ECommerce sales have been given a boost by the pandemic, with online sales growing an estimated 40% between 2019 and 2020, with the total share of online sales hitting a high of 21.3% last year, up from 15.8% in 2019. While this jump was unpredictable – with analysts predicting worldwide total sales for 2020 of 16.1% prior to the pandemic – it was expected with that level predicted for 2023.
Online shopping is not only accessible to consumers, it is easy for business people to create stores and sell online. There are 4 main business models, transferred from traditional sales to online sales models, and some merchants choose more than one model, combining sales types to reach a broad market.
First, let’s take a look at those core models, then, how they can be structured in innovative ways to create a successful online business.
Four Traditional Types of Ecommerce Business Models
If you’re starting an eCommerce business, odds are you’ll fall into at least one of these four general categories.
Each has its benefits and challenges, and many companies operate in several of these categories simultaneously.
Knowing what bucket your big idea fits in will help you think creatively about what your opportunities and threats might be.
B2B – Business to Business
The B2B business model involves a business selling its product or service to another business. Sometimes the buyer is the end-user, but they can also be an intermediary, reselling the product or service to end-users in a B2C model.
B2B transactions generally have a longer sales cycle, but they also have a higher sales value and an increased number of recurring purchases.
B2B sales online have improved in recent years with improved online ordering and reordering, tracking and logistics. B2B suppliers are securing sales using innovative techniques, such as chat, messaging and social media to respond to clients in real-time, securing customer loyalty and recurring sales.
B2C – Business to Consumer
B2C businesses sell to their end-users. This is the most common type of sales model, and there are numerous different innovations on the conventional.
The sales funnel for B2C tends to be much shorter as the decision-making process is shorter than B2B sales, for example. It is easier for an individual to make a singular decision about a private purchase, such as a new pair of jeans, than it is to make a decision about purchasing a new printer for an office.
B2C also includes services, and more recently innovators have leveraged technology and offer a huge variety of apps that are aimed at making people’s lives easier. Much of the advertising of such services takes place through word-of-mouth and targeted advertising through social media.
C2B – Consumer to Business
Individuals who sell goods and services to companies is what is known as the customer to a business model, or C2B. An example of the model is a jobs board site that advertises freelance workers for businesses needing contract or short term projects completed. It empowers workers to set the fee for their work and is a larger model for the future of work as people move towards work from home and remote work models.
Affiliate marketing services can also be considered C2B.
C2C – Consumer to Consumer
A C2C business is known as an online marketplace. People connect online to exchange goods or services. The websites make money by charging transaction or advertising fees. The model is also known as P2P (peer-to-peer) and sites like eBay and Gumtree were some of the first to connect people without companies or businesses intervening in the sales process, but simply providing the space for sales to happen.
Delivery Methods for ECommerce Innovation
These 4 models are packaged differently online by innovators challenging the marketplace.
Some of the popular approaches taken by industry-leaders and market disruptors include white label and private label, D2C, dropshipping, wholesales, and subscription.
White label and private label
White label and private label means applying your brand to a generic product purchased from a distributor.
Private labeling means a retailer hires a manufacturer to make their product for their exclusive sale, a model that many fashion labels use, such as Calvin Klein Inc, which sends its patterns for exclusive manufacture in China and retains the rights to all its products.
D2C – Direct to Consumer
D2D sales have been a marketplace disruptor as the online setting lends itself to the model. There is little need for an intermediary and because of this, the cost of goods is often lower, and in some cases, more easily personalised or customised.
Dropshipping
Dropshippers market and sell items fulfilled by a third-party supplier. It is one of the fastest-growing models. Dropshippers connecting buyers with manufacturers. Websites give BigCommerce users access to integrate inventory from suppliers around the world for their storefronts. Amazon is one of the world’s best-known dropshipping competitors.
Wholesaling
Wholesales is more often a B2B sales model that gives merchants buying power. More businesses are selling wholesale directly to consumers who are wanting to buy in bulk to reduce costs.
Subscription service
A subscription model delivers regular products to loyal customers. What was once associated with print media, such as the daily delivery of newspapers, has now expanded to cover all manner of products. Monthly boxes of clothing and outfits, dog toys and treats, as well as books, wine, chocolate – almost anything, can be ordered as a subscription service.
Selecting an ECommerce Business Model
To select the right model for your business, there are some questions that you can answer to help establish the best platform type for your business so that you engage with the right audience and establish a suitable business.
Who is your customer?
Knowing your audience is an important part of your business model. Where are your core audience, are they on social media or is it a corporate firm? Knowing who you want to sell to is one of the most important steps in figuring out which sales model is right for your business.
What is your positioning?
What makes your product or service unique? How is your product or service different from your competitors, and why would customers buy from you as opposed to your competitors?
What are you capable of?
Do a SWOT analysis and really define the areas of your business and products and services that make your business capable of marketplace entry, expansion and disruption. This will help you to understand what areas of the market are needing to be filled by your presence.
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