Understanding the Driving Forces of E-commerce

Posted: 22nd September 2020 09:32

Online businesses have been thriving in recent years. In the United States alone, statistics indicate that online sales will exceed $740 billion by 2023. Considering how work and social life is time-consuming, most Americans have found online shopping favorable.

There are a variety of factors that come into play and determine the growth rate of e-commerce. The effects of readily available fast internet, secure payment methods, and low prices in online stores are some of the determinants. With a better, cheaper technology cropping every day, the future of e-commerce is even brighter.

Let us delve into the economics behind e-commerce and explain what drives the online business.

Driving Forces of E-commerce

The growth of e-commerce is subject to several technological, economic, and social factors, including:

Increased Variety of Payment Methods

The tremendous growth of online payment platforms is among the forces propagating online sales. On the frontline of these platforms is the digital currency, including cryptocurrency, which makes trade possible even with the difference in exchange rates. The wide range of payment options makes more people opt for online shopping.

Growth of Data Analysis

The growing number of internet users allows easy collection of valuable data about e-commerce customers. Afterward, companies use Data Science and AI-powered tools to analyze the data, which gives them insights on how to shape their future approaches to direct-to-consumer retail as well as offline marketing.

Through data analysis, online B2C companies can predict purchases. They can even manipulate customer behavior to make them buy goods they have never used.

New Advertising Methods

The revolution of online advertisement is one of the forces driving e-commerce. While, in the past, companies would have to part with a considerable amount of money, this is not the case today. A regular e-commerce company can pursue SEO and get exposure almost for free.

E-commerce companies also get cheap advertising through social media. They can create an engaging post, boost it at a low cost, and draw customers to themselves.

Third-Party Logistics

The success of the online business supply chain wholly depends on logistics. Even after creating an efficient packing system, an online business would thrive without delivering to customers on time. The presence of delivery companies for hire means that online shops don't have to invest in an otherwise expensive logistics department, thereby allowing them to thrive with minimal capital.

In the United States, 80% of online shoppers opine that two factors affect their decision to buy: the shipping rate and the delivery time. Given its importance, it's reasonable to conclude that third-party logistics will play a huge role in the future of direct-to-consumer retail.

Reduced Prices

Price is a determinant of demand, and is, therefore, a dominant force behind e-commerce. Customers are bargain hunters that never want to pay more than they should. E-commerce vendors know this, and they implement pricing strategies to drive their businesses forward.

The low prices provided by online shops aren't just tools to lure customers in an online shop. The go on to increase the profits of e-commerce companies, their market share, and conversion rates. With more cash coming in, online shops thrive and expand.

Competing in E-commerce

E-commerce is a product of myriad forces. Online shops can take note of what determines the growth trends of online shopping. They can then sample out the factors they can apply to their businesses and give themselves an edge.