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Discussion of E-commerce Market

Abstract

The market analysis allows firms to comprehend the possible opportunities and limitations, which further define the correct strategies to adopt. The e-commerce market has grown over the past years following the amplified use of the internet and contemporary technologies. Amazon uses an online presence to sell its products and services while promising timely and reliable delivery. The e-commerce market is utilized by diverse consumers that use modern technologies to execute their tasks. The demand for clothing, the popular product of the e-commerce market, is affected by the customers’ income, price of related goods, and customers’ tastes and preferences. Conversely, the supply of apparel is determined by the cost of production, amount of people willing to make purchases, new equipment and technologies, government policies, and natural conditions. Government involvement prevents unethical practices that harm consumers and preserves fair competition. The current events affecting e-commerce include new technologies, COVID-19, and green consumerism.

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Introduction

The analysis of markets from a microeconomics perspective helps organizations adopt the right strategies capable of increasing their competitive advantage by capitalizing on the potential opportunities. Companies should understand the market systems in which they operate to make suitable production and pricing decisions and identify prospective competitors. However, organizations must always be well-informed about the market to comprehend the supply and demand patterns, possible trends, and government involvement to avoid exiting the market (Kreps, 2019). One of the key markets is e-commerce which has numerous firms of different sizes that operate within it. The leading company within this market is Amazon. The paper analyzes the e-commerce market, the demand and supply side of the market, government regulations, and the market trends.

Chosen Market and the Specific Firm

The economy consists of various markets that compel individuals to choose the perfect one to enter based on the associated barriers of entry, opportunities, and challenges. Markets can either be physical or virtual. Physical markets coerce the sellers and buyers to meet physically to engage in exchanging services and products. On the other hand, the virtual market permits sellers and buyers to carry out transactions through the internet (Svobodová & Rajchlová, 2020). One of the main markets within the United States is e-commerce. The e-commerce market has grown over the past years due to the increased internet spread of the internet. The growth is also related to the recent emergence of the COVID-19 pandemic. Based on the graph below, e-commerce in the United States has grown from about 5% of the total sales in 2011 to nearly 17% of the total sales in 2020. As a result, the market is expected to grow in the next few years, thus requiring companies to focus on capitalizing on the potential opportunities.

E-commerce retail sales as a percent of total sales have grown over the past years
Figure 1 shows how the E-commerce retail sales as a percent of total sales have grown over the past years

E-commerce usually entails vending and purchasing services and products through the internet. As a result, the process is carried out through smartphones, tablets, and computers. Organizations operating within this market have penetrated new geographical areas as it provides efficient and inexpensive distribution channels to avoid delays and increase customer satisfaction (Huseynov & Yıldırım, 2019). One of the prominent firms that use the e-commerce market is Amazon. Amazon happens to be a multinational technology organization that concentrates on e-commerce and provides artificial intelligence and cloud computing. The firm is situated within Seattle, Washington, where it produces consumer electronics and distributes music, videos, and audiobooks through its online marketplace. The firm also offers beauty products, apparel, software, automotive items, and food items. Amazon utilizes an online presence alone instead of incorporating brick-and-mortar locations to minimize operation costs and partner with other companies to improve the delivery speed (Amazon, 2021). The company offers low-cost products within the online storefront, which are then shipped to the customers’ destinations in time to prevent complaints.

Demand Side of the Market

The Customer in this Market

The market’s demand-side reveals the changes in demand following the firms’ pricing strategies. The primary customers within the e-commerce market include anyone from stores, families, government, companies, and schools, among others. The potential customers primarily rely on technology as the crucial information source and consider online shopping as convenient. Consequently, the clients mainly entail the centennials and millennials who prefer to use technology to accomplish most of their tasks. The customers are also considered to be trendy, high spenders, and loyal. However, the clients are considered to be indecisive, one-timers, inactive, cart abandoners, and thrift (Huseynov & Yıldırım, 2019). Therefore, firms operating in this market should adopt the right strategies to reach out to all prospective customers to increase sales volume.

