E-Commerce: what is and how it works
An overview of the main aspects of e-commerce, its definition, main types of e-commerce and business models, Open Source and SAAS platforms, different promotion activities for an online store, and professional figures involved.
A definition of e-commerce
The term e-commerce or eCommerce is short for electronic commerce, indicating the sale/purchase process of goods or services on the web. An e-commerce company is entitled to be a proper business activity, including business relationships with suppliers, logistics, packaging, and customer care.
E-commerce: online selling opportunities
Online sales are growing fast compared to the offline channel, thanks to a thriving demand and much propensity to make a purchase online. The e-commerce market in Italy, lagging behind other Northern European countries, is dealing with strong acceleration, creating interesting business opportunities for those who decide to invest in e-commerce and online sales. Another opportunity for an e-commerce company is the possibility to extend its market and create new business opportunities. Lower investment costs are another reason to open an online store. On a startup stage, e-commerce is more scalable; for instance, before starting to put money on IT and logistics you can test your products on a marketplace and then decide to gradually invest in an e-commerce platform. Opening an online store is easy, but there are mandatory steps you need to follow such as a business plan, budget and cost control.
Online sales trends in Italy by market
E-commerce in Italy has been growing in the last 15 years. 2020 was a turning point as the Covid-19 impacted on online purchasing habits of italians. Many people, during the pandemic, made an online purchase for the first time, others just increased their online purchases on marketplaces or vertical online stores. According to the latest report of Casaleggio Associati (May 2020), referred to 2019, the turnover on the e-commerce market is divided as follows:
- Free time: 42,7% (+21% compared to 2018)
- Tourism: 25,6% (+7% compared to 2018)
- Shopping centers: 15,5% (+25 % compared to 2018)
- Insurance: 4,6% (+4% compared to 2018)
- Consumer electronics: 3,3% (+17% compared to 2018)
- Food and Beverage: 3,1% (+19% compared to 2018)
- Fashion: 2,1% (+16% compared to 2018)
- Publishing: 1,8% (+11% compared to 2018)
- Home and furniture: 0,9% (+25% compared to 2018)
- Health and wellness: 0,4% (+27% compared to 2018)
Next year's report will probably show substantial variations on the turnover by the market. Market segments such as Tourism and Fashion were negatively affected by Covid-19, while Food and Beverage, Home and furniture, and Health and beauty have experienced exponential growth during the pandemic period.
Main types of e-commerce and omnichannel opportunities
We can distinguish 3 prevalent types of e-commerce:
- E-commerce B2C
- E-commerce C2C
- E-commerce B2B
The B2C e-commerce model is the classic sales structure in which a merchant offers goods or services to a private buyer who buys it for personal purposes. The merchant can directly produce the goods or alternatively sell products from other companies.
In the C2C model, the online sales/purchase process takes place between individuals and the C2C e-commerce platforms act as intermediaries.
The B2B model requires that the online sales relationship takes place between companies or professionals.
In reality, many e-commerce sites can provide more than one method; for example, an e-commerce platform can be set up for both private and professional sales, often providing dedicated price lists and reserved discounts for the latter. Another interesting scenario is given by omnichannel; the exponential growth of e-commerce would seem to affect negatively the retail market. The two realities, on the other hand, do not necessarily have to be separated, there are more and more examples of well-established e-commerce companies that have decided to open physical touch-points to have direct contact with their customers (Amazon is an example above all).
On the contrary, the web is increasingly a place where users decide their purchases and it is clear that an effective online presence of retailers can facilitate the journey of their customers or potential customers.
Main business models of e-commerce: Inventory vs Dropshipping
When it comes to e-commerce, two main business models need to be distinguished:
- E-commerce sites with inventory
- Dropshipping e-commerce sites
E-commerce sites with inventory
According to this business model, the online store pre-purchases the goods from one or more manufacturers or suppliers and has logistics (internal or third-party) for storing the goods.
Dropshipping e-commerce sites
With the dropshipping system, the e-commerce site does not need to buy the goods in advance and store them because the supplier (dropshipper) will take care of the packaging and shipping. The dropshipping business model is certainly very convenient for e-commerce in the startup stage because it significantly reduces costs, but margins and revenues could be very low.
