E-commerce vs. Traditional Business: What’s the Difference?

Posted by Mary Milorrie Campos

Apr 5, 2022 2:30:00 PM

We are at the crossroads of trading — a place where e-commerce and traditional business meet to form a new business reality. Where should you position yourself to deliver and get the most value to your target market? Should you be choosing one method over the other? If not, are you prepared enough to embrace the best of both worlds?

e-commerce vs traditional business

In this article, we enumerate the differences between e-commerce vs traditional business to help you understand which method is best to reach your potential customers.  

Defining the terms: e-commerce and traditional business

To make it clearer, let’s define both terms first: 

  • E-commerce

E-commerce, short for electronic commerce, is the process of buying and selling goods and services through the internet 

Sellers and buyers meet at places called online marketplaces (e.g., Amazon, Alibaba) or e-commerce platforms (e.g., Shopify-supported websites) to carry out transactions. It involves the use of electronic devices such as smartphones, tablets, computers and laptops. Because of its digital nature, payment methods are mostly made via electronic means. 

Read Next: The Benefits of Shifting your Business to E-commerce Space

 

  • Traditional business

Also called traditional commerce, traditional business is the process of buying and selling goods and services in person. 

Face-to-face transactions occur in physical locations such as malls, marketplaces, mom-and-pop stores, restaurants and other types of establishments. Cash is the most popular payment method, but many physical stores are now accepting digital payments.

 

6 key differences between e-commerce vs traditional business

Look at the table below for a quick reference on the differences between e-commerce and traditional commerce.  

E-commerce and Traditional Commerce Differences 

Type of business 

Market reach 

Delivery 

Operating hours 

Payment methods 

Customer interactions 

Accounting 

E-commerce 

Wider reach 

Delayed, but same-day deliveries are also available depending on the type of goods. 

Available 24/7 year-round 

Mostly digital, but also allows cash-on-delivery payment 

Screen-to-face  

More complex compared to traditional accounting 

Traditional business 

Limited to the area of operations 

On-the-spot 

Limited store hours 

A mix of cash and digital payment 

Face-to-face  

Accounting is more straightforward for traditional businesses 

 

Now, let’s drill down into the details. 

  • Market reach

    • E-commerce

E-commerce extends your market reach, allowing you to offer your products even to consumers outside your geographical area.  

If you’re selling on Amazon, for instance, the e-commerce company will handle the delivery of your goods through its massive logistics and distribution capabilities. If you’re managing your own e-commerce website, you can partner with several courier service providers, such as UPS and FedEx, to ensure your products can be delivered to your customers.  

    • Traditional business

One of the biggest limitations of a traditional business is its ability to reach a wider audience. Tied to its physical location, it only caters to consumers within its area of operations. 

Think of the local bakery in your area. Unless it's located in a tourist destination or a business district, it’s likely that its customers are only those who live nearby. Effective online marketing can expand its reach, enticing customers from other places to visit this business. But without a touch of e-commerce — for example, listing the business on food delivery service apps like DoorDash and UberEats — it can only go so far. [Back to top]

  • Delivery 

    • E-commerce

The e-commerce process cycle takes longer than traditional commerce.  

Once a customer checks out a product, you’ll need to prepare the item or send the order details to a warehouse for processing. After this, it will be forwarded to a shipping company which may take a few days before reaching the customer. 

Same-day deliveries may also be available for specific items like food, but only for limited areas. 

    • Traditional business

Because transactions take place in the actual physical location, customers can immediately get the items they need when buying from a traditional business. This only goes to show that having a physical store is favorable for consumers who need the product or service right away. [Back to top]

  • Operating hours

    • E-commerce

E-commerce shops are open 24/7 for the entire year. Consumers can place their orders even in the wee hours of the night, on holidays and on weekends. You can leave your store open without a store attendant looking after your products due to the notion that online orders take time before getting delivered. 

However, you may want to have a dedicated team of live chat agents to be available 24/7 to ensure you’re delivering the best experience to your online shoppers. 

