Running an ecommerce business can be a lucrative venture. According to Datareportal, 58.4% of internet users buy something online every week. In addition, data from Oberlo reveals that as of 2020, there are roughly 7.8 billion people worldwide and about 26.28 percent of them are online shoppers. And as e-commerce continues to grow, the potential for generating income looks promising.
But success in ecommerce is not as simple as building a store and hoping for the best. You still need to have a plan and find the right business model for you. Knowing them will allow you to maximize your online store’s earning potential. This article introduces you to the different types of ecommerce business models, their advantages and disadvantages to help you decide which is right for you.
Types of Ecommerce Business Models
- Business To Consumer (B2C)
- Advantages of B2C
- Disadvantages of B2C
- Business to Business (B2B)
- Advantages of B2B
- Disadvantages of B2B
- Consumer to Consumer (C2C)
- Advantages of C2C
- Disadvantages of C2C
- Consumer to Business (C2B)
- Advantages of C2B
- Disadvantages of C2B
Which Business Model Is Right For You?
Let’s discuss this in detail.
Types of ECommerce Business Models
Choosing an ecommerce business model can help you make money selling your products or services online. Here are the different ecommerce business models.
Business to Consumer (B2C)
Business to consumer refers to transactions between a business and consumers. This is the most common ecommerce business model and most online niches belong to this category. The decision making process for B2C is much shorter than a B2B, especially for items with a lower value. B2C does not only include products but services as well.
It is much easier for you to purchase new tennis shoes than for your company to vet and purchase a new email service provider or food caterer. For this reason, B2C businesses spend less marketing dollars and have lower average order value and less recurring orders than their B2B counterparts. They also leverage technology like mobile apps, native advertising, and remarketing to market directly to consumers.
Choosing the B2C ecommerce business model offers the following advantages:
1. Access to Data
In a B2C ecommerce business model, you have direct access to customer data. It allows tracking of online success or monitoring customer behavior. You can easily identify the most popular product and thereby deliver a better customer experience in the process.
2. Increased Opportunities
Through your B2C ecommerce business, you can reach a wider audience not only locally but internationally as well. This makes it easy for you to expand and attract more potential buyers.
3. Personalized Marketing
In order to remain competitive, you need to personalize your product offerings. To do this, you need to make deeper connections with your customers to better respond to their needs. They need to see the products they want in your online store or else you risk losing them to the competition.
While it has advantages, B2C ecommerce also has its disadvantages.
1. Low Value Orders
With B2C, you will often get low-value orders as most purchases are for individuals and families and not big companies with employees from different territories. This means that the profit margins are lower compared to B2B.
2. Increased Competition
The B2C market is a competitive one as many established businesses with more purchasing power and low-cost operations already dominate the market.
3. Marketing Costs
Due to its competitive nature, it will be harder to retain customers. This means you will have to invest more in digital marketing and services to ensure better buying experiences and customer loyalty.
Business To Business (B2B)
In B2B, the ecommerce business sells its products or services to another business instead of a consumer. B2B businesses in the US are estimated at $6.7 trillion and account for about 23.6% of American businesses. B2B is the largest type of ecommerce in the US and is expected to double the size of B2C.
With B2B, sometimes the buyer is the end-user but more often the buyer will resell it to a consumer. B2B transactions generally have a longer sales cycle but higher order value and more recurring purchases. The business-to-business model ends during the purchase stage where the company sells products to another company, which then resells the product to customers.
B2B transactions could involve a mining company buying equipment from a heavy machinery company or a business availing of supply chain logistics services. B2B ecommerce offers the advantage of having larger orders, fewer transactions, and shorter cycle times. However, unlike B2C, there is only a limited customer base and potentially higher customer demands like customized products and pricing options.
B2B ecommerce offers some benefits to potential sellers:
B2B allows your advertising and ordering to happen in the same “place.” You can benefit from efficient order processing using a digital platform allowing ease in making bulk orders.
2. Higher Profits
Selling wholesale items allows buyers to get good deals and less frequent restocking of items. By dealing with other businesses, B2B reduces marketing costs and boosts conversion rates.
3. Greater Stability and Market Predictability
Compared to newer online models, the B2B market is comparatively stable with a high level of predictability and less volatile customer base and revenue stream.
4. Relationship with Retailers
B2B allows sellers to build strong and long-term relationships with retailers. You can look forward to business stability opening up opportunities for further collaboration.
However, B2B is not perfect as it still has flaws. Here are the disadvantages of B2B ecommerce:
1. Complex Setup process
To get started, you will need to conduct thorough research and advertising of your business. Setting up a custom ordering system can also be difficult when sales are underwhelming.
2. Limits To Sales
Although you can move large amounts of stock, you may miss out on potential deals with individual customers. With a smaller pool of business buyers and the need to negotiate contracts can limit your potential income. `
3. Sellers Need To Stand Out
The B2B market is highly competitive and seemingly saturated. When selling similar products already being sold, you need to cut down on your prices and find unique ways to break through the noise and grab the customer’s attention to achieve market success.
4. Ordering Experience Required
To be an effective B2B seller, you need to design a website and implement an ordering system for the convenience of buyers. The website should display product and service information, offer online demos or consultations. You should also utilize order forms with appropriate quantities and customization.
