eCommerce is not only about selling online. It’s about selling things and experiences to customers at the most strategic point possible. eCommerce business models management focuses on developing strategies that take full advantage of your industry’s opportunities, risks, and constraints.
We have analyzed the business to business, consumer to business, business to consumer, consumer to consumer, consumer to government, and consumer to consumer business models and explained how to run them.
Read to the end!
What are
and How to Run Them?
With the total market share of e-commerce expected to hit $8.65 Trillion by 2030, this industry will continue to boom.
But with the changing trends in this industry, any online retailer must choose a good e-commerce business model that matches the customers and business needs.
But first,
What are E-commerce Business Models?
Ecommerce business models refer to the structure of your business and how you generate profit. These models allow ecommerce companies to compete with their products, services, eCommerce website, and online marketplace by creating various profit streams.
What are the 5 Different Types of Ecommerce Business Models?
B2B-Business to Business Ecommerce Business Model
A B2B business model is when transactions are done between companies to exchange goods, services, or data via online channels. And this ecommerce model centres on how to sell physical products from one business to another at larger volumes and flexible prices.
Business to business models are mainly applicable to companies with significant assets in bulk on demand manufacturing, wholesaling and services businesses that generate huge revenues or create products for sale, bringing down their production margin but selling at higher margins due to enormous volume.
Small businesses can also opt for a B2B mode, requiring enormous logistics, warehouse space, and supplies. Some companies must have the ability to extract customer data or analyze the transaction chains to make adjustments and pricing strategies at different stages of transactions by giving discounts and promotions on products based on customer behaviour patterns.
Online medium-sized businesses seeking low competition with larger companies can seek low-cost suppliers along with alternative methods such as bulk customer orders, marketing campaigns, and branches.
Large-scale businesses depend highly on distributors and transportation providers who arrange merchandise in a network, resulting in increased inventory costs but cheaper delivery charges. Online distributors can supply the product to many customers within short periods leading to decreased processing times for orders received during peak hours of operations.
Purchases come from other buyers and potential overstock of goods that sellers cannot immediately sell, making it necessary to sell at higher markups than the traditional retail model.
B2B models are essentially used by online marketplaces where companies show all their products in one place with a coupon code that they can use to buy whenever they want it. The marketplace would take care of shipping and handling then charge you on your credit card or PayPal account depending on how acceptable buyers feel about what is received for the money spent.
Software as a Service Businesses are examples of B2B business model. These software companies provide applications, content management, and other user-facing web apps. The exchange is typically the users sending money to pay for these features instead of a single seller paying cash/cashback to buy something with their credit card or PayPal account directly from you (and getting less in services).
EpiProdux’s product management software is an example of the B2B model. And this online platform helps you make informed decisions, discover and explore new markets, meet your customers’ needs and manage better your e-commerce strategies with adequate efficiency.
Salesforce, Alibaba.com, General Electric, Boeing are other examples of B2B companies.
B2C- Business to Consumer eCommerce Business Models
Business to consumer business models allows businesses to market and sell goods and services directly to consumers. The seller is entirely responsible for customer service, product development, and sales in this model. The merchant, the buyer, and even the shipping companies outsource these services to a third party supplier. Companies operating in this model would often offer their products exclusively from one website.
And this allows buyers to see several different designs and sample items that may be of interest when evaluating them rather than buying them as soon. B2C models usually involve completing an online form with your budget, favourite products, shipping preferences, and desired items.
There are five types of B2C eCommerce business models;
Direct Selling B2C Model
A direct selling model involves the buyer selling products to consumers directly. And this model is the most common among B2C.
With Direct Selling models, consumers enjoy many benefits, not the least of which are no inventory, credit risk on sales instead of their supplies and orders. The buyer’s contribution to manufacturing is minimal, thus eliminating supply chain costs everywhere except one point: production cost.
In most cases, goods purchased through this channel can be paid for in advance by payment plans or discounts on future purchases versus store financed cash/debit card receipts with few exceptions when traditional finance fails to serve a non-traditional customer.
Amway, Market America, Herbalife are examples of direct selling models.
Advertising Based B2C Model
In an advertising-based model, the dealer offers free samples and sometimes runs limited-time promotions and contests in cooperation with the customer.
With this model, sales-enabling products are often sold through some advertising partnership, primarily through text, audio, or video form.
Information is provided for free to consumers or is offered for a fee. The feedback provided by sales can be non-verbal, such as through “referrals” or verbal, for example, email blasts.
Examples include Facebook, Twitter, Youtube, etc.
Community-Based B2C Model
A community-based site makes money from targeted ads and referral fees and is also known as a Commerce Community. A community-based site provides an interface for consumers to connect, sell or create sales and order (the B2C commerce model). The main feature is that many individuals with similar interests can be found. Businesses provide the communities own customer services in exchange for talent, time(selling products), etc.
They are also called “Community Commerce” or the Community Transactions model.
