Definition of eCommerce
Electronic commerce or eCommerce refers to any form of a business transaction facilitated by the internet. It involves the buying and selling of physical goods and services, and the transfer of money using the internet. The most popular example of eCommerce is online shopping, which is defined as buying and selling of goods via the internet on any electronic device. However, eCommerce can also entail other types of activities, such as online auctions between businesses, online ticketing, and internet banking, which we usually don’t associate with eCommerce.
Most people associate eCommerce with buying and selling physical goods online which is typically business-to-consumer or ‘B2C’ in nature. Some of the other eCommerce models include B2B, C2B, C2C, and B2G. We’ll look at each of these in detail further into this blog post.
eCommerce is fast-growing, projected to hit $4.20 trillion in sales in 2020. The APAC region will continue to lead the global eCommerce growth in 2019, with growth rates of 25%, followed by LATAM (21.3%), Middle East and Africa (21.3%), North America (14.5%) and Western Europe (10.2%). mCommerce or the Mobile commerce sector, in particular, enjoyed a 39.1% increase in sales compared to the previous year, thanks to rapid smartphone adoption and low cost of data, particularly in developing countries.
What are the types of eCommerce businesses?
Broadly, we could classify eCommerce businesses based on the nature of the goods they sell or the transacting parties involved.
a) What are the different types of good and services in eCommerce?
Physical goods: These include online stores selling physical products such as clothing, homeware, cosmetics, and electronics, just to name a few. Examples include Everlane, Warby Parker and Glossier. Stores that sell physical goods showcase the items online and enable shoppers to add things they like into their virtual shopping carts. Once the transaction is complete, the store typically ships the orders to the shopper, though a growing number of retailers are implementing initiatives such as in-store/curbside pickup.
Digital goods: Digital goods or ‘e-goods’ typically include e-books, audio, and video products. Examples include Shutterstock (a site that sells stock photos), Udemy and Coursera (platforms for online courses).
Services: Services are also bought and sold online. A few popular examples include travel ticketing OTAs such as Expedia and Skyscanner, on-demand food delivery services such as Postmates and Grubhub, and freelancing marketplaces such as Fiverr and Upwork.
b) What are the different eCommerce models?
Business to Business (B2B): In the B2B model, businesses sell to other businesses. Large corporations sell anything from agri-commodities to metal ingots to finished industrial products on B2B trade portals. Such portals could be theirs or industry-specific trading platforms. It is also common for B2C businesses to have a wholesale section where they sell to other businesses, often for a bulk-purchase discount.
Typical examples include Costco, Office Depot, etc.
Business to Consumer (B2C): B2C is the most commonly known business model (almost synonymously to eCommerce, in general) where merchants sell to consumers who buy in small quantities. A familiar example of the B2C model would be a shopper buying produce from a grocery retailer. She would do that in small quantities and not as a one-time bulk purchase. Some transactions can be B2C and infrequent when compared to buying produce, for example, buying furniture or even used cars.
In modern eCommerce, there are innovative businesses that get crowd-funded by consumers and consumers get the first access to the products, often at a steep discount to market prices. Consumers sell their own products or services or make monetary contributions to a business. Many crowdsourcing campaigns (think Kickstarter and Indiegogo) fall under this category. The popular watchmaker MVMT (now acquired by Movado Group) is an example of a company that engaged in crowdfunded eCommerce. The company raised $100,000 through a crowdfunding campaign on Indiegogo in its early days.
Consumer to Consumer (C2C): C2C model enables individuals to sell privately to each other. Consumers who previously bought something can resell it to another consumer through C2C platforms such as eBay, OLX, and Taobao.
Business to Government (B2G) – When a government entity uses the Internet to purchase goods or services from a business, the transaction is B2G in nature. Examples include companies like Munirent.co, a platform that helps local government lease heavy-duty equipment to other local governments. This is just another form of B2B eCommerce where the buying entity is the government. In some cases, the transactions are very large that businesses dedicate exclusive portals for governments to buy from them.
How does eCommerce work?
