Advantages and disadvantages of online retailing
Online retail has advantages and disadvantages for businesses with huge growth potential balanced against initial costs and security and legal issues
Online retailing is growing at an astonishing rate, with online sales now accounting for around one quarter of the total retail market. Retailers who ignore e-commerce may see their trade lessening as customers continue to shift to ordering products online.
However you need to think carefully and weigh all the advantages and disadvantages - backed by good market research - before deciding on whether or not to trade online.
Advantages of online retail
The benefits of retailing online include:
- Easy access to market - in many ways the access to market for entrepreneurs has never been easier. Online marketplaces such as eBay and Amazon allow anyone to set up a simple online shop and sell products within minutes. See selling through online marketplaces.
- Reduced overheads - selling online can remove the need for expensive retail premises and customer-facing staff, allowing you to invest in better marketing and customer experience on your e-commerce site.
- Potential for rapid growth - selling on the internet means traditional constraints to retail growth - eg finding and paying for larger - are not major factors. With a good digital marketing strategy and a plan a scale up order fulfilment systems, you can respond and boost growing sales. See planning for e-commerce.
- Widen your market / export - one major advantage over premises-based retailers is the ability expand your market beyond local customers very quickly. You may discover a strong demand for your products in other countries which you can respond to by targeted marketing, offering your website in a different language, or perhaps partnering with an overseas company. See basics of exporting.
- Customer intelligence - ability to use online marketing tools to target new customers and website analysis tools to gain insight into your customers' needs. For advice on improving your customer's on-site experience, read how to measure your online marketing.
Read further guidance on online selling.
Disadvantages of online retail
Some negatives of online retail include:
- Website costs - planning, designing, creating, hosting, securing and maintaining a professional e-commerce website isn't cheap, especially if you expect large and growing sales volumes. See common e-commerce pitfalls.
- Infrastructure costs - even if you aren't paying the cost of customer-facing premises, you'll need to think about the costs of physical space for order fulfilment, warehousing goods, dealing with returns and staffing for these tasks. See fulfilling online orders.
- Security and fraud - the growth of online retail market has attracted the attention of sophisticated criminal elements. The reputation of your business could be fatally damaged if you don't invest in the latest security systems to protect your website and transaction processes. See e-commerce pitfalls - security weaknesses.
- Legal issues - getting to grips with e-commerce and the law can be a challenge and you'll need to be aware of, and plan to cope with, the additional customer rights which are attached to online sales. See the law and selling online.
- Advertising costs - while online marketing can be a very efficient way of getting the right customers to your products, it demands a generous budget. This is especially true if you are competing in a crowded sector or for popular keywords. See pay-per-click and paid search advertising.
- Customer trust - it can be difficult to establish a trusted brand name, especially without a physical business with a track record and face-to-face interaction between customers and sales staff. You need to consider the costs or setting up a good customer service system as part of your online offering. See manage your customer service.
For detailed guidance on the problems you might encounter selling online see common e-commerce pitfalls.