Costs and Benefits of Online Retailing for Small Businesses - Case Study Example

Case study Name Course Name and Code Instructor’s Name Date Introduction Online shopping is a term used to refer to the process that customers use to purchase services and goods directly from a seller in real time and without an intermediary over the internet (Bigne, 2005). According to studies, online shopping is a form of electronic commerce. This implies that it is an online shop, internet, web store, web shop, e-store or online store (Bigne, 2005). This service fist came in to being in the year 1990, when Tim Berners-Lee created the first World Wide Web server and browser. In 1991 this browser opened up for commercial use. According to studies, other advances for instance the opening of an online shopping by Pizza Hut and the development of online banking. Apparently, during the same year, SSL encryption of data transferred online was introduced by Netscape. This SSL encryption has become of much importance for secure online shopping (Bigne, 2005). Moreover, in the same year the German company Intershop introduced its first shopping system (Bigne, 2005). Amazon launched its online shopping in the year 1995 (Bigne, 2005). Later in 1996, eBay was introduced. In the contemporary times online shopping has become very popular. In addition it has tremendously evolved especially with the rapid growth of technology. It is evident that just as many online auction websites, a number of these websites give an opportunity to small businesses to develop and maintain online for instance ecommerce shopping carts. This service has been the primary source of income for many small businesses (Peterson et al, 1997). This paper seeks to evaluate and discussing how online retailing would affect the financial management of an existing small business that is into online shopping. In addition, the paper will also identify the benefits and costs of online retailing for small businesses that use online retailing as well as those that do not use online retailing. How online retailing would affect the financial management of small businesses Financial management is a word used to refer to the monetary decisions which businesses make as well as the analysis as well as tools used in the decision making (Sherry and Chen 2005). Online retailing makes their payments mostly by use of credit cards however some online retailers allow their customers to make their payment through accounts for instance cheques, billing to mobile phones, postal money order among others (Sherry and Chen 2005). Online retailing has had great benefits for the businesses that practice it due to the long hours of operation and that they are able to reach a large number of people across the globe. The major effect of online retailing on the financial management of small businesses using it is that it cannot be managed by just anyone in the organization as it may lead to weak sustainability. This is due to the fact that online accounting is very challenging and it requires application of various tools to ensure accurate accounting (Sherry and Chen 2005). In addition it requires that the online business invests more so as it can stand out and face competition. This becomes very difficult since the finance manager has to ensure that the overhead costs are not so high to affect the business sustainability (Sherry and Chen 2005). However, if properly managed the business is able to enjoy large economies of scale. Costs and benefits of online retailing for small businesses that use it Benefits Information reviews It is apparent that online shops have to describe their products for sale with pictures, text as well as multimedia files (Peterson et al, 1997). This is unlike in the actual retail whereby the manufacturer and the product are readily available for inspection by the customer. This is an advantage to the online shop since they are able to provide even the finest details that may be of paramount to the consumer for instance manufacturer specifications, safety procedures, instructions and demonstrations. In addition, the online shops also provide advice, the background information about the product and how-to guides designed to help consumers decide which product to buy (Peterson et al, 1997). This as a result leads to the customers commenting on the goods and services being offered by the small business. Consequently, this is an opportunity to the business since it is able to understand what its consumers want and in return provide consumer specific goods. As a result the small business gets the opportunity to enjoy large economies of scale from increased sales. Moreover some sites are dedicated review sites which host the reviews for different goods (Huang, 2000). According to research the reviews are believed to give the consumer an option to organize for shopping without having to depend on the retailers and this saves time for the small businesses to address other matters that will contribute to income generation. Convenience Evidently, the availability of online shopping is 24 hours a day and many of the customers have access to internet both at home and at work (Huang, 2000). For the small businesses that practice online retailing this is an advantage to them since they are able to ensure a flow of the service and that many customers can reach them from across the globe. This ensures that they serve very many customers and as a result enjoy more and more profit. Furthermore, some online retailers of the small businesses also share the costs of shipping the product in case of a problem and at some times offer refund in case a wrong good was delivered (Smith et al, 2002. As a result the small business is able to attract more customers to shop from them while ensuring retention of the already existing. Price and selection Most online shops offer discovery shopping engines (Huang, 2000). This is a technology used to locate the sellers of specific products and services. The small businesses that employ online shopping stands at an advantage due to the fact that many customers are able to locate them easily compare the prices as well as make their selection and organize for the order. Another major advantage for retailers is the ability to rapidly switch suppliers and vendors without disrupting users' shopping experience (Sherry and Chen, 2005). Costs Lack of full cost disclosure With regards to the local cost of purchase, lack of full disclosure for purchase is one of the major concerns of online shopping. Though the costs of an item can be seen online it is not the full cost that is visible (Smith et al, 2002). Such costs as shipping costs are not displayed and the problem is quite evident on cross boarder purchases where the cost indicated at the final checkout screen may not include additional fees that must be paid upon delivery such as duties and brokerage (Smith et al, 2002). As a result of this customers opt to purchase from direct retailers. Hands on inspection According to studies, the customer can only rely on simple pictures and descriptions of the product from the online shops (Smith et al, 2002). The failure of the customer having an exposure of the handling qualities they are to purchase prior, they will not have a clear understanding of the product they are about to buy (Smith et al, 2002). As a result of this the customers feel they have inadequate information about the online product they are willing to purchase and most opt to deal with direct retailers whereby they will see the goods physically and perform such tasks as testing before they can purchase (Smith et al, 2002). Fraud and security concerns It is apparent that the lack of the capability to inspect the merchandise before it is purchased; there is a high risk of fraud to the consumer on the part of merchant as compared to a physical store (Smith et al, 2002. In addition, small businesses also risk fraudulent purchases using fraudulent repudiation or stolen credit cards (Smith et al, 2002. Costs and benefits of online retailing for small businesses that do not use it Benefits From past researches, the small businesses that do not use online retailing do not face fraudulent. This is due the fact that they deal with their clients directly and they can easily identify them. In addition, small businesses give their customers full information about the products they offer (Chesney, 2003). Besides, they give their consumers an opportunity to test the good and ascertain its validity. As a result they are able to attract more customers and in return enjoy large economies of scale (Chesney, 2003). Costs It is evident that the small businesses that do not use online retailing have limited working hours. This is due to the fact that they cannot operate round the clock as online retailers (Chesney, 2003). This is a disadvantage to them since they are not in a position to make more income as online retailers. Moreover, the small business that do not use online retailing requires that it customers make conventional visits to the retail shop and this inconveniences their customers (Chesney, 2003). Conclusion In the contemporary times online shopping has become very popular. In addition it has tremendously evolved especially with the rapid growth of technology. This service has been the primary source of income for many small businesses. As discussed in the essay, other benefits include convenience, information reviews and price and selection which contribute to the large economies of scale to the small business. However, online shopping can also lead to some disadvantages for the small business such as fraud and security concerns, the problem of hands on inspection and lack of full cost disclosure. On the other hand online retailing is of an advantage to the small business that does not use it as high lightened in the paper. References Bigne, E. (2005) The Impact of Internet User Shopping Patterns and Demographics on Consumer Mobile Buying Behaviour. Journal of Electronic Commerce Research, 6(3) Chesney, T., (2003) Competitive information in small businesses, New York: Springer Huang, M. (2000) Information loads: its relationship to online exploratory and shopping behavior. International Journal of Information Management, 20, 337–347. Peterson, R. A., Balasubramanian, S. and Bronnenberg, B. J. (1997). Exploring the implications of the Internet for consumer marketing. Journal of the Academy of Marketing Science, 25, 329–346. Sherry Y. and Chen R. D. (2005). The assessment of usability of electronic shopping: A heuristic evaluation, International Journal of Information Management 25, 516–532 Smith, S., B., Chiozza, E. and Edin, M., (2002). Challenges and achievements in E-business and E-work. Chicago: IOS Press. Read More