The E-commerce Business has transformed the way we shop today with just one click.
Who could have thought of the internet expansion in 1994, when Jeff Bezos (founder of Amazon) did his funding pitch to explain the e-commerce business that went over the head of investors and left them puzzled?
In the past two years, global e-commerce sales have seen a surge of around 25% with a valuation of USD 6.54 trillion in FY 2021. Moreover, valuations predict a USD 10 Trillion markets by 2025.
But what’s the reason behind this sudden surge?
It is due to the powerful e-commerce business models and burning trends most companies follow.
Every internet retailer has a unique business plan. Some even use the traffic on their website to make money. Although e-commerce is extremely successful in today’s market it is quite challenging and can be a hassle for newcomers with little to no experience in the field.
So if you want to generate consistent revenues online, the most crucial step is to choose the best e-commerce business model.
Most people make the mistake of going straight to the details while planning for an e-commerce business, forgetting that everything depends on the product you intend to sell and the model you select for liquidating your inventory.
So, to fill this gap here is a detailed analysis of various e-commerce Business Models which will facilitate your growth in this sector.
So let’s get started!
What is the e-commerce Business Model?
A business model refers to a prototype focused on the different aspects of business like finance, marketing, sales, operations, and HR. Similarly, the e-commerce business model refers to the procedure and other criteria of online business.
I have listed some prominent e-commerce Business Models trending in the current markets.
B2C (Business To Consumer)
If you are not from the business aisle, these terms might leave you in a pool of confusion!
But don’t worry, you are at the right place! We will give you some simple explanations for these complex terms that are easier to digest.
Business to consumer (B2C) is the practice of a firm – marketing its goods or services directly to consumers. The B2C business model is quite simple even in the e-commerce domain.
For example, every time you buy food from a grocery store, have supper at a restaurant, go to the movies, or get a haircut, you engage in a business-to-consumer transaction.
B2C e-commerce refers to a manufacturer selling its products directly to the consumer through an online medium. However, in pure B2C, there may be intermediaries like retailers or distributors sitting between the interactive transactions of consumers and manufacturers.
To tackle this issue in conventional B2C models, a new hybrid model was proposed called D2C.
Direct to Consumer (D2C) refers to manufacturers selling products directly to the consumer without any intermediaries.
Both B2C and D2C have their own advantages depending upon the type of business you wish to work on.
In e-commerce currently, five categories of B2C models are being implemented in the digital world. These models are highly efficient and you can consider choosing one of them for your e-commerce brand.
- Direct Seller is a category providing goods directly to consumers from small local businesses themselves as an online store and department.
- Online Intermediaries is the medium on which products are listed, and consumers buy from it like Amazon and Flipkart. They are not the owners of the product but the platform.
- Community-Based platforms like Pinterest builds an online community based on consumer interest and offers them ad spaces for maximum reach.
- Advertising Based B2C follows a traditional method of providing content free, but running ads on the website becomes the ultimate source of revenue.
- Fee-Based platforms charge customers a fee for the paid subscription offering content in return like Netflix, The Hindu, Amazon Prime, Discovery+, and more.
The recent surge in B2C e-commerce business models has created significant possibilities for businesses. The year 2020 and 2021 were a breakthrough for e-commerce, where the market cap of the sector stood at USD 3.86 Trillion at the end of 2021.
As you can see the significant growth in this e-commerce business model. But an important question still arises…
Why you should choose the B2C Business Model?
There is no exact answer to this question but there are a few criteria you can consider when choosing a B2C model for your business.
- B2C works perfectly when the business size and inventory are small.
- If businesses focus on households and personal use customer acquisition will be easier.
- Sales cycles are for short-term periods with a single-step buying process.
- Band value has high priority.
- Intensive marketing is required
Based on these criteria, you can choose a B2C business model or others which we will discuss.
B2B (Business To Business)
Business to Bussiness (B2B) primarily focuses on commerce between businesses where the final buyer may or may not be the consumers.
Simply, a B2B e-commerce business model involves the exchange of goods, services, or information between businesses rather than between businesses and customers (B2C).
A B2B transaction is between two businesses, such as online merchants and wholesalers. Each organization benefits equally and has comparable negotiation power in most B2B business models.
There are two approaches in the B2B business model that you can follow.
The Vertical Approach follows commerce with a specific type of industry like – Tata Power deals with energy and power and sells products directly to other businesses in the same sector.
The Horizontal approach is a more flexible approach where you can sell your products and services across different industries: Indiamart offers a platform for business across all niches.
The recent entrepreneurs effectively used the B2B e-commerce business model and made a smooth pathway that favors them for e-commerce growth.
Millennials made up to 60% of B2B buyers in 2021, roughly twice as many as in 2012. B2B selling online is increasingly crucial as younger generations influence the items bought by them and their families.
But an important question arises about how you could apply this approach to your business.
You should consider a few criteria to excel in a B2B e-commerce business model and these are the central pillars to fuel the success of your business in the B2B segment.
