E-Tailing in Food and Non-Food Sector in Hong Kong

Executive Summary

E-tailing is a relatively new concept in internet-based commerce which has been picking up the pace all around the world in the retail markets. Both food and non-food retailers are taking up e-tailing to improve the scope of their business and attain access to a wider target market for higher levels of sales and profits. The following paper provides an introduction to online retailing and how food and non-food businesses can be successfully set up in the retail market in Hong Kong. The paper also highlights the benefits that can be attained through e-tailing and the problems and issues that are associated with it. A successful organization for e-tailing has also been depicted along with actionable recommendations that can push a retailer to commence e-tail operations on the internet.

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Principles of E-tailing

E-tailing is essentially retailing on the internet through a website or a portal while conducting sales transactions with the customers. “E-tailing or the virtual storefront and the virtual mall as a place for direct retail shopping, with its 24-hour availability, a global reach, the ability to interact and provide customer information and ordering, and multimedia prospects, make E-commerce a rapidly becoming a multibillion-dollar source of revenue for the world’s businesses” (Reddy & Iyer, 2002). Online retail is a recent trend that has been taken up by the trade and retail industry worldwide. The feasibility of catering to a wide audience through a centralized portal is attractive to many businesses as it tends to decreases the barriers to entry into the retail sector. However, in order to successfully build an e-tail business, it is important to consider the principles of commerce and trade on the interest.

The principles of e-tailing can be categorized as per the function of the business and its online portal/ website. These include sales, support, customer demand fulfilment, shipping, billing and invoicing, warehousing as well as distribution (‘Building and Managing Websites’, 2000). The principles dictate that in order to commence an e-commerce establishment an e-tailer first has to plan out the business type, the product and service offering and how its plans to conduct transactions with the customers and deliver the products to them in a safe and secure manner. Aside from this the e-tailer also has to ensure the authentification of the purchases being made and the tracking of the bills and invoices for the customer as well as for business records. Additionally, an interface with the ASP and a banking institution is also required. The principles of e-tailing provide that a good e-tail business should have a site that directs the potential customer to itself, provides high-quality information about the products and services and provides support to the customers while being interesting and engaging the attention of the customers (‘Building and Managing Websites’, 2000).

E-tailing in Hong Kong

Hong Kong is the main business province of China that has extensive exposure to international trade and markets. The traffic commuting online and the usage of the internet in China has dramatically increased in the past few years. This is primarily due to the reason that Hong Kong gets additional business and market from the international as well as the local in the market in the face of Beijing and China having restrictions on the internet and the use of e-commerce for certain transactions. “Although Internet usage in China has boomed over the past ten years, the nation’s retail e-commerce is still in startup mode, particularly compared to the United States” (Peters, 2008). In Hong Kong, however, the aspect of e-tailing has picked up speed but the quality of the service provided through the e-tailing sector still needs improvements. Hong Kong’s Laissez-faire attitude towards e-commerce has immensely helped the e-tail business to flourish in the region.

The constraints to the growth of e-tailing in the region include the e-tailing itself that presents a dramatic change to the consumers from shop based purchasing. The fact that damaged products are being delivered and poor service quality has put off consumers from e-tailing in the region as they are unable to return the damaged goods and run a high risk when purchasing online through credit cards instead of cash. The structuring and the establishment of a feasible yet reliable logistics model is another hurdle that is widely faced by e-tailers in Hong Kong. This is due to the large distances that need to be covered in order to cater to the target market in mainland China. As a result most e-tailers only limit their operations to the metropolitan cities in the region.

The e-commerce market in Hong Kong is such that the market that makes purchases online includes teenagers and young adults that are studying in schools and universities as well as older aged customers that use the online purchasing option of fulfilling their urgent purchases. The intense traffic in the region of Hong Kong makes it especially favourable for the customers to purchase online as it saves them a lot of time and costs associated with an opportunity lost and fuel The frequency of the purchases however depends on the products being purchased online. Products like furniture, appliances and other one-off purchase usually are less frequented, while purchases on f technology-based products and those sold electronically as computer software or programs are much higher. The online purchases for grocery and routine purchases are also in the increase in the local market.

