The truth about online business
Online business is nothing new so what is all the fuss about?
A recent report by Access Economics compared the impact of the internet to the roll out of electricity because both are enabling technologies that change all industries in their wake, not just a few. We explore why online vs instore is a bigger issue than ever:
1. Economic conditions
The high Australian dollar is giving Australian consumers ‘more bang for their retail buck’ globally. Not only do Australian consumers benefit from a currency driven discount but they can also take advantage of heavy discounts offered by retailers domiciled in underperforming economies.
Australian in-store retail is suffering more from consumer cautiousness than as a result of international ecommerce. In-store and locally based online retailers are simply competing for ‘share of wallet’ in an environment where consumers are looking for the best available deal. Economic conditions have given consumers a reason to go global - particularly for commoditised products.
The Communications Report (No. 1) released last year by the Australian Media and Communications Authority (ACMA) showed that overseas websites have attracted an increasing proportion of online shoppers. In the six months to April 2011 the number of shoppers mostly purchasing from overseas sites increased by 7% to 19%, however, the number of shoppers purchasing equally from Australian and overseas sites increased by 10% to 29%. So, online does not necessarily mean overseas.
2. Fear of online shopping has diminished
The ACMA Communications Report (No. 3) states that the proportion of people reporting ‘lack of trust’ in the internet declined from 25% of non-internet shoppers in November 2009 to 19% in April 2011.
3. Technology is a part of our life.
The Access Economics report The Connected Continent states that, “The direct contribution of the internet
to the Australian economy is worth approximately $50 billion or 3.6% of Australia’s Gross Domestic Product (GDP) in 2010. This contribution is of similar value to the retail sector or Australia’s iron ore exports.” The report also predicts that over the next 5 years, this contribution will increase by 7% to $70 billion - twice as fast as that forecasted for the rest of the economy.
Internet use, and in particular smartphones are an integral part of our lives. As access speeds increase, the integration of technology into the way we live and act will only become more pronounced.
The ACMA Communications Report shows that at April 2011, approximately 58% of adult mobile phone users in Australia had a 3G mobile handset, with 37% of mobile users owning a smartphone. During June 2011:
• 1.55 million people in Australia aged 14 years and over used social
networking services via their mobile phone
• 751,000 went online via their mobile phone to use banking and bill
• Just over 100,000 purchased a good or service
That’s in one month - almost a year ago.
4. The internet and online shopping is just for the young
The ACMA Communications Report (No. 3) states that “in the six months to April 2011, approximately 62% of adult internet users purchased a good or service online” with the 35 to 44 year olds most likely to have made a purchase. This age group also reported ‘convenience’ as the primary reason for shopping online whereas the 25 to 34 age group reported ‘price’ as their motivation.
5. Online vs instore - is it fair?
In Australia much of the debate has been around the Low Value Import Threshold (LVIT) that exempts goods under $1000 from GST and duty. The Productivity Commission recommended that the Government lower the LVIT to promote tax neutrality but not until it is cost effective to do so.
In reality, there are many businesses trading online as part of their overall strategy – not as their complete model. Think Apple - they have a strong online presence and invest heavily in their shop fronts. And, according to PayPal, over Christmas 2011 Toys ‘R’ Us and Dan Murphy’s experienced their largest ever online sales during the Christmas trading period.
Competing with a global online business whose customers do not need to pay GST is not fair. But neither is the bargaining power and price differential exercised by big retailers playing on the same field as small retailers. It’s just a fact of business life.
In Australia, according to Access Economics, all SMEs they surveyed have internet access but only half have a website and only 30% use the internet for marketing, sales and procurement. There is a lot of room to move. The internet is only one facet of a broader picture of your business strategy. If you need assistance to refine your strategy, talk to us today.