Virtual merchants

Characteristics

The term virtual merchants (synonym: e-tailers) stands for a business model in e-commerce and belongs to the category of merchant models: wholesalers and retailers of goods and services as a form of distance selling. The specific characteristic of virtual merchants is that these companies handle their business appearance, the sales process and the customer service completely online. They don't appear physically to the customer at any time.

The retailers provide information about their products and prices on an online shop or a similar platform, where the customer can buy products or services. The platform confirms the transaction to the customer and sends the order to the retailer. The retailer ships the products to the customer and raises the invoice.

This business model works for several forms of transactions, like business-to-customer (B2C) or business-to-business (B2B). Other merchant models are for example catalog merchants, click and mortar or bit vendors.

Advantages

  • No investments for physical presence

By concentrating on this distribution channel virtual merchants can avoid high costs for setting up physical shops while operating national or even international.

  • Information

Customers can easily gather information about the products they are searching for. Most online shops provide additional information about their products like instructions, demonstrations, or manufacturer specifications. Some provide background information, advice, or how-to guides designed to help consumers decide which product to buy.
In case of questions customers can easily get in contact with the retailers or the manufacturers using e-mail, online contact forms or chats.
Furthermore online shops have to offer a well-working search engine that presents alternative or comparative products for the customer's search just as product ratings and reviews of former customers.

  • Convenience

Most online shops operated by virtual merchants are available 24 hours a day, every day of the year. Customers don't need to travel to a certain store during business hours.

Disadvantages / Risks

  • Higher costs for logistics

E-tailers have to invest more in warehousing and logistics, because the shipping of smaller number of items directly to the customers is more expensive than delivering greater shipments to physical stores. Most online shops therefore demand a minimum order quantity or offer free shipping only on larger orders.
Furthermore customers tend to order greater shipments with intent to choose at home and to send the other items back. That causes higher shipping and warehousing costs for the retailer.

  • Higher investments for customer relationship management and marketing

As the customer doesn't have a shopping experience like in a real store, such as the direct contact to the sales personal, the design of a modern store or the possibility to examine the real products (not only virtual), online shops have to offer him an adequate compensation. That means that the website of the online shop has to be designed in a way that allows ergonomic and fast navigation and that avoids information overload.
Also virtual merchants have to provide an excellent customer service to bind customers.
Large investments in marketing are necessary for establishing a new brand or a new online shop because customers tend to rely on older and well-known brands.

  • Security concerns

Every form of distance selling is vulnerable for fraud. Specific investments by the virtual merchant are necessary to secure his network against malicious parties. To convince customers of the security and reliability of his online shop an e-tailer has to design his online appearance in an adequate way. Options are the use of quality seals, statements of privacy policies and safe payment methods like PayPal.

Category killer

If a virtual merchant has reached a position in the market where a potential customer automatically thinks about a certain online shop when he is searching for a special product, this e-tailer is called category killer. It is nearly impossible for other companies to operate profitable in the core market of the category killer or to reach comparable positions1). To become a category killer companies need large investments especially in marketing. In Germany, Zalando.de is a good example for a category killer regarding shoes2). For a lot of other branches and target groups Amazon.com has reached this stage.

Best practice: Amazon.com

Amazon.com is the best example for a very successful virtual merchant. Founded in 1995, Amazon.com reached the $5 billion sales mark already in 2003. Wal-Mart (category killer in a lot of branches) needed 20 years to get over this point. In 2010, Amazon.com had the highest revenue per unique user of all the great dot-com-companies (what is one of the key performance indicators in e-commerce).

See the Amazon.com case study by Dave Chaffey for further details3).

Further Example(s)

Mobile

Virtual Merchant Mobile is an innovative offering for business and private use, in order for mobile payment solution from their payment providers. Most of the provider explain the concept with security, connectivity, flexibilty, simplcity and visibility.

For instance offers Apple mobile this service, called Virtual Merchant Mobile, which is usable through a download application. After downland, the virtual merchants accept credit card payments anytime and everywhere. Thus, with this application, the iphone, iPad or itouch into a safty point-of-sale credit card terminal. Actuall version is 2.1 under Virtual Merchant Mobile

References

  • Rappa, M. (2010). Business models on the web. digitalenterprise.org. Accessed January 5, 2012
  • Hammer, C.; Wieder, G. (2003). Internet-Geschäftsmodelle mit Rendite. Ertragsmodelle im Netz. Bonn: Galileo Press
  • What is a virtual merchant. wisegeek.com. Assessed January 5, 2012
  • for characteristics of online shops: Choudhury, M. M., & Choudhury, A. M. (2010). “Identification of the Characteristics of E-Commerce Websites.” Webology, 7(1), Article 77. Available at: http://www.webology.org/2010/v7n1/a77.html. Assessed January 5, 2012
1) Category Killer. investopedia.org. Accessed January 5, 2012
2) Berliner ziehen in Frankreich an der Konkurrenz vorbei. Internet World Business. August 3, 2011
3) Chaffey, D. (2011). Amazon.com case study. DaveChaffey.com. Accessed January 5, 2012
fundamentals/business_models/virtual_merchants.txt · Last modified: 2012/01/06 19:58 by xjessen
 
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