The electronic and online products that are most frequently sold via the e-tail option are electronic gadgets relating to computers like laptops, accessories, hard drives, and other electronic equipment like cameras, I-Pods, PDA, cell phones & mobiles as well as related software. Apparel and lifestyle products are also some of the products that see frequent online sales. The prices of these products vary from shop to shop and how the customers perceive the brand and quality of the product to be worth the price.

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Issues and Problems with E-tailing

Some of the disadvantages that are associated with online retailing pertain to the fact that not all users are able to access the internet as opposed to the postal system. As a result, they find catalogue shopping much more feasible instead of shopping from online retailers. The users also find the computer technology and the internet complex to use. Aside from this the trustworthiness of the e-tailor and the security and privacy concerns of the customers pertaining to their financial transactions are also the lingering disadvantages of online retail in the retail market today. “While e-commerce has witnessed extensive growth in recent years, so has consumers’ concerns regarding ethical issues surrounding online shopping.” (Roman, 2007) The personalization of the online shopping experience on part of the retailer is often subjected to being an invasion of the privacy of the customer by the customers. The online payment transaction itself also poses many problems for the customers who think of it to be less reliable, more unsecured with the private account and financial information easily traceable for the hackers and identity thieves.

Other issues that are faced by online retailers pertain to the level of service quality and the end product that is delivered to them. Often customers who undergo transactions with online retailers find themselves saddled with broken items or items that are significantly different from what is advertised and sold through the e-tailer. Additionally, the delivery delays, problems with tracking the orders placed have also become issues for customers. The issues that are present for the e-tailers pertain to attracting customers towards an e-business format despite all the issues and establishing a feasible and efficient logistics system that ensures a high level of service quality and prompt delivery with minimal lags and delays.

The Last Mile problem is a very common problem faced with online operations and e-tailing. This problem deals with providing internet access to the very last customer or market possible. This signifies the connection between the network provider and the customer. When considering online retail, the scope of the market and the range of the internet service providers are essential factors as it is highly possible for the target market of the e-tail companies to lie outside the range of the internet where they do not have access to the products and services provided by an e-tailer.

Benefits of E-tailing

Despite the many issues and problems that have been highlighted above, there do exist many advantages to online retail that attracts retail businesses to invest in online operations. Through online retail shopping portals, customers are provided with a wider choice of options and products that can be purchased at the simple click of a button. This leads to global market places where the target market for the e-tailer spans the boundaries of regions and countries. The web searchability of the search engines and navigation makes online shopping much feasible for the customers as they don’t have to spend money and time traversing through the rush hour traffic or standing in the long queues at the retail stores.

By investing in a CRM system to track the purchases of the customers and develop customer profiles the retailers can target the market to the niche in their target segments of customers for better response rates. The product placement on the shopping portals along with the marketing of associated products and cross-selling can be adopted by the retailer by tracking the historical purchases of the customers. The cost of operating an e-tail operation is much less than running a retail store which can be very attractive to online retailers. In fact, e-tailing has reduced the barriers to entry into the retail sector on a global scale. Online retailers also face cost savings in terms of labour cost, and costs associated with document preparation, reconciliation, overtime with reduced time for operations and the reduction in the required human resource. When it comes to tax, income, tax can be saved by retailers in low-tax jurisdictions, while lower value-added tax can be charged in certain countries of operation by the online retailers as well. (Helmer et al, 2001)

E-tailing in International Markets

Online retail and e-tail in the international market have grown considerably. Many successful and well-known businesses have been formed using the internet. Amazon.com is one of the most famous online retailers that started off as an online book store selling e-books and has now expanded its operations and product line to sell items from apparel, electronics and software as well as e-books and hard copy books. Similarly, other successful e-tailers include ASDA, Wal-Mart, Tesco, Target, Marks and Spencer’s. These retailers provide a wide range of items that are also sold at their retail stores. Most of these companies have online operations targeting the markets of North America and Europe.

