Shifting from brick and mortar commerce to electronic commerce

Work in progress, sources to be cited.

Technology dramatically changes markets.  It could be considered both the cause and the effect of economic activity, including recessions.  From the agricultural revolution to the industrial revolution and now the information revolution, business will continue to change, particularly with the exponential increases in technological development.  Rules, regulations, laws, and business methods will undergo modification in suit for the purpose of maintaining market stability.

Structural Adjustment

Structural adjustment policies implemented in countries since the recent global economic recession have come to define the winners and the losers in the marketplace.  Businesses with enough capital will typically acquire these losers, and with such acquisition comes change.  Structural adjustment policies break down trade barriers, and they inevitably open up affected markets to the greater world for competition.  To compete in the global market, the application of the latest technologies applicable for an industry is a must.

Brick and Mortar

Selling goods in the past required general observation of the local marketplace, sometimes traveling around to determine the best suppliers and distributors.  In 2007, when I was taking a class on Intellectual Property and E-Commerce, it was sincerely the first time I heard of the phrase “brick and mortar” as applied to types of businesses.  It is a retronym, signifying the progressive road to redundancy of businesses with simply a physical presence.

Trade Liberalization

With the breakdown of trade barriers and tariff reductions, as done in North America through NAFTA and in the European Union, competition is encouraged and increased.  The World Trade Organization and its members have implemented policies which foster this kind of trade. With the target market now based anywhere delivery services will go, having a store to drive to – or even worse, to fly to – is not what customers want.  They save that kind of traveling for tourism.  Instead, for better or for worse, customers are hooked up to the Internet, and at the convenience of typing a website URL, hitting enter, searching for a product, and clicking ‘buy’, going to the physical store is not helpful.  To be fair, this will not apply so well for the fashion retail market when it comes to handling the fitting room issue, or for large, expensive goods such as boats and cars, but there are stores that do allow for this, whether on digital auction or classifieds websites.  The fashion retail market takes advantage of e-commerce as well, sometimes offering apparel exclusively online.

Why the Change?

What happened to the businesses that failed?  Were they so outdone by their competitors that they had no chance to succeed?  Or were their business methods outdated?  It depends on the market in question, but business methods regularly become outdated.  For video rental services, going to the physical store used to be necessary.  Then it became possible to request videos for delivery, and now it is possible to watch videos on demand via the Internet, entirely removing the need for the physical store.

In the media market, access and convenience is so crucial that media piracy, particularly in the entertainment sector, was ahead of its time, siphoning off what would have been legitimate sales.  Businesses eventually accepted the reality, and many leading businesses have pioneered digital media sales, offering music, television, and film online and at a cheaper cost than physical media.  Production and distribution of media on a physical medium has proven to be inefficient and is certainly out of touch with the market.

If the customer has the convenience of not requiring transportation services to be productive, then the customer will use that convenience, especially if there is little to no hassle in terms of cost and time to achieve that desired productivity.  In some cases, customers are willing to pay for the convenience of staying wherever they are at the time of purchase.

Structural Unemployment

Regarding employment in the retail market, what happens to businesses that realize their old business methods required personnel trained in those old business methods?  Typically, unless those exact personnel can be trained to adhere to the new business methods, they will soon become unemployed.  Brick and mortar employees do not carry out the same activities as employees of a digital enterprise, and due to there being typically just one ‘store location’, fewer employees are needed altogether.

On a positive note, the capital raised by companies allows for investment in existing and potentially new sectors, eventually allowing structural adjustment to take place with the retraining of individuals on unemployment benefits to fit the new job sectors and their growth.  In the United States, a push towards renewable energy and high-speed rail infrastructure is taking place, and recognition of structural unemployment encourages investment and lobbying in this area.

Challenges and Opportunities

The information revolution has become so pervasive that profit models have changed along with it.  With the entertainment sector fully aware of the troubles of piracy and its effect on sales, some pioneers have decided to offer music, television, and film entirely free for consumers, though there is one caveat.  The advertising sector will continue to see its profits soar as companies will find easier ways to market their products and services to consumers, and one of the easiest ways is to advertise their products and services on a free product or service itself.  The business benefits from receiving advertisement placement fees, advertising companies increase their competition to provide appropriate advertisements for businesses interested in paying the original business for distributing their advertisements.  This may annoy some consumers who prefer advertisement-free content, but the solution is only part of another profit model, freemium.

Freemium gives an e-commerce business the advantage of offering a free product or service in addition to premium products or services.  Customers who prefer no advertisements will either pay or continue to be unsatisfied.  The freemium model is not highly conducive for tangible products and labor-intensive services as physical materials and actual personnel will have some kind of associated resource cost.  However, it is arguable that businesses offering ‘free consultation’ can now do so online, greatly expanding their market to the entire globe, if that is their desire.  This model also acts as free marketing for a business, informing customers of other products and services they offer without requiring the customer to look for such offers on their own.

Financial and legal advisers to companies will have to focus on these rapid, ongoing market changes to properly advise their clients, determining which business models are applicable and which ones are affordable given potential regulations and laws in effect.

Today

Today, a fruit shopkeeper in a random town or city no longer sells just to customers in the local area.  Today, the sales and distribution will take place anywhere people are willing to pay for delivery.  Today, information is moving from physical media to digital media, and the transition happens to recognize the move towards sustainability and environmental preservation.

Electronic commerce is both cost effective and environmentally friendly.  This may not factor out the resources used or the pollution caused by product allocation and distribution, but such effects alone cannot discount the benefits of advanced commerce.  These negative effects can and will eventually gain the focus required to sustain competition in reducing these negative effects, through the development of more efficient and sustainable energy and transportation infrastructure, further benefiting the economy and society as a whole.

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