With the rapid and innovative development of the internet, we have seen a rise in ecommerce. Well, most of us have purchased something from an online retailer. You just have to search for the product that you wanna buy, add it to your cart, put in your address and pay for it. A few days later you will see it delivered at your place. I remember when it had initially started and thought that it was pretty cool. But I also wondered if it would be able to compete the with the old school brick and mortar retailers. A few years later, here we are and both are competing with each other.
The economy is increasingly becoming digital and online businesses have already made their mark.
So, lets look at what all would be required to run an online business. From an economic and business point of view.
Domain Name:
You cannot run a business without giving it a name. You require a good name or some memorable name which can be easy to remember by the people who buy it. A good name goes a long way as you can create your brand on top of it. This also helps you in marketing and attracting more customers.
Servers:
Once the domain name is purchased and the website is all ready, it needs to be hosted on a server. The requirements of each website would be different based on the number of hits that it gets each day. The higher the number of the people the higher the requirements of servers. This would mean that the business would need to pay to the server farm which would be owned by some other company for their services. If the business is successful then it can start it can rely on its own servers and maintain it. But with servers comes also the problem of massive energy consumption.
From an economic point of view, with the rise of massive server farms and their huge energy consumption there is an increased amount of pollution being caused. Well you see, most of the energy sources that we use today are non renewable. This means that they cause global warming and not keeping this in check means that this would lead to catastrophe and destruction.
Products:
An online retailer has to decide what to sell and whether to manufacture the products or to allow third party sellers on the platform. Most of the times the online businesses provide a platform to the third party sellers to sell their products for a commission. But this also causes the problem of fake products being sold and scammers operating on the website. Many times people copy a product and sell their own version of it and by doing this cause loss and reputation to the actual manufacturer of the product.(You can read more about this here)
Manufacturing and selling your own products would mean that a factory has to be setup. This would mean that the online retailer has to bear the costs of rent or building the factory. This would also mean labor costs as people would need to be hired to manufacture the products. Since, the business world keeps changing rapidly, a lot has to be spent on research and development too.
Cyber Security:
The online retailer also has to spend a lot on cyber security. There is a very high chance of hacking attempts on online platforms. There is a chance of fraud and theft of bank details happening. The regulators also keep a close eye on this and failing to protect the customers from this can not only harm your business but also cause legal issues.
Reviews:
Lets face it reviews are one of the most important aspects of running a business. Reviews can make or break a business. Customer feedback has to be taken seriously and worked upon as this can provide valuable ways to improve and survive.
Marketing:
Well, you have started an online business but not many people know about it. Maybe your family and friends and the people they know might be your customers. But in order to get more traction marketing is very important. Initially most online business start off by using social media and influencers to market and advertise their products. This is a very good way to get the ball rolling and spreading the word. Once you see the numbers flowing in and seeing some money coming your way, you can advertise and market your business on a larger scale.
Customer Care:
Online retailers needs to take care good care of their customers and do their best to solve the problems of their customers. As it is very easy for a customer to jump boats and move to another online retailer with a better customer service. This goes back to that old saying, “One mans loss is another’s profit.”
Membership Program:
Its always a good idea to reward your loyal customers. Many online retailers have membership programs where people sign up and get rewards based on the number of orders they have placed. It could be something as simple as a discount coupon or a free gift for being an amazing customer.
Logistics:
An online business also needs to have a way to deliver the product to their customers. Most of the online retailers take the help of logistic companies and use their vast network to do this. Online giants have their own transport department to deliver the orders and in this way save money that they would otherwise have to pay to a transport company.
Economically speaking, transporting goods from a warehouse which is situated in city A to city B, where the customer is situated, lets say that the distance is 50 kilometers. This would mean that the fossil fuels consumed here cause pollution. This might be on a higher scale as something as small as book would have to travel all this distance. The way that brick and mortar stores would be able to tackle this is by ordering these books in bulk at a time and selling them to the customer. This way it would only be one truck delivering a large number of goods compared to a single product being transported and causing harm.
But this can be tackled by using the service of a logistics company as usually they would be transporting a lot of goods to a particular place (You can read my post on low carbon economy to know more).
Warehouse and Storage:
An online business would also require to setup warehouses and storage facilities. They need this to store the products that they sell. Some online retailers have these facilities across the country that they operate in as this helps in delivering and storing the products in an easier way.
Data Collection:
Many online retailers collect data of their customers as this helps them to predict the market trends. This also helps them stock up on the products that a customer would buy based on their previous orders. This also helps in providing suggestions to the customers to buy related products and this can help in earning more.
Now lets look at this from an economic point of view. Well, when a company maintains a lot of data it also needs to ensure good cyber security measures as already mentioned. Lets say a hacker gets hold of this data, credit card details for example, and manages to steal money from a customers bank account. This would mean that the victim would have to reduce his consumption and spending until the money is recovered. If not then its just a massive loss.
Reduction in consumption and spending means that the money which would have moved to another person or business would not flow out. This would just have a domino effect on their consumption and spending.
These are some of the aspects of running an online business a person would need to know. There are many more requirements which would come up on a case to case basis but on a larger scale this is how an online business would run.
I hope you enjoyed reading this post. Let me know what you thought in the comments below. Let me know if there are any points that I missed.
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