Ecommerce generates $4.2 trillion annually, so it’s not surprising that this market is growing at a rapid pace. Online shoppers are millions and they use online shops to shop for commercial goods, household products, and keep up to date with the latest trends. Ecommerce businesses need to be more competitive in order to thrive.
The key to your success is selecting the right business model. There are many ecommerce business models available. It is important to be familiar with the pros and cons of each type of ecommerce business in order to make a long-lasting and successful venture.
Different types of ecommerce
There are three main ways that a product can be sold online in the ecommerce industry:
B2C (Business to Consumer)
B2C is an ecommerce company that sells directly to customers. B2C is a category that includes brands that create their own products and sell them to individuals. Examples of B2C include Gymshark and Colourpop.
Some people mistakenly use DTC (direct-to-consumer) interchangeably with B2C. Although it’s not incorrect, DTC should be understood as a type B2C and not the equivalent.
B2B (Business to Business)
B2B ecommerce is a business that sells products or services to another business. SwagUp, for example, offers customizable products to corporate entities. Primera, on the other hand, sells high-quality printers, accessories, and printers to other businesses.
Although you might not hear of B2B as much as B2C today, this ecommerce model remains one of the most popular. B2B’s popularity is evident in the US, where there are 1.6 B2B businesses for every B2C business.
Consumer to consumer (C2C).
C2C businesses (consumer to consumer) are online marketplaces that allow consumers to sell their products to others. Common examples include Facebook Marketplace and eBay, but newer marketplaces such as Vinted and Wallapop are starting to gain traction in their respective countries.
Global growth is also being experienced by the C2C model. Some platforms that connect consumers to their customers have seen 50% growth in the last five years. Verticals such as fashion, beauty and family goods are showing the greatest potential.
Different types of B2C ecommerce models
There are many business models available in B2C. While consumers may not know the type of business they are dealing with, store owners need to choose the right model for their success.
Direct to consumer (DTC).
DTC, a type B2C model, focuses on selling products directly at individuals. Cupshe and Allbirds represent some of the most successful DTC brands.
Pros: DTC companies have strong margins and quality control because they control the production process.
Cons: Owning your own manufacturing space and equipment can be expensive.
Subscribe to DTC
Subscription DTCs are direct-to-consumer models where buyers must pay weekly, monthly or quarterly. This model is gaining popularity, with BootayBag and Tiege Hanley leading the charge.
One important distinction is that DTC can include subscription elements but not be a subscription model. Subscription DTC is only available to buyers who have purchased subscription plans.
Pros: Recurring fees provide predictable income streams for businesses as well as enhanced customer loyalty and customer engagement.
Cons: Not all products are suitable for subscription models. This is especially true of large appliances and non-consumables.
Private label and white
Private and white label businesses sell products created by third parties. White label products are not exclusive (ex. essential oils), and can be sold by any company. Private label products, on the other hand, are exclusive to a specific brand (think Target’s Archer Farms).
The pros: Third-party manufacturing removes the burden of product protection and allows you to concentrate on more important tasks such as customer service and marketing.
Cons: You may not have as much control over private label and white-label manufacturers as you would like. You could lose your profits due to third-party production fees.
E-retail
Ecommerce companies often source product lines from other brands to create stores with carefully curated merchandise. This is e-retail. It’s the process of creating an online store that looks like a physical one. In the last few decades, e-retail has helped to create many successful brands such as goop or The Breakfast Pantry.
Pros: E-retailers have the ability to offer a large selection of products, without having to manufacture every item.
Cons: No product of your own can make it difficult to stand out in the marketplace–potentially reducing your brand awareness.
Wholesale B2C
B2C wholesale is similar to an online version of Sam’s Club or Costco. Swish and Alibaba are two of the most well-known brands. They have all the characteristics of a business, but offer bulk-buy options to consumers.
The pros: Bulk purchasing allows businesses to benefit from simpler picking and packing. This trickles down the pipeline and helps to increase efficiency and cost savings.
Cons: B2C wholesale customers tend to be most interested in savings, so your company might be at an advantage if it charges less than its competitors.
How to choose the right ecommerce model
The decision to choose the right business model is about balancing your audience, your resources and your personal strengths. You can avoid less effective models by asking simple questions and pursuing opportunities that are more beneficial to your brand.
What do you want from your audience?
Your brand’s audience should be a key part of your brand’s values and most efficient structure.
Before you start any business, conduct a focus group with your target market. Ask your target market about their values, needs, willingness to pay, and frequency they might want to repurchase. These should be the core of your ecommerce strategy and guide you to the best business model.
Don’t forget: The more you know your audience, this step will be easier. Now is the time to create customer profiles if you haven’t done so already.
What resources are available to me?
There is a huge difference between what you currently have and what you may have in the future. It’s crucial to assess your current resources as you begin the process of identifying the best ecommerce business model.
This is particularly important when it comes to capital. A DTC model might be suitable if you plan to cook small quantities of food in your own kitchen. This model may not be the best option if you plan to make many different dishes with complex instructions.
Your current situation will help you choose the right ecommerce model. It’s possible to change things later.
What are my strengths?
Knowing yourself and your business is key to success, especially when choosing a business model.
Consider your strengths when comparing the different types. B2C wholesale may be the right choice for you if you are a veteran business professional with substantial capital. A white/private label product might be the best way to stand out in the market if you are a seasoned marketer or branding expert.
To find a home, you can look at existing businesses
Pay close attention to brands in your niche that are successful as you begin to identify potential ecommerce business models. What is working for them? What’s not working? What could be done to improve their model and give you a competitive edge?
Although following other brands’ footsteps won’t make you a unique business model, it can be a great starting point to explore successful strategies. Studying the status quo can help you see the way to climb the mountain. Examine your strengths, audience, and competitive outlook to identify new opportunities that can give you an advantage over the rest.
Remember that choosing an ecommerce business model is not a simple task. You should keep an eye on your business’ performance and be open to making changes to improve efficiency. You can make more efficient decisions about your ecommerce business by staying awake.