Challenge 1 of online retailing: Price comparison
One challenge that online retailers face is that it is increasingly easy for customers to compare prices between retailers. Dedicated price comparison websites, as well browser extensions that let customers know of cheaper prices on alternative sites, make it very easy for customers to shop around for the cheapest prices available.
While this may be good for customers, the ease at which customers can find cheaper prices is an additional challenge that traditional brick-and-mortar retailers did not as directly face. While customers of traditional retailers could shop around, this would involve making separate physical trips to different stores – an increased time burden. At most customers would search for better prices at a handful of stores, and even then likely only for large purchases. Now customers can quickly find the cheapest processes, even for low-value items.
Challenge 2 of online retailing: Dealing with returns
Another challenge that online retailers have to deal with is product returns. There are large costs associated with the return and sorting costs associated with products being sent back – with some customers returning a very high proportion of the goods that they purchase.
Challenge 3 of online retailing: Costs of advertising
To drive customers to the online stores, retailers often have to pay for customers – potentially through search engines or social media adverts that send users to the sites on a pay-per-click basis. With the costs associated with pay-per-click advertising typically a few dollars a click, this can significantly cut into the profits made by retailers, especially on low-value items.
Challenge 4 of online retailing: Difficulty creating a relationship with the customer
Online retailers often have a hard time converting one-off customers to more frequent buyers. While a local store may be able to build up a reputation within the community as the place to buy particular products, online retailers, especially those selling identical products to many other stores, can have a hard time convincing customers to return to make further purchases.