How are Online Retailers Thriving in the Recession Compared to High Street Stores - Coursework Example

How are Online Retailers thriving in the Recession Compared to High Street Stores? name Due date of paper 1. Introduction Today, managing an online store is much easier as compared to high street store because various economic factors affect the progress of high street stores. These factors, which include less physical space, less capital to start a business, and less equipment have made a way for many people to start online businesses. Online stores resolve these issues to a great extent. However, shifting a business online is not as easy as it seems to be. Companies face problems in establishing a direct contact with customers, as well as in gaining their trust being a virtual company. Although these difficulties may arise at the start of the business, the results are mostly in favor of the business owners as they get huge profits and net income from online businesses in both high activity market conditions and recession periods. Online retailers not only reduce their operational and administrative expenses through online presence but also manage the periods of recession better than high street stores because of many underlying factors. The purpose of this study is to get an insight into how are online retailers thriving into recession compared to high street stores. The subsections of the paper also include a discussion on the advantages and disadvantages of online shopping from the perspectives of both customers and retailers. The reason behind is to know the factors that make online retailers successful through the recession as compared to high street stores. 2. Online Retailing Before going into the discussion regarding the success of online retailers in the periods of recession, let us get a better understanding of what online businesses actually are. Online retail businesses refer to the sale of products through internet with a purpose to improve sales and productivity of the business. “It’s technology that is rapidly reshaping the high street – although high rents have not helped, it’s changing consumer behaviour that has had the most impact” (Warman 2013). In today’s world, having online presence is the need of almost every company and organization because it not only helps the companies create their names in the international markets but also results in increasing the business of the companies. E-business refers to the mode of running businesses using internet and related technologies with the purpose of improve the overall net income and productivity the business (McGuigan 2011). 3. Factors that Make Online Stores Thrive Well in Recession One of the main factors that lead to the success of online retailers over high street stores is that they make use of internet for selling their products, which is a cost-effective way of selling the products. Internet makes online retailers more profitable and efficient as compared to the conventional style businesses. A company operating online makes use of website to make people aware of the products and services offered by the company. A good website is very important for the success of an online company because it is the main source of communication between the company and the customers. A website not only helps a company gain exposure in international markets but also attracts a large number of customers towards the products and services of the company. High street stores have no web presence because they do not make use of internet technologies to run their businesses. There is a lot of difference between operating a business in one area and operating a business in different parts of the world though internet. Another reason why street stores experience financial loss during recessions is that they do not get much exposure to the outside world because of which when economic depression occurs, their graph of product selling goes down. It results in decreased levels of productivity whereas online stores operate in different parts of the world by making use of internet technologies resulting in many benefits, such as, attracting more customers towards the products and services of the company and increasing productivity and profitability of the company. It is a fact that a company can never gain an edge over its competitors in today’s competitive environment with low levels of productivity and market share. Efficiency and productivity are the keys towards customer satisfaction and achievement of competitive advantage. Online stores hold a large number of customers and market opportunities as compared to high street stores, which increase their chances of achieving competitive advantage in the markets where they operate their businesses. Exposure to multiple markets is one of main success factors for online stores. Today, the world has become a global village where customers are very much comfortable with the use of internet and they can search for their desired products online instead of going to supermarkets physically. Another thing is that people looking for desired features in the products may search other online stores or other brands if they do not find the specifications in the product of any online store. This results in increasing the business of those companies that have online presence. Therefore, we can say that online presence of a company results in increasing the level of profits and net income for the company. Increase in the level of profits during the periods of recession is not only related to the number of customers an online store has but also to the number of markets in which the store operates. Online stores can reach the customers more effectively as compared to street stores by using internet related technologies. Street stores have no web presence and they make use of traditional style advertising techniques, which are not very effective in the present world because more and more people are focusing towards the use of internet and related technologies for buying any kind of product. Another feature of online stores that make them thrive well in recession is that they do not usually need to be located somewhere physically. According Marketing Advice (2012), “in general, an online shop costs less to set up and run than a physical store”. Owners of such businesses can operate their businesses from anywhere, whereas street stores need some physical location from where they can be run. Moreover, online retailers are much more efficient as compared to street stores. A 24/7 customer support service is available that can be used by the customers to get their queries replied, whereas there are usually some fixed timing for street stores during which the customers can visit the stores. The reduced cost of running an online store is a major factor why a large number of entrepreneurs are going for online stores instead of starting high street stores. The overall cost of running a small online store is very less as compared to running a high street store. What an entrepreneur needs in running an online store is a set of computer systems, some chairs and tables, and an internet connection. There is no need to buy any sort of property for running online businesses or to take some place on rent. Rather an online store can