GCSE

Business Studies
E-Commerce
For first teaching from September 2009
For first award in Summer 2011
E -Commerce
At the end of this unit students should be able to:
 Explain what is meant by e-commerce and e-business;
 Analyse the advantages of e-commerce for customers and businesses;
 Analyse the disadvantages of e-commerce for customers and businesses;
and
 Discuss how e-commerce supports international business.

Setting the scene:

Amazon.com was founded in Seattle, Washington by Jeff Bezos in 1994, and was
officially launched in 1995. It started out as an online bookstore but quickly diversified
by adding other items, such as DVDs, music CDs, software, video games, electronics,
MP3s, clothing, furniture, toys and even food items.
Amazon.com grew rapidly throughout the late 90’s, and managed to survive what became
known as the dot com crash. Amazon.com has become one of the world’s largest on-line
retailers with almost 25,000 employees and global sales in excess of $24 billion per year.
The company continues to go from strength and is currently the UK favourite on-line
retailer and third favourite retailer overall.

The impact of ICT on business

Developments in information and communications technology have fundamentally

changed the way businesses sell and distribute their goods and services. New technology
such as the internet and broadband has opened up a whole new world of opportunities for
business.
The amount of trade conducted electronically has grown dramatically in the UK in recent
years with over £100 billion worth of goods and services being traded electronically each
year.
Most firms in the UK (almost 70%) have their own website, and while many of these
firms do not use this site to sell their products (only 15% have a full e-commerce site)
they can use the internet to support other aspects of their business.

E-commerce and E-business

The terms e-commerce and e-business are often used interchangeably however they are
very different things. E-commerce, or electronic commerce to give it its full title, refers to
the buying, selling, marketing and distributing of goods or services over the internet.

Electronic business on the other hand is more than just e-commerce. It refers to the use of
electronic systems such as the internet to carry out a range of day to day business
activities such as:
 Buying and selling products (e-commerce);
 Communicating with suppliers and customers; and
 Recording and analysing the performance of the business.
Advantages of e-commerce to a business

 Global presence
The greatest benefit of e-commerce to a business is that it allows the business to operate
on a global scale. E-commerce makes it possible for even the smallest businesses to buy
and sell goods and services on the global market. Amazon.com grew quickly as it was
able to sell products right across the world.

 24/7 opening
E-commerce allows a business to operate 24 hours a day seven days a week. Once
Amazon.com website was operational it did not need to take holidays and could work
beyond the normal opening hours of a brick and mortar business.

 Reduced costs
E-commerce offers Amazon.com a way to cut costs as they do not have to build, staff or
maintain a physical store.

 Increased sales and profit

Because e-commerce allows businesses to operate 24/7 and on a global scale, it should
allow the business to increase its sales and in turn its profits. Amazon.com now has sales
in excess of $24 billion per year.

 Improved customer information

E commerce allows businesses to collect information about their customers which can be
used for marketing purposes.

Disadvantages of e-commerce to a business

 Start up costs
Creating a website that is suitable for e-commerce can be both costly and time
consuming. In particular there are costs associated with:
o Purchasing and updating hardware;
o Purchasing and updating software; and
o Cost of employing a web designer.

 Issues with access

Not everyone has access to the internet and even when they do some people are reluctant
to purchase goods electronically as they are concerned about security and reliability. This
may limit the potential market for a company such as Amazon who only have an online
presence.

 Not suitable for all products

E-commerce is not suitable for all products particularly perishable products such as food
or products such as furniture. Research has shown that people are reluctant to purchase
items such as a sofa online as they don’t have the opportunity to try it out for comfort.
Amazon.com have found that items such as book and DVD’s sell much better than items
such as furniture.

 Increased competition
While e-commerce has allowed businesses to access the global market it has also
increased the level of competition they face as they are now competing on a global scale.
While Amazon.com is an example of a successful electronic retailer, there are far more
examples of companies who were not successful.

Case study: E-Commerce on the rise

According to the latest figures from the Office for National Statistics, consumers spent a
record £21.4 billion on internet shopping last year. This was a rise of almost 30% on the
previous year
Two factors, helping to fuel this increased online business have been the wider use of
broadband internet access, and an improved level of confidence in internet security.
The same survey showed that e-commerce generated a total of £103.3 billion overall for
the UK economy, a significant rise on last years figure of £66.2 billion.
Other key findings of the survey include:
 14.6 per cent of businesses sold over the Internet while 56.3 per cent made
purchases over the Internet.
 Internet purchases by businesses rose 50.4 per cent, from £48.4 billion to £72.8
billion.
 69.8 per cent of businesses had a website.