- B2B works perfectly when the business size and available stocks are lofty.
- When your products could solve problems at the organization, professional Echelon B2B acquisition is sensible.
- Extended trade and payment cycle compared to B2C. Moreover, it also includes debts.
- Nominal marketing is required because the brand value is less emphasized.
- Customer relation is not a top priority.
These are the significant criteria you should consider before entering the B2B e-commerce business model.
C2B (Customer To Business)
C2B (Consumer-To-Business) is an e-commerce business model where a customer creates a good or service that a company may want to carry out a task or gain an edge over rivals.
The traditional B2C model, where a corporation generates services and goods for customer consumption, is entirely transposed by the C2B technique.
Fiver, a freelancing platform, is the most prominent example of a C2B business model where businesses can use it to discover and source project support for anything from software development and content creation to UX design and even financial needs for things like bookkeeping or filing tax returns.
So how exactly can you build a successful C2B e-commerce business model?
- Market analysis (quantitative surveys, qualitative interviews, and segmentation)
- Customer service lines, rating and review sites, and comment or suggestion forms are all examples of consumer feedback channels.
- Social media platforms like Facebook pages, Twitter followers, and online user communities
Advertising in trade publications, attending conventions and trade shows, digital marketing (online presence, SEO, email outreach), and other conventional awareness initiatives are all examples of marketing that work exceptionally well for building brands in C2B.
C2C (Customer To Customer)
Have you ever tried buying or selling products on OLX? It is branded as a Used Product Marketplace.
So, OLX allows us to list our products and services on the platform where anyone can buy them complying with prices and terms. Two parties involved in the business are only customers. OLX does a pure C2C business and earns revenue by selling ad spaces on the platform.
C2C e-commerce business models allow customers to perform transactions with one another, usually online. Auctions and classified ads are two examples of C2C markets in use. With the development of the internet and the emergence of businesses like eBay, Etsy, and Craigslist, C2C marketing has become increasingly popular.
C2C refers to a market setting wherein one customer buys products from another customer while using a platform or business operated by a third party to assist the transaction.
You can even create your C2C e-commerce business model for high revenue like most entrepreneurs do on famous e-commerce platforms. Some of the processes you can follow for an effective C2C business model are-
- If you could do a product placement wisely, you have already won half the game. The product must be unique and a problem solver.
- Be precocious while choosing from a wide range of platforms like Etsy, OLX, and eBay. These platforms have their specialty that can either boom or curse your business.
- A proper operation strategy is necessary for effective supply and happy customers.
Dropshipping is an order fulfillment type e-commerce business model where the company does not need to keep products in its stock.
Then how does it work?
Usually, companies list products or services on the marketplace, and placed orders are passed to the third-party supplier, who then ships the order to the customer.
You don’t have to worry about the product stocks, delivery channels, and management. The complete process is hassle-free, but you should work on keen marketing to acquire customers.
Some key points you should consider while choosing this e-commerce business model.
- Business Investment is low
- Minimal team size
- Research and Development (RND) is not available.
- Passive source of revenue
These scenarios might be fascinating for most of you, but it has some disadvantages as well-
- The profit margin is low as the investment is low. You have to settle down with the commission proposed by a third party which is around 1% – 10%.
- The competition is on the higher side. You won’t be alone in this business: you will face mass competition waiting to crush down in the market. So to stand a chance you need the best marketing strategies.
- You won’t have control over the supply chain as the third-party supplier take charge of it. This could result in working in terms of supplier party, and you won’t be able to do something unique for customer accusation.
- The biggest issue is brand building, the truth is you don’t have a brand. You could only bet on the other’s brands which sometimes work and sometimes don’t.
Selling other trademark products and keeping a percentage of the sale may seem like uncomplicated money but taking all the disadvantages, challenges, and daily management into account results in a difficult job.
You might have heard of Boat, whose co-founder Aman Gupta recently appeared on Shark Tank as a judge.
The Boat Co. is one of the biggest earphone and electronic gadgets brands in India. They usually buy earphones and electronic gadgets from a Chinese company and label them with their own brand. It is a prime example of the White Labelling e-commerce business model.
The White Labelling business model means branding and selling products or services sourced from third-party sellers.
White Labelling can increase the brand’s visibility, spare you from producing your own goods, and let you benefit from the distributor’s knowledge and experience.
This business model could be fruitful for most companies, but it requires extensive marketing to promote brands. For perfect product placement, you have to rely on third-party manufacturers.
Which E-commerce Business Model should you choose for Your Business?
You’re prepared now!
You are aware of the different types of e-commerce companies, products, platforms, and company classifications. Now you can start implementing it into your business and taking it to next level.
Regardless of the e-commerce business model you choose, there is a fair probability that you might end up with difficulties implementing these strategies into your business.
But you don’t need to worry because it happens with everyone but, you need to be consistent with your strategies to have a chance at building a solid e-commerce business.