The large customer base in the market has enabled Amazon to remain successful over the past years due to improvements in technology that have made online purchasing easier and reliable. The growth in the company has been necessitated by good leadership and high levels of revenue. In 2016, Amazon’s revenue was about $136 billion but increased to nearly $177.8 billion in 2017, $232.9 billion in 2018, $280.5 billion in 2019, and $386.06 billion in 2020, as demonstrated within the graph below. The augmented revenue levels are related to the upsurge in demand for Amazon’s quality and affordable products and services. More than two billion individuals currently make both mobile and desktop visits on Amazon every month (Amazon, 2021). The firm has over 150 million mobile users and nearly 200 million Amazon prime subscribers.

the revenue growth for Amazon since 2004
Figure 2 demonstrates the revenue growth for Amazon since 2004

Major Determinants of the Demand for the Major Product

Various products are sold online as they do not require customers to visit stores physically. The primary product in the e-commerce market is fashion products, particularly apparel. Research discloses that about 58% of internet users make purchases for their clothing through online platforms (Gazzola, Pavione, Pezzetti & Grechi, 2020). However, other factors determine the demand for apparel. The vital determinant for the demand is the customers’ income. A large fraction of customers who make online purchases for fashion products have high incomes and can afford a large basket of premium items.

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The second factor that affects the demand for clothing is the price of related goods. The related goods for the apparel are complementary and substitute goods. There are various substitutes for clothing, which make a change in the price to affect the demand levels significantly. If the price of the substitutes increases, then the demand for fashion products rises. The complementary goods for apparel include footwear, jewelry, watches, and sportswear, among others. Numerous online companies provide affordable complementary products that compel customers to make more online purchases for apparel to remain attractive.

Thirdly, the demand for apparel in the e-commerce market is determined by the customer’s tastes and preferences. Companies in the market offer quality and affordable products that match the customers’ needs and preferences, leading to higher demand levels. Most customers also prefer to shop in areas that demonstrate high safety and security levels, which are achieved through online shopping. Fourthly, the online market offers a wide variety of choices for customers to search for the same product, thus, determining the best company that provides items that match their needs (Kreps, 2019). Fifthly, the customers are capable of looking for clothing products from online companies more effortlessly than going to various stores in person. This results in higher purchases. Lastly, customers’ ability to smoothly navigate websites that provide online products, especially apparel items, forces them to make the desired purchases.

The Type of Demand Elasticity of the Major Product

From a critical point of view, the demand for fashion items, mainly, clothing which appears to be the most popular products sold online, is elastic. The quantity demanded of clothing alters by a more considerable percentage than the variations within the price (Kreps, 2019). The amplified presence of substitutes reduces the switching costs of customers. Therefore, the availability of substitutes for apparel makes the demand highly sensitive to price changes. A drop in the clothing price increases the number of people willing to make purchases, as linked to a price rise.

The second factor that makes clothing demand elastic is the expenditure share. The proportion of income spent on apparel tends to be high; therefore, a change in the price compels the consumers to change their demand levels. An increase in price leads to a reduced demand to avoid spending most of the income on purchasing clothing. Thirdly, the high durability of clothing makes the demand elastic as customers can choose to make purchases at a future time when prices are better and still use the current items. This is because people can wear clothes for a long time without losing value.

Supply Side of the Market

The supply side of the market exhibits the relationship that exists between the potential supply and the prices. This creates an opportunity to determine the available companies that offer similar products and the general price levels. The e-commerce market has several major firms within it that influence the magnitude of competition. The presence of numerous firms in the market discloses reliable supply of the fundamental products to prevent shortages.

The Major Firms in the Market

Despite being the leading online retail firm, Amazon operates within the e-commerce market with other companies such as eBay, Walmart, Etsy, Target, Costco, Apple, and Home Depot. However, some firms sell their products and services through Amazon but still have their online platforms (Huseynov & Yıldırım, 2019). The companies also offer almost similar products but adopt different strategies to reach out to diverse customer bases. The existence of other major firms in the market reduces the profitability and market share of Amazon, thus, requiring the implementation of better strategies to increase the competitive strength.

Major Determinants of Supply for the Major Product

The quantity of items available in the e-commerce market for sale is affected by several factors. Numerous factors highly influence the supply of apparel which happens to be the popular product within the e-commerce market. The willingness of the potential suppliers of the product changes over time due to changes in the market. One of the crucial determinants of fashion’s supply is the cost of production. The cost of production involves all the expenses that an organization incurs in the overall development of an item. The charges affect the profitability levels where high expenditures lead to low-profit margins. The supply of clothing reduces following an increase in the production costs as the suppliers register low profits. The second factor is the number of people that need and are willing to purchase the product. A high amount of individuals wanting and willing to purchase apparel yields a high supply to avoid shortages.