    • Traditional business

Traditional businesses have limited operating hours. In the United States, the United Kingdom, Canada and Australia, the normal business hours are between 9 am to 5 pm, Monday to Friday. Holidays are excluded. Beyond these periods, you may have to comply with the overtime, holiday, weekend and night shift regulations in your jurisdiction, which may add to your operational costs. 

The U.S. Department of Labor provides guidance on work hours which you can access here. [Back to top]

  • Payment methods

    • E-commerce

Digital payments are the most common payment method for e-commerce. It involves the use of credit and debit cards, bank transfers, mobile payments, e-wallets and prepaid card payments. It’s a no-hassle option for both seller and buyer, especially for times when the latter is not available to receive the item. 

Offering cash on delivery (COD) options is also a clever idea, especially when you’re dealing with a country with low credit card penetration and trust. 

    • Traditional business

Traditional businesses offer a mix of cash and digital payments. But while cash is still a popular option, many customers are already shifting to contactless payment as a safety measure during the pandemic. 

In 2021, tap-to-pay transactions increased by more than 30% as stores shut down and customers must find another way of getting their needs. This change in behavior seems to be more apparent post-pandemic as even physical stores reopen, 47% of customers still prefer to shop in places where contactless payment options are available.  [Back to top]

  • Customer interactions

    • E-commerce

Customer interactions in the e-commerce space are less personal due to its screen-to-face nature. Customers can’t see actual people from your shop, nor can they inspect their purchase up close.  

But it doesn’t mean that you can’t provide them with a personalized experience. You can still create memorable interactions by gathering customer data and creating tailored messages for each consumer segment. 

    • Traditional business

Personalized service remains the biggest strength of traditional businesses. Here, you can assist customers face-to-face and have a chance to deliver good customer service. However, you must also ensure that your front-end team has proper customer service training to handle in-person interactions well. 

On your customers’ end, a traditional business may also be ideal when they prefer to inspect goods up close. [Back to top]

  • Accounting

    • E-commerce

E-commerce accounting is more complex than traditional accounting.  

When you sell through third-party e-commerce providers, you can be reliant on their programs and processes. Instead of accessing your numbers directly to your bank account, you will have to look for your transactional data on your sales channel.  

Finding your numbers and transferring them to your cloud accounting software can be challenging, especially when you don’t have sufficient background in e-commerce accounting. 

Aside from this, inventory management and the calculation of the cost of goods sold (COGS) are also trickier in e-commerce. Working with an e-commerce accountant with extensive experience in different selling platforms and add-ons can help you resolve these concerns. 

    • Traditional business

Accounting for traditional business is straightforward since it follows tried-and-tested methods of processing your numbers. To make it better, we recommend the use of cloud accounting software. This way, you can access accurate numbers in real-time, even when you’re out of the office. [Back to top]

[Get our free guide] Investing for the Future: Adopting Cloud Accounting for Your Small Business

 

The best of both worlds

E-commerce and traditional business have their own advantages and disadvantages. When it comes to flexibility, e-commerce is shown to be superior. But when it comes to personalized interactions and delivery, the traditional way provides a more human and instant experience.  

But as we’ve learned from the pandemic, sticking strictly to traditional practices can backfire on the business. We never know what can happen in the future.  

Embracing omnichannel retailing is one way to survive. As a business owner, it’s critical to explore various channels to stay in touch with customers should there be another lockdown (hopefully not!) that comes into the picture. These channels include your physical store, business website, social media, e-commerce store, and more. 

Develop a plan on how you can take advantage of the strengths of e-commerce and traditional business, and how they can make up for any weaknesses. By doing so, you can adapt to the new business reality where consumers expect both convenience and personalized service at the same time. 

 

Maintain strong financial health

Do you need help in processing and analyzing your numbers? D&V Philippines is experienced in both traditional and e-commerce accounting. Armed with cloud accounting experience and knowledge in various integration tools, we can help you make your accounting faster, easier and more accurate. 

Talk to our team today for more information about our services or download our latest whitepaper, Succeeding Online: Refining Your Accounting Processes through Technology and Automation.

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