shopping (Tehrani & Karbassi, 2005). Online shopping drives online payments which are recognized to have a significant and positive impact on the growth and development of economy. Besides, it is observed that online shopping drives incremental sales through lowered prices of products and services as well as it increases the access to information pertaining to goods and services. It is also ascertained that online shopping supports expansion of cross-border trade and commerce which enables an economy to reap the benefit of cross-border trade. Ultimately, it is identified that online shopping makes significant contribution to gross domestic product (GDP) of an economy which further increases the competitiveness of the economy (Deloitte, 2013; Rausas, & et. al., 2011). Moreover, it is stated that increase in the online shopping will lead towards higher consumption of the internet and expenditure that would radically contribute towards the growth of the economy. According to Rausas & et. al. (2011), the internet related consumption and expenditure is increasing massively and has grown to more than the agriculture and energy. The report highlighted that the internet accounts to contribute at an average of 3.4 per cent of GDP. Notably, it has been observed that contribution of the internet to GDP has augmented to more than 21 percent in the last seven years. On the other hand, increase in the usage of the internet has facilitated SMEs with an opportunity to expand and acquire considerable revenue particularly deriving from online shopping. It is stated that e-commerce is still in the infancy stage. Accordingly, in the later years, its impact on the economy is projected to be more widespread and visible (Rausas & et. al., 2011). References Andam, Z. R., 2003. E-Commerce and E-Business. University Of Petra, pp. 5-47. Al-Mowalad, A. & Putit, L., 2012. Factors that Influence Saudi Consumers Behavior to Make Online Purchase. International Conference on Management, Behavioral Sciences and Economics Issues (ICMBSE2012) Penang, Malaysia, pp. 171-173. Bakos, Y. 1998. The Emerging Role of Electronic Marketplaces on the Internet. Communications of the ACM, pp. 1-14. Chellappa, R. K. & Sin, R. G., No Date. Price-Formats As Sources Of Price Dispersion: A Study of Online and Offline Prices in the Domestic US Airline Markets. Emory University, pp. 1-33. Chu, J. & et. al., 2008. A Comparison of Within-Household Price Sensitivity across Online and Offline Channels. Marketing Science, Vol. 27, No. 2, pp. 283-299. Constantinides, E., 2004. Influencing the Online Consumer’s Behavior: The Web Experience. Internet Research, Vol. 14, No. 12, pp. 111-116. Deloitte, 2013. The Economic Impact of Online Payments: Breaking Barriers across Europe. Online Payment Enable Economic Growth, pp. 1-13. Kim, J. & et. al., 2004. Factors Affecting Online Search Intention and Online Purchase Intention. Seoul Journal of Business, Vol. 10 No. 2, pp.27-48. Katawetawaraks, C. & Wang, C. W., 2011. Online Shopper Behavior: Influences of Online Shopping Decision. Asian Journal of Business Research, Vol. 1, No. 2, pp. 66-74. Lean, H. H. & Song, Y., 2008. Domestic Saving and Economic Growth in China. Discussion Paper 64. Li, M., No Date. Inflation and Economic Growth: Threshold Effects and Transmission Mechanisms. University of Alberta, pp. 1-71. Limthongchai, P. & Speece, M. W., No Date. The Effect of Perceived Characteristics of Innovation on E-Commerce Adoption by SMEs in Thailand. University of Nebraska, pp. 1573-1585. Mazón, C. & Pereira, P., 2001. Electronic Commerce, Consumer Search and Retailing Cost Reduction. Universidad Complutense de Madrid, pp. 1-29. Ma’aruf, L. M. & Abdulkadir, K., 2012. An Overview of E-Commerce Implementation in Developed and Developing Country; a Case Study of United State and Nigeria. International Journal of Modern Engineering Research, Vol. 2, Iss. 5, pp. 3068-3080. Nanehkaran, Y. A., 2013. An Introduction to Electronic Commerce. International Journal Of Scientific & Technology Research, Vol. 2, Iss. 4, pp. 190-193. OECD, 1999. The Economic and Social Impact of Electronic Commerce Preliminary Findings and Research Agenda: Preliminary Findings and Research Agenda. OECD Publishing. Pan, X. & et. al., 2004. Price Dispersion on the Internet: A Review and Directions for Future Research. Journal of Interactive Marketing, Vol. 18, No. 4, pp. 116-135. Rausas, M. P. & et. al., 2011. Internet Matters: The Net’s Sweeping Impact On Growth, Jobs, And Prosperity. McKinsely Global Institute. Saprikis, V. & et. al., 2010. Perceptions towards Online Shopping: Analyzing the Greek University Students’ Attitude. Communications of the IBIMA, Vol. 2, pp. 1-13. Tehrani, S. M. & Karbassi, A. R., 2005. Application of E-Commerce in Local, Home Shopping and Its Consequences on Energy Consumption and Air Pollution Reduction. Iran. J. Environ. Sci. Eng., Vol. 2, No. 4, pp. 247-250. Willis, J. L., 2004. What Impact Will E-Commerce Have on the U.S. Economy. Federal Reserve Bank of Kansas City, pp. 53-71. Read More