Consumer to Consumer (C2C)
Consumer to consumer ecommerce business connects consumers to each other in order to exchange goods and services in order to make money by charging transactions or listing fees. Platforms like Craigslist and eBay pioneered this type of business model back in the days when the internet was still in its infancy.
Facebook Marketplace is gaining popularity as a C2C platform as of late. C2C works like classified ads providing all the details about the product they are selling. For example, they are selling a house, car, or bike to other individuals. Some consumers even sell old furniture on a C2C platform to another customer.
Here are some of the advantages of C2C ecommerce:
1. Increased Profitability
In C2C, there is no middleman involved resulting in reduced product and service cost. C2C sellers do not need to worry about extra costs like rent, staff salaries, website hosting, marketing, and third-parties for product distribution. The seller directly communicates and transacts with the buyer.
2. Increased Customer Base
With a physical or online shop, the possibility of potential customers visiting your site or walking into your store depends on chance, shop proximity or convenience, promotions, marketing, and customer loyalty. C2C businesses are based online which means it is accessible to a worldwide audience, increasing the likelihood of conversion.
Selling products and services on an existing C2C platform provides sellers with an opportunity to build their credibility while easing their burden of creating and sustaining their own C2C platform. They can do this under the “umbrella” of the C2C platform.
Disadvantages of C2C Ecommerce
Despite the above advantages, there is still a downside to C2C ecommerce.
1. Less quality control
Since C2C platforms don’t produce and sell goods, there is no guarantee of regulation with the quality of products on the site. The sellers are consumers themselves so there is little recourse for poorly made or misrepresented products.
2. Payment Issues
Depending on the platform, C2C ecommerce does not guarantee payment of the transactions made. Unlike the traditional business model, there are no regulations governing C2C ecommerce. C2C platforms are rife with scams so do always research when transacting with a seller. Credit card payment can also be difficult as the platform is not secured and unable to process such a method.
3. Platform Fees
This may vary according to the platform but some providers may charge you for using their platform. They may also collect recurring fees or a percentage of your profit.
Consumer To Business (C2B)
A lesser-known form of ecommerce, consumer to business involves a consumer acting as seller and the business acting as a buyer. In C2B, there is an intermediary involved. For example, a photographer takes photos and uploads them to a stock photo site. The website will then pay the photographer for the right to use the photos.
In C2B, the consumer has the power to name their price or have businesses directly compete to meet their needs. Affiliate marketing is a good example of C2B ecommerce. C2B evolved from the growth of popular consumer-generated media like websites, blogs, podcasts, and social networks. C2B can help drive business to a company’s e-commerce platform.
Advantages of C2B Ecommerce
Here are the advantages of the C2B business model:
1. Improved Consumer Insight
In C2B, customers are doing the marketing for you. They are trying to reach a customer base that accurately reflects your demographic. This can provide you with valuable information that you need for your market research.
2. Brand Loyalty and Awareness
Word of mouth is powerful and customers are more likely to trust other customers than large companies. 90% of customers are more likely to trust and buy from a brand recommended by a friend or another customer. C2B can help broaden company reach and build trust in your consumers.
3. Product Development
Consumers can give you valuable feedback about which products or services they like. This will allow you to learn what products are most desirable for consumers and develop their products accordingly.
Disadvantages of C2B
Consider these disadvantages if you are planning to embark on a C2B campaign.
C2B is a relatively new business model and can be unstable. Since you are betting on a customer’s marketing efficacy, it can carry long-term risks if you solely rely on this model. There are certain factors that you cannot control as a business owner.
2. Negative Responses
The C2B model also opens your business up to negative criticisms. Prepare to mitigate any criticism without shutting down established communication channels.
Choosing The Right Ecommerce Business For You
Now that you have an idea about the different types of ecommerce businesses, how do you go about choosing the right one for you? Here are some questions you need to answer to help you find the right business model for you.
Who is your target audience?
Your choice of business model will depend on your target audience. Are you targeting business establishments or individual customers? Identify their pain points and their purchasing behaviors.
Do you have resources?
How much is your working capital for getting started? Do you have a warehouse or huge space for storing inventory or a way to manage shipping?
What are you going to offer your customers?
There are different types of offering you can give to customers. You can offer physical goods, digital products, or services. It’s important to consider the value proposition of your products. Use your value proposition to make your products unique and attract target customers.
What are your business goals?
What are you hoping to achieve with ecommerce? Analyze your market to help you better understand the best business model for you.
What is your level of technical expertise?
What technical skills do you and your team possess? Determine which ones you want to handle yourself or better outsourced to outside contractors.
Choosing the right business model is key to your success in ecommerce. Choose a model that is fit for your budget and target market.
Why Choose airisX Ecommerce?
airisX has a complete range of individual and complete solutions for ecommerce sellers – our bread and butter. Born out of necessity to help ecommerce sellers scale their businesses and lower their costs, we solve your pain points by bringing all your ecommerce staffing needs under one roof.
Being successful in the Ecommerce space is more than just listing some products and hoping the sales arrive. airisX Ecommerce Solutions brings together a comprehensive suite of services to cover all aspects of operating and growing an ecommerce business. This allows our clients to achieve more with less resources to transform their business for the future.
Get in touch with us at firstname.lastname@example.org and we will get back to you with a customized solution that fits your needs.