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The third factor that affects the supply of fashion products is new equipment and technologies. The adoption of new equipment and technologies advances production efficiency as it increases the output levels while reducing the production costs. This is because the acquisition of novel equipment and technologies minimizes the need to hire people to complete tasks and generate continuous production. The high levels of production result in an amplified supply of clothing. The fourth factor that affects the number of fashion items in the market is government policies. The industrial and fiscal policies, particularly the tax level, affect the supply of products. An increase in taxes minimizes the profit levels yielding a decrease in supply. Low taxes upsurges the supply levels. Lastly, natural conditions affect the supply of fashion products (Kreps, 2019). Most products like clothing rely on cotton and wool as the essential raw materials whose supply is affected by climatic conditions. As a result, poor climatic conditions create a low supply of clothing. On the other hand, good climatic conditions generate high produce, thus, a high supply of clothing.

Government Involvement regarding this Market

The government is highly involved in the e-commerce market to control the practices and actions of the firms. The intervention maintains ethical practices and fair competition to protect consumers and infant companies. The government establishes price ceilings and price floors to control the online products’ prices. Consequently, government involvement controls the prices from going too low or too high. Secondly, the government sets laws to make online shopping easy and authentic. Some of the laws include the Fair Credit Billing Act (FCBA) and the Federal Trade Commission (FTC) Act. The FCBA safeguards consumers from unfair and unauthorized charges during online shopping. The FTC Act prevents deceptive practices and maintains consumer privacy by compelling companies to protect data from access by unauthorized individuals (Bagley, 2018). Additionally, the government collects taxes from online purchases to increase revenue levels.

Current Events Affecting the Market

Various current events affect e-commerce, a situation that further influences market operations and opportunities. One of the current events that impact the e-commerce market is the emergence of the coronavirus pandemic. Despite increasing profitability, the pandemic requires the market to introduce better and cheaper ways of reaching out to all customers, specifically low-income customers, to reduce the need for physical shopping (Koch, Frommeyer & Schewe, 2020). The trend may also require reducing unethical practices related to online shopping to boost people’s trust levels and encourage them to switch from visiting the stores gradually.

The second trend affecting the market is the continued emergence of new technologies. Some new technologies such as chatbots, artificial intelligence, machine learning, and augmented reality have changed how online shopping is carried out. The augmented reality permits customers to correctly see the products they are about to purchase to make the perfect buying decisions. Machine learning and artificial intelligence ensure that the clients make customized and automated online shopping (Koch et al., 2020). Chatbots provide timely support and feedback for customers to have outstanding online shopping experiences. The new technologies force the firms to invest in continuous innovation to avoid a possible failure. The last current event related to the e-commerce market is green consumerism (Bertram & Chi, 2017). This requires all the firms in the market to adopt sustainable practices to protect the environment. The companies should consider offering environmentally friendly products.

Conclusion

The e-commerce market has been one of the fastest-growing markets due to the augmented spread of the internet and technologies, thus, reducing the need for a brick-and-mortar presence. Amazon has fully capitalized on the various opportunities within the e-commerce market to upturn its competitive advantage. The market demand side determines its attractiveness and requires companies to implement the right pricing strategies to maximize the profit levels. The supply side of the market controls the products’ availability, which influences the firms’ prices and profitability. Government involvement is essential in all markets as it maintains good competition and prevents consumer exploitation. Additionally, firms must adapt to the market trends to meet the customers’ demands and needs, improve their reputation and avert possible collapse.

References

Amazon. (2021). About Amazon. Web.

Bagley, C. E. (2018). Managers and the legal environment: Strategies for business (9th ed.). Boston, MA: Cengage Learning.

Bertram, R. F., & Chi, T. (2017). A study of companies’ business responses to fashion e-commerce’s environmental impact. International Journal of Fashion Design, Technology and Education, 11(2), 254-264.

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Federal Reserve Economic Data. (2021). E-Commerce retail sales as a percent of total sales. Web.

Gazzola, P., Pavione, E., Pezzetti, R., & Grechi, D. (2020). Trends in the fashion industry. The perception of sustainability and circular economy: A gender/Generation quantitative approach. Sustainability, 12(7), 1-19.

Huseynov, F., & Yıldırım, S. O. (2019). Online consumer typologies and their shopping behaviors in B2C e-Commerce platforms. SAGE Open, 9(2), 1-19.

Koch, J., Frommeyer, B., & Schewe, G. (2020). Online shopping motives during the COVID-19 pandemic—Lessons from the crisis. Sustainability, 12(24), 1-20.

Kreps, D. M. (2019). Microeconomics for managers (2nd ed.). Princeton, NJ: Princeton University Press.

Svobodová, Z., & Rajchlová, J. (2020). Strategic behavior of e-Commerce businesses in online industry of electronics from a customer perspective. Administrative Sciences, 10(4), 1-24.

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