Home-based e-business - an
option for the self-employed?
Chapter 3 - Opportunities available for home-based e-business
3.2. Selling Physical products
In this scenario, physical products are sold through the Internet, either through auction sites such as eBay [11] or through a fully-fledged e-shopping web site. Amazon.com is an archetypal e-shopping site. It started selling books initially but is now a fully-fledged online department store. Selling physical products will come as second to many in Hong Kong . Hong Kong has been a major trading port with imports, exports, and re-exports accounting for an important part of its GDP. Its close proximity to China means that it had access to one of the greatest sources of manufactured products in the world. Its proximity to other major manufacturing nations in Asia, such as Japan, Korea, Taiwan, Singapore and other Asian countries means that there is an abundance of imported products from these countries which are suitable for re-export. Besides having access to an abundant supply of manufactured goods, the postal and courier services from Hong Kong are highly efficient which make it highly suitable as a base for mail order companies that ship internationally. In this section, selling physical products through online auctions and selling them through a fully-fledged online shop are examined.
3.2.1. Auction Sites
The simplest way to sale physical products online is to list
them in an auction site such as eBay [11]. It is not difficult to make a profit
from buying and selling in auction sites but one will need to do some research.
It is better to either select some rare item that people are willing to bid at a
higher price, or some hot items that offer a lower than market price. The main
advantage of selling through auction sites is that very little technical
knowledge is required. One does not even need a web site or carry out other
forms of promotion. The only requirement to sell through an auction site is a
valid e-mail address. However, the way that the item is presented i.e. pictures
and description, may affect the final price realized by the auction. Many
traders sell their products through auctions exclusively, whereas others use
auctions as means of generating traffic to their site. Traders can also use
auction sites to test the market response to individual products.
eBay [11] is by far the most popular auction site and is an
online marketplace that creates a powerful platform for the sale of goods and
services by individuals and businesses. There are millions of items across
thousands of categories for sale on eBay and it is an easy to use auction site.
eBay enables trade on a local, national and international basis with customized
sites in markets around the world. Sellers have to pay fees for listing their
products and selling their products through eBay. Fraud protection is provided
by eBay up to a value of US$250. There are a lot of options and strategies
available for selling on eBay and other auction sites in terms of setting the
open bid price, whether or not to set a reserve price, multiple item auction,
and to pay more to eBay for extra exposure. Which is the best approach depends
on the individual product and experience has to be gained through trial and
error.
The charges levied by eBay on the seller are quite high,
especially for low value items. If the seller chooses to accept payment via
credit card through PayPal or other payment processors, then the final fees
could be as high as 10% for items below US$25. Moreover, prices realized through
eBay are usually at a marked discount to comparable products sold in online
shops. Therefore the selection of the products is paramount to success in eBay.
In general pre-owned items tend to do better than new items as pre-owned items
have hard to compare prices. Collectible items such as pottery, porcelain, old
toys or watches also do quite well on eBay.
A winning bidder or seller in an eBay transaction can leave
feedback for other users. This is the only means by which a prospective buyer
can judge the reliability of the seller. These comments can be positive,
neutral, or negative, depending on your experience. Every eBay member has a
feedback profile, this is an important detail when it comes to avoid being
cheated upon. Therefore, it does take time for an individual to build up his
reputation on eBay.
Individuals who wish to sell a quantity of product will use
Multiple Item Auctions (Dutch Auctions). However, one has to be resident in the
U.S. or have a feedback Rating of 50 or above. This makes it difficult for
newcomers to eBay in Hong Kong who wish to sell a large quantity of a particular
item in one go. The US$250 guarantee provided by eBay against fraud is vital as
a confidence building measure for both sellers and bidders. Recently, eBay
acquired PayPal, which is the most commonly used means of payment at auctions.
This should lead to an enhancement of the service provided by eBay.
3.2.2. Online Shop
The most important decision is in selecting the product for
sale. Products that sell well on the Internet are usually either rare, or at a
marked discount to street prices. They should be easily recognizable to the
customer so that he will know what he is buying without seeing and handling the
items, unlike jewelry and clothes. The items should preferably be small and
light in weight so that they can be posted easily. The price of the product
should preferably be between US$20 to US$250, because if the price is too low,
then it would not be worth the effort as substantial time is required in
processing the order. Conversely, if the price is too high, the risk to the
retailer is increased. Moreover, many prospective customers are unwilling to
spend large amounts of money online because of fears over credit card fraud.
The advantages of running an online shop is that it markedly
diminishes the need to keep a large inventory of products. Provided that
reliable suppliers can be found, it is possible to operate the business on a
just-in-time inventory basis so that goods are only ordered from the supplier
when there are actual orders from customers. However, more often than not,
suppliers do require their customers to keep substantial stock and thus a fair
amount of risk. There is also a certain amount of risk from orders lost through
the post. In the author's experience, the rate is well less than 0.5% for orders
sent by registered mail but substantially more for those that are not. Orders
sent by courier reach their destinations much faster and are less likely to be
lost, but are much more expensive in terms of shipping costs. There is
substantial risk arising from credit card fraud. In general, web sites that sell
items with a broad appeal that can be easily resold e.g. cellular phone and
flash memory are much more susceptible to credit card fraud. Whereas those that
sell products to professionals are much less susceptible. However with practice,
it is quite easy to detect the majority of fraudulent transactions.
Drop-shipping
Another possibility is to use drop-shippers i.e. order from
wholesale companies who will drop-ship to your customers. The advantage of this
approach would be that there is no stock to carry and thus no financial risk of
unsold inventory. However, the suppliers normally charge a high price for
drop-shipping and thus the profit margins would be lower. Moreover, unless the
drop-shipper agrees to use the merchant's own company logo, there is a chance
that they may steal the customer. Many users have also complained of a high
entry fee charged by drop-shippers and have even been scammed in the process.
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