e-commerce: Meaning, Characteristics, Advantage and Disadvantage

06/04/2020 7 By indiafreenotes

E-Commerce or Electronic Commerce means buying and selling of goods, products, or services over the internet. E-commerce is also known as electronic commerce or internet commerce. These services provided online over the internet network. Transaction of money, funds, and data are also considered as E-commerce. These business transactions can be done in four ways: Business to Business (B2B), Business to Customer (B2C), Customer to Customer (C2C), Customer to Business (C2B). The standard definition of E-commerce is a commercial transaction which is happened over the internet. Online stores like Amazon, Flipkart, Shopify, Myntra, Ebay, Quikr, Olx are examples of E-commerce websites. By 2020, global retail e-commerce can reach up to $27 Trillion.

E-commerce is a popular term for electronic commerce or even internet commerce. The name is self-explanatory, it is the meeting of buyers and sellers on the internet. This involves the transaction of goods and services, the transfer of funds and the exchange of data.

So when you log into your Amazon and purchase a book, this is a classic example of an e-commerce transaction. Here you interact with the seller (Amazon), exchange data in form of pictures, text, address for delivery etc. and then you make the payment.

Characteristics of E-Commerce

E-commerce is characterized by the following features:

(i) The business tools are electronic and the application is commerce, i.e. profit motive.

(ii) Business is externally focused on those with whom business is conducted.

(iii) Most of the transactions are processed automatically.

(iv) Uses a gamut of business support services, such as inter-organizational e-mail and on-line directories.

Examples of E-Commerce

  • Amazon
  • Flipkart
  • eBay
  • Fiverr
  • Upwork
  • Olx
  • Quikr

Scope of e-commerce

The scope of e-commerce is broad and continues to expand as technology advances and consumer behaviors evolve. It encompasses various dimensions, including types of transactions, market participants, technological platforms, and industries it affects.

Types of Transactions

  1. Business-to-Business (B2B):

E-commerce transactions between businesses, such as between manufacturers and wholesalers, or between wholesalers and retailers.

  1. Business-to-Consumer (B2C):

Transactions between businesses and individual consumers. This is the most recognized form of e-commerce, including online retail and services.

  1. Consumer-to-Consumer (C2C):

Transactions between consumers, usually facilitated by a third party that provides an online platform (e.g., eBay, Etsy).

  1. Consumer-to-Business (C2B):

Individuals sell products or services to businesses, which is common in freelancing platforms and stock photo websites.

  1. Business-to-Government (B2G) or Government-to-Business (G2B):

Transactions between companies and public sector organizations, often related to tenders and procurement.

  1. Government-to-Citizen (G2C):

Services provided by the government to its citizens through online platforms, which can include tax filing, registration services, and information dissemination.

Market Participants

  • Retailers:

Both traditional brick-and-mortar stores expanding online and online-only retailers.

  • Wholesalers and Distributors:

Entities involved in the bulk selling and distribution of products to retailers or other wholesalers.

  • Manufacturers:

Producers of goods selling directly to consumers, businesses, or through intermediaries.

  • Service Providers:

Companies offering services (e.g., streaming, cloud computing, online education) rather than tangible goods.

  • Consumers:

Individuals purchasing goods or services for personal use.

  • Governments:

Engaging in e-commerce for procurement, service delivery, and information dissemination.

Technological Platforms

  • Online Marketplaces:

Platforms that connect sellers and buyers, facilitating transactions (e.g., Amazon, Alibaba).

  • E-commerce Websites:

Dedicated websites owned by retailers or brands that offer goods or services directly to consumers or businesses.

  • Mobile Apps:

Applications designed for smartphones and tablets, enabling mobile commerce (m-commerce).

  • Social Commerce:

The use of social media platforms to promote and sell products and services directly within the platform.

  • Electronic Data Interchange (EDI):

The computer-to-computer exchange of business documents in a standard electronic format, primarily used in B2B transactions.

Industries Affected

Virtually every industry has been impacted by e-commerce, including:

  • Retail: Clothing, electronics, home goods, groceries, and more.
  • Services: Banking, travel, education, entertainment, real estate.
  • Manufacturing: Direct-to-consumer sales, customization, and global supply chain management.
  • Healthcare: Telemedicine, online pharmacies, and personal health records.
  • Finance: Online banking, digital wallets, and fintech services.

