What is e-commerce? Your ultimate guide

Looking to step into the thriving and lucrative world of e-commerce? This guide covers all the essential things you should know for success – including the types of e-commerce, the future of e-commerce, and the key to optimising your business’ logistics operations.

In today's digital world, e-commerce has transformed how most people buy and sell goods and services. From small businesses to global corporations, e-commerce has become an integral part of the commercial landscape, offering unparalleled opportunities for growth and expansion.

This guide will delve into e-commerce, providing you with a comprehensive understanding of its various facets, benefits, and challenges. Whether you're a budding entrepreneur or an established business owner, this guide will equip you with the knowledge and insights to navigate the world of e-commerce successfully.

Definition of e-commerce

E-commerce refers to the buying and selling of goods and services over the Internet. It differs from traditional brick-and-mortar businesses, which are focused on the exchange of products and services, but face-to-face. Operating in the digital realm, e-commerce offers 24/7 availability to customers worldwide.

Thanks to rapid digitalisation, e-commerce has become a regular part of many people’s lives. In 2023, e-commerce accounted for over 19% of retail sales worldwide. Forecasts suggest that by 2027, the online shopping realm will reach a quarter of total global retail sales.¹

Types of e-commerce

There are several types of e-commerce:

B2C – business-to-consumer

This is the one that you are probably most familiar with. It involves online businesses – typically retailers – selling products and services directly to consumers. Examples include grocery and apparel brands, small businesses with their own e-commerce website, and subscription-based services, like Netflix.

B2B – business-to-business

This involves electronic transactions of goods and services between businesses. Examples include commerce wholesale, where the buyer sells to an end customer (B2B to B2C). B2B e-commerce is a fast-growing sector; typically, negotiations would have been done in person, but much of it is moving online due to digitalisation.

C2C – consumer-to-consumer.

This involves the electronic transactions of goods and services between consumers. Typically, these are conducted via a third-party online platform like eBay or Facebook Marketplace. This allows individuals to buy and sell used or new goods, offering a platform for entrepreneurship and providing consumers with a broader range of choices.

C2B – consumer-to-business

This is where consumers sell their products or services to businesses. Examples include online influencers selling ad space on their blog, or a photographer selling their images to businesses via a dedicated platform like Shutterstock. C2B e-commerce empowers individuals to monetise their skills and creativity while providing businesses with access to a diverse pool of talent and resources.

Benefits of e-commerce

Any small or existing business looking to grow should make e-commerce a central part of their strategy. It’s a lucrative opportunity, and setting up an online store has never been easier. The many advantages include:

It’s growing – and fast

Global e-commerce sales are projected to grow over the next four years, pushing the market to a staggering US$6.8 trillion by 2028². This demonstrates the increasing popularity of online shopping and the vast potential for businesses to reach a wider audience and boost sales through e-commerce channels.

Low operating costs

Setting up an online store is much more affordable than a brick-and-mortar outlet, without the need to pay for rent, store design, and staff. Budding e-commerce entrepreneurs can start small, selling on an online marketplace like eBay, which has relatively low risks associated. There are also many low-cost marketing tools at your disposal – setting up a brand page on Instagram, for example, is free, and is a powerful way to engage with thousands, if not millions, of potential customers.

Global reach

Thanks to the growth of international shipping, opening your online store to the world has never been easier. Of course, this requires some market research into which countries are hot buyers of your products, and ensuring your e-commerce website is customised for local buyers (think language and payment methods), but the opportunity to maximise your sales is vast.

Powerful customer data

You can’t improve your business without really knowing your customers, and this is where e-commerce really thrives. As an online seller, you’ll have access to invaluable behavioural data about your customers: how they arrived at your website, what products they were searching for, where their engagement was highest, and what made them abandon a cart – all of which you can utilise to continually improve your business and maximise sales.

Key components of e-commerce

When setting up an online business, these are the most important components of a successful e-commerce business strategy.

Customer engagement

A big one. At every touchpoint of your online presence – from your e-commerce website to your social media channels to your marketing emails – you should carefully consider the customer experience. Online shoppers expect ease, convenience, and speed – and so much of that is tied into the next point.

Website and design

Your website is the face of your brand – but its importance goes beyond its aesthetic. Visitors will expect a fast, intuitive experience; otherwise, they’ll abandon your website altogether. There’s a lot to consider – from page loading speed to navigation to customer service – so check out our 22 golden rules of e-commerce to tick them all off.

Online payments

Did you know that online shoppers are 70% more likely to finalise a purchase if their preferred payment method is displayed as an option at checkout?³ But which ones should your business offer? Credit cards? Digital wallets? And what about ‘buy now pay later’ instalment plans? Dive into our guide to the new ways to pay to get started – and remember to do your research into local preferences if you’re selling internationally.

Dynamic pricing

This involves changing the prices of your products based on market trends, supply and demand, inventory level, and customer expectations. Being flexible with your pricing strategy is key to remaining competitive – for example, price matching a competitor’s products.

