Logistic Problems For Online Retailers - How Amazon Solved Them Whilst Ebay Never Had Them

Introduction.

So, just what sort of logistic problems for online retailers are there? At first glance the whole process of buying something online might seem quite straightforward.  A buyer located in one town places an order and pays with a credit card, the online retail website takes the payment and forwards the order to the wholesaler, who then contacts a distributer to collect the item and deliver it to you. Put that way it all sounds very simple and easy; just a few clicks on a mouse and everything takes place. Oh, but if life for online retailers were that simple; here are some of the logistical problems that have occurred for two online retailers - ebay and Amazon.

Making sure the items are in stock and available.

Even online shoppers have protection against not receiving the goods they’ve ordered and paid for and the last thing a retailer wants to do is reimburse a customer for an order they can’t deliver. For many online retailers they don’t hold the stock themselves but rely on wholesalers or distributers to have sufficient of the stock available. Some other retailers, like Amazon, use a combination of distributing their own stock and asking wholesalers and other distributers to send out stock on their behalf. Subsequently if an item isn’t coming directly out of their own stock, they can’t be certain that an item that has been requested is available. There are two solutions that Amazon can invoke to get around this. First they can specify extraordinarily long delivery dates, so that if one supplier hasn’t got it in stock they can source it from elsewhere; and secondly, they can send you directly to the external supplier’s website, in effect passing responsibility for the delivery to the other online company. This particular problem, regarding stock availability, has never occurred for ebay. If the item for sale is through one of their ‘private’ auctions, then the person selling knows that they had it available; and, even for retailers selling through ebay; they are in control of their own stock levels and are simply using ebay as a store-front to attract customers.

 How to become a market leader?

Away from the ‘computer’s side of online retailing, but nonetheless another logistical problem for both Amazon and ebay, was how to become market leaders to their target online audiences. Amazon quite rightly prides itself on being a market leader in online book sales and has now successfully diversified into becoming an aggregated online retailer, operating like a virtual shopping mall and offering a diverse range of products. However, this all came at a price running into the hundreds of millions of dollars; recruiting customer services representatives and having an almost ‘no questions asked’ refund policy. During that same period ebay simply concentrated its efforts with online and classified advertising to drive home its number 1 spot and; shrewdly diversified acquiring and developing online payments (PayPal) and VoIP telephony (Skype). ebay certainly didn’t spend the sort of money Amazon did; and yet still emerged as a market leader and had two great assets capable of making them even more money. At this very moment some interesting possibilities are occurring as to which may prove to be the better investment in the long term, ebay or Amazon?

PayPal or Amazon Checkout?

In the early years of trading ebay quickly realized that enabling customers to move money around electronically, with a minimal need to involve their bank or credit card company, would be a winner with both their buyers and sellers. Back in 2002 ebay acquired PayPal and simply took online retailing to new levels; with everyone liking the simplicity and security of not having to pass around bank or credit card details. Although Amazon weren’t slow to realize the value of this system and the increase in user confidence it could give to their website, they were slow to do anything about it. Amazon decided that their logistic solution was to formulate their own payment system which resulted in Amazon Checkout. The problem, again, has been that Amazon has spent a small fortune on developing their own system which, not being as well known as the fully established PayPal, is struggling to gain recognition with even their own customers - let alone being used by other portals in the way that PayPal is. I suppose a warning flag should have been waving in Amazons face - if Google Checkout struggles to compete with PayPal, what chance other ‘Checkout’ systems?