Ecommerce buying and selling happen via online storefronts, marketplaces and/or social channels.
i) Online storefronts: The most common way of conducting eCommerce is through online storefronts. There are a number of off-the-shelf and customizable storefronts available for merchants – Shopify, Magento, WooCommerce, just to name a few.
Based on our analysis of the top 1 million websites, we found that the top ecommerce storefronts are WooCommerce, Shopify, Magento, and BigCommerce.
WooCommerce: WooCommerce is a simple, open-source, free-to-use plugin specifically built for WordPress. It comes with standard features such as analytics and reporting, shipping options, and mobile-friendly functionalities. WooCommerce has retained its position as the world’s leading eCommerce platform. According to Builtwith, it had a global market share of 26% in 2018.
Shopify: The powerhouse platform of choice for Direct-to-Consumer brands, Shopify has always been at the forefront of democratizing access to eCommerce. Plans start as low as $9, run all the way up to $2000 and there are 24 free website themes you can use to get you started with. Recently, it announced its own fulfillment network, dipping its toes deeper into eCommerce. It competes with various players such as Amazon, WooCommerce and Square; and ranks as the second most popular eCommerce platform in the world with a market share of 20%. In PipeCandy’s own estimates there are ~920,000 Shopify powered websites. Most of them tend to be eCommerce companies.
Magento: This open-source platform comes with a number of tools for analytics, monitoring and conversion optimization. Magento supports both OOP and MVC architecture which is a great deal for web developers. It has two versions; one called the ‘open-source solution,’ similar to WooCommerce where you need to purchase your own domain and hosting. The other is a hosted solution, which can be very, very expensive. Magento is used by some of the biggest companies in the world, and the scalability is seemingly endless. While you could probably recognize a Shopify store just by looking at it, Magento has an extensive range of themes to make eCommerce websites look unique. Magento has been acquired by Adobe.
BigCommerce: BigCommerce is a fully-hosted platform that is used by big and small brands alike. It offers features such as a site builder, shipping options, reporting and more. It also enables merchants to sell on other sites such as eBay, Amazon, and Facebook. Besides, it also has an in-built B2B offering for wholesalers. There are about 60,000 merchants using BigCommerce.
ii) Marketplaces: Over the years, marketplaces have continued to proliferate the internet. Just over 2 years ago, there were fewer than 500 marketplaces globally. Today, our guesstimates are around 3,000. Amazon (needs no introduction) continues to be the most popular marketplace. As of 2018, there were more than 5 million third-party sellers on its site. Companies like Mirakl are enabling B2C retailers to launch their own marketplaces.
Some of the other top online marketplaces on the web are eBay, Etsy, and Alibaba.
eBay – eBay facilitates B2B, B2C, and C2C ecommerce. It offers products in several categories, including electronics, cars, fashion, collectibles, and more. eBay merchants can also hold auctions that let buyers bid on products. This allows the possibility of selling items above market value.
Etsy – Etsy specializes in original, handmade vintage goods. Millions of independent sellers use Etsy to showcase and sell their creations, and people (buyers and sellers alike) love the site because of its community vibe!
Alibaba – Alibaba is an online marketplace for wholesalers, manufacturers, suppliers, and importers/exporters. It’s a B2B marketplace that allows users to find vendors and purchase merchandise in bulk.
Fiverr – This is a “freelance services marketplace” that connects people (mostly entrepreneurs) with service providers who offer anything from graphic design and online marketing to translation and video development. As its name indicates, gig pricing on Fiverr starts at $5 USD, though depending on what you’re selling, that can go up to hundreds, even thousands of dollars.
Upwork – Upwork is a marketplace that connects individuals and businesses with freelancers from all over the world. Freelancers on the site range from web developers and designers to virtual assistants, accountants, and consultants.
iii) What is the role of Social Media in eCommerce?
Channels such as Facebook, Instagram, and Pinterest facilitate the buying and selling of goods albeit differently. Merchants primarily use these platforms as marketing channels for their merchandise.
