Online shopping is the process of
researching and purchasing products or services over the Internet. The
earliest online stores went into business in 1992, and online retailing
took over a significant segment of the retail market during the first
decade of the twenty-first century, as ownership of personal computers
increased and established retailers began to offer their products over
Electronic commerce is used for both business-to-business (B2B) and business-to-consumer (B2C) transactions. Buying products from an online shop, eshop, e-store, internet shop, webshop, webstore, online store, or virtual store is similar to purchasing from a mail order catalog. Online stores describe products for sale with text, photos, and multimedia files. Typically the customer selects items to be listed on an order form known as a “shopping cart,” and pays with a credit card or some form of electronic payment. The products are then shipped to the customer’s address, or in the case of digital media products such as music, software, e-books or movies, may be downloaded onto the customer’s computer. Online shopping has some advantages over shopping in retail stores, including the ability to easily compare prices from a range of merchants, access to a wide selection of merchandise, and the convenience of not having to drive to a physical store. Online merchants have refined shipping methods and developed incentives such as generous return policies to overcome obstacles like delays in receiving purchases and the inability to try on or sample merchandise before buying. However, online shopping cannot replace the experience of shopping in a retail store or the entertainment value of going to a mall or market.
The idea of online shopping predates the World Wide Web. A technology for real-time transaction processing from a domestic television, based on Videotext, was first demonstrated in 1979 by Michael Aldrich, who designed and installed systems in the UK, including the first Tesco pilot system in 1984. The first business-to-business (B2B) computer network was created by Thomson Holidays in 1981.
In 1990 Tim Berners-Lee created the first World Wide Web server and browser. In 1992 Charles Stack created the first online bookstore, Book Stacks Unlimited (Books.com), two years before Jeff Bezos started Amazon.com. In 1994 other advances took place, such as online banking and the opening of an online pizza shop by Pizza Hut. During that same year, Netscape introduced SSL encryption (Secure Sockets Layer) of data transferred online, which has become essential for secure online shopping. In 1995 Amazon expanded its online shopping, and in 1996 eBay appeared.
The majority of the earliest online shoppers were young educated males who were familiar with computer technology, but by 2001 women made up 52.8 percent of the online population. Online shopping had caught the attention of the general public by 1999, and both Internet start-ups and well-known retailers launched Web sites offering their products. During the Christmas shopping season of 1999, when many consumers attempted to do their shopping online for the first time, retailers found themselves unprepared to process and ship their orders efficiently. Online retailers improved their customer service and shipping companies such as FedEx and UPS expanded their operations to accommodate the increasing traffic. By December 2008, many online retailers were able to boost their sales by offering guaranteed overnight delivery to last-minute shoppers on Christmas Eve.
Excitement over the potential of online retailing led to unrealistic business expectations during the “dot.com bubble” of 1999-2001. Start-ups attempted to sell products like groceries and dog food over the Internet without accounting for the prohibitive cost of maintaining warehouses and delivery systems. Companies with established retail stores and vendors of specialty items, however, were able to expand their customer base using the infrastructure they already had in place.
Online shopping requires access to a computer, and some form of payment such as a bank account and a debit card, credit card, or Paypal account. According to research found in the Journal of Electronic Commerce, the higher the level of education, income, and occupation of the head of the household, the more favorable the perception of non-store shopping. Increased exposure to technology increases the probability of developing favorable attitudes towards new shopping channels. Online shoppers are most likely to belong to the middle and upper classes, but as the growth of technology has made computers less expensive and available to more people, and increased the ease of connecting to the Internet, the customer base has expanded.
The popularity of online shopping is a global phenomenon. Surveys of Internet users have revealed that 99 percent of South Korean internet users have shopped online, closely followed by 97 percent of internet users in Germany, Japan and the United Kingdom. Ninety-four percent of Internet users in the United States reported that they had purchased something online. Using a credit card to purchase items on the Internet is especially appealing to consumers in emerging markets who cannot easily find or buy items they want in local retail stores.
Many successful virtual retailers sell digital products, (including information storage, retrieval, and modification), music, movies, education, communication, software, photography, and financial transactions. Examples of this type of company include: Google, eBay and Paypal. Large numbers of successful marketers, including numerous sellers on eBay, use Drop shipping or affiliate marketing techniques to facilitate transactions of tangible goods without maintaining real inventory. Small items such as books, CDs and jewelry that have a high value-to-weight and can easily fit into a standard mailbox are particularly suitable for virtual stores. The initial success of Amazon, perhaps the longest-enduring dot-com company, was based on selling items that were easy to ship.
High-volume websites, such as Yahoo!, Amazon.com and eBay, offer hosting services for online stores to small retailers. These stores are presented within an integrated navigation framework. Collections of online stores are sometimes known as virtual shopping malls or online marketplaces.
Consumers find a product of interest by using a search engine, visiting the Website of the retailer directly, or doing a search across many different vendors using a shopping search engine that offers price and quality comparisons.
Most online retailers use shopping cart software that allows the customer to select multiple items to add to an order and adjust quantities. Once the order is complete, the customer moves through a "checkout" process during which payment and delivery information is collected. Some stores allow consumers to sign up for an online account that keeps payment information and shipping addresses on permanent record so that the checkout process can be automated. The consumer typically sees a confirmation page and is sent an e-mail confirmation once the transaction is complete. Additional emails notify the customer when the order has been shipped and may provide tracking information for the shipment.
Less sophisticated stores may simply display a catalog on their Web site and rely on consumers to order by telephone or email.
Online shoppers commonly use credit card to make payments, however some systems enable users to create accounts and pay by alternative means, such as:
- Debit card
- Various types of electronic money
- Cash on delivery (C.O.D., offered by very few online stores)
- Electronic bank check
- Wire transfer/delivery on payment
- Postal money order
- Google Checkout
- Amazon Payments
- Bill Me Later
- Money bookers
- Reverse SMS billing to mobile phones
- Gift cards
- Direct debit in some countries
Some merchants are not prepared to ship overseas and will not allow
international credit cards and or shipping addresses outside the country
in which site does its business. Other sites allow customers from
anywhere to send gifts anywhere in the world. The financial part of a
transaction may be processed in real time (for example, letting the
consumer know immediately that a credit card has been declined), or
might be done later as part of the fulfillment process.
Once a payment has been accepted the goods or services can be delivered in a number of ways:
- Download: This is the method often used for digital media products such as software, music, movies, or images.
- Shipping: The product is shipped to the customer's address.
- Postal service: The merchant uses regular mail services to send the product.
- Drop shipping: The order is passed to the manufacturer or third-party distributor, who ships the item directly to the consumer, bypassing the retailer's physical location to save time, money, and space.
- In-store pickup: The customer orders and pays online, finds a local store using locator software and picks the product up at the closest store. This is the method often used in the bricks and clicks business model.
- If the purchase is an admission ticket or a gift card, the customer may receive a numerical code, or a ticket that can be printed out and presented at the gate. To prevent duplication, the same right of admission cannot be used twice.
- Electronic check-in: A customer purchasing an airline ticket receives only a confirmation email, and checks in at the airport by swiping the same credit card or a passport at a kiosk.
Shopping cart systems
- Simple shopping cart systems do not use an online database. The merchant creates an offline database of products, categories, graphics and prices, and then uploads it to an online shopping cart.
- Sophisticated shopping cart software can be bought or rented as a standalone program or as an addition to an enterprise resource planning program. It is usually installed on the company's own Web server and may be integrated into the company’s existing supply chain system so that ordering, payment, delivery, accounting and fulfillment can be automated to a large extent.
- A merchant can register and create an online shop on a portal that hosts multiple shops and offers additional services such as credit card processing.
- Open source shopping cart packages include advanced platforms such as Interchange, and off the shelf solutions as Satchmo, osCommerce, Magento, Zen Cart, VirtueMart and PrestaShop. These can be tailored to suit the merchant’s needs.
Web site design
Customers choose online shopping because of its high level of convenience, and because it offers a broader selection; competitive pricing and greater access to information. For a retailer, a shopping Web site increases sales, increases customer access to its products, and strengthens brand awareness and customer loyalty. Good Web site design is crucial to the success of an online shopping Web site. Many retailers continue to face challenges in creating a satisfactory and appealing online shopping experience for their customers.