Today, there are many AI-powered technology platforms that can monitor your inventory to find the optimal price points for your products, based on demand. This will benefit your business and your customers.

Supply chain

The supply chain is the entire network involved in sourcing and procuring raw materials, converting those materials into finished goods, and distributing those finished goods. As an e-commerce business, you may work with several partners along the supply chain, so maintaining regular communication is key to anticipating hurdles and putting plans in place – such as if a supplier is going to be late with one of their deliveries to you.

An agile supply chain can quickly adapt to market changes, anticipate spikes in demand, and meet customers’ delivery expectations – here are some tips.

Logistics

Logistics is part of the supply chain your business is responsible for and covers procurement, inventory management, distribution, warehousing, transportation, packaging, and risk management. For small businesses, in particular, logistics should be considered essential to reducing costs, staying competitive, and getting products to customers on time. There are an increasing number of technologies available to help you optimise these operations – for example, software to improve the efficiency of your warehouse layout and route planning software to reduce your transportation costs. Here are a few to consider.

Returns

It’s an unfortunate downside of e-commerce that products are frequently returned by consumers. But before you skip this section, consider this: 67% of consumers will check an online retailer’s return policy before committing to a purchase⁴, so taking returns seriously is key. In fact, it’s so important that there’s a whole article about it – including a free returns template with everything your customers will expect.

Challenges of e-commerce

It wouldn’t be a complete e-commerce article without acknowledging some of the challenges of the sector. The key is to be aware of them and stay one step ahead!

Customer experience

Customers’ expectations of their online experiences are growing – keeping up with them can be demanding and expensive. For example, 66% of shoppers now expect free shipping on every order they make online⁵, whilst 88% want brands to help them be more environmentally friendly⁶. And these examples are just a couple of many. Yet, investing in customer experience is vital for your business – remember, it’s cheaper to retain a loyal customer than acquire a new one!

Competition

E-commerce is fiercely competitive – whatever you’re selling, the chances are there are countless other online businesses out there offering the same.

By conducting a thorough competitor analysis, you can learn best practices to market and sell more effectively, and identify gaps in the market your business can pivot to meet.

So, what are your business’s strengths? Where are you falling short of your competitors? And what strategy should you take to improve? This free competitor analysis template will help you find the answers.

Website and conversion

The average e-commerce conversion rate in 2022 – that is, the number of orders versus visits to a website – was 3.65%⁷. This may seem underwhelming, but there are steps your online business can take to improve it. Your website analytics will show when customers abandon shopping carts or drop off your site. Perhaps you are losing them when you ask them to register an account – in this instance, introducing “Guest Checkout” could be transformative. Optimising your website will be a continual task, but worth it to improve your conversions.

The future of e-commerce

What does the future of e-commerce hold? And what does that mean for your business’ growth strategy?

Omnichannel retail will continue to grow

The way online consumers shop is often a complex journey involving several different channels. They may research a brand on Instagram, compare prices on an online marketplace, and then complete the purchase on a brand’s dedicated mobile app. The challenge for businesses is to ensure these different touch points work together; 87% of shoppers want a personalised and consistent experience across all⁸. Check out some tips for success here.

 AI for automation

With online businesses facing increasing customer expectations, technologies are emerging to automate several areas of their logistics – from indoor mobile robots to optimise picking and packing within warehouses, to smarter chatbot technologies that can better engage website visitors. Discover the full breadth of exciting innovations transforming the e-commerce industry with the exclusive Logistics Trend Radar.

The sustainability factor

In response to consumers’ expectations, more brands are leaning into sustainability. This can range from adopting green packaging to developing full initiatives around carbon emissions. It’s a worthwhile exercise – one study found that climate-first stores achieved 5.8 times faster growth and saw their conversion rates increase by 20%⁹.

E-commerce FAQs

What are the three main types of e-commerce?

The three main types of e-commerce are B2C (business-to-consumer), B2B (business-to-business), and C2C (consumer-to-consumer.)

What is an example of e-commerce?

An example of e-commerce is a small, independent candle brand selling directly to customers via its own website. It may also sell on an online marketplace like Etsy and have Instagram Shopping enabled so that its social media followers can make purchases easily. These online transactions would all be considered e-commerce.

What is e-commerce marketing?

E-commerce marketing is designed to drive customers through the conversion funnel, from creating awareness of an e-commerce store to driving traffic to the store to ultimately converting the visitors into paying customers.

E-commerce marketing typically uses a mix of strategies, including search engine optimisation, social media content, paid-for advertising, and email campaigns.

Is e-commerce growing?

Yes! Now is the time to take the leap and spread your entrepreneurial wings. There’s a lot to consider, but one thing DHL Express can handle for you is the logistics, ensuring your customers get their orders on time and in great condition – wherever they are in the world. Start your journey with a DHL Express Business Account today.