Limitations of Online Enterprises

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LIMITATIONS OF ONLINE ENTERPRISES

When planning an online business, many entrepreneurs focus on the advantages the Internet offers, like its wide reach and easy accessibility. Even though early concerns about online transactions—the reliability of Internet connections, customers' willingness to use credit cards online, and processing returned merchandise—have largely been resolved, limitations still exist, some universal and some company-and industry-specific. As a result, entrepreneurs must consider potential disadvantages of online operations as they plan their businesses.

One of the Internet's biggest shortfalls is that online shoppers can't pick up, touch, and try on products. Keep this in mind when deciding what to sell online. Quite often, sized items like clothing and shoes can pose a problem, although several online retailers have done so successfully by devising creative solutions to the problem. For example, Landsend.com built a feature called Your Personal Model that allows users to enter their physical dimensions and view pictures of what a person their size and shape might look like in certain clothing. The site also offers Outfits Online, a tool that allows an online customer coordinate 4,750 different outfits; this feature capitalizes on Internet technology to offer services beyond what a customer might be able to do in a physical store.

If you are planning to sell a product on the Web that appears, at first glance, better suited to a retail store, you will likely have to do more than simply offer the merchandise for sale online. Automobile manufacturers like Ford Motor Co. and General Motors Corp. struggled to sell cars online in the late 1990s early 2000s. According to a January 2001 issue of E-CommerceTimes, "thatautomakersanddealersareoffering a new way and place to buy a car is not enough to drive online sales." After realizing this, Ford and GM began exploring incentive programs for online shoppers, "banking on convenience and innovation to assuage consumerdoubtsaboutbuyingcarsonline."Bothauto-makers beganexperimenting with programsthat would allowcustomerstoplacecustomizedordersforvehicles via the Internet and receive delivery at their homes within two to three weeks.

One reason it's difficult to sell large, expensive merchandise such as automobiles and furniture online is the logistics involved in getting the product to the customer. While offering free shipping might entice shoppers to make a purchase, you may find yourself unable to turn a profit without passing these costs along to your customers. At the same time, you might find consumers unwilling to pay costly shipping charges for something like furniture when retailers in their area are willing to deliver it for free. Many analysts believe the best products to sell via the Internet are those that can be easily shipped, for instance, books and CDs. Along with modest packaging and shipping costs, customers have the added benefit of knowing exactly what to expect when they order such a product. While smaller products like jewelry and wine might also seem reasonably easy to ship, keep in mind that costs tend to rise for products that are more valuable, fragile, or perishable.

These limitations are not insurmountable, but they are issues you must be aware of and able to overcome profitably. For example, the leading grocery chain in the United Kingdom, Tesco, circumvented delivery problems by creating a new service that allows customers to order and pay for groceries online. But rather than handle the logistics of scheduling the delivery of perishable items, Tesco asks customers to pick up their own groceries, which have been gathered and bagged for them. According to a March 2002 issue of E-commerce Times, this service "saves huge amounts of time for many customers and carries negligible infrastructure costs for the company because it makes use of existing stores."

Also keep in mind that the Internet marketplace grows increasingly competitive every day. If you are planning to sell a product offered by many online businesses, such as electronics, you will face intense competition. To see if this limitation exists for your business, you can conduct a few simple searches on the product or products you are planning to sell. Are a large number of businesses selling the same products online? Are the businesses selling those products large corporations that will likely be able to purchase stock from manufacturers less expensively than a smaller rival? If the answer to either of these questions is yes, you will need to decide if it is possible to differentiate yourself and devise strategies for doing this. Inc.com writer Chris Malta recommends selling "the products people use but don't find every time they open a Web browser." Whatever products or services you decide to offer online will likely face certain limitations, and recognizing these issues will allow you to develop more effective business strategies.