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E-commerce: Electronically Changing Sales

Updated on May 16, 2013

This article looks at the impact that e-commerce has on sales in a firm. Regarding sales, there are several areas in which multiple authors agree. First, e-commerce can bring about increased product value1,2. Second, the advent of e-commerce creates a brand new distribution channel for digital products1,3. Next, e-commerce makes time and geography in terms of shopping an insignificant issue4,5. Electronic commerce also creates a truly worldwide marketplace3,4,6,7,8,9. Each of these topics will be examined in turn.

E-Commerce Increases Product Value

One feature of e-commerce mentioned in the academic literature is the creation of new value for the consumer. Value can be defined as the overall assessment of a product (or service) by a customer based on perceived benefits of the product and what must be given up to acquire the product1. One way of creating new value is to supply information10,11 to customers.

Value creation through the adoption of e-commerce can have several different effects upon the firm. The first of these is the most obvious: sales augmentation. A firm that adds value to a product has the capability of increasing the fees charged or increasing its market share. Physical products that are differentiated by linking directly to some form of e-commerce communication method might command a higher price than a product without the link. One example is appliances. Appliance manufacturers are installing computer chips that send out electronic signals when the appliance needs servicing before the appliance actually breaks down. This preventive maintenance may be of tremendous value and, thereby, support higher prices. But this e-commerce maintenance may also extend the firm’s market share.

Electronic sales technology has created a brand new type of product with very interesting ramifications: digital goods. Sales of digital goods now include music, movies, books, education, software, documents, and, in particular, newsprint. One of the advantages to selling these digital goods is that although development costs may be high, reproduction costs are extremely low1. Thus, once one product is developed, it can be reproduced repeatedly without much human intervention. From a cost perspective of the firm, sales of digital products have virtually no variable cost. As a result, digital products could reduce a firm’s costs.

By using an instantaneous sales and distribution channel and because they require little space, digital products may add value for consumers and, hence, may provide differentiation from competitors. These products allow the user to retrieve them at any time, use them, and then return them to the original location. Purchased digital products often require little storage and can be cataloged, searched, analyzed, and duplicated with little trouble.

E-commerce Creates a New Distribution Channel

Much of the same technology that creates the digital product also creates a new distribution channel for those products1,3. Afuah & Tucci (2001) posits that this new distribution channel can be a replacement of an existing channel or an extension of a currently existing channel. This new channel also can act as a payment collection channel according to Krishnamurthy (2003). A firm that sells software collects payment information from a customer and downloads the software to the customer’s computer. Reproduction and delivery is effortless, quick, and very inexpensive. The same happens in the music and video industries. A customer who wants to view news online need only access a news service website. Firms operating in the industries capable of supporting digital distribution can realize significant savings in sales functions.

The potential results of this brand new distribution channel include lower distribution costs, an increase in sales, and a change in the competitive landscape. As mentioned above, digital goods may be transferred electronically, effortlessly, and instantly. A firm that traditionally ships physical goods no longer incurs shipping costs once the good is converted to a digital format. This has implications for the firm’s structure since, if shipping can be eliminated entirely, entire departments may be eliminated, resulting in further cost reductions.

E-commerce, when applied to digital goods, also has the potential of increasing sales for the firm. Traditionally, a physical good that was purchased had to be picked up by the purchaser or delivered by other physical means; both of these incur time and other expenditures. Digital goods can be delivered instantly and without significant delivery charges. This creates extensive value for the purchaser of these products, possibly expanding the firm’s market reach. One example could be sales of books. Publishers of novels and other literature can sell a product electronically, get paid immediately, and have the product received by the purchaser in a matter of seconds. The purchaser can be using the product instantly and effortlessly, without incurring shipping costs and avoiding the middleman.

E-Commerce Can Make Geography Irrelevant

Another topic that appears in the management literature is the shrinkage in the geography of the global marketplace. E-commerce has become the methodology for a business to be involved in a global market3,4,6,7,8,9. By merely utilizing e-commerce, any business can have a global reach that was not possible before.

The implications of a global market place are two-fold. First, a global marketplace may result in increased sales. The product of a firm gains access to markets that were previously unreachable. If this is the case, then the extension of the marketplace through e-commerce may not only increase sales but also improve the economies of scale experienced by providing an increased number of products.

Footnotes

1Krishnamurthy, S. (2003). E-commerce management: Text and cases. Mason, OH: South-Western.

2Targett, D. (2001). B2b or not b2b? Scenarios for the future of e-commerce. European Business Journal, 13(1), 3-11.

3Afuah, A., & Tucci, C. L. (2001). Internet business models and strategies.
Boston, MA: McGraw-Hill Irwin.

4Oelkers, D. B. (2002). E-commerce: Business 2000. Mason, OH: South-Western.

5Standifird, S. S. (2001). Reputation and e-commerce: eBay auctions and the asymmetrical impact of positive and negative ratings. Journal of Management, 27(3), 279-287.

6Boudreau, M. C., Loch, K. D., Robey, D., & Straud, D. (1998). Going global: Using information technology to advance the competitiveness of the virtual transnational organization. Academy of Management Executive, 12(4), 120-128.

7Globerman, S., Roehl, T. W., & Standifird, S. (2001). Globalization and electronic commerce: Inferences from retail brokering. Journal of International Business Studies, 32(4), 749-768.

8Jones, D. H. (1998). The new logistics shaping the new economy. In D. Tapscott & A. Lowy & D. Ticoll (Eds.), Blueprint to the digital economy: Creating wealth in the era of e-business (pp. 221-236). New York, NY: McGraw-Hill.

9Pai, S. (2000). A model of e-business adoption by small business: From electronic data interchange (EDI) to the Internet. Unpublished Ph.D. dissertation, University of Hawaii, Honolulu, HI.

10Penbera, J. J. (1999). E-commerce: Economics and regulation. S.A.M. Advanced Management Journal, 64(4), 39-47.

11Zhu, H., Siegel, M. D., & Madnick, S. E. (2001). Information aggregation - A value-added e-service (Paper 106). Cambridge, MA: MIT Sloan School of Management.

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