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Internet only retailers have overall competitive advantage over high street retailers - Essay Example

Hypothesis: Internet only retailers have overall competitive advantage over high street retailers.

Introduction: The Internet is fast becoming a method of shopping for those who find it more convenient, cheaper and offering a wider range of products than high street shopping. This study will look at the factors that influence Internet shopping, the benefits, the motives and the disadvantages.

Many concepts influence a consumer’s decision to use the Internet to buy goods as opposed to high street shopping, the first of which relevant is opportunity cost. The real cost of buying goods in the high street includes not only the price, but also the time and energy taken to purchase and transport the goods. In general, the overall time consumed purchasing a good is considerably shorter when using Internet retail, because of the eliminated journey times etc.

However, when purchasing goods online, a delivery time applies because the product is not in direct physical contact with the consumer. The Internet is acting as a portal which links the consumer to the goods retailer so it is similar to phone shopping, with the exception that data is sent over the phone line instead of speech. The fact the consumer doesn’t have direct physical contact with the good is a big disadvantage for Internet retailers because it is consumer preference to view a good before purchase.

Opportunity cost applies to the time taken to purchase a good, which is an advantage of Internet shopping because of the shorter time period/ less energy required. The opportunity cost of buying goods off the Internet can be making an undesirable purchase through misidentification because of the non- physical contact, the opportunity cost being a desirable good.

The next concept applicable to my hypothesis is Consumer satisfaction. High street shopping tends to be more convenient as shops are grouped together (for the simple reason of convenience). Often an individual will find walking between stores easier than locating and loading individual Web pages. This convenience will lead to customer satisfaction (as shown in figure 1A, green label). However, Internet retail is available at the discretion of the consumer and not only in business hours, meaning that there is a positive correlation between a consumer’s internet experience and the convenience that the online service will bring.

When using the Internet, customers are prepared to wait just 8 seconds for a website to finish loading before they will try elsewhere (see appendix figure 2). This is not an affecting factor when using a broadband connection because of the bandwidth, but only a small percentage have available this facility in the UK (see appendix figure 3).

Supply and demand affects Internet retail because if there is little demand, companies will decide not to retail goods over the Internet as the main aim of a business is profit maximisation, aided by keeping costs to the business low.

Demand for Internet goods sold will be determined by a sample of individuals who have the ability to purchase goods. As more and more consumers purchase computers, there is a potential increase in demand for Internet store goods sales as it is a compliment of the computer.

Demand is determined by the number of the individuals with computers who are prepared to buy the product sold on the Internet, at the given price over a given period of time. Demand is also determined by income and the price of other goods available,

Internet retailers potentially have a multinational target market because an Internet retail page is accessible to anyone who owns a computer, anywhere in the world. This is a factor that will influence demand as unique and not otherwise available products are for sale along with their exact technical specifications. This can also be seen as a disadvantage- the products are not in direct contact with the consumer, as is the convention when high street shopping. In this sense, high street shopping has the competitive advantage because buying a product that has not been viewed/ experienced is a potential risk factor to the consumer.

The decision to supply an Internet market for a product by a business would be influenced by either a trend of consumer spending in Internet retail causing a business to change, or by an entrepreneur who decided to take the risk of supplying the goods over the Internet by forming a new business.

The costs of production to high street businesses (as a relative total) are higher because a sole Internet trader does not need premises to which the public have access. Internet retailers require a reduced labour force (relative to an equal sized high street retailer) because there is a reduced amount of physical work. When the aforementioned factors are taken into consideration with the reduced fixtures and fittings costs to a business, it is clear that an Internet based retailer’s prices are going to be lower than those in high street stores.

Price of goods is a key area to the success of the Internet as a retail base. Fixed overheads and low inventory costs are potential for high return on capital. For this reason, there are many well established solely Internet based retailers of books, CDs etc. which are offering goods for lower than high street retail prices. The low price of Internet goods is often subsidised with a delivery charge, so consumers may be victims of psychological pricing, this again to their disadvantage.

I conducted a survey and collected primary data in order to research this matter further, among the public. The questions I asked were based around primary conclusions I had started to draw, yet evidence was needed of these conclusions. The primary conclusions I made can be found in the appendix (figure 4).

The results of the survey show that the majority of individuals have computers at home (with access to Internet retail facilities). If you are a teacher then this work was downloaded from the Internet and is not the candidates work, if you are the candidate you didn’t read this , gutted. Those who did not have access to the Internet were in the older range of participants, representing the demand for Internet retail among the younger generations. (Possible future boom of Internet trade as younger generation’s income increases?)

Conclusion of primary data collection (see figure 4)

i) Proved, because of the very few individuals who worked with computers and the Internet.

ii) Product uniqueness is a competitive advantage of Internet retailers

iii) Not proved, delivery times were seen as neutral- neither advantage nor disadvantage to Internet retailers

iv) Proved, Security of payment methods was a competitive advantage to high street retailers

v) Proved, first hand experience of a good was a competitive advantage for high street retailers.

The limitations of the survey were sampling and self-selection.

Competitive advantage is decided by all of the concepts mentioned within this study. Traditional high street retailers are not at risk from Internet based retailers who can undercut their prices they have good customer relationships and sovereignty, so consumers are likely to return.

From the management point of view, Internet retail has the advantage over high street retail because the absence of a high street store leaves the management to focus upon the objectives rather than corporate image etc. Management aspects of Internet business e.g. advertising must be effective or the business will not succeed, because of the absence of a physical retail outlet and a personal presence of staff (having a negative effect upon customer service).

In conclusion, Internet retailers have competitive advantages over high street retailers, but require high quality management and advertising in order to survive in tightrope market. Only 37% of Internet retailers have go on to make a profit compared with 50% of high street stores.