What is ecommerce and how does it work?

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Josh Guthrie
Co-Country Manager
Expert in commerce optimisation and international expansion

An ecommerce website offers businesses a wide range of opportunities, from generating more sales and reducing costs to offering new marketing opportunities and attracting new audiences.

With a well planned ecommerce strategy, you can achieve your business goals and provide  an exceptional online shopping experience.

In this blog, we will take a look at the definition of ecommerce, explore how it works, and show some examples of businesses who are excelling online.

Definition of ecommerce

Ecommerce is an abbreviation of electronic commerce. It’s the process of buying and selling goods and services over the internet, which relies on the electronic transfer of data and funds.

Many people take part in ecommerce every day, whether buying goods from online businesses or paying bills online. 

How ecommerce works

There are a number of steps involved in the ecommerce customer journey before a consumer receives their purchased goods.. Generally, the process will involve the following four stages:

  1. Customer browses an ecommerce website, adding products to their online shopping cart

  2. They then enter their personal details, choose a payment method, and confirm the delivery address

  3. The payment is processed by a payment gateway, with the funds then being transferred to the business’s account

  4. The product is shipped to the customer’s desired delivery address

This is a very generalised overview, and there are usually many smaller actions involved in an ecommerce transaction, particularly on the business' side. 

Ecommerce firms can operate using a number of different ecommerce business models, including:

  • Business-to-consumer (B2C) - businesses sell their products and services to consumers

  • Business-to-business (B2B) - businesses sell their products exclusively to other businesses

  • Consumer-to-business (C2B) - consumers sell their products or services to businesses

  • Consumer-to-consumer (C2C) - consumers sell their goods to other consumers, with the transactions facilitated by a website

Each model has advantages and disadvantages, and many businesses operate multiple channels simultaneously.

Examples of ecommerce

Within each type of ecommerce business model, there are a number of different examples of how a firm can operate. Some common examples include retail, wholesale, and subscription.

Retail

Online retailing allows for the sale of goods or services directly to customers without any third party in between. An example of a retail business would be a clothing manufacturer that sells its clothes directly to its customers through its own website, or an electronic goods store that buys in bulk from a wholesaler and then sells the items to the general public.

Online retail is perhaps the most simple ecommerce business model to understand, as it works similarly to how brick-and-mortar stores have operated for decades.

Wholesale

Online wholesalers exist to supply retail businesses with products that they can sell either online or in a physical store.

Because they sell almost exclusively in bulk, they can offer reduced per-item prices that retailers can then mark up and sell on to the general public. Florists will typically acquire their flowers in bulk from a wholesaler.

Subscription

Subscription ecommerce businesses have grown in popularity over recent years. They offer convenience for customers who can have goods delivered regularly on a schedule that suits them, while businesses benefit from repeat sales and increased customer loyalty. 

Online subscription models work especially well for physical products that are consumed, such as food and drink, as well as digital products such as online courses and access to digital media.

Companies that have redefined established markets with innovative subscription services include HelloFresh, with their cook-at-home recipe boxes, Amazon Prime’s next-day delivery and of course global streaming giant, Netflix.

The Importance of ecommerce for businesses 

The adoption of ecommerce globally has accelerated even over the past decade, increasing from $1.3T to $4.9T from 2019-2021. This growth has been driven by the development of new technologies and increasing access to high-speed internet connections.

Notably, the onset of the COVID-19 pandemic saw a huge surge in ecommerce adoption, as customers in Europe and across the world shopped online more than ever before. In fact, 67% of consumers report they shop differently now due to COVID-19.

Ecommerce platforms

An ecommerce platform is a software programme that enables businesses to create a shop and sell products and services online.. Web hosting, inventory control, payment processing, marketing, order fulfilment, and other tasks can all be handled by ecommerce platforms.

A good ecommerce platform should allow companies the flexibility and adaptability they need to launch and scale their business. Working with the right platform can also help to lower operational costs, boost efficiency, and remove the hassle of managing hardware and software. It should also enable businesses to offer customers a seamless and secure shopping experience.

Examples of popular ecommerce platforms include, Woocommerce, BigCommerce, and Magento.

Advantages of ecommerce for businesses

As a business, there are many advantages of running an ecommerce website. This includes::

Quicker purchase process

No waiting in queues or in-store browsing allows for a quicker purchasing process. Providing a seamless checkout experience can also mean a customer is able to buy a service or product in seconds.

Lower maintenance costs

Many companies spend a lot on upkeep for their physical stores, including fees for rent, maintenance, merchandise, and more.

An online store doesn’t require the same costs as a physical store and so can help to reduce the overall costs of running a business.

Cost-effective marketing and advertising

Online marketing has the ability to promote your products and services directly to suitable audiences.

With an ecommerce store, your online adverts can be linked directly to your website’s product pages, allowing customers to make a purchase straight away.

Increased flexibility

Ecommerce allows businesses to offer greater flexibility to their customers.

By running an ecommerce operation, a business can help consumers purchase goods regardless of the time of day or where they are located. This helps them to attract new shoppers who might prefer to buy online, and market and sell to consumers outside of the hours that their brick-and-mortar stores operate.

Simple scalability

You'll probably want to expand your product range and move into new markets as your company grows, as well as adapting your operations to meet changing consumer demands.

With an ecommerce site, you can scale your business without having to worry about moving to a bigger space – like you might with a brick-and-mortar store. You can add more products, more payment choices, and even move to new markets if needed.

Grow your business with Mollie

One way you can ensure ecommerce success is by using a payment solutions that provides the best experience possible to  your customers. At Mollie, we do just that – helping to drive growth for businesses with an effortless payment solution. Easily integrate Mollie with your website and access secure, reliable payments with transparent pricing and local support that’s always there for you when you need it. 

Find out more about payments with Mollie, or read about the businesses we help on our customer success stories. For more information on ecommerce, read our blog on ecommerce business models.

Grow your ecommerce business with Mollie
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