Ecommerce business models are not limited to B2C or business to consumer setups. With increasing ecommerce business trends, buyers and sellers of all levels, from manufacturers to final consumers, are heading to online platforms for selling activities.
When considering the wide variety of online marketplaces, ecommerce business types are dynamically expanding with each passing day. Wondering why? Go through the following bullet points:
- Lower to no operation cost
- Affordable and convenient online marketing tools and strategies
- Increasing consumer preferences to buy online
- Ability to target the right fitting customers with online marketing tools
- Improved customer support
If these reasons and the current pandemic situations aren't eye-opening enough for you to switch online, hard to tell what will be. However, if you are the foresighted entrepreneur, willing to take your business to new heights and gain a competitive edge over your rivals, scroll down a little more.
Ecommerce Business Models – the Conventional Approaches
First things first, find your target audience. Your target audience includes individuals or businesses that would be interested in buying your products or services. You cannot expect to sell bulk office supplies to a clothing retailer, can you? Even if you try to do so, your business will not take long to shut down.
Be it an online store or a brick-and-mortar store. It will very much help when you know your target audience. Based on your type of customer, you can move on to choosing a suitable business model. There are four traditional ecommerce business models in practice today. They go by:
- B2B – Business to Business Model
- B2C – Business to Consumer Model
- C2C – Consumer to Consumer Model
- C2B – Consumer to Business Model
Bonus materials
- B2G – Business To Government Model
- B2B2C – Business To Business To Consumer Model
Now let's go over each of them in detail to understand how they work.
1. B2B – Business to Business Model
B2B model implies a business selling a product or service to another business. For example, Berlin Packaging – the leading packaging service supplier, markets its goods to Walgreen – the second-largest pharmacy chain in the USA. This type of ecommerce business model mainly includes manufacturers, distributors, and wholesalers.
Within B2B, you'll find two working models:
- Horizontal
In the horizontal B2B business model, the products and services sold are used in regular business activities other than the buyer's production. It may include stationery items, repair and maintenance services, and other operational products — for instance, a cleaning services company offering its services to hotels.
- Vertical
In B2B ecommerce vertical model, a company offers products or services used in the manufacturing of finished goods by the buying company. This model is further divided into 2 categories, upstream and downstream.
In the upstream scenario, a supplier markets to a manufacturer. Thereby, the products and services flow upward. You can think of it as a paper producing company supplying paper to a bookbindery to produce books.
On the other hand, in the downstream model, a producer reaches out to a supplier for its raw materials. For instance, we can swap roles in the above example. It would then be a bookbindery contracting a paper producer for its papers.
Pros and Cons of B2B Ecommerce Business Models
Pros:
- Bulk purchases
- Recurring purchases
- Large order values
- Easy to attract customers with online platforms
- Reduced operational cost
Cons:
- Infant industry that needs more development
- Some buyers prefer the old price negotiations method
Becoming a Part of the B2B Ecommerce Business Model
"Although B2B Ecommerce model is under development, it is expected to reach $6.7 trillion this year, i.e., 2020."
That's a significant part of the total market share. If you want to become a part of this market segment, you need to ask yourself three questions:
- Will my target market opt for bulk purchases?
- Do my buyers ask for customized units?
- How can I outperform my competitors?
To discover competitive advantages, you can ask yourself a few more questions like:
- How much of the manufacturing process do I control?
- Can I reduce my prices without dangerously cutting down on my revenue?
- How efficient are my supply chain and inventory management?
Answering those will help you determine if you should adopt a B2B model for your business or try other models.
2. B2C – Business to Consumer Model
Under B2C (business to consumer model), a business directly sells its goods and services to the final consumers. It is currently the most popular ecommerce business model. The examples of this type of model are everywhere around us. It involves buying from a restaurant, a grocery store, a stationery shop, etc.
In the B2C Business Model, There are Five Further Divisions:
- Direct Selling
Direct selling is the simplest and the most common form of B2C ecommerce model. It is when you directly purchase from an online retailer through their ecommerce website or other accessible marketplaces.
- Online Intermediaries
Online intermediaries are e-commerce platforms and online marketplaces that connect buyers and sellers. One cannot expect these platforms to give in business for free! And yes, they cut a section of your earning on each transaction.
- Advertising Models
Advertising models like Facebook allow the sellers to display their products and services to their target audience for an advertising fee.
- Fee-Based Model
The fee-based model includes online businesses like Netflix and other subscription services. These businesses charge their customers a fee for the content they provide. The prices are fixed and do not depend upon the volume of transactions. Many of these sites offer some content for free, with premium content limited to its subscribers only.
The increasing convenience of online shopping where the buyers do not have to leave their comfort has inclined more customers towards it. Such ecommerce business trends have made this type of business model the most lucrative choice.
Some businesses are offering a hybrid of modern ecommerce and traditional physical business. They allow you to buy their products or book their services online and avail it from a physical retailer nearby. Such businesses attract both modern and traditional buyers.