Future Scope

The future scope of e-commerce includes further integration of artificial intelligence for personalized shopping experiences, expansion of augmented reality to try products virtually, growth of voice commerce, and the exploration of new payment methods like cryptocurrencies. Additionally, the global nature of e-commerce will continue to emphasize cross-border trade, logistics innovations, and the digital transformation of traditional businesses.

Benefits of e-Commerce:

For Businesses:

  • Wider Market Reach:

E-commerce breaks down geographical barriers, enabling businesses to reach a global audience without the need for physical stores.

  • Lower Operational Costs:

Operating an online store can significantly reduce the need for physical space, resulting in lower rent, utilities, and staffing costs.

  • Open 24/7:

Online stores can operate around the clock, allowing businesses to generate sales even outside of traditional business hours.

  • Data Collection and Personalization:

E-commerce platforms facilitate the collection of valuable customer data, which can be used to personalize marketing efforts and improve product offerings.

  • Scalability:

E-commerce businesses can easily scale their operations up or down based on market demand without substantial investments.

  • Faster Go-to-Market Time:

Launching products online is quicker and less costly, allowing businesses to capitalize on trends and market demand efficiently.

For Consumers:

  • Convenience:

E-commerce offers the ultimate convenience of shopping from anywhere at any time, without the need to visit physical stores.

  • Broader Selection:

Online stores often provide a wider variety of products than physical stores, including items that are rare or not locally available.

  • Price Comparisons:

Consumers can easily compare prices and read reviews from other customers before making a purchase decision.

  • No Pressure Sales:

Shopping online eliminates the pressure often felt from sales staff in physical stores, allowing for more relaxed decision-making.

  • Access to International Products:

E-commerce makes it easier for consumers to purchase products from abroad that may not be available in their home country.

  • Personalized Shopping Experience:

Online stores can offer personalized recommendations based on previous purchases and browsing behavior.

For Society:

  1. Environmental Impact:

With reduced needs for physical infrastructure and the potential for more efficient logistics, e-commerce can contribute to lower carbon footprints compared to traditional retail.

  1. Job Creation:

While e-commerce changes the nature of retail jobs, it also creates new opportunities in areas such as digital marketing, data analysis, IT, and logistics.

  1. Accessibility:

E-commerce provides access to goods and services for people who are physically unable to visit stores, such as the elderly or individuals with disabilities.

Limitations of e-Commerce:

For Businesses:

  • Intense Competition:

The ease of setting up online businesses leads to increased competition, making it harder for individual businesses to stand out and retain market share.

  • Technical Issues:

Dependency on technology means that technical glitches, website downtime, or cybersecurity breaches can have significant negative impacts on sales and customer trust.

  • Customer Service Challenges:

Providing effective and timely customer service can be more challenging online, especially with high volumes of inquiries and the lack of face-to-face interaction.

  • Return and Refund Processes:

Handling returns and refunds can be more complicated and costly for online businesses, affecting profitability.

  • Fraud and Security Concerns:

E-commerce sites are attractive targets for cybercriminals, necessitating ongoing investment in security measures to protect customer data.

For Consumers:

  • Lack of Physical Examination:

Consumers cannot touch, feel, or try products before purchase, leading to uncertainty and potential dissatisfaction.

  • Privacy and Security Risks:

Online shoppers are at risk of personal data breaches, identity theft, and fraud if they use insecure or fraudulent sites.

  • Delivery Issues:

Delays, lost packages, and damage during shipping can detract from the online shopping experience.

  • Difficulty in Returning Items:

The process of returning products can be cumbersome and sometimes costly for consumers, dissuading them from making online purchases.

  • Overwhelming Choices:

While a wide selection is an advantage, it can also overwhelm consumers, leading to decision fatigue.

For Society:

  • Impact on Local Retailers:

The growth of e-commerce can negatively impact physical stores and local economies, leading to closures and job losses in traditional retail sectors.

  • Environmental Impact of Deliveries:

Although e-commerce reduces the need for physical stores, the increase in packaging waste and emissions from increased delivery traffic can have negative environmental impacts.

  • Digital Divide:

The benefits of e-commerce are not equally accessible to all, with disparities based on internet access, digital literacy, and socioeconomic status.

  • Work Conditions:

Some e-commerce fulfillment centers have faced criticism for poor working conditions, including intense work pace and inadequate labor rights.

  • Consumerism:

The ease and convenience of online shopping may encourage excessive consumerism and wasteful purchasing behaviors.