How Logistics Operations Should Be Structured and Implemented To Ensure Efficient & Effective E-Retailing Operations

The analysis of the online retail industry in China and Hong Kong have highlighted issues pertaining to logistics that are common with the issues faced by most online retailers in the global e-tail industry. The biggest set back faced by the online retail industry is the issue of security and the low level of service quality. Both of these are driven and supported by the logistics of e-tailing. In order to ensure that the customers have a positive experience with online shopping and to increase their loyalty for repeat purchases the food and non food retailers need to set up a logistics system that is efficient, fast as well as reliable.

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The logistics operations can be made more efficient by partnering with the suppliers and entering into trade agreements and relationships of service with them whereby the suppliers can provide the goods and services through a JIT method to the delivery chains and operations of the retailer as and when required. This would reduce the level of stand by inventory carried and the costs associated with it incurred by the online retailer. Additionally investments will have to be made in the packaging division whereby shock proof, water proof and sustainable materials can be used to pack the parcels to be delivered to the customers. This would ensure the safety and the integrity of the products being shipped. Aside form this the e-tailer would also have to enter into shipping agreements with its distributors to dictate the excellence in service quality and the insurance of delivery to customers in a benchmarked time limit that is promised to the customer

Conclusion

Conclusively it can be stated that online retailing is the future is definitely the future of retailing, however significant investment in technology, business processes, relationship building and management of the retail business is still required ton make e-tailing more mainstream in the region of Hong Kong.

Recommendations

Research studies undertaken on the service level of the online retailers and the satisfaction and loyalty of the customers on the internet with the e-tailers have provided that customers value online retailers that deliver the product safe and sound on time, are willing to cater to the demands of the customers, are prepared to address the problems of the customer as and when they occur as well interaction level that is offered on the website of the e-tailers (Collier & Bienstock, 2006). Based on this it can be derived that for operating successfully on the internet, food and non food based online retailers would have to understand the needs and the requirements of the customers in order to meet their expectations. The e-tailers would need to invest in a CRM based technology that allows them to track the purchase and the shopping behaviour of the customers to better understand them and comprehend their needs.

Online retailers should also invest in string brand images in order to create awareness of their entity and the product and services offered in the target markets. Especially for new entrants a well rounding marketing and branding strategy is essential to introduce the business in the market and attract the customers to the website. “Retailers must realise that their Web sites aren’t merely supporting their high street stores, but are becoming the favoured channel for many consumers. Therefore the positive elements of the high street experience should be replicated online. This means large stock range, personal service, reliability and brand experience, as well as the convenience that the Internet already offers.” (Dawson, 2006) Aside from this the online retailers also have to brandish the security concerns of the customers by increasing the security of the data being managed and handles in the online environment and ensuring the safety of the credit card records and payment transactions of the customers. The lack of proper security have led to security scares that greatly impact the trustworthiness of the brand which is a crucial factor when customers think of repurchase based on their previous experiences as well as those incurred by their peers.

The e-tailers should also invest in the establishment of effective and efficient logistic operations and back end delivery functions to support their online business. A reliable, trustworthy and safe delivery of the products to the customers speaks of high level of service quality that needs to be ensured by the online retailers in order to be competitive and have the competitive advantage over others. The operations of the online retailer need to be integrated to encourage the use of technology for the efficient management of transaction information to the post transaction delivery. On a global scale, the retailers also face legal issues with online retailing as their target market can span across borders. Global legal standards and integrated business technology are required to ensure that the legal issues faced by the e-tailors can be curtailed.

As mentioned earlier, managing the logistics of delivery of products and services is very difficult to manage for e-tailer. Therefore for a new e-tailer, it is recommended if the company can launch display stores or fulfilment centres and stores. The purpose of these stores would be to encourage the customers to make purchases online. The customer can view and ‘touch’, the tangible products sold online at these display stores that would increase their trust in the purchase and provide them information about the real time dimension, quality and the looks and feel of the product. The fulfilment centres can regionally delivery the products and services to the customers. The customers can also be provided with the option of collecting their purchases themselves from the fulfilment where they prefer.

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