Findings from a report by Criteo show that Facebook beats out websites and emails among channels where customers discover new brands. Facebook IQ reports that consumers have positive perceptions of brands they see on Instagram and are likely to take actions beyond discovery, such as searching for more information or visiting the brand’s website. With the rise of DTC brands – such as Warby Parker, Stitch Fix, and Dollar Shave Club – over the years, having a social strategy has become a no-brainer for retailers and CPG companies.
Pinterest has Buyable Pins that enable merchants to sell products featured on their Pinterest page. According to the site, “Buyable Pins have a blue price tag, which tells people your product is in stock and available for purchase. People can easily spot these Pins all over Pinterest—in search results, in related Pins, and on your business profile.” Buyable Pins are currently available on Shopify, BigCommerce, and Salesforce Commerce Cloud.
Speaking of Shopify, in addition to what we said before, the eCommerce platform also offers a fully integrated Facebook store that allows shoppers to purchase products without having to leave the site. Shopify also has Messenger support, so customers can buy items and track their orders through chat.
Where Facebook, Instagram. and Pinterest is succeeding, Twitter failed. In 2014, the social site released a feature called ‘Buy buttons’ that allowed customers to purchase items directly from a Tweet. In 2017, it officially shut down the project, though it told Recode that the company “will continue to invest in ad products for retailers that help drive purchases via the social network.”
Social platforms are a great way to acquire customers for your eCommerce storefront. PipeCandy’s own data shows that eCommerce shoppers coming from social posts to the website, often convert at over 20% rate. A typical eCommerce website converts 5%-10% of its visitors to customers. Instagram and other social networks covert 3x-5x better!
How many eCommerce companies are there?
PipeCandy’s database tracks business profiles of about 800,000 omnichannel retail companies. We build our own Natural Language Processing, and Machine Learning models to understand what each company does and bottom-up aggregate the insights.
We partner with some of the capital market and firmographic data providers to get corporate revenue (which is different from web revenue!) and other such eCommerce insights. The rest – technology usage data, fulfillment insights, SKU insights, etc. are all built ground up, by us, using a combination of technology and human review.
North America (USA & Canada) has about 1.3 million e-commerce companies. If you consider just those merchants selling consumer goods (B2C Physical goods), there are approximately between 280K-300K eCommerce companies in the US.
Pure-play e-commerce companies around the world are less than 100,000, which means that e-commerce is more or less synonymous with omnichannel and ‘pure-play’ is an exception.
Check out our detailed blogpost on how many eCommerce companies are there.
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How is eCommerce changing the world of consumer packaged goods?
IRI reports that online U.S. CPG sales rose 35.4% in 2018, way faster than the overall CPG category itself (online and offline combined) which grew about 2%. The online channel also accounted for about 64% of U.S. CPG retail sales growth. Online sales are still low single digits in terms of channel contribution to CPG companies’ revenue.
The emergence of DTC brands has clearly brought CPG companies to the edge. CPG manufacturers are building their ecommerce businesses using strategies that include working with online retailers, selectively selling directly to consumers and collectively spending billions of dollars on DTC acquisitions.
So what exactly does eCommerce enable for CPG companies?
i) Monetize their ad spend better
Historically, CPG brands are used to spending money on advertisements to drive traffic to retail stores. Now, they spend money on digital ads to drive traffic to their own website in an effort to connect with consumers more directly.
An eMarketer StatPack showed that in 2018 the CPG industry will invest an estimated $9.40 billion in digital ad spends, expected to increase 17.3% in 2019. DTC brands themselves have seen that having a physical touchpoint – in the form of a kiosk or a popup or a showroom – in turn, drives an increase in web traffic and sales. CPG brands already have the advantage of a physical touchpoint since they sit on the shelves of many large retailers such as Walmart and Target.
ii) Innovate in product development using first-party data
Ecommerce has enabled retailers to gain access to first-party customer data, using which they can launch private-label products for niche audiences. CPG and Fashion companies are taking a leaf out of this strategy. Modern DTC brands launch products based on the 1st party data they have about their shoppers. A case in point is the DTC brand Glossier which is famous for spinning out product lines from Instagram comments.
