BUAD 307





04--Basic Internet economics

PowerPoint Narration

Some people have suggested that the Internet may be a less expensive way to distribute products than traditional “brick-and-mortar” stores.  However, in most cases, selling online will probably be more costly than selling in traditional stores due to the high costs of processing orders and direct shipping to the customer. One reason is that in most self-service stores, the customer tends to do much of the work that would otherwise have to be done by staff at the online merchant and/or by outside service providers.  Some products may, however, be economically marketed online. 

One of the key issues from this table is the cost of non-checkout sales personnel.  Analysts have suggested that Best Buy has relatively high costs in part because of the high rents they must pay for many of their retail locations and in part because of the high cost of the “blue shirt” sales people.  To the extent that selling online is a way to reduce this labor cost, there might, in principle, be a strong argument for cost savings.  However, it should be noted that Wal-Mart and certain other self-service brick-and-mortar retail chains have considerably lower cost here:  The customers usually select their own items, put these in their carts, take them to the cash register, and then bring the purchases home.  If a retailer needs to have sales people bring out items for a back storage facility, that may, indeed, be inefficient.  However, if the sales people help answer customer questions, the question arises as to whether an online site can answer such questions in a way that is equally convenient to customers.  A great deal of information can be put in a product description, and other information can be made available in areas such as FAQ sections, but some customers may have more difficulty finding this information.


Main Midterm Review Page