E-Commerce's Impact on Retail Performance

Running head: ECOMMERCE BUSINESS
Ecommerce Business
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ECOMMERCE BUSINESS1
Title: The impact of E-Commerce on business performance in the retail industry
1.0 Literature review
1.1 Introduction
The past decades have witnessed rapid increase in innovation, globalisation and
technological supremacy in the industry. Ecommerce has changed the nature of business in the
modern era where there has been significant increase in the selling and purchasing of products
on the online platform (Azeem et al. 2015). Even though the initial adoption of ecommerce in
the early 2000 has resulted in bankruptcies for global companies focusing on online platforms
but the growth and accessibility of ecommerce was limited during that period. In contrast to this,
the modern business has made it necessary to incorporate ecommerce as it is a necessity and
not a means of gathering competitive advantage (Azeem et al. 2015). It is a means of staying in
business and competing with the rival companies equally. There have been significant changes
to ecommerce business models which has become dynamic ecosystems from business to
business or business to consumer models. It has led to the development of the network
communication framework. Chou, Chuang and Shao (2016) states that ecommerce is the
process of using network on the electronic platform to fasten and simplify the different phases in
the business processes, starting from goods production to delivery and sales.
Therefore, ecommerce has become an effective means of improving the efficiency and
effectiveness of businesses. Therefore, it has become more than a tool for marketing and has
become an important part of business performance as it can add value to the supply chain and
the overall process (Falk and Hagsten 2015). The most crucial role of ecommerce is in supply
chain processes as there are avenues of improvement in business processes by usage of
innovative technologies. Furthermore, the majority of the business decision are aimed at
improving the cost efficiency of the companies which is necessary for improving profit margin
and achieving higher level of competitiveness in the market (Chou, Chuang and Shao 2016).
The analysis of the past literature shows that there have been numerous authors that
have highlight the role of ecommerce in improving the cost efficiency of organisations.
Ecommerce has significantly affected the retail industry where the retail organisations are able
to offer products at a scale that was never possible before the advent of ecommerce (Magobe,
Kim and Chang 2015). It has helped the organisations in offering services 24/7 where the
retailers have increased the variety of the product at a reduced price. However, the ecommerce
industry has increased the competition in the market where both brick and mortar stores and

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other ecommerce websites are always trying to improve the quality of the processes and
improve service quality due to the rapid change in nature of the consumers’ needs and wants.
Various studies have shown ecommerce industry has a positive impact on the retail industry but
there have been various challenges for successful adoption of ecommerce in the retail segment.
1.2 Ecommerce
Zhang, Zhu and Ye (2016) states that ecommerce is a phenomenon which has reduced
or demolished the geographical barriers between the organisations and the consumers. The
retailers are able to sell their products to all part of the world. The effective use of ecommerce
provides the potential for improving consumer base and revenue among the organisations. The
increase in market size for the online retail industry has negatively affected the conventional
retail organisations that are struggling to remain competitive in the market. Azeem et al. (2015)
states that Pareto principle stated that majority of the revenue in the industry is generated from
fewer products which is similar for the ecommerce retailers where derive majority of their
revenue from niche products. Moreover, with the rapid progress of the ecommerce industry and
technological development, it is essential to develop a sustainable approach of using
ecommerce in business activities. A single technology cannot cover the concept of ecommerce
in the modern businesses and multiple technologies are responsible for all the ecommerce
applications available in the market. Chou, Chuang and Shao (2016) states that any technology
can qualify to be ecommerce technology as long as it supports the core activities for businesses
at different levels.
Ecommerce has had significant positive impact on the developed countries but it has
also improved the growth of the retail market in developing countries as well. Falk and Hagsten
(2015) states that ecommerce is a revolution which has been a turning point for all business
practices resulting in huge contribution to the economy. On the other hand, Zhang, Zhu and Ye
(2016) states that in the present business environment ecommerce organisations have become
a fundamental component of strategy in business and has been acting as a catalyst to
economic growth. Various researchers have suggested that there are numerous possibilities of
online shopping in the modern market. Magobe, Kim and Chang (2015) has identified various
limitations of using ecommerce and various predictions that can be used to improve the usage
of ecommerce for the consumers.
1.2.1 Factors driving growth of the ecommerce sector
The internet is the connection of individuals to a global market where the consumers
have the access to enormous array of products and services from international and local

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retailers. These services offer lower prices compared to the price offered by the consumers in
local physical stores. Therefore, the reduction in search cost, innovation in banking and
technological sector makes it easier for the consumers to purchase goods.
Lower Prices
Various reports developed by PricewaterhouseCoopers in conjunction with companies
like Frost & Sullivan has developed a report analysing the online retail market in New Zealand
and Australia. The study showed that lower prices offered by the online retailers are one of the
most important factors contributing to the purchase on online platforms. Kurnia et al. (2015)
performed a study which supports the above statement by arguing that prices of the products
offered by the online retailers results in greater competitive advantage in the market. As stated
by Azeem et al. (2015), due to the drastic reduction in the search cost the online retail market
has become highly integrated. Google has played a significant role in connecting the consumers
with manufacturers from all over the world. Multiple shopbots such as webjet and pricespy.co.nz
have been instrumental in providing comparison between major retailers where the comparison
between price and other attributes helps in making quick decisions for the consumers. It implies
that it would result in the development of an almost perfect market where consumers would
always purchase cheapest products in the homogenous goods segment. Chou, Chuang and
Shao (2016) states that the theory of purchasing cheaper product in homogeneous market is
partially correct. Online prices are lower in average and changes are more frequent in
comparison to the physical outlets as the prices on the internet remain detached. Moreover,
consumers do not choose cheapest products at every occasion which highlights the importance
of retail branding in the modern market.
Akter and Wamba (2016) compared the pricing between the online stores and the brick
and mortar stores which showed that prices in online stores are almost 12% less than the prices
offered on physical outlets. It is the reason that the prices changes made by the online retailers
were more frequent compared to the conventional stores due to the menu cost is lower than
their counterparts. Falk and Hagsten (2015) states that online retailers constantly monitor the
prices of their competitors on various websites to develop a competitive pricing which is a major
reason for frequent prices change in the industry. Online retailers quickly respond to the price
changes made by their competitors. Magobe, Kim and Chang (2015) conducted an analysis to
evaluate the price differences between different products which shows an average of 33. It
implies that the price dispersion in the market is high, which is a typical characteristic of the
ecommerce industries. This dispersion in the industry is prevalent in all the product segments