be run even from the house of the business owner. For high street stores, the owners first have to look for a suitable location, which increases the initial cost of the business. Next, they have to buy required equipment, furniture, and some business professionals, which add to the overall cost of the business. There is no such requirement in case of online stores, which makes it a very attractive form of business for the less experienced and low budget individuals. Another reason for online businesses to thrive well in recession is that owners of online stores do not need much capital or experience to start the business. All what a person needs is a database expert, some computer systems, and some experience in using computer and internet. An individual must get useful information about running an online store from a person who is already doing such kind of business. A know how of every aspect of running an online store is very important for an individual to run a profitable online stores. At macro level, online businesses have been proven as a good way to earn money in the present world. Today, high street stores are not very easy to start and manage due to various legal and economic factors. Starting a new high street store today is a different experience as compared to few years ago (Stone 2005). The rate of unemployment is increasing in every country these days and the salaries are not big enough to meet the daily demands of life. Therefore, more and more people are focusing towards internet businesses in order to earn a respectable income. Another reason for success of online sores is that of low associated risk. The amount of risk is very low in starting and managing online stores. First, the startup cost for an online stores is very low as compared to high street store which makes it a low risk business in case the business fails to come up to the owner expectations. Secondly, there are no added costs related to online stores, such as, equipment or office decoration costs. Even the administrative costs, operational costs, and employee management costs are very less as compared to those of high street stores. Another point is that there is no building or equipment damage risk associated with online shopping stores because of its simple structure. Therefore, we can say that running an online store is an easy and low risk approach towards a successful business in the periods of recession as compared to high street stores. 4. More People Prefer Shopping from Online Retailers If we look at the trend towards online shopping, we come to know that there are a large number of online stores that have become very popular among the customers. Two of such stores include ebay.com and amazon.com. Shopping from online stores offers some considerable benefits to the customers because of which a massive shift towards online shopping has occurred within the last few years and this may be the reason why online stores are experiencing success even in the periods of recession. As Gupta (2012) states, “shoppers are becoming increasingly confident in using online shopping websites and buy almost anything under the sun”. If we talk about the advantages of online shopping for customers, some of them include low cost, high availability of desired products, less spent time on shopping, no fuel expenses, simple and easy process of purchasing, and ease of finding similar products from different companies. “An online shop removes the blockades of travel, parking and getting lost en route that can drive some customers away” (LeChat n.d.). Along with some significant benefits of online shopping for both online retailers and shoppers, there are also some disadvantages associated with this mode of shopping. Some of those risks or negative points may include no proper location for customers if they want to inspect the products before actually buying them, risk of getting faulty products, and a huge risk of stealing of the pin code of the credit cards. Nevertheless, these disadvantages cannot underestimate the benefits that people get from doing online shopping, which is the main reason for online stores to thrive well during the periods of recession. People find it easy to go to online stores because of the above-mentioned benefits that they get from it. Furthermore, in today’s busy world, people have less time to do physical research for finding the best product in the market because of which they consider online stores the best and the most suitable available option. People can spend the time that they save from shopping in other essential activities of life (Ratnasingham 2008). Moreover, they also have the facility to buy international brands while sitting at their homes. Online stores also get a number of benefits as they get rid of many legal procedures to run a store. Location of the shop becomes less important because they do not have to wait for the customers to come in and shop. This helps them cut their office decoration expenses and other rental expenses as well (Tan 2009). All they need is a computer system and an internet connection using which they can reach thousands of customers looking for their products. In the long term, online stores can have a higher ratio of disposable income profile as compared to street stores (Assael 2008). 5. E-Business Planning – A Key Role in Online Stores’ Success Another key reason behind the success of online stores in recession periods as compared to street stores is that of their planning and operational strategies. In e-business planning process, companies need to take four key steps, which include identification of the potential e-business initiatives, examination of the functional scope of identified initiatives, analysis of the sustainability of perceived e-business benefits, and prioritization of identified and analyzed initiatives (Basu & Muylle 2007, p. 28). Companies first need to identify the initiatives that they need to take in order to move their businesses online. For example, they need to know the technical, functional, and legal requirements of running online businesses. After doing so and researching the functional cope of required initiatives, they need to work out the sustainability features of all benefits that they may get from shifting towards online business. The last step is to prioritize the initiatives in order to develop a proper mobile commerce strategy regarding what to be done and in which sequence. Technology, service, market, and brand are four key positional factors that companies need to analyze while developing a successful mobile commerce strategy (Watson, Berthon, Pitt & Zinkhan 2008). Online storeowners also make an effective use of internet marketing to achieve considerable success in local and international markets. Internet has come out to be a very effective tool of marketing considering the number of benefits it produces for the companies. Some of those benefits include expanded customer base, international exposure, international market reach, and increased level of revenue. “A local business can become nationwide or, depending on the product, international, just through having an effective e-commerce strategy” (Marketing Advice 2012). To do international marketing, online storeowners make use of a wide range of marketing