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Preparing yourself for the risks associated with running an eCommerce business

The internet has opened up tremendous opportunities for business operators to expand their business beyond their backyard. This article provides some tips for those willing to take advantage of the digital marketplace with an eCommerce business, and for those who have already taken significant steps toward achieving this goal. Apart from the fundamental steps of establishing a website and embarking on a marketing campaign, there is much more to be aware of before celebrating that first sale.

What are the risks?

Domain name availability

One of the first things to consider once you’re ready to run an eCommerce business is establishing a domain name that accurately reflects your business name or activities. However, there’s a risk that your preferred domain name might already be taken, so you will need to have some alternatives in mind. Also, if you think you may face an issue with imitation websites using deceptively similar domains to freeride off your goodwill and reputation, it’s wise to also register domain names that are similar to the one you intend to use. This is known as a defensive domain name strategy.

Failure to launch

Moving online from a bricks and mortar presence offers the potential to access far more customers. However, the risk is that too few will see your new store. It’s always a good idea to start early on the marketing and possibly launch a trial enterprise before going all-in. In fact, going all in is a mistake many optimistic eCommerce business owners make, so keep a healthy nest egg in reserve, just in case things don’t go to plan.

Intense price competition

Online shoppers can be very price sensitive, and when selling online, you'll be competing with sellers in markets with far lower costs. Keep warehousing and staffing costs as low as possible to ensure you’re also able to offer competitive pricing. You could use an existing marketplace such as Amazon or eBay, which provide an instantly recognisable platform and an ability to easily compare your wares against those of other sellers.

What are the obligations?

Apart from the various practical risks associated with running an eCommerce business, there are also a range of legal obligations imposed upon online retailers.

Terms and conditions, and disclosure of critical information

It’s important to present your customers with terms and conditions and a critical information summary, prior to making a purchase and payment. A simple check box is the preferred approach for obtaining agreement to terms and conditions online. However, be careful not to include any terms and conditions that may be considered unfair or which are particularly onerous on the customer.

You’ll need to provide information about expectations relating to order fulfilment and availability, delivery timeframes and any policies you have implemented to provide guidance for transactions made via your online store. While always complying with the Australian Consumer Law provisions prohibiting misleading statements, it’s always best to communicate promptly with your customers in order to ensure the reputation and ongoing success of your business.

Shipping and tracking

Ensure your customers know what type of shipping options you offer and give them appropriate tracking advice, such as auto-generated emails providing tracking information. A fast and reliable shipping method can improve your online reviews, inviting new customers and encouraging repeat customers. You can have the most useful shipping and tracking by determining key information such as the frequency and predictability of deliveries, the expected size and weight of packages, and whether you need reporting of your shipping activities.

Insurance

Arrange insurance as required and decide whether to pass this cost on to your customers. Make sure you obtain a policy that is relevant for your goods, by asking questions about packaging requirements and special treatment of goods, and any exclusions or extra-cost coverage. Consider whether insurance is to be an opt-in or opt-out feature for customers at the time of going through the shopping cart.

Cancellations, returns and refunds

The Australian Consumer Law sets out the minimum standards of compliance for sellers in the Australian consumer market. This applies equally to online traders. There are well established laws regulating how to respond to requests for cancellations, returns and refunds. If an item has a minor defect, you need to at least repair it, although you may choose to replace or refund at your discretion. If there’s a major defect, then the item must be replaced with an identical item or you must offer a refund. The buyer is entitled to seek reimbursement for return postage if an item is found to be defective.

It’s important to note that while the law doesn’t require you to provide refunds for change of mind purchases, it is illegal to display an unqualified ‘no refunds’ statement on your website.

Privacy and data management

You may be required under Australian privacy laws to establish a policy on privacy and data management if you're collecting customer details. With the ongoing threat of malware, and spyware in particular (the type of malicious software that is designed to collect users’ data and spy on their activities), you’ll need to demonstrate to your customers that you have adequate mechanisms in place to keep personal information secure.

The fundamental obligations for businesses that collect personal data are reflected in the Australian Privacy Principles, contained in the Australian Privacy Act. These principles regulate the handling of personal information, so make sure you’re familiar with any principles that may apply to your business.

Summary

Now that you’re ready to launch yourself into the world of eCommerce, be aware of the risks and obligations you’ll face. Consider how you can mitigate any risks and always familiarise yourself with your legal obligations. If your first foray into online selling yields positive results, then you can take the next step and invest further.

Tips for success

  1. Focus on good customer relations and prompt feedback
  2. Invest in fast and reliable postage, with tracking
  3. Give thorough and useful descriptions of your goods
  4. Integrate social media with your website or chosen platform
  5. Understand your legal obligations
  6. Test the market before going all in and have a backup plan

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