The Covid-19 pandemic has prompted many to launch into the world of e-commerce. However, before starting a path of this type, it is advisable to decide which business model you intend to adopt. Specifically, it is advisable to analyze in-depth the product that you want to sell online and, based on this, define who you intend to sell it to, on which platform to do it and through which methods.
Electronic commerce makes it available to those who want to invest in different business models in this direction, each with its peculiarities. Therefore, it is essential to carefully choose the most suitable business model for e-commerce for their business.
To make this choice, however, it is necessary first to have a clear definition of the business model and then to know the main business models for e-commerce, their specific characteristics, the advantages and disadvantages associated with them. Only then will it be possible to identify the winning business model for your business.
Table of Contents
What Is A Business Model?
The definition of the business model refers to the central structure of a company and, more precisely, to how the company operates to provide value to its customers and obtain a profit from this. This includes (among other aspects) the company’s value proposition, its pricing strategy, and its target market.
On a practical level, the business model serves a company ( be it a startup or a company already solid on the market) to define customers more precisely, attract investments, seize new sales opportunities, and obtain a competitive advantage. Based on the role of buyers and sellers, there are 4 main types of business models for e-commerce. Let’s find out better.
The Main Types Of Business Models For E-Commerce
The four main types of e-commerce business models are:
- B2C (Business-To-Consumer);
- B2B (Business-To-Business);
- C2C (Consumer-To-Consumer);
- C2B (Consumer-To-Business).
- Business-To-Consumer (B2C)
In a Business-To-Consumer business model, trade occurs between a company (seller) and consumers (buyers). Instead of selling its products or services to other companies, the company, in this case, sells directly to individual consumers, who use those products or services for their personal use. A tech company that sells its devices to customers through its online store is an example of a business model for B2C e-commerce.
Business-To-Business (B2B)
The Business-To-Business business model identifies commercial relationships between two companies: specifically, a company sells products or services to other companies, which are concerned with simplifying the purchasing process and saving time and money. An example of a B2B business model is selling its software to another company.
Also Read: How To Do B2B Marketing Automation
Consumer-To-Consumer (C2C)
The term Consumer-To-Consumer identifies a business model where a consumer sells his products or services to other consumers. The various sites that allow selling your clothes and used items to other people exemplify a business model for C2C type e-commerce.
Consumer-To-Business (C2B)
The fourth business model is called Consumer-To-Business or C2B. The consumer does not sell to other consumers in this specific context but to companies. An example of such a business model is represented by filmmakers who sell their services to companies.
The Primary Examples Of Business Models For E-Commerce
Based on the different production and shipping methods used, it is possible to identify different examples of business models for eCommerce. Let’s find out some of them.
Dropshipping
The cheapest business model for those who decide to start a new e-commerce business is called “dropshipping” (or “drop-ship”). It is carried out in 3 phases: the customer places his order by Lui and pays the list price; whoever manages the shop forwards the order to a supplier and pays the wholesale price; the supplier sends the product purchased by the customer directly to the customer.
As mentioned, this is a particularly advantageous business model in economic terms because startup costs are kept low by the absence of inventory and warehouses.
The risk is also low since you don’t buy the products in advance. The sales process is simplified because many tasks are delegated to the drop shipper, even if the absence of control over certain activities (for example, the inventory above) can prove to be a double-edged sword. After all, it exposes you to the risk of making mistakes with orders. In addition, margins are also low in a business model of this type in the face of low startup costs. Competition, on the other hand, is high.
Self-Production
If Drop shipping is distinguished by the absence of control over certain activities, the business model of Self -production, which characterizes, for example, hobbyists and do-it-yourself crafts, ideally places itself at the opposite top, from the moment that control over products and brands is maximum. Scalability and time-consuming are the main disadvantages of this e-commerce business model.
Industrial Production
Those who have a reasonable certainty that their product will sell and have already identified their reference market can opt for the industrial production business model. It requires a significant financial investment, and the startup costs for initial orders can also be high.
Faced with extensive control over prices and product quality and profit margins that tend to be higher than other business models, industrial production, in addition to the disadvantages already mentioned, also entails long lead times for the manufacture of products. Then, the relationship with the manufacturing company hides various pitfalls related to the production itself.
Bulk Purchase
The Bulk Purchase eCommerce business model is ideal for those who want to sell a wide range of products, even from different brands, and want to start doing so in a short time. Buying in Bulk generally carries a low level of risk because the products are already tested. Furthermore, selling products of well-known brands makes positioning on the market more accessible.
Competition, however, is high (in this regard, knowing how to differentiate is essential), and there is no total control over prices. Furthermore, if you are marketing products of various brands, managing different suppliers can also be complicated if you do not have an adequate organization.
Direct-To-Consumer (DTC)
The DTC -type eCommerce business model eliminates any intermediary between the company that sells the product and the customer who buys it. In this way, the brand can build a closer and more direct relationship with the customer and carry out retargeting, upselling, and cross-selling activities. Profits tend to be higher (if only because they should not be shared with other figures), but so are costs. Furthermore, doing without a reseller forces you to already have your customers sell the products or build them from scratch.
Subscriptions
The subscription-based eCommerce business model allows the customer to access a product or service after paying a fee. Creating a lasting relationship with the customer, in this case, is essential because having regular income means having a more significant income. Therefore, it becomes essential to know how to vary your products to be offered by subscription because, otherwise, the risk of abandonment can be very high.
Print On Demand
Like the dropshipping model, the Print on Demand business model allows you to sell products with custom graphics. The initial investment is minimal because you don’t pay for the products until they are purchased. The typographer takes care of the realization and the shipping. It should be noted that the profit margin is generally low for this particular eCommerce business model.
Digital Products
Digital Products mean non-physical products (such as, for example, files in MP3 or PDF format) that can be sold on the web repeatedly. Scalability and low operating costs are among the main advantages of this specific domain, even if the competition is high. Another big problem is related to the age-old issue of computer piracy. Some sales platforms also allow you to market only physical products.
How To Choose The Suitable Business Model For E-Commerce
So far, we have analyzed the most popular business models for eCommerce in this precise historical moment, with their advantages and disadvantages. There are many, and they cover most of the online sales activities; therefore, it will not be challenging to find a model suitable (or adaptable) to your specific needs.
To choose the most suitable eCommerce business model for your business, you need to focus on the business itself. The choice, in particular, is linked to the type of product or service that you want to sell on the web, to the specific platform on which you intend to do so, to your initial economic availability, and your organization.
What must be clear is that it is not always right to choose the solution with the lowest startup costs or the one with the highest profit margins because an immediate advantage does not automatically translate into a consolidated and lasting advantage. As we have just pointed out, the factors to be considered when choosing the best business model for eCommerce are many.
Also Read: E-commerce What Is It?