In the 1990s, retailers discovered a new way to conduct business—the internet. At its core, electronic commerce or e-commerce is simply the buying and selling of goods and services using the internet, when shopping online. However, the term is often used to describe all of a seller’s efforts when selling products directly to consumers online. It starts when a potential customer learns about a product and continues through purchase, use, and, ideally, ongoing customer loyalty.
Data powers the most successful e-commerce operations, which take advantage of best practices such as targeted email marketing, audience segmentation, and marketing automation. For example, following up with a customer after they have placed an item in an online shopping cart but didn’t complete the transaction can significantly increase your likelihood of making the sale.
With that being said, anyone who wants to open an online store and benefit from the rise of e-commerce needs to understand its fundamentals.
Many people define e-commerce as selling or purchasing a physical product online. But the meaning of e-commerce also encompasses the sale and purchase of non-physical goods, such as services and digital products. Essentially, it's when a business sells online.
Some e-commerce retailers sell exclusively online. For example, let’s say an entrepreneur sets up a company selling high-end pet products. In the pre-internet days, they would have had 2 choices: retail their merchandise through their own boutique pet shop, or sell it wholesale to national pet goods stores. Today, those business owners have a third option: e-commerce. They can sell their products through their own website, a third-party site, or both.
The lines between e-commerce and traditional retail overlap sometimes. When a customer comparison shops with her smartphone while standing in a brick-and-mortar store browsing its physical products, it’s hard to classify the experience as one or the other.
Pros and cons of e-commerce
E-commerce has many benefits for businesses, as well as a few potential drawbacks. Online stores can improve the customer experience because shopping online is easy and convenient. Additionally, with a low startup cost and a wide range of tools available for entrepreneurs, starting an e-commerce business is much easier than starting another type of business.
Pros of e-commerce:
- Low startup and operating costs: Starting an e-commerce business is generally much cheaper than starting a brick-and-mortar store because there’s no rent or real estate costs, and you can start with fewer employees.
- Offers flexibility: E-commerce is a more flexible solution for businesses and their customers because customers can shop at any time of day, from anywhere.
- Easy to engage in data-based marketing: Your e-commerce store can provide you with a trove of marketing data through analytics and reports to help you make better decisions when promoting your business.
- Wide selection of available products: E-commerce offers a wider variety of available products for customers as opposed to brick-and-mortar stores, which can only hold so much inventory in the physical space they occupy.
Cons of e-commerce:
- Less connection with customers: Because there’s nobody to interact with when shopping, customers may feel less of a connection with your business. The customers also won’t get the opportunity to touch the product before buying it to ensure it’s what they really want.
- Requires more coordination for shipping logistics: E-commerce customers can be anywhere in the world, so business owners must ensure their shipping and logistics can get products to their destination in a timely manner. Customers will also have to wait to receive their products.
- Minimal customer service: Many e-commerce stores lack the presence of a customer service representative available to customers at all times to answer questions and resolve issues.
What are e-commerce business models?
An e-commerce business can operate as the digital arm of a retail giant or a physical store. It can also be a single person selling crafts out of their home through online marketplaces.
Of course, there's a whole range between those extremes. E-commerce models vary widely and include many sales types. Here are the different types of ecommerce businesses:
B2B e-commerce refers to when a company purchases goods or services online from another enterprise. Some examples include a restaurant buying an ice machine or a law firm purchasing accounting software. Business software like customer relationship management (CRM) platforms and payment processing companies are considered to be B2B, too. B2B online sales tend to be more complicated than other forms of e-commerce because they rely on large catalogs of complex products to sell.
B2C online retail happens when a consumer purchases an item over the internet for their own use. Although B2C e-commerce seems more prominent, it’s only about half the size of the worldwide B2B e-commerce market.
C2C operates like a digital yard sale or an internet auction in which individual people sell goods to each other. These might be products they make, such as handcrafts or art, or secondhand items they own and want to sell.
When a consumer creates value for a business, that's C2B commerce. Creating value can take many forms. For instance, C2B can be as simple as a customer leaving a positive review for a business or a stock photography website purchasing images from freelancers. In addition, businesses that sell secondhand products sometimes purchase merchandise from private citizens online.
These are sometimes called business-to-administration (B2A) sales. They happen when a private firm exchanges goods or services with a public agency. Usually a business contracts with a public organization to carry out a mandated service. For instance, a custodial firm might bid online for a contract to clean the county courthouse, or an IT firm might reply to a proposal to manage a city's computer hardware.
Ever paid a parking ticket online? Then you've experienced C2G. This model also includes paying taxes online and purchasing goods from a government agency's e-auction. Any time you turn money over to a public agency using the internet, you engage in C2G e-commerce.
