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How to take a business online

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If you choose to take your business online, you have the option of either keeping close ties with your brick-and-mortar company (a strategy referred to as click-and-mortar or brick-and-click) or dissociating your clicks from your bricks. There are advantages and disadvantages of each. Click and mortar firms will thrive doing what they are good at, as will pure dot coms.

In most cases it is better to retain ties to your physical company. Click and mortar firms have the advantage in areas of existing business models and products. They are able to leverage their competencies and assets, including:

  • 1) Leveraging their core competency. Successful firms tend to have one or two core competencies that they can do better than their competitors. It may be anything from new product development to customer service. When a bricks and mortar firm goes online it is able to use this core competency more intensively and extensively.
  • 2) Leveraging existing supplier networks. Existing firms have established relationships of trust with suppliers. This usually ensures problem free delivery and an assured supply. It can also entail price discounts and other preferential treatment.
  • 3) Levering existing distribution channels. As with supplier networks, existing distribution channels can ensure problem free delivery, price discounts, and preferential treatments.
  • 4) Leveraging brand equity. Often existing firms have invested large sums of money in brand advertising over the years. This equity can be leveraged on-line by using recognized brand names. An example is Disney.
  • 5) Leveraging stability. Existing firms that have been in business for many years appear more stable. People trust them more than pure on-line firms. This is particularly true in financial services.
  • 6) Leveraging existing customer base. Because existing firms already have a base of sales, they can more easily obtain economies of scale in promotion, purchasing and production; economies of scope in distribution and promotion; reduced overhead[?] allocation per unit; and shorter break even times.
  • 7) Leveraging a lower cost of capital[?]. Established firms will have a lower cost of capital. Bond issues may be available to existing firms that are not available to dot coms. The underwriting cost of a dot com IPO is higher than an equivalent brick and click equity offering.
  • 8) Leveraging learning curve[?] advantages. Every industry has a set of best practices that are more or less known to established firms. New dot coms will be at a disadvantage unless they can redefine the industries best practices and leap frog existing firms.

Pure dot coms have the advantage in areas of new e-business models that stress cost efficiency. They are not burdened with brick and mortar costs and can offer products at very low marginal cost. However, they do tend to spend substantially more on customer acquisition.

Certain products/services are more suitable for online sales and others are more suitable for offline sales. The best purely virtual companies are those that deal with digital products. This includes information storage, retrieval, and modification, music, movies, education, communication, software, photography, and financial transactions. Examples of this type of company are : Schwab, Google, eBay, Paypal, Egghead, and Morpheus. There are some non-digital products/services that can be successful for virtual marketers. They are products that have a high value to weight ratio, and/or are embarrassing purchases, and/or are typically purchased by people in remote locations, and/or are typically purchased by shut ins.

Products that are not suitable for e-commerce include products that have a low value to weight ratio, products that have a smell, taste, or touch component, products that need to be tried on for fit, and products where colour integrity is important.

Even in product categories suitable for e-commerce, electronic shopping has been slow to catch on for several reasons including:

  • Concerns about security. Many people will not use credit cards over the net due to concerns about theft and fraud.
  • Lack of instant gratification with most e-purchases (non-digital purchases). Much of our reward for purchasing a product is the instant gratification of using, and being seen to use the product. This is missing when our purchase does not arrive for days or weeks.
  • The problem of access, particularly in poor families and poor countries. Low penetration rates of PC/Internet access in some sectors greatly reduces the potential for e-commerce.
  • There is also the social aspect of shopping. Some people enjoy talking to sales staff, other shoppers, or cohorts and this social reward is missing from online shopping.
 

see also: marketing, marketing management, e-marketing[?], strategic management

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