Determine Your eCommerce Business Model
One of the first steps to opening your eCommerce store is picking the right business model.
Since there are many different types to choose from, it's key to identify which one works for you if you want to be innovative and stand out from the crowd online.
A business-to-consumer business markets products and services directly to consumers.
Every time you purchase anything from a store, eat lunch at a restaurant, attend a movie at the theater, or get a haircut, you engage in a B2C transaction. These businesses offer goods and services to you, the customer.
Online, this model was pioneered by companies like Craigslist, Walmart, Alibaba, and eBay.
Businesses that want to use the B2C eCommerce model must have a platform that is flexible enough to adjust to changing customer demands quickly. Service delays and other issues can be avoided in this way.
In eCommerce, we can identify five B2C business models:
- Direct selling is the most common model in which people buy goods from online retailers. Think of Target or Gap, or Macy's.
- Online intermediaries connect sellers and customers, taking for themselves a percentage of every purchase. Websites like Etsy, eBay, and booking.com fall into this category.
- Advertising-based model is where online sites use content to bring visitors and earn revenue by displaying ads on the website. Almost every media outlet that doesn’t have a paid subscription component belongs to this category.
- The community-based model uses online communities built around shared interests to help advertisers market their products directly to site users. One of the best examples is Facebook, which helps marketers target ads to particular demographics.
Fee-based model involves businesses that require a paid subscription in exchange for unrestricted access to their content. These are usually entertainment services such as Netflix and HBO Max.
The business-to-business model means a company sells its products or services to other companies. A B2B transaction typically has a longer sales cycle but higher order values and more recurring purchases.
B2B eCommerce can be divided into two categories, vertical and horizontal.
Vertical B2B companies are selling goods and services specifically within one industry. The perfect example is the car manufacturing industry: a specific company makes steel and only sells it to car manufacturers, another provides the tires, and another one provides the engines.
Horizontal B2B businesses serve a wide range of buyers across various industries and do not specialize in any particular product or service.
B2B2C is a business model where a company sells its product or service in partnership with another organization to an end customer. An example of a B2B2C arrangement is when a wholesale distributor sells merchandise to retail stores that then sell the merchandise to end users.
The main advantages of this business model are that it provides new economic opportunities otherwise not reachable, improves convenience, combines industries, and increases access to customers.
When a company sells its products and services directly to a government agency, it falls under the business-to-government model. The B2G eCommerce model is more complex and demands strict compliance with business laws and conditions due to government agencies’ supervision and intervention.
With eCommerce, B2G businesses are mostly in the fields of electronics, telecommunications, and infrastructure.
In C2C eCommerce, consumers sell goods or services directly to other consumers. This is most often made possible by third-party websites or marketplaces that facilitate transactions on behalf of the buyers and sellers.
Best-known examples of C2C include eBay and Amazon, which act as both a B2C and a C2C marketplace. Since its launch in 1995, eBay has been one of the leading marketplaces for consumers to sell and buy from each other.
The benefits of this model include increased profitability, increased customer base, and convenience for both parties, while the disadvantages are platform fees, potential fraud, and low or no quality control.
If you’ve ever googled anything eCommerce, you’ve probably seen a dropshipping course ad or two. It has become trendy in recent years due to its simplicity: you don’t have to manage inventory, you don’t have to have a warehouse or deal with packaging -- but you have to have an outstanding supplier.
You only have to set up a storefront, list your products, and charge your customers for them. Once an order is in, your supplier takes care of the rest.
Just keep in mind that if they’re particularly slow, you’ll open yourself up to bad reviews (remember reviews / online reputation management are crucial for your local SEO efforts and adds up to your brand image) and/or product quality complaints if it is unsatisfactory. Additionally, the profit margins will typically be fairly thin with dropshipping.
Subscription businesses are some with the most stable revenue streams. It’s where a business provides ongoing services on a recurring basis in exchange for recurring payments from customers.
Depending on the type of product or service you’re selling, you’ll be able to opt for a replenishment subscription service (usually commodity products like groceries or cosmetics), curation subscription service (collections of products personalized to the customers), or access subscription service (exclusive access for paying customers).
Subscription offers great potential, but success with it does not come overnight. The topic itself is gargantuan, and I invite you to check our Ultimate Guide to Subscription eCommerce for an in-depth view of everything subscription.
In white labeling, you’d find a product that another company makes and offers white labels.
You then pay that company for the white label, design your product and label, and then sell that product as your own.
You’ll frequently encounter this model in the beauty industry or with online blogging platforms like Tumblr or Wordpress that let you set your custom URL if you pay for the white label.
This model is fairly clear. If you don’t have your own production line, you can contact a manufacturer and pay them to create the product for you. They can then either ship that product directly to the customer, to a third-party retailer like Amazon, or to you so that you can sell it.
This can work really well as long as you identify a reliable manufacturer.
Most likely, your business is one of the possible combinations of these, and its combination may impose certain technological and promotional restrictions (or rather audience expectations). This does not say that you should conform to these restrictions. Not at all! The best brands in the world defy convention and are successful because of it.
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