Today online presence is a priority for any business. This priority is the advent of digitalization and technological innovation. When internet kickstarted a new era, business organizations created websites to share necessary information about their respective firms. As technology grew, digital tools took over the enterprise paradigm completely. As a result, we witness a drastic change in the business models. Besides, the Mobile revolution and social media interactivity made the game even more robust.
Digital innovation, mainly the web relentlessly rewrites the business rulebook. Organizations, irrespective of its size and objectivity embrace digitalization to stay ahead of their competitors. Since digital technology is incorporated into all domains, the business models have to be adaptive and innovative. In simple terms, digitalization paved the way to eCommerce and rewrote the DNA of the business, how?
Ecommerce transcend everyone’s business expectations and maintains mastery over the audience’s mind. Many entrepreneurs are not aware of the product model choices that are available and suitable for them. Without a basic knowledge about eCommerce business and the business models, entrepreneurs feel excited about ecommerce trends and practices. And that is the real challenge because without knowing eCommerce fundamentals, it will be difficult to enjoy profitability. If you dream to flourish as an ecommerce business, a strategy, research, and appropriate business model is a must.
As eCommerce experts, Virtina has designed eCommerce business plan and strategy for many businesses. We have helped many offline stores to create an online market and deliver it with ease. We have come across various questions from entrepreneurs related to eCommerce. Realizing the importance of eCommerce business and keenness of many entrepreneurs, we have come up with this article to provide an insight into eCommerce business models.
With our expertise in designing and developing eCommerce sites, we have realized that most times, customers are not aware of the different platforms available and they fail in deciding the right platform that suits their business model. So, setting up an ecommerce store will be profitable only if you identify the right ecommerce business model. You should set up an ecommerce store only after identifying the right platform.
This article will help entrepreneurs to recognize the eCommerce model that suits their business demands and the target audience they need to focus!
Let us get into the details,
Ecommerce beset all online marketplaces that bring buyers and sellers together. So when you think about setting up a business, what is the first thing to finalize? Your first challenge is to identify the type of business transaction you are going for, isn’t it? Next, you will think about your target audience. In short, when you decide to set up a business, you should first identify the type of business you are planning, i.e., whether your business is B2B, B2C, C2C, or C2B?
Business-to-business – “B2B” –defines commerce transaction happening between two businesses. In general, commercial transactions falls under business-to-business and comprises of selling with the bidding process, decision-making process, etc. When it comes to eCommerce, B2B business has custom enterprise eCommerce platform that directly deals with other companies in a given frame. This type of activity generally requires more startup cash.
Business to the consumer-”B2C”– refers to the business transactions that happen directly between a company and consumer. These consumers are the end-users of this product and services. There are five major business models in Business-to-consumer eCommerce. These models include Direct sellers, Online Intermediaries, Advertising-Based, Community-Based and Fee-Based models. Since customers have more product choices the challenge and competition are tighter in the B2C business model.
Consumer-to-consumer eCommerce or “C2C” – is the type of business where a consumer sells products or services to another consumer via online. This business transaction happens through a third-party website that takes care of the entire deal. The objective of consumer-to-consumer eCommerce is to promote the business without a wholesaler. The C2C e commerce model is profitable for both seller and buyer. The seller can earn more profit as there are no middlemen and the buyer gets products reasonable price.
Consumer to Business or “C2B” – eCommerce model is total opposite to the traditional business model. In this business model, individuals sell products and services to other business organizations. In other words, C2B can be described as the single service proprietorship which sells products to more extensive businesses.
The eCommerce business models listed above are the primary business models. In addition to these models, there are other models like Business to Government (B2G), Government to business (G2B), etc.
Now, it is going to be easy for you to decide which type business suits your business plan. Isn’t it? Once you identify the type of business that fits you, then it is easy to move forward. Knowing your business category will help you to understand your target audience and plan your business in the best possible way, if not you will lose the track!
Once you finalize your target audience or the type of business, your next concern is identifying an eCommerce business model.
An eCommerce business model is nothing but the conceptual framework of the business type required for business strategy. This structure comprises the mission, vision, and goals of your company and how it strives to achieve the same. Based on the inventory management and product sourcing the eCommerce business models are categorized into five categories:
- Dropshipping – Sell items on your website, but the product is manufactured, and shipped by someone else.
- Wholesaling and warehousing – Bulk purchase of products happens, and the products are stored in a warehouse.
- White-labeling – Based on the contract you can use your brand name on the product like a manufacturer.
- Manufacturing – You outsource the production of the goods and then complete the order by yourself.
- Subscription-based – Products or services are delivered to customers on regular and scheduled intervals.
Let us delve into the details,
Drop shipping is the simplest eCommerce model. This model of eCommerce business is suited for companies which don’t have enough investment for a storage facility, preferring mobility and more focus on marketing. If you choose drop shipping, all you need to do is to set up a storefront for your business and then enjoy the profit. The supplier has to take care of the inventory, warehousing, packaging, etc. If sellers are slow or product quality is low, then it will reflect on your review and customer feedback. So finding a responsible supplier is the only challenge in drop shipping model. If you are planning for drop shipping model, then Virtina suggests you choose Shopify. Using Shopify, you can set up a store for the drop shipping business model and market the product with ease.
Wholesaling and warehousing
Do you want every element of your business in control? Do you wish to deal exclusive products? Do you want to sell bulk products? Do you expect to collaborate with other companies? If your answer is YES for all the above questions, then the suitable business model for you is wholesaling and warehousing. Here, you buy products from intermediaries or manufacturer at a discounted price, store them at your convenient place and then sell these products at a profitable rate. This model demands supervision and investment. You have to take care of stock, inventory, shipping, warehouse, etc. An example of this business model is DollarDays.
Private Labeling and Manufacturing
Private Labeling and Manufacturing is the most preferred business model that witness a constant growth over the past. When you have an idea for a perfect product, but doesn’t have enough capital to own a factory, then you can go for this eCommerce business model. Private Labeling and Manufacturing can be defined when a product is manufactured by a third party producer but sells the product on a retailers brand. The retailer has the right to set the package and design of the product. All consumer products like Frozen food, Skincare products, Household goods, etc. fall under this model. If you face any problem with product quality or delivery time, then without any delay you can change suppliers. Moreover, the start-up cost is minimal too. To be precise,
Private Labeling and Manufacturing can be defined when a company manufactures the product but another company pack and sell it under their brand name.
White label defines a product or service rebranded by one company but was produced by a different manufacturer. The company rebrands the product use or distribute the same as per requirement. White labeling is mainly carried out by retail stores for satisfying a brand loyal customer who is interested in particular products from specific stores. White label business permits you to sell an existing product under your brand name. This model of business is suitable for a firm which is not in a position to produce products by themselves. White labeling helps to save time and money to a great extent.
Subscription ecommerce refers to companies which function on a subscription model. According to this model, companies deliver products or services to customers on regular or scheduled intervals. This eCommerce model provides durable products and memberships in addition to the subscriptions for products and services. The trusted income streams help subscription companies to incentivize customers to buy additional subscriptions or inspire their contacts to subscribe the product. If you are planning for a company that sells health and grooming, fashion, beauty, and food items, then subscription model is going to be the best for your business type.
In a nutshell,
Like any other businesses, research and planning are crucial for ecommerce businesses too. If you wish to run a successful ecommerce business, then you should first identify your business type. After determining the business type, you can pick a business model to run your business.
We hope that this article provides you an insight into the importance of identifying the right ecommerce business model.
Virtina is the complete eCommerce service provider with vast experience in designing and developing online stores.
Need assistance to identify and develop an eCommerce business model? Feel free to contact Us