1. Explain the difference between e-commerce and e-business.

2. Analyse 4 benefits a business would gain from engaging in e-commerce.
3. Explain some of the costs a firm might face as it attempts to sell its goods or services
online.

Advantages of e-commerce for consumers

 Increased convenience
One of the most important benefits of ecommerce to a consumer is that they can visit
multiple websites, at any time of the day or night, to compare prices and make
purchases, without leaving the house.

 Increased choice
No brick and mortar store, no matter how large, can match the internet for variety and
selection. Instead of being confined to stores in their local area, electronic consumers
can shop in stores anywhere in the world.

 Improved product information

Consumers are able to use the internet to research information about prices and
product performance. This improves consumer information and therefore consumer
power.
  Lower prices
The increased competition brought about by the development of e-commerce,
coupled with the reductions in operating costs for electronic retailers (e- tailers) has
resulted in firms offering e- customers goods at much lower prices than would be
available in their physical stores. A key factor in the success of Amazon.com was that
it could sell products at much lower prices than traditional retailers.

Disadvantages of e-commerce for consumers

 Concerns about security.

Many people are reluctant to use credit cards over the internet due to concerns about
theft and credit card fraud.

Case study: Online banking fraud 'suffers increase'

Fraudsters are continuing their switch from traditional card fraud to raiding online bank
accounts, according to new research.
Fraud losses on UK credit and debit cards totalled £440m in 2009 - a drop of 28%
compared with the previous year - the UK Cards Association said.
But the number of "phishing" attacks rose by 16% in the same period.
This is when fraudsters trick people into entering their personal details on a website or in
an e-mail.
The UK Cards Association said that criminals were hoping to avoid banks' own security
controls by tricking people out of their personal details through scams, or by infecting
home computers with software that gathers these details.
As a result, the total amount of online banking losses reached £59.7m in 2009, a 14%
rise compared with the previous year.
Mel Morris, of the online security software firm Prevx, said online fraud was relatively
easy to commit: "It's possible to buy a kit online for a few thousand pounds and you can
be in the business of trying to perpetrate online fraud” he said.
(Source: BBC news)

 Lack of instant gratification

Much of a consumer's satisfaction from purchasing a product lies in the instant
gratification of using and displaying that product. This reward does not exist when the
purchase does not arrive for days or weeks.

 Lacks the social aspect of shopping.

Many people enjoy talking to sales staff, to other shoppers, or to their friends when
they are out shopping. This retail therapy does not exist to the same extent in online
shopping.

 Inconsistent return policies

Consumers can become frustrated with e-commerce due to the poor customer service
associated with electronic retailers.
 This means that consumers often have difficulties in exchanging or returning
products.

Case study: Online shopping expected to soar

Christmas shoppers are expected to make Monday the 10th December the busiest day of
the year for online shopping.
Credit card firms are predicting a rise of more than 50% in online shopping this
Christmas, compared with last year.
Shoppers will spend £5.6bn online this month - more than 10% of all plastic card
spending.
But consumers are being warned to protect their computers from fraudsters with anti-
virus software and to examine sites carefully.
High Street retailers are facing a nervous Christmas, with stores worried that a dip in
consumer confidence could hit sales.
But online retailers are expecting their peak day on Monday as shoppers try to make sure
presents are delivered by Christmas.
In the past five years, the number of adults shopping online has doubled to 30 million.
Internet firm Play.com is preparing for an average 650 orders every minute.
The firm is expecting to ship more than 250 tonnes of goods during the day, while overall
sales are likely to be up almost a third year-on-year.

1. Outline what is meant by the term e-commerce.

2. Explain some of the factors which could account for the 50% increase in online
shopping.
3. Consumer spending on internet shopping increased significantly in recent years
however, as a proportion of total consumer spending, the figure is still very small.
Explain some of the reasons why online shopping still makes up a small fraction
of total consumer spending.

Knowledge review: Key terms

 E-commerce refers to the buying, selling, marketing and distributing of goods or

services over the internet.
 Electronic business refers to the use of electronic systems such as the internet to
carry out a range of day to day business activities such as buying and selling
products, communicating with suppliers and customers and recording and
analysing the performance of the business.
 E-tailers are firms which either partly or wholly sell their products online.
 Phishing occurs when fraudsters trick people into entering their personal details
on a website or in an e-mail.

Revision questions
1. Explain what is meant by e-business.
2. Explain what is meant by e-commerce.
3. Explain 3 advantages of e-commerce to business.
4. Explain 3 benefits of e-commerce to consumers.
5. Explain 3 disadvantages of e-commerce to business.
6. Explain 3 reasons why consumers may be reluctant to shop online.
7. Explain how e-commerce allows firms to operate internationally.