Electronic Retailing (E-tailing)

What Is Electronic Retailing (E-tailing)?

Electronic retailing (E-tailing) is the sale of goods and services through the Internet. E-tailing can include business-to-business (B2B) and business-to-consumer (B2C) sales of products and services.

E-tailing requires companies to tailor their business models to capture Internet sales, which can include building out distribution channels such as warehouses, Internet webpages, and product shipping centers.

Notably, strong distribution channels are critical to electronic retailing as these are the avenues that move the product to the customer.

How Electronic Retailing (E-tailing) Works

Electronic retailing includes a broad range of companies and industries. However, there are similarities between most e-tailing companies that include an engaging website, online marketing strategy, efficient distribution of products or services, and customer data analytics.

Successful e-tailing requires strong branding. Websites must be engaging, easily navigable, and regularly updated to meet consumers' changing demands. Products and services need to stand out from competitors' offerings and add value to consumers' lives. Also, a company's offerings must be competitively priced so that consumers do not favor one business over another on a cost basis only.

E-tailers need strong distribution networks that are prompt and efficient. Consumers cannot wait for long periods for the delivery of products or services. Transparency in business practices is also important, so consumers trust and stay loyal to a company.

There are many ways companies can earn revenue online. Of course, the first income source is through the sales of their product to consumers or businesses. However, both B2C and B2B companies could earn revenue by selling their services through a subscription-based model such as Netflix (NFLX), which charges a monthly fee for access to media content.

Revenue can also be earned through online advertising. For example, Facebook (FB) earns revenue from ads placed on its website by companies looking to sell to Facebook users.

Types of Electronic Retailing (E-tailing)

Business-to-Consumer (B2C) E-Tailing

Business-to-consumer retailing is the most common of all e-commerce companies and the most familiar to most Internet users. This group of retailers includes companies selling finished goods or products to consumers online directly through their websites. The products could be shipped and delivered from the company's warehouse or directly from the manufacturer. One of the primary requirements of a successful B2C retailer is maintaining good customer relations.

Business-to-Business (B2B) E-tailing

Business-to-business retailing involves companies that sell to other companies. Such retailers include consultants, software developers, freelancers, and wholesalers. Wholesalers sell their products in bulk from their manufacturing plants to businesses. These businesses, in turn, sell those products to consumers. In other words, a B2B company such as a wholesaler might sell products to a B2C company.

Advantages and Disadvantages of Electronic Retailing (E-tailing)

E-tailing includes more than just e-commerce-only companies. More and more traditional brick-and-mortar stores are investing in e-tailing. Infrastructure costs are lower with electronic retailing versus operating brick-and-mortar stores.

Companies can move products faster and reach a larger customer base online than with traditional physical locations. E-tailing also allows companies to close unprofitable stores and maintain the profitable ones.

Automated sales and checkout cut down on the need for personnel. Also, websites cost less than physical stores to open, staff, and maintain. E-tailing reduces advertising and marketing expenses as customers can find the stores through search engines or social media. Data analytics is like gold for e-tailers.

Consumer shopping behavior can be tracked to determine spending habits, page views, and length of engagement with a product, service, or website page. Effective data analytics can decrease lost sales and boost client engagement, which can lead to increased revenue.

There are disadvantages to running an e-tailing operation. Creating and maintaining an e-tailing website, while less expensive than a traditional retail location, can be expensive. Infrastructure costs can be substantial if warehouses and distribution centers need to be built to store and ship the products. Also, adequate resources are necessary to handle online returns and customer disputes.

Also, e-tailing does not provide the emotional shopping experience that physical stores can offer. Emotional shopping often results in consumer spending. E-tailing does not give the consumer experience shopping — where consumers hold, smell, feel, or try on products — before purchasing them. Personalized customer service can also be an advantage to brick-and-mortar stores, which can include personal shopping services.

Real World Examples

Amazon.com (AMZN) is the largest online retailer providing consumer products and subscriptions through its website. Amazon's website shows the company generated more than $280 billion in revenue in 2019 while posting more than $11.6 billion in profit or net income. Other e-tailers that operate exclusively online and compete with Amazon include Overstock.com and JD.com.

Alibaba Group (BABA) is China's largest e-tailer, which operates an online commerce business throughout China and internationally. Alibaba adopted a business model that not only includes both B2C and B2B commerce, but it also connects Chinese exporters to companies around the world looking to buy their products.

The company's rural Taobao program helps rural consumers and companies in China sell agricultural products to those living in urban areas. For the fiscal year 2020, Alibaba generated nearly $72 billion in annual revenue while posting just under $19.8 billion in profit.