Online shopping sites provide detailed product information that is not usually available in a retail store, along with a means of easily comparing the attributes of several similar products. The amount of information and the way in which it is presented directly affects the customer’s inclination to buy products and services online. Two important factors that have been found to influence buying behavior are complexity and novelty. “Complexity” refers to the number of different elements or features of a site; a site that presents the same information in several different ways has the potential to induce impulse purchases. Novelty involves adding unexpected, new, or unfamiliar aspects to a site, such as weekly special offers, seasonal products, news articles, and pop-up windows; novelty keeps customers exploring the shopping sites.
User-centered design is very important. The purpose of an online shopping site is to build relationships with customers and make money. The primary focus of the Web site should be satisfying the consumers' expectations, not supporting the organization’s culture and brand name. Consumers seek efficiency, good customer service, a sense that the company cares about them, and a consistent experience each time they return to the site. An organization must invest substantial resources to define, design, develop, test, implement, and maintain a shopping Web site. Errors should be corrected as soon as they are discovered. To retain customers, a customer service network must return emails in a timely fashion, notify customers of problems, be honest, and be a good steward of the customers’ data. Internet sales cannot be fully automated; a large number of online shoppers contact the company by telephone or email to ask questions before making a purchase, and to resolve problems afterwards.
Web design must allow for the cultural peculiarities and tastes of prospective customers. Design elements that appeal to a Japanese or Chinese customer may have the opposite effect on a German customer. It is important to make the information on a site available in the language of the customers to avoid misunderstandings and increase their confidence in the product. A user’s familiarity with the internet also affects behavior on a shopping site. Experienced users focus more on the variables that directly influence the task at hand, while novice users concentrate on locating and understanding the information on a shopping site.
Online shopping and retail shopping
Online shopping offers certain benefits and advantages, but it will never replace the experience of shopping in a retail store. A customer who knows exactly what he or she wants can look it up online, read and compare the information, and purchase from the site that offers the best price or service. A shopper who is uncertain what to look for, or who just enjoys browsing through items on display, will prefer a retail store where the merchandise can be seen, handled and sampled. The décor, music and arrangement of goods in a retail store creates a multi-dimensional shopping environment that cannot be duplicated online. For many people, going shopping at a mall, department store or market is a form of entertainment and a social experience.
Many people who are currently unfamiliar with computers and do not feel comfortable using the Internet to shop are not likely to change their habits.
Online stores must describe products for sale with text, photos, and multimedia files, while in a retail store, the actual product and the manufacturer's packaging are available for direct inspection which might involve a test drive, fitting, or other experimentation. In a conventional retail store, clerks are typically available to answer questions. Some items, like clothing and shoes, may need to be tried on before the customer can be certain that they are the right size. Online shopping sites offer size charts, diagrams and multi-sided views to help the customer make a selection. Most offer generous return policies to encourage customers to place an order.
Advantages of online shopping
Online stores are available 24 hours a day, and many consumers have Internet access both at work and at home. A visit to a conventional retail store requires travel and must take place during business hours. During the holiday season and on weekends, shoppers in retail stores must contend with crowds and long lines.
Searching or browsing an online catalog can be faster than browsing the aisles of a physical store. One advantage of shopping online is being able to quickly seek out and compare prices for items or services from many different vendors using search engines and online price comparison services. In certain market segments such as books and music, computers and consumer electronics, shoppers find a greater selection online and may be able to locate refurbished or second-hand items at much lower prices.
Collectors and hobbyists can find supplies and rare items online that are rarely available in retail stores, and can use auction sites to sell, trade and research collectibles, antiques and one-of-a-kind pieces. Specialty products such as ethnic foods and wines, outdoor equipment, and sporting goods are also sold at competitive prices online. Online shopping is also an efficient way to buy automobile parts and replacement parts for appliances, since it is difficult for a retail outlet to keep them in stock.
Some online stores provide or link to supplemental product information, such as instructions, safety procedures, demonstrations, manufacturer specifications, advice, or how-to guides. Many shopping sites allow customers to comment or rate their items. There are also dedicated review sites that host user reviews for different products.
In most cases, merchandise purchased online must be shipped to the customer. This introduces a significant delay and potential uncertainty about whether or not the item was actually in stock at the time of purchase. Many retailers inform customers how long they can expect to wait before receiving a package and provide a delivery tracking number. Even if a purchase can be made 24 hours a day, the customer must often be at home during normal business hours to accept the delivery.
In the event of a problem with the item, the customer may need to contact the retailer, visit the post office and pay return shipping, and then wait for a replacement or refund.
Shipping costs (if applicable) reduce the price advantage of online merchandise, though depending on the jurisdiction, a lack of sales tax may compensate for this. Online retailers sometimes make a profit by charging a standard shipping fee that exceeds the actual cost of shipping the item.
Bricks and clicks stores offer the ability to buy an item online and pick it up in a nearby store. Orders are filled immediately so that they are ready before the customer has time to arrive at the store. This feature gives retail stores a competitive edge over other online retailers who might offer lower prices but must ship out merchandise, and satisfies customers who want their goods immediately. It also brings online customers onto the store premises where they might buy additional merchandise or seek assistance with a product.
A large proportion of people that shop online use a search engine to find what they are looking for while others find websites by word of mouth. Many shoppers respond to special offers in emails and advertising, or find a merchant through a price comparison Web site.
Trust is a significant factor in selecting an online merchant. Sixty percent of online shoppers who have a good first experience with a certain Web site return to that website to buy more. An established retailer with a well-known brand is more likely to be trusted than an unknown merchant.
Books and music are the most popular online purchases, followed by clothing and accessories, shoes, videos and DVDs, games, airline tickets and electronic equipment. Cosmetics, nutrition products, and groceries are increasingly being purchased online. About one fourth of travelers buy their airplane tickets online because it is a quick and easy way to compare airline travel and make a purchase.
Many successful purely virtual companies deal with digital products, (including information storage, retrieval, and modification), music, movies, office supplies, education, communication, software, photography, and financial transactions. Examples of this type of company include: Google, eBay and Paypal. Other successful marketers use Drop shipping or affiliate marketing techniques to facilitate transactions of tangible goods without maintaining real inventory. Examples include numerous sellers on eBay.
Bricks-and-mortar retailers often use their online shopping sites to drive sales both online and at their retail stores by posting information about in-store specials online and by offering free add-ons such as batteries or accessories to customers who research products on their Web sites.
Fraud and security concerns
Online shoppers have a higher risk of being defrauded by a merchant because they are unable to physically examine merchandise before purchasing it. Dishonest sellers occasionally accept payment for an order and never send the merchandise. Most credit card services offer protection against this type of fraud. Merchants also risk losses from purchases made using stolen credit cards, or fraudulent repudiation of online purchases.
Secure Sockets Layer (SSL) encryption prevents credit card numbers from being intercepted in transit between the consumer and the merchant. Identity theft is still a concern for consumers if hackers break into a merchant's web site and steal names, addresses and credit card numbers. Computer security is a major concern for merchants and e-commerce service providers, who deploy countermeasures such as firewalls and anti-virus software to protect their networks.
Phishing, in which consumers are fooled into thinking they are dealing with a reputable retailer, and are manipulated into giving private information to a malicious party, is another danger. Denial of service attacks are a minor risk for merchants, as are server and network outages.
Consumers can protect themselves when using online retailer services by:
- Using known stores, ensuring that there is comprehensive contact information on the website before using the service, and noting if the retailer has enrolled in industry oversight programs such as trust mark or trust seal.
- Ensuring that the vendor address is protected with SSL (see above) when entering credit card information. The URL of the credit card information entry screen should start with "HTTPS."
- Using strong passwords, which do not include personal information such as names or birthdates.
- Reading independent consumer reviews of personal experiences with a company or product. These can often be found by typing the company name into a search engine.
- Confirming that special offers in emails or online advertising are genuine by going directly to the merchant’s site.
Most companies offer shipping insurance in case a product is lost or
damaged; if an item is particularly valuable the customer should confirm
that it is insured.
Protection of personal information is important to some consumers. Legal jurisdictions have different laws concerning consumer privacy, and different levels of enforcement. Many consumers wish to avoid spam and telemarketing which could result from supplying contact information to an online merchant. Most merchants promise not to use consumer information for these purposes, or provide a mechanism to opt-out of such contacts.
Retail stores also collect consumer information. Some ask for addresses and phone numbers at the cash register, though consumers may refuse to provide it. Larger companies sometimes use the address information encoded on consumers' credit cards to add them to a catalog mailing list.