How to Choose the Right eCommerce Business Model

by Paige Griffin Seasoned Content Writer

The buying source, value addition, and finances determine the complete business model framework for any business model. When you think of an eCommerce business model, there are variations within each category - and there has been an evolution over the years. With the increasing global relevance of eCommerce, there is bound to be increased focus on how the business works. Global trends indicate a retail business of nearly 4.9 trillion US dollars worldwide, forecast to grow by more than 50% within the next 4-5 years, touching 7.4 trillion dollars by 2025. (Statista)

eCommerce business models get categorized based on the buyer category, the product being sold, and the delivery channels. The first step in knowing how to choose from these models is to understand them with their pros & cons so that you know what works in your case.

 

eCommerce Business Model Choices

1. From the Buyers’ perspective: 

• B2C/ Business-to-Consumer - You are a ‘retailer,’ selling your products or services to consumers.

• B2B/ Business-to-Business - In this case, you’re the wholesaler, the distributor, or the manufacturer, and you will sell directly to other businesses.

• C2C/ Consumer-to-Consumer This refers to transactions between consumers, on an online platform, for the sale and purchase of goods. eBay, Craiglist, and Etsy are some examples.

• C2B/ Consumer-to-Business - It’s a process where the consumer makes content that some businesses will then use. Consumers offer their price for a product or service, and businesses compete for that. Take Fiverr, for example, or online sites offering photographs - where individuals sell services to businesses. Or Upwork, on the same lines. Examples include affiliate marketing, influencer marketing, and consumers as brand ambassadors

 

2. Products

• Physical products - the most dominant and traditional products are physical products, namely, electronics, clothes, food items, household appliances, tools, etc.

• Services - This involves people offering their skill set to others, all solutions to specific problems or the answer to some needs - photography, content creation, web design, and marketing.

• Digital goods & services - Everything is available on eCommerce platforms, from music to video games, ebooks to applications, and even movies. Plus web-related services - digital marketing, consultancy, research, lifestyle-related, and home management services.

 

3. Delivery 

• D2C/ Direct to the consumer - This model cuts out the full involvement of the wholesaler and retailer. The manufacturer sells to the consumer, and intermediaries are kept from transactions.

https://www.statista.com/statistics/1109833/usa-d2c-ecommerce-sales/

• Private and White Label - Private label could imply a business owner deciding to get some product from the manufacturer but then marketing & selling it under his label. The other kind could be the ‘White label’ where a business owner takes generic products from a supplier and sells popular items.

• Wholesale - Wholesaling is the traditional style that has now gained a digital look. Business owners buy products from manufacturers and sell these to retailers and distributors at discounted prices.

• Dropshipping - This eCommerce business model is about acting as the ‘middlemen.’ There is no headache about storing goods or shipping logistics, and the manufacturer or the supplier handles this.

• Subscription - This eCommerce business model is the customers’ solution for easy subscription-based delivery of a product they need regularly. It brings in a steady income from customers and offers endless product possibilities - food products, cosmetics, essential items, medicinal supplements, etc.

 

How do you choose the right eCommerce business model?

Once you understand the types of eCommerce business models, you can formulate some questions to ask yourself before deciding which one to choose. Understand what each model brings to the table, and you’ll find it easy to choose.

1. Product to be sold - The first aspect you will choose will be the kind of product you want to sell.

   1. Nature - Is it a physical or a digital product?
   2. Inventory management - can you handle inventory and storage?
   3. Available investment - how much capital do you have to invest in your business?

2. Audience

   1. Pain point to be addressed - what is your problem solving for the customer?
   2. The USP of your business - what is the core uniqueness of your business?

      C. The pros & cons of each model:

Category	Business Model	Gain	Risk
Buyer-based	B2C	relatively easy to set up has low start-up costs involves a much shorter decision-making process huge buyer base	stiff competition can mean lower profits Repeat orders are often a challenge
	B2B	volume of orders is more significant here the recurring cycles are more the profit margins are consequentially higher.	limited customer base Must have higher investment levels
	C2C	make their money by charging transaction fees or listing fees.	challenge of maintaining the technological backup & quality of products/ services.
	C2B	variety of products/services business can compete for prices	no guarantee of the quality Difficult to check quality or genuineness
Delivery Channel	D2C	It becomes possible to maintain relationships with consumers and control the customer experience.	Managing technology and operations could be challenging.
	Private/White Label	liberty of investing less in the design & production and leveraging marketing & technology.	it will work well only if substantial knowledge about digital marketing exists.
	Wholesale	lesser stress on quality control and manufacturing management selling in bulk will involve higher profit margins	However, competition could be stiff. requires increased capital investment at the beginning, processes to track orders & shipping and massive storage space.
	Dropshipping	business is more accessible in this model, and various items can be sold more conveniently the business owner is spared the stress of warehouse costs.	market competition challenge, the lack of brand control, and the minimal profit margins would hamper revenue graphs.
	Subscription	Convenience for customers with choices available	it could get very tedious to constantly innovate, maintain quality and offer regular incentives to buy. calls for high investment and a massive emphasis on customer relationships and extensive communication with the customers.

 

 You can choose the appropriate business models once you have assessed the above parameters and attained customer demographic details. An eCommerce business model, once adopted, could evolve too, and sometimes businesses grow to hybrid models to increase their customer base and preferences. The various models' features, pros & cons will help you decide on the exact eCommerce business model you want to opt for.

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Created on Sep 5th 2022 01:56. Viewed 271 times.

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