The profit derived from advertising partners and affiliate commissions brings revenue to the commerce communities; again, reliance on consumer information for increased revenue via targeted ads drives site traffic through PPC(pay-per-click) mechanisms. And because of these strong incentives, sites where most registrations are no longer questions (like WordPress) allow users to create their accounts with much content. Instead of a user having to create an account or using a portal, they can register on those sites to find the information they require, benefit from the community, and leave all businesses undesired spam leads at bay.
Some large portals like LinkedIn serve as similar networks which communicate news within their communities. Still, most members do not perceive that these are commercial entities where profit plays no role in their success(this would change if LinkedIn charged any membership fee). LinkedIn is structured as a cooperative network where the gain is undesirable.
With this revenue model, the site has to rely on external products and services offered by other organizations in areas such as advertising space or referral fees that are often very competitive with one another. Hence, access becomes quite limited for businesses seeking paid ads.
One of the most common models social spaces (non-profits) uses is when these organizations rely on membership fees. These are often subscription based ecommerce and have a high barrier to entry(theoretical barriers that). These restrict access to paying customers in the first place from large numbers of potential members- new ones must be sought, including donors or prepaid/membership cards which are intended for frequent users who become stakeholders of this community (products include libraries).
But once becoming a member of a library, you can purchase the book. Those who buy these items and become stakeholders can connect beyond the for-profit model but simultaneously have an ongoing revenue stream(recurring, non-negotiable costs) that are not expected to change based on their activity.
Membership fees increase user experience as a law professor recently said:
“With subscribing sites like this, you avoid schisms by preventing the contributor – one wishes to say ‘editor’ or participant — from removing harmful material, but with other forms of personal communication, the contributor may remove material. Members in magazines and newspapers don’t ‘access’ they’re mail-ordered service so much as receive it by mail.”
One example is ABC News which was recently privatized without revising its subscription model, where now you can sign up for an entire year or individual months. “ABC said that one major perk is Netflix-like access to past programs, including shows not on the site’s PVR.
So, for this case, it can be hypothesized that a subscription business model creates more excellent value than bottom-up or top-down models since the content is not segregated from users based on an objective quality system. And this also addresses something mentioned in media studies such as Ronald Collins Filters Effect:
“The assumption of separation between reader and producer sometimes leads people to adopt certain attitudes toward their mail deliveries. It has been hypothesized that this separation is a major contributor to the homogeneity observed in societies of news consumers.”
Some argue that subscriptions are destructive or costly, but clearly, they bring quality products and research into people’s homes. But there have been concerns about whether media companies will keep up with internet-like growth as subscription revenue increases, unlike ad-supported models where it might not (as has happened).
Fee-Based B2C Model
A fee-based model involves service providers and products sold directly to the consumer(products such as subscriptions) in exchange for a fee usually paid at the time of purchase.
Netflix is a famous example of this model.
3B-Subscription:
Some businesses, for instance, banks and mail order stores, allow consumers to purchase a monthly subscription with a regular billing date immediately after joining the community. Thereby saving them on marketplace fees like credit card processing and providing options users enjoy without any “momentum” issues, e.g., no one wants to pay again if they do not use services regularly). Such models are often the most profitable since it enables the seller of payment service to collect fees before any revenue is generated and would imply that there may be potential for future customers.
Many businesses founded on this model, such as Amazon Prime, Netflix, Spotify, and Pandora Music, where consumers can try/test out brands/products purchased through subscription-like. They do gym programs to control costs or avoid credit card processing, actualizing expenses due to customer loyalty.
3C-Non-Recurring B2B Models:
Some businesses that sell subscription-based services (offline stores, newspapers, and magazines) target long-term users. Thus, no credit card fees or processing is required. You pay an annual fee to be a member with the right to access all products/services purchased under a subscription model. After joining, that naturally eliminates pressure on new customers even though there may be some initial market-driven growth due to exclusivity, which helps the business earn profits from new customers and existing members.
In this model, if a company offers products/services that are subscription services such as guitar lessons or joining an international exchange student program, there is no credit card processing in place. And this forces consumers to pay for usage at each renewal date making sure margins remain higher than one-time fee models.
Online Intermediaries B2C Model
Online intermediaries are the major players in online marketplaces. Amazon, eBay, and Alibaba are the best-known examples in emerging economies. A person or company can offer products and services to find consumers/clients who search for that exact product. They provide better quality at lower prices, and comprehensive technical support possible through e-commerce platform pricing might be free of charge. And this turns out to cost travellers more than any offline mode available as it typically has higher margins.
As usual, as people look for better deals and more efficient transaction methods, online intermediaries have adjusted to how consumers worldwide operate. Offering the same products, services, and experience at lower fees than offline retailers are charging (at a profit) but making sure customers pay higher margins.
And the hybrid model involves the brick and mortar stores launching online shopping platforms. Omnichannel e-commerce strategy integrates offline and online channels(via digital storefronts) in one combined solution. As people purchase more frequently, they will expect to have access through all these domains on their smartphone; tablet computer, and used portable devices such as iPhone (Apple Inc.), Samsung/Tablet PC Zopo/7-inch Android Tablet.
C2C- Consumer to Consumer Ecommerce Business Model
A c2c business model is a 1.0 product/service sold to multiple consumers for the same price (so-called multi-buy). And this model includes all those service companies with e-commerce capabilities such as Pest Control Operators and other companies licenses.