Choosing a platform for your e-commerce (Open Source vs. Saas)
One of the strategic decisions for new e-commerce is the choice of the platform. We distinguish two main types of e-commerce platforms:
- Open Source platforms (CMS)
- SAAS (Software As A Service) platforms
The main features of the Open Source e-commerce platforms are the ability to access the source code to study it and to be able to implement new features at the core, to have no license costs, and the possibility to choose hosting services and modulate them according to your needs. The main limit is that they need advanced technical skills for the setup of the platform and subsequent implementations. The SAAS e-commerce platforms, on the other hand, are completely ready-to-use and fully available online solutions and therefore no technical skills are necessary initially. The hosting service is often included in the licensing costs. The main limitations are the limited availability of integrations and the in some cases very high licensing costs for the enterprise solutions. The most popular OpenSource platforms for e-commerce are Magento, Prestashop, WooCommerce, Drupal Commerce and Zen Cart, while among the most used SAAS e-commerce solutions we have Shopify, BigCommerce, Volusion and Storeden.
Main payment gateways for e-commerce
PayPal is the most popular payment gateway for online stores, but also the one with the highest commission costs (3.4% + € 0.35 for online merchants with a turnover of up to € 2,500). Users have the option to pay online with their PayPal account or as a guest by entering their card details. Stripe is another online payment system for e-commerce, with lower commission costs than PayPal and easily integrated on the main e-commerce platforms such as Magento, Prestashop and WooCommerce. Satispay is an innovative online payment system through a dedicated app connected to your bank account and where the user can set a monthly spending plafond. The cashback system on purchases is also an additional incentive to use this payment system.
IT infrastructure for e-commerce
The IT infrastructure is another strategic asset for the growth of an e-commerce platform and the hosting provider must ensure scalability in the required resources and technology that can keep pace with the growth of the online store.
On a startup phase most online stores make the mistake of choosing cheap shared hosting plans which, though, are not able to guarantee sufficient resources for the e-commerce platform, especially if the platform starts to receive a lot of traffic or connected to a management software with frequent updates of stocks or orders. Instead, it is preferable to go to dedicated solutions (dedicated server or VPS server) that offer significantly higher performance.
E-commerce promotion: which digital channels to use?
According to the budget, the e-commerce company must define the digital channels to be exploited to promote its brand, products, or services. There is no perfect formula or mix, but several factors come into play such as the market segment in which you are present and your target.
- Among the main online promotion activities for your e-commerce, SEM (Search Engine Marketing) activities are the most widespread and constitute a good slice of investment in digital marketing for e-commerce. Among the main investment channels, Google Ads and Google Shopping are the most used.
- Social Media Marketing activities represent another opportunity for e-commerce, both to communicate with a fan base and to schedule advertising campaigns via Facebook and Instagram Ads mainly for the B2C sector or Linkedin Ads for the B2B sector.
- Price comparison tools are another strategic advertising channel for those e-commerce companies that take advantage of price leverage as a strategic element of their business model. The most known generic price comparison tools are Trovaprezzi, Kelkoo, Idealo and Ciao.
- Email marketing is still a very valid promotion channel for e-commerce if supported by advanced segmentation of its contact lists.
- Affiliation marketing is another interesting channel to be exploited for the growth of online sales of your e-commerce, where the publishers of the affiliation network are "rewarded" with percentage commissions on the sales generated by their activities or for each click/lead based on the model applied by the affiliation system. Among the main affiliation marketing systems for e-commerce, we have Tradedoubler and Awin.
What are the main professional figures involved in an e-commerce project?
In a startup stage, internal teams of an e-commerce company are very streamlined and the company often decides to outsource the management of IT infrastructure, marketing, and data entry to agencies or professionals and after some time they gradually begin to internalize following the company growth. Let's see in detail what are the key figures behind an e-commerce:
- The online store manager is a strategic figure in management, as he is responsible for the management of the income statement, the assortment of goods and the merchandising activity on the site.
- The e-commerce specialist or e-commerce manager is responsible for the advertising investment budget and for the coordination of all internal or external technical figures involved in the e-commerce project (digital strategist, developers and systems engineers, UX / UI specialist and Data entry specialist).
- Logistics workers are responsible for checking the goods entering and leaving the warehouse. Depending on the automation levels of the logistics, they may also have to deal with the picking of products and the preparation of shipments.
- Customer care workers have a strategic role as in direct contact with e-commerce customers and have the task of assisting customers in the purchase or post-purchase stage through all available channels (telephone support, email, site chat, WhatsApp, or integrated ticket system).
Have you found this blog post interesting, do you want to open your e-commerce or increase the sales of your online store? Contact us for advice. The Hinto team is ready to become your digital partner.