Pros and Cons of B2C Ecommerce Business Models
Pros:
- B2C is a comparatively stable market
- More and frequent sales
- Lower management, marketing and distribution cost
- Better control over price
- Offers direct service without intermediaries
- Online tools offer easy administration
- Allows you to build a better relationship with customers
Cons:
- People without a stable internet connection cannot access your offerings
- High competition
- Fear of cybercrime discourages people from sharing financial details
3. C2C Customer to Customer Model
B2B and B2C models are easily understandable with common examples from daily life. However, a C2C - consumer to consumer model might seem a little odd. How can a consumer sell to another consumer for a profit?
Well, let's look at eBay, Etsy, and Craigslist. These businesses fit into this model pretty well. What they do is they let the consumers resell products for a little profit while charging them with a small commission. Sometimes C2C transactions are a result of mutual consent rather than profit or commission.
As an example, a consumer selling an old painting to his neighbor for a small price. Unlike other business models, C2C businesses or transactions can be based on a barter system that does not involve cash. Even online, a person can exchange an article for a video tutorial. Due to their unsustainable nature, these business models have to be highly regulated and well-planned.
Pros and Cons of C2C Ecommerce Business Models
Pros:
- Lower operational cost as you do not have to pay for inventory management or supply chain
- The hosting platform is responsible to bring in the major audience reducing your marketing cost
- Easy to enter with a little preliminary cost
Cons:
- No payment security for the seller
- Unsustainable business nature that ends with the last piece of the product sold
4. C2B Consumer to Business Model
After the C2C ecommerce business model, this is another less recognized business model, which ironically is taking over the market, especially the service market. In this type of business model, consumers offer their products and services to businesses. This model mainly includes freelancers on platforms like Fiverr, Ifluenz, and Upwork, who offer individual or group services to businesses.
Affiliate marketing also falls under this category. It's one of the most common means of C2B business model. Professionals reach out to the business to sell their expertise, which could help the businesses increase sales and generate leads. You must have heard of Amazon affiliate marketers who create content based on Amazon products of a seller and promote them on certain websites. With every sale, the seller earns his revenue, giving a preset commission to the marketers.
Moreover, there recently has been a spike in the number of social influencers. These creative individuals are using the power of their words and actions to help brands promote their products and services. The position of influencers in the prevailing market is sometimes stronger than that of celebrities. That can be reasoned with loyalty, relatability and trustworthiness.
Pros and Cons of C2B Ecommerce Business Models
Pros:
- Generate leads and improve conversions as people listen to experienced individuals more than the brand
- A better understanding of customers and their responses to your products and services
- Interactive selling approach
- Magnifies brand awareness
Cons:
- A volatile business model with unpredictable conditions
- Negative reviews from customers affect your sales
Other Prevailing Business Models
Other than these four business models, there are two more to talk about:
- B2G – Business to Government Model
Under B2G, business to government model, a company markets its products to a government agency directly. It includes all sorts of government offices, be it federal, local or state. As an example, we can take a weapon manufacturer selling to the state's army. Another example can be a privately operating engineering company providing its services to the government in developing a sewer system.
When government offices need private services, they give out Requests for Proposals. Private companies then respond to these requests with their service proposals to get the job. This process is usually slow due to government formalities and bureaucracies.
Like any other consumer, a government organization can directly place an order at a private company's website for its service, but they usually don't. Since these organizations typically have massive amounts of orders, they tend to announce RFPs. However, for smaller tasks like small repairs, you can expect a government agency placing an order on a private website.
- B2B2C – Business to Business to Consumer Model
B2B2C is a long-chain model formed by combining B2C and B2B models. Under this form of business model, a company markets its products and services to another company, selling it to final consumers. A simple case of this type of model is an internet wholesaler selling to an online retailer who sells the products to the final customers. This ecommerce business model has three components:
- Supplier
- Intermediary
- End-user
The products move from the primary supplier to the intermediary who provides it to the end-user. There can be a different application of this type of business model. For instance, a company collaborates with another company to promote its products or services and charge a commission in return.
Such business model focuses on acquiring new customers for business faster through another business's already-build customer base.
Which Ecommerce Business Model Should you Choose?
The first and foremost step in establishing an online business is to find out who are you offering your products and services to. Once you have chosen your target market, you can easily select a business model.
Since finding the right business model is essential for your business's success, you must be very thorough with this decision.
Not only will it help you increase sales but also reduce your cost and expenses that won't break your bank, save your time, effort and money and choose the most appropriate business model.
The above information for some more online business savvy folk is simple to understand. However, some of you may be left with a lot of open questions, which we will be happy to answer. If you are still confused about transitioning to online selling and choosing the right fit business model, you can contact us for a detailed examination.
Ecommerce projects development from top to bottom by us, take a look:
https://itprosteer.com/our-portfolio/