Traditional business models that have not implemented their automated ordering system but still sell directly via their website yet provide customers create custom orders through feedback which extends higher margins than other online businesses like discount stores.
Amazon, eBay, Taobao, and WooCommerce are examples of platforms where consumers may sell goods and services to other consumers.
D2C- Direct to Consumer Ecommerce Business Model
This form of selling goods or services to end user consumers from manufacturers, factories, associations, associations, or individuals themselves without intermediaries is almost prevalent these days around the world, where consumers maintain greater control over their data and privacy. Examples of this line can be seen on companies like Amazon selling to customers through 3rd party fulfilment centres while still selling directly from manufacturer sites to consumers.
Businesses with this business model are often online retailers before moving out into brick-and-mortar counterpart company names in real life, such as Tupperware.
Businesses with this model may also use the information provided by their target customers to organize different products and manufacturing skills needed for the company or individual’s business to make sure they can provide a better customer experience from those consumers.
Some businesses with this model may require direct payment from the consumers to have access and benefit from their products, services, or information. For example, you will find video streaming platforms such as Periscope, where users pay directly via credit cards when they stream videos which involves subscription models on many sites that use webshops like Amazon or Taobao who demand transaction fees meaning some endpoints are forced back into other intermediary companies while remaining services are on the selling side of their business.
B2G- Business to Government Ecommerce Business Model
A Business to Government e-commerce model involves businesses selling products to government agencies. These could be through a large NGO organization, the military in some countries, police departments, or other local governments. Companies often use the model to engage their potential customers with public-facing and government programs-related organizations such as schools offering children’s education products leading to discounting of expensive software that is not common on a mainstream online marketplace.
Interacting with government agencies can also mean interacting with government-positioned leaders to show support for a cause or current issues affecting the company’s community. Buying from nations and lesser countries means dealing directly with those governments in some cases: legalizing its industries is critical, which could be relevant when business deals with pharmaceuticals. Some companies are allowed to interact this way by establishing direct relationships with their local government (as seen between Unilever and Benin through soap).
Types of Ecommerce Business Revenue Models
Dropshipping
Dropshipping business sells its products offline by picking up orders in stores and having fulfilment centres work on them as local businesses. The concept is also known as postal dropshipping. Companies will often have warehouses or storefronts nearby, with drop shippers picking the product up from their store and delivering it to the customers. And this would entail drop-ship fulfilment centre arrangements. These types of models are used even if online platforms are not working.
There are several ways for dropshipping to work, including the
- Centralized arrangement of local stores in some cases (e.g., Interparfum),
- Customizing and shipping from wholesalers or warehouses and
- Multiple warehouse arrangements ship goods over the air through service businesses such as long-established businesses centres.
However, the experience companies use them is based on various factors such as their experience with retail-based chains and their product ranges.
White Labelling
White Labeling involves partnering with a local company specializing in business to provide all necessary materials (such as packaging or marketing) for reselling their products and, often, making it look exactly like the original.
White Labeling is used by large companies such as Nestlé who sell bottled water through more prominent existing brands (even though they are owned by themselves but manufacturers). Makers of branded food that use ingredients from elsewhere at low cost to cater to their demand and retailers affiliate with known brands such as Wal-Mart, El Corte Inglés, or Carrefour.
The consumer benefit of white Labeling is that they get the experience of purchasing a packaged product at discounted prices. The business benefits by utilizing robust marketing strategies behind each brand which builds trustworthiness in customers. And this strategy works incredibly well with smaller companies developing niche products where packaging may not be as important.
White Labeling is currently an advantage for smaller companies due to lower marketing expenses.
Subscriptions Business Model
Ecommerce subscriptions service provisions to consumers items at regular intervals (for example, every week or month). The consumer pays a specified amount of money, but they input their preferences before the subscription application is made.
Ecommerce subscriptions strategy has established many businesses that have taken advantage and brought together companies involved in media content, advertising, and marketing and retail services such as online pharmacies, which supply drugs through pre-negotiated contracts with doctors who agree on receiving payments for each prescription.
Wholesale Business Model
Wholesale ecommerce involves the sale of goods to consumers without the selling cost (excluding shipping). Many companies that provide wholesale orders fulfil themselves and thus require delivery on a specific day, beyond which they will stop taking new orders.
Wholesale ecommerce platforms or portals provide links or RFID tags to retailers who may have websites that are not possible to access directly. Online retailers pay the ecommerce platform a pennies and benefit from immediate access of retail customer base via same parameters as found on their website.
Private Labeling
Third-party manufacturers are hired by a business to produce a product. In bulk production, the actual manufacturer does not make every item but specializes in one or more items for sale at a lower price because it was produced explicitly for selling them in this way and under its brand name.
Small businesses can quickly get goods they need at a lower price through a private label. Usually, bundled items are offered by wholesalers and then sold again as personal labelled items in one or more channels of commerce.
Yet another option is buying finished, packaged products that already have a known brand name.
How to Run Any Ecommerce Business Model Using EpiProdux’s Software
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