Businesses of all kinds can start an e-commerce store and begin selling online. As illustrated in the section above, the relationships between businesses and their consumers can differ. At the same time, e-commerce businesses vary depending on their business model and industry. Below, we’ve listed a few common examples of e-commerce businesses:
- Retail: Selling products directly to customers online.
- Wholesale: Selling products in bulk online directly to consumers.
- Subscription: Recurring payments in return for a product or service.
- Digital products: Selling digital goods, including courses and software, that must be purchased to use.
Tips for getting started in e-commerce
Do you have a great idea for an e-commerce enterprise? Whether you want to get into online wholesale, subscriptions, crowdfunding, digital products, or software as a service, there's a spot to open an e-commerce company in the e-commerce marketplace.
From choosing a business name, integrating a payment system with a reliable online payment solution, to a supply chain management solution and a customer experience platform for your website, there are many aspects to take into consideration when starting an online store (read our tips for how to start an online store for more).
Here are some tips to start an e-commerce business while providing a great customer experience to set yourself for up success and e-commerce growth:
Do your homework beforehand.
There are 2 major parts to research: studying your competitors and studying your target customers.
Find out what products other online stores offer, what social media channels they use, what their business models are, and so on. This research can help you do everything from selecting a memorable name to determining what products or services to sell.
As for studying your audience, reach out to people in your personal network. If your budget allows for it, you can also conduct surveys and focus groups to identify any e-commerce gaps you can fill.
Start with a user-friendly platform like Magento.
You'll have a lot to do and learn in your first few months, which will eat up a lot of your time.
That’s why in the beginning, Magento or a similarly flexible e-commerce platform is a good option. Once you’ve established your business and gotten some e-commerce experience, you’ll have a clearer idea of what you need and have plenty of time to shop around for another solution if necessary.
Your system, your ads, your products, your emails—everything. You may even want to consider hiring an e-commerce testing firm to set up tests for you. Once those are established, you can conduct your evaluations, study the results, make any necessary changes, and repeat.
Diversify your advertising.
Start with—and stick with—the nuts and bolts of inbound marketing, which is a strategy that encourages people to actively seek out and engage with your brand. These include email, Facebook, and Google ads.
But you can expand to other e-commerce marketing channels, too. When you conduct your research, be sure to identify the specific channels that your target audience uses the most. Incorporate these into your marketing strategy to reach more customers.
It also helps to mirror what other e-commerce brands in your niche are doing. Your competitors have likely done their own legwork in researching customers, and as long as you’re not copying their every move, it’s fine to look to them for strategic inspiration. Just remember to always cross-reference your competitor research with your own customer research as well.
Here, again, you may want to consider getting some professional help. There are a number of firms that would be happy to help you make the most out of your digital marketing efforts.
Set up your online business
E-commerce is accessible to every entrepreneur with an internet connection. Experts project that by 2025, the global e-commerce market will be worth more than $24 trillion. If you’ve been holding onto the idea of starting a business, now is a good time.
Do some market research, come up with a solid business plan, stay focused on driving traffic to your site, and you’ll be off to a great start.
Frequently asked questions
How do I start an e-commerce business?
Starting a successful e-commerce store requires proper planning. First, you’ll need to decide which products to sell and how to source them. Depending on your business, you can manufacture them yourself or purchase wholesale and resell products. When you’re ready to start building out your online store, follow these steps:
- Sign up for a Mailchimp account: Signing up for an account provides you with access to our marketing tools, including the ability to create a website.
- Create a website: Mailchimp makes it easy to create websites by offering drag-and-drop templates and the ability to market and sell products from one place.
- Start your online store: After you’ve designed your online store and are ready to sell, you can publish your website and begin selling immediately. When you need to change something about your website, you can come back to the website builder. For example, you can make edits to existing products and pages if you want to optimize your website for the holidays to increase sales.
- Market your business: Once your store is up and running, you can use Mailchimp marketing tools to promote your business and earn valuable customers.
Is Amazon e-commerce?
Amazon is the largest e-commerce retailer in the world. While Amazon is best known as a B2C marketplace, it also offers B2B solutions to help businesses grow their sales.
What are the benefits of e-commerce over brick-and-mortar?
There are many benefits of starting an e-commerce store over a brick-and-mortar business, including:
- Lower costs: Starting an e-commerce business is more affordable than almost any other type of business because you don’t have to invest in real estate.
- Flexibility: E-commerce businesses can provide customers with more flexible shopping opportunities, allowing them to shop when all other stores are closed. Additionally, e-commerce businesses allow business owners to work from different locations and set a flexible schedule.
- Easier marketing: Online stores easily integrate with analytics tools to help you measure the performance of your website and find better ways to increase your ROI on digital marketing strategies, whether that’s through audience segmentation or targeted email marketing campaigns.