Think back to how you shopped last time.
How did you shop in 2000? 2010?
Where did you get your clothes? How do you buy groceries? Will you purchase a watch on the website? Online businesses grew exponentially over the last decade and went booming especially since the 2019 covid pandemic. Shops (Brick and Mortars) had to close down, people were encouraged to stay at home, with online being the best avenue to purchase.
An ecommerce business does not mean just taking photos of your products or services and putting them on a website. It needs knowledge of the market, the target audience you are looking at, a solid business plan, detailed research and a sustainable business model. Many business owners would be so eager to jump into this bandwagon but they just do not know where to kickstart and what are the available business models for them.
In this article, we will talk about the innovation and principles of business models, and how each model generates revenue and creates business sustainability.
Traditional Types of eCommerce Business Classifications
1. B2C – Business to Consumer
In the B2C Model, businesses sell to their end user, without any middle men. It is the most common business model. Anything you buy online as a consumer, clothes, wardrobes, household goods – is part of a B2C transaction. A B2C model will have a lower transaction value and involves more transactions (selling more to consumers).
Examples of B2C businesses are everywhere. Adidas, Wal-Mart, Uniqlo, IKEA are examples of customers which directly sell their products / services to end users. They usually possess both brick-and-mortar (stores) format and online websites.
2. B2B – Business to Business
A B2B model focuses on providing products or services to another business party. The business party will then resell it to end users. It does not involve any end user route here for the provider.
B2B transactions generally will have longer business cycles and higher transaction values. Sometimes, it will involve business agreement or trading term agreement between two parties.
Examples of B2B businesses are Boeing (providers of airplanes to flight companies), General Electric (GE), Accenture etc.
3. C2B – Consumer to Business
C2B allows individuals to sell products or services to companies. It is a model that people do not usually think of, but it is getting more common nowadays. Example of it would be affiliate marketing, whereby individuals (more commonly KOL Key Opinion Leaders), would share product link in their bio on their social media.
4. C2C – Consumer to Consumer
A C2C business – also known as an online marketplace – connects consumers to exchange goods and services and usually makes money by charging transaction or listing fees. It provides a platform for small businesses or individuals to embark on their business journey.
Examples involve eBay, Shopee, Alibaba. The C2C platform benefits from motivated buyers and sellers, but is often criticized by quality control.
Types of eCommerce Business Revenue Models
1. Dropshipping
One of the simplest and fastest growing methods of eCommerce is dropshipping. Dropshippers market and sell products / services fulfilled by a 3rd party. You could be selling mobile phones, wardrobes or even clothes to sellers on a platform / website, but you do not own stock to sell. You will be collecting key info and passing the orders to the 3rd party. 3rd party suppliers will fulfill and deliver to end users.
One of the examples would be Shopify. This business model usually runs on volume, with thin margins. If 3rd party suppliers are slow in fