The eCommerce sector has been gaining traction over the years, with a significant spike during the global pandemic. According to a recent study, global retail eCommerce sales reached approximately 5.2 trillion U.S. dollars worldwide. This shows that the eCommerce sector is here to stay, and businesses that can harness its growth are on the fast track to success.
Before you can start making the most of your eCommerce business, the first step is to identify the type of eCommerce you are going for. While selecting a type might not always be straightforward, it is an excellent way to segregate the business into various categories, making it easier to compare business models and similar companies.
Furthermore, to grow a business, it is necessary to have focus. Choosing a single business type can help focus all your energy on a single framework rather than juggling multiple business types. This article looks at different types of eCommerce business models and why they might be suitable for you.
Leading Types of ECommerce Businesses
There are various types of eCommerce businesses. These businesses are similar to any other business that sells goods or services. The only difference is that these businesses primarily operate online.
Since they are similar to a traditional business, identifying your type of business can help you focus on your goals and work towards obtaining business growth.
Following are the types of business models you get to choose from when you start an online venture. While all of them may seem suitable, choose one that goes well with the type of goods or services you offer.
Business to Consumer (B2C)
The first type is probably the one you have seen almost everywhere. As the name suggests, the business-to-consumer model is a model where companies market their services or products directly to the end users.
This is one of the most straightforward business models, as B2C is reasonably straightforward to implement.
A B2C business in the traditional sense could be a restaurant or a grocery store, but when we bring it into the digital space, there are five types of B2C business models for eCommerce. These types include:
- Direct selling:
This is a standard model usually seen in online stores. The consumer can directly visit the business website and purchase a product or service. Let’s take the example of the online fashion store named “ASOS.” They promote their website and redirect users from CTAs found in emails or other social media ads to their landing page. Once the consumer has reached the landing page, they can easily buy goods directly through online transactions.
- Online intermediaries:
Online intermediaries aim to bring together the buyer and seller on an online platform that ensures trusted transactions. These businesses earn by taking a percentage of each transaction made. Great examples of this type of B2C business are marketplaces like Amazon or eBay.
- Community-based model:
This model primarily refers to social media platforms. Typically this occurs with influencers and streamers who sell items directly to their audience. The business is based on a personal brand and the owner either has their own products or earns revenue through sponsorship and referral links.
- Fee-based model:
As the name suggests, this business model offers consumer goods or services and charges a fee. The most common business types include pay-as-you-buy or paid subscription providers, such as The Wall Street Journal or Netflix. For eCommerce, this model also includes your subscription services like meal delivery service Blue Apron or the monthly t-shirt club Wohven.
Business to Business (B2B)
Firms that offer their product or service to other businesses work under the B2B model. According to a Gartner report, 51% of businesses are primarily B2B operations, even if they have some DTC sales..
This model can be categorized into horizontal and vertical methodologies. The vertical methodology refers to selling your product or service within the same industry, while the horizontal one refers to selling to businesses in every sector. While both methodologies can work towards growth, it is crucial to strategize according to your offering.
Rimac is a great example of a vertical eCommerce market. It specifically focuses on selling batteries to car manufacturers while also offering complete technology solutions to global automotive manufacturers. On the other hand, big names such as Staples are seen as a horizontal market, making its office supplies accessible to all businesses.
Business to Government (B2G)
Some businesses are primarily targeting government entities. These B2G businesses sell products or services to local or federal agencies. An example of a B2G business could be Mark43 which specializes in providing technology solutions for government sectors. They helped in optimizing the police cloud data system, allowing them to process data more quickly. Since the service provider operates online it is a prime example of B2G eCommerce.
While this type of business model can be directed towards consumers or businesses, they exclusively deal with government sectors to assist them. For example, certain arsenal manufacturers supply the government exclusively.
Business to Business to Consumer (B2B2C)
In a traditional sense, this model can be seen as wholesaling. A B2B2C organization helps wholesalers manage their existing inventory and acquire new customers. Businesses working under the B2B2C model sell their product or service to a retailer or intermediary, while selling the product to the end-user. Organizations that procure a large inventory of goods are clients for this business model. Ali Baba is an excellent example of this model as it offers products in bulk to retailers.
A common eCommerce operation is a drop shipping business, where you sell someone else’s products to consumers and the manufacturer or a wholesaler ships orders for you. In these cases, you’re also working within this B2B2C model. By having a partner that handles major functions like manufacturing, storing, and shipping, you’re keeping costs down significantly even if you have lower margins than someone selling their own goods.
Consumer to Consumer (C2C)
ECommerce is widely accessible, and almost anyone with an internet connection can buy or sell goods online. The C2C model is the model in which a person buys goods from a seller and then sells them forward to another consumer. This is usually done through third-party marketplace platforms that facilitate transactions – Facebook Marketplace, for example.
Consumer to Business (C2B)
We can generally see freelancers and contractors using this model. This is a model where consumers offer their goods or services to businesses. Websites such as UpWork and Fiverr are great examples of eCommerce businesses using this model. Another example of the C2B model are vloggers or bloggers that review a business to help them improve its bottom line and get new customers.
Which ECommerce Model Is Right for Your Business?
Before choosing a model, you must evaluate your business and determine which model suits you best.
Here are some tips on evaluating when gauging which eCommerce business model is suitable for you:
- Select your customers. Your first step should be to determine whether you plan to sell to an individual customer or a business.
- Define your competencies. Next, you need to analyze your core competencies, budget, expertise in a specific market, and technical limitations.
- Choose your offerings. Once you have evaluated your competencies, you need to choose your company’s offering. This can range from operating in a physical location or working remotely from anywhere in the world.
- Position your company. Finally, it would be best if you focused on your positioning strategies. This pertains to getting your product or service in front of the potential customer. Creating a plan beforehand can give you a competitive advantage in the market.
Once you have gone through all of these steps, you can clearly understand which business model is feasible for your operations. You can then work towards adopting that model and creating strategies to grow your business.
Selecting an eCommerce business model might be the most critical decision you can make for your company. It can help your business take off and set a precedent for success from the get-go.
Understanding the different business models in the eCommerce sector can make a difference when you want to grow in your niche. While having a specific business model can help you focus, it allows your business to assess your competition. Competitor analysis of businesses in the same eCommerce type can help your organization make informed business decisions.
Choosing a specific business model helps you commit resources and time to the operations.
While there are instances where more than one model is adopted (for example, B2B businesses that also cater to the customers directly), it’s best if you stick to a single model. For example, if you do not have a specific model, you could struggle with the issues faced by each model with no clear direction. Look at other options if you’ve exhausted all other avenues to gain better revenue or growth.
After years of experience in the eCommerce sector and in business development, Jake Rheude is now the Vice President of Marketing at Red Stag Fulfillment. In fact, Red Stag Fulfillment is a fulfillment company that grew out of eCommerce to fill a void in the value chain. When he’s not neck-deep in numbers and data, Jake likes to read about the industry and share his knowledge with others.