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To What Extent Is An E Commerce Strategy The Best Way For Businesses To Increase Their Profits? (40 Marks)

1432 words - 6 pages

To what extent is an e-commerce strategy the best way for businesses to increase their profits? (40 marks)

E-commerce is the online transaction of goods and services, which has completely revolutionized business and the way in which businesses can operate. It’s now easier for customers to compare prices/products with a little time spent browsing the Internet opposed to dragging themselves to the stores. This means that e-commerce is having an impact on what and how much businesses sell, therefore influencing the profits the business gets. In this essay I will consider whether an e-commerce strategy is the best way for a business to increase their profits, or whether e-commerce is not the ...view middle of the document...

g. Amazon). The new website was highly successful and ‘saw HMV return to profit’ (The Telegraph). This shows how an e-commerce strategy is the best way for a business to increase their profits as it illustrates how e-commerce can bring a business from administration to planning to expand into 10 new markets due to increased profits.
Despite this, e-commerce doesn’t guarantee a business profit increases, as instead it can pose severe threats. One such threat is the risk of cyber attacks. A cyber attack is an attempt by hackers to damage or destroy a computer network or system. If a business falls vulnerable to one of these attacks it can severely damage their reputation. This reputation damage can lead to a loss of trust in the company by customers, as they will potentially have personal details such as bank cards/addresses accessed. This loss of trust will decrease brand loyalty and so the business will lose customers to competitors meaning lower sales and so decreased profits. Talk Talk shows a very recent case of a cyber attack. In October 2015 Talk Talk found themselves exposed to a cyber attack. Around 4% of the companies 4 million users were affected by the events. With More than 15,600 bank account numbers and sort codes were stolen, the company said. The scandal resulted in a £35 million pound loss for the company. This points shows how e-commerce can provide huge threats to companies despite the number of opportunities it provides too. These big risks that come alongside e-commerce mean that e-commerce is not necessarily the best way for businesses to increase their profits as one bad event for the company can lead to huge losses.

However, e-commerce is allows businesses to reduce the intermediaries in the distribution process and sell directly to consumers. This is because the products are not moved from manufacturers to distributors to physical stores then the consumer. E-commerce cuts out the need for the physical store and so saves transportation costs. This process is called disintermediation. Disintermediation allows greater efficiency and reduced costs, which due to reducing the number of transactions and processes involved. The business is therefore left with an option to either reduce the price of their products, which may lead to more consumers buying the product (PED), potentially allowing an increase in profit. However they could maintain their selling price. This will allow them to increase their profit margin and so potentially increase profit. Dell used e-commerce to apply a disintermediation strategy into his business model in the early 2000’s. As a result of the venture into e-commerce the business increased their sales to $4 million a day. This combined with the money saved through cutting out the middleman resulted allowed Dell to increase their profits. This point shows how e-commerce provides numerous opportunities to businesses to allow them to make processes easier, lower costs and therefore create bigger...

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