Small Business and Online Retailing - Literature review Example

Small Business and Online Retailing Name Institution Date Small Business and Online Retailing Introduction Generally, setting up an online retail business requires comparatively small amount of capital in case the entrepreneur manages a budget wisely. Some major requirements when starting an online retail business include; establishing a dynamic website and an innovative marketing strategy. Additionally, one should understand the market as well as one’s special selling proposition since there is stiff competition within online business (Campbell, 2008). According to Arvenpaa and Todd (2007), rent is a major cost one is likely to incur when operating an online business. Basically, the rent charge for a small retail shop in Australia varies. The rent charge can be as high as $150, 000 annually for a 70m2 building. An excellent retail shop within the capital city is much higher than this. Accordingly, by operating an online retailing, one avoids paying rent which is a key cost saving (Mehrabian & Russell, 2005). There are also fit-out costs. Unless by some inconceivable chance the previous tenant had fit out the shop building in a manner that suits ones brand accurately, one experiences some costs in fitting out a physical business enterprise. Normally, the fit out costs ranges around $120, 000 and this does not comprise shelving, fixtures in addition to fittings which add to the costs. Moreover, to maintain the shop in good shape, it will require re-fitting out after every five years. Obviously, this cost is not incurred in retail shopping (Chen et.al, 2005). Another cost in small retail businesses is staffing. According to Huang (2000), a physical retail shop requires staffing anytime it is open. If the shop is to be open 7days a week for ten hours daily, it requires two full-time workers and during busy periods one will require more. The average cost of staffing is $100, 000 annually although this is dependant on the quality of the workers (Sherry et.al, 2005). However, even the online retail shop requires workers for running customer services so this staffing cost is cannot be avoided completely; nonetheless if the online shop is launched with email-only customer support it is a bit flexible in regard to staffing (Sherry et.al, 2005). Furthermore, all retail businesses require electricity, insurance, communication and other incidentals. According to Sherry et.al (2005), there are numerous small costs incurred in a physical retail business. Most of these costs are also incurred when operating an online retail business but basically they get lower. When operating an online retail business, it does not require very costly lighting, and also insurance costs are less costly as compared to a physical retail shop. If all these costs are summed up, certainly there some major cost savings in opening an online business as compared to operating a physical retail business (Huang, 2000). Mehrabian and Russel (2005) point out that in regard to building an online business premises, just like rent, the cost differs significantly. A designer can be hired to compose graphics and one can get a good online premise for even below $5, 000, in addition to a proportion of the ongoing sales and this depends on the Shopify plan ones adopts. Generally, launching an online retail premises would require $80, 0000 which is less costly when compared to the launching of a physical retail premises. Mehrabian and Russel (2005) argue that warehousing is a major requirement for most online retail businesses since this is where the stock on sale is normally stocked. The warehouse costs are determined by the size of the stock. Besides, an online retail business will also need third party providers for managing the warehousing of the stock. Moreover, when selling online, there is a requirement of shipping the goods to the clients. The business owner will be required to work together with a local company or even a local courier service for shipping services. Therefore, when opting for online retail business, one should take the shipping costs into consideration (Arvenpaa, & Todd, 2007). Evidently, marketing is the major variable while running or opening an online retail business in comparison to a physical retail business. For instance, traffic is one of the concerns. A physical retail business situated in a relatively excellent location offers grand foot traffic and clients to the business premises; there mere presence provides prospects for selling the products. On the other hand, an online retail business that has not been marketed effectively might just be in existence but with extremely few visitors. In case there is nothing to distinguish the online retail business, it can be a difficult task acquiring visitors to the business’ website. Nonetheless, if one has an exceptional proposition, one can attract a great number of customers into an online retail business (Bigne, 2005). Operating an online business changes the business environment as well as the financial management. An entirely new financial management will be required in order to satisfy the demand of the customers while improving operational efficiencies through offering insight into the utilization and operational costs throughout the operational period.  For a business moving from physical retailing to online retailing, it will need to design a dynamic website. Such costs should be taken into consideration since a good website is relatively costly (Michael, 2008). Additionally, the following costs will need to be managed effectively; website costs, market research costs, trade show marketing costs as well as wholesale marketing. For the small online retail business, it is important for those in financial management to choose the accrual accounting method. According to Michael (2008), this method will give the business a more definite measure of the business’ financial state and will also not need extra effort in maintaining accounts receivable as well as accounts payable. Obviously, all the transactions will be recorded within an accounting software program for producing reports as well as automating routine tasks. Proper maintenance of the financing system will be effective if it is used appropriately and this implies entering all transactions, bill, check, charge as well as the refund. The financial management team should plan for the better part of its finances on marketing and establishing loyal and special customers, as well as in mass marketing (Michael, 2008). Conclusion Principally, it is much simpler to visit an online retail shop as compared to a physical retail shop. Nevertheless, there are some difficulties in operating an online retail business one being that the clients are not able to see and touch a product and also there is no physical contact between the business owners and their clients. This can be countered by having great photography and educational sites on the business websites. There are major costs savings in operating an online retail business in comparison to a physical retail business but one should make sure that the online business has special offers and a strong point of difference from the competitors to succeed. Normally, online retailers are always open for 24 hours daily and seven days a week and hence the customers can browse the business and buy business products from anywhere and with lesser operating costs, the prices are more attractive and this attracts more customers and hence increases the business sales. The online retail business is likely to make if it puts the following points into consideration: high-quality product niche, good web site design, good customer service, good market research, innovative marketing, excellent product sourcing as well as proper business and financial planning. References Bigne, E. (2005). The Impact of Internet User Shopping Patterns and Demographics on Consumer Mobile Buying Behavior. Journal of Electronic Commerce Research. 6 (3). Arvenpaa, S. & Todd, P. (2007). Consumer reactions to electronic shopping on the World Wide Web. International Journal of Electronic Commerce. 1 (2). Huang, M. (2000). Information loads: its relationship to online exploratory and shopping behavior. International Journal of Information Management. 20 (1) 337-347. Chen, H. et.al. (2005). E-Commerce and Consumer's Expectations: What Makes a Website Work. Journal of Website Promotion. 1 (1) 1-6. Sherry, Y. et.al. (2005). The assessment of usability of electronic shopping: A heuristic evaluation. International Journal of Information Management. 5 (1) 516–532 Mehrabian, A., & Russel J.A. (2005). An Approach to Online Retailing. Cambridge, MA: The MIT Press. Campbell, D. (2008). Task complexity: A review and analysis. Academy of Management Review. Vol.13 (1) 40-52. Michael, K. (2008). E-commerce. New York: Sage. Read More