Chapter XI – What Is E-Commerce?

E-commerce is attracting more and more attention in recent years. Probably most of us already bought a product online, being it a book on Amazon.com or spare parts on eBay.

But what exactly is E-commerce? And do shopper behave differently when they buy products or services online? In this chapter we first define E-commerce, discuss why it matters, and finish by introducing similarities and differences between offline and online shopping.

Electronic commerce (E-commerce) is defined as “the buying and selling of products and services over electronic systems such as the Internet and other computer networks”¹. E-commerce can use any of the following four technologies or a combination:

M-device

Mobile commerce is any transaction, involving the transfer of ownership or rights to use goods and services, which is initiated and/or completed by using mobile access to computer-mediated networks with the help of an electronic device”².

It can be based on:

a) Mobile sites which “appear inside the browser on any internet-enabled mobile device“³

b) Mobile applications which “require a device-specific download from a marketplace, such as the Apple App Store or the Android Market“³

For more information, please consult our chapter What is M-commerce? or Best Practices for M-commerce.

E-commerce based on using a stationary internet access is basically the same as using a mobile device (but without apps).  The two remaining forms, E-mail and telephone, will not be discussed further in this article.

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How big is E-commerce? And how fast is it growing? 

According to a recent U.S. Census Bureau E-Stats report published last month, e-commerce continues to outpace the growth of total economic activity ⁴:

  • In 2010, retailers’ e-commerce sales increased by 16.3%. As a share of total retail sales, e-commerce sales was 4.4% ($169 billion), up from 4.0% ($145 billion) in 2009.
  • From 2002 to 2010, retail e-sales increased at an average annual growth rate of 17.9%, compared with 2.6% for total retail sales.

According to adage, U.S. e-commerce for packaged goods generated $12 billion business in 2010⁵. Moreover, the percentage of shoppers who bought CPG online doubled between 2009 and 2010. Nevertheless, penetration still remains low although growth of online sales outpace offline sales.

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How shoppers behave online

Experts confirm that shoppers actually behave very similar online and offline. Peter Fader, professor at The Wharton School, confirms that shopping paths and the decision-making processes are quite the same6. Concepts that apply to bricks-and-mortar stores also hold true for online retailers. One example is licensing which states that shoppers who bought a product which is good for them (virtue product as for example an apple) are more likely to buy a product which is more enjoyable but considered as bad (virtue product like chocolate). As Fader argues, it is merely a matter of sequence but not dependent on buying online or offline.

According to adage, online trips tend to be stockup “trips, with the average online cart about three times the value of an offline cart, largely because of free or reduced shipping incentives for bigger purchases“⁵. 40% of online shopper use search options to find a category or brand. 95% of sales are then made on products that appear on the first page of search results. This is very similar to using Google search where hardly anybody ever consulted results appearing on page 2. Hence, FMCG have to ensure to show up first which in turn requires SEO (search engine optimization) skills.

Another 30% of online shoppers use auto-replenishment or saved shopping lists. According to adage’s article, getting on an auto-replenisment list is equal to instant loyalty: “It’s very hard to get a product off an auto-replenishment list and a new product on. It’s kind of a race to get on the auto-replenishment list right now“⁵.

Conclusion

E-commerce is a fast growing business which has not yet reached its full potential. New market players seized sizable portions of market share (i.e. Amazon) pressuring traditional offline retailers to react by developing their own platforms. Shoppers use e-commerce primarily for its convenience. Nevertheless, scientific studies revealed that they behave very similar online to offline.

Online retailers have to understand why shoppers choose to buy online and what they are looking for just as traditional retailers do offline. The basic concept of accompanying shoppers along the entire path to purchase and offering them a unique shopping experience still holds true no matter if you are an online retailer or a traditional bricks-and-mortar store.

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Chapter XII is dedicated to shopper insights.

For more information, please consult our chapter “What is Digital Shopper Marketing”.

Click here for the complete table of content.

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Did you find this chapter helpful?

Please share your opinion with us by commenting on this post.

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Sources:

¹ http://en.wikipedia.org/wiki/Electronic_commerce

²  http://en.wikipedia.org/wiki/Mobile_commerce#cite_note-0

³ http://www.oracle.com/us/products/applications/web-commerce/steps-for-building-mobile-strategy-1504996.pdf

http://www.census.gov/econ/estats/2010/2010reportfinal.pdf

⁵ http://adage.com/article/digital/agency-focus-solely-e-commerce-shopper-marketing/149370/

6 Stahlberg, M. (2012). Shopper Marketing – How to Increase Purchase Decisions at the Point of Sale, Second Edition. London, England: Kogan Page Limited.

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