tools and techniques that imperative for making online businesses successful for companies. Some of the main internet marketing tools include online ads and promotions, social networking websites, websites, emails, and mobile marketing. Online ads and promotions hold great value in the success of internet marketing. Storeowners also make ads to place them over famous websites and search engines to make people aware of their businesses, as well as about the list of products and services. According to Marketing Advice (2012), “with investment in search engine optimisation and online promotion, an online shop becomes more accessible to customers searching for your products”. Along with online ads, companies should make use of emails as a direct marketing tool. According to Williams (2012), e-mail marketing has been one of the oldest methods directed towards reaching the customers and maintaining a good image in the market. Emails about new business programs and policies are usually sent to a targeted population or registered customers for relationship-building, as well as for keeping them aware of the new business plans. 6. Payment Methods are now More Secure – Another Success Factor Online businesses and online payments are two closely related business features. Online stores get the payments from customer using online payment methods, which have now become more secure than ever. Street stores have less to do with online payments as compared to online businesses that are totally based on the use of internet and related technologies for business purposes. Therefore, owners of such businesses have to choose the most appropriate and secure online payment methods for transaction purposes. 6.1 PayPal PayPal is one the most widely used payment methods for online shopping these days. Using this payment method, almost 8 million online transactions take place every day (Costill 2013). This payment method is currently in operation in more than 200 markets all over the world and has more than 135 million active accounts. This payment method allows users to make purchases whatever they like without leaving the site (Costill 2013). A main feature of this payment method is that it allows the user to both receive and send payments. PayPal payment transactions are done in two ways: either using a credit card or through the existing PayPal account of the users. “Money can be sent directly to an email address, thus prompting the users to sign up for a new PayPal account” (Meyer 2012). A unique feature of PayPal payment system is that it does not require any registration or monthly charges as most of the online payment solutions usually apply. PayPal takes the charges on per operation basis but only on those transactions that take place internationally through a credit card or those that involve currency conversion. Users can make online payments through money in their personal bank accounts, PayPal accounts, or credit cards. This payment solution is considered the safest and most reliable online payment solution for e-businesses and users. 6.2 Dwolla Dwolla is also a trustworthy method using which people can pay while sitting at their homes. People send payments through email accounts, social networking websites, and mobile phones. There is no transaction fee for the amounts figuring less than 10 dollars. In addition, even the fee for amounts over 10 dollars is very less .i.e. just 0.25 dollars per transaction. As compared to PayPal, the number of transactions that take place each day is nearly over one million (Meyer, 2012). Dwolla is safe for online customers because it does not require them to share their name, address, bank account number, or routing information. Rather, they just need to share their unique Dwolla ID and email address to send and receive payments. Sharing less personal information decreases the threat of fraud and identity theft. Through Dwolla, users do not need to share their personal information that makes this payment solution safer for most of the users and online businesses. The study of both of these methods show that people can afford to use these methods instead of taking physical money with them while shopping which not only increases the risk of stealing but also takes more time. With these payment methods in place, one does not need to bother about cash deals. This is another reason behind increased popularity of online stores as compared to street stores. Even during recession, people can afford online shopping using these payment methods because the fee per transaction is very less as compared to the prices of high street stores which also include their shop rent percentage and other expenses’ percentage. 7. No Taxes Another factor that makes online stores successful during the periods of recession is lack of taxes. On high street stores, taxes apply which result in reducing their level of net income during the periods of recession because taxes are applicable regardless of the conditions of the market. Governments charge business taxes on businesses that have some physical location. However, there is hardly any tax by any government on most of the online retailers because of which their graph of net income does not get disturbed even in recession. Taxes really matter a lot for the companies having physical presence because it directly hits the level of profits a company yields. In case of online businesses, there is no such issue. The profits of online companies are not affected by the taxes because of which their net income graph goes high. 8. Conclusion Summing it up, we can say that the trend towards shopping from online stores is increasing with the passage of time, which is the main reason for online stores to thrive well even during the periods of recession. People now usually prefer to buy their desired products from online stores instead of going to the stores physically because it saves them time, energy, and cost. Consumers can get the products they search for at their doorstep without any exertion. Online retailing is a modern way of doing business with a purpose to improve sales and productivity of the business in a very short time. Internet is the main technology, which is used by the companies to operate their businesses online. Internet increases the productivity and efficiency of a business in a number of ways. Online retailing offers some considerable benefits to the business owners, such as, reduced business risks, reduction in marketing and advertising costs, cost effective marketing strategies, increase in the customer base, introduction in new markets, and an overall improvement in customer service through 24/7 customer support. Therefore, we can say that internet makes online stores more profitable and successful as compared to high street stores during the periods of recession. Online stores are more efficient and business-oriented as compared to high street stores and this efficiency and other factors, such as, increased customer base and exposure to international markets make online stores thrive well in recession as compared to high street stores. References/Bibliography Assael, H 2008, Consumer behavior and marketing action in online shopping, South-Western College Publishing, Cincinnati. 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