Insights from customer data also further inform their customer journey, helping them to better understand consumer preferences – what they like, their interests, how they buy and how they use the product. And with that knowledge, CPG businesses can create personalized shopping experiences anytime, anywhere. Mondelez International and Coca Cola have built DTC operations that sell exclusive specialty products, such as gift boxes or other items consumers can personalize. Also included are brand-related gear such as apparel, water bottles, and toys.
Licensed merchandise from brands is a half a trillion dollar business and much of it is going to go ‘Direct to consumer’. Disney, the largest such licensed merchandise seller considers itself a ‘Direct to consumer’ business.
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iii) Compete with retailers that launch private labels
CPG brands can compete with established retailers while continuing to sell through them. The emergence of DTC got Amazon’s and Walmart’s attention. The former courted DTC brands to sell on its marketplace (and most of them spurned while some of them like Casper struck partnerships), and the latter went on a DTC acquisition spree adding brands like Bonobos, Eloquii and Modcloth to its portfolio.
Today, competition also comes from CPG brands such as Nestle, Mondelez (Oreo), and Coca Cola who are launching exclusively-DTC product lines…
…and retailers like Target and Walmart are responding by popularizing their private label brands.
How to launch a ‘Direct to consumer’ CPG brand?
Retail distribution scale was the moat for CPG brands and CPG companies’ grand scale of brand-building ensured ‘footfalls’ for the retailers. The ‘distribution moat’ is now shaken because ‘brand discovery’ for shoppers is no longer happening on television or mail-order catalogs but online and often through their own network and influencers. Digital platforms are the new distributors.
Traditional distribution moat is outdated and is ripe for disruption
Popular distributors in the natural foods business – UNFI and KeHE – built massive warehouses as part of their supply chains. But, they were built during the days of WW2 to handle processed foods with longer shelf life and added preservatives, which is a far cry from the kind of food consumers prefer today. These distributors also obscure information and stifle collaboration between brands and retailers, yet they don’t bear any inventory risk themselves. Also, they squeeze out manufacturers and smaller retailers and make certain products too expensive for many consumers by charging steep markups to cover their overheads.
Having a DTC strategy ensures you don’t get your brands to suffocate in the hands of legacy B2B distribution systems.
Besides, for every aspect of running a ‘direct to consumer’ business there are support systems that are now available at scale. The global infrastructure required to develop, produce, package, market, sell and grow a consumer brand has never been as developed as it is today.
In modern retail, there’s an entire ecosystem from lending firms to agencies and logistics providers that is powering new age brands to launch, grow and compete. Some of these relationships we’ve identified include:
- Brand: Retail – Showfields, Neighborhood goods, b8ta
- Brand: Lender – Clearbanc, Klarna
- Brand: Agency – Red Antler, Pattern, Partners & Spade
- Brand: Manufacturer – Stylus Apparel, ARGYLE Haus, Royal Apparel
- Brand: Tech – Shopify, Stripe, Adobe
- Brand: Logistics – Lumi, Shipbob, Flexe
What are the challenges of eCommerce?
Yes, eCommerce is exciting but, it’d also bode well for nascent brands to be aware of the potential pitfalls in eCommerce. Here is a collection of articles about how you can tackle the common challenges involved in building an eCommerce company.
How to start an eCommerce business?
Picking an idea for eCommerce – How do you pick the right idea for your eCommerce business? The answer really is ‘it depends’. A product category that appeals to one business might not appeal to another. Regardless, here are 10 foolproof strategies for choosing your eCommerce niche.
Setting up storefront – The most common way of conducting eCommerce is through online storefronts. Setting up one doesn’t require a lot of money or technical know-how. There are a number of off-the-shelf and customizable storefronts available for merchants – Shopify, Wix, BigCommerce, just to name a few.
How to get manufacturing done right? – How do you decide if you need to contract to manufacture or keep it in-house? What are the signs and how do you choose the right contract manufacturer when the market is fragmented and there are hundreds of players?
How to get drop shipping right?– Dropshipping means you don’t have to house any inventory. You only ship only those orders that customers have paid you for. However, there are risks. You essentially outsource shipping and customer satisfaction, and managing returns can be tough based on your individual agreements with suppliers.
How to manage inventory? – Inventory management is often the biggest headache of any ecommerce store. If you screw it up, it can cost you a lot of money. Here is Inventory Management 101 for those who manage their own inventory and dropship from a supplier.
How to price? – Consumers today shop via many channels and often compare prices via Google Shopping and price comparison sites like NexTag. When shoppers choose prices smartly, how do you get smart with your pricing strategies?
How to get promotions right? – Most new eCommerce businesses see the first stage of growth achieved through a handful of promotional tactics. For some it’s social media, for others it’s search engine marketing, and for others, it’s paid to advertise. But as your business matures and these tactics plateau, you need to think outside of the box to continue your growth trajectory.
How to get assortments right? – The product assortment you carry has an enormous impact on sales and gross margin, which is why accurate assortment planning is such a high priority. If the product mix is limited or narrow, there is always a looming risk of being dominated by a competitor who has a better inventory mix or size.
How to get forecasting done right? – Without demand forecasting, you could make bad and uninformed decisions about products and target markets that can have far-reaching negative effects on inventory carrying costs, customer satisfaction, supply chain management, and overall profitability.
How to do warehousing right? – Online ordering has pushed even established retailers to invest in warehousing. Here are a few best practices that you can follow to ensure you’re good to store and ship orders on time both during the holiday and off-peak seasons.
How to do shipping right? – Free and fast shipping is the norm today to reduce cart abandonment rates and increase conversions. However, these are just the tip of the iceberg. The right ecommerce shipping strategy for your business depends on your audience, budget, margins, product, and a variety of other factors.
Read: Shipping policies – eCommerce vs DTC
How to do returns right? – Designing a reasonable return policy is a critical part of your business strategy. Not having a returns policy can make or break a visitor into a customer. Having an overly relaxed returns policy on the other hand, can cost you money.
How to do customer service right? – Sam Walton said, “The goal as a company is to have customer service that is not just the best, but legendary.” Here are 13 recommended practices to make sure your customer service doesn’t fall anything short of that.
How to pick a product review platform? – Product reviews on eCommerce sites increase conversions and improve SEO rankings. Also, they are a sign of trust. When choosing a review platform, it’s important to know which features will work best with your audience.
What are the benefits of eCommerce?
There are a few reasons why eCommerce has demonstrated such explosive growth in the past couple of years.
Business without borders: An online store, unlike a physical store, has the whole world as its market. Going from a local customer base to a global market at no additional cost is really one of the greatest advantages of trading online.
24×7 availability: For a merchant, it’s a dramatic increase in sales opportunities; for a customer, it’s a convenient and immediately available option. Unrestricted by the working hours or time zone differences, eCommerce businesses can serve customers around the world 24x7x365.
Cost savings: As there’s no need to hire sales staff or maintain a physical storefront, digitally-native eCommerce businesses benefit from significantly lower running costs. The major costs go towards warehousing and fulfillment. Those running a dropshipping business enjoy even lower upfront investment requirements. As merchants are able to save on operational costs, they can offer better deals and discounts to their customers.
Inventory management: eCommerce businesses can automate their inventory management by using electronic tools to accelerate ordering, delivery and payment procedures. It’s saving businesses billions in operational and inventory costs.
Personalized shopping experiences: eCommerce opens up access to a wealth of customer data and an opportunity to learn about different customer buying habits as well as the emerging industry trends. This helps eCommerce retailers slice and dice their data and personalize their marketing efforts to provide a better-tailored experience and find more new customers. Also, first-party shopper data makes it possible for eCommerce retailers to build highly profitable niche business without any further investment. Using online search capabilities, customers from any corner of the world can find and purchase your products.
Work remotely: A laptop and a reliable internet connection is all it takes to manage your business from anywhere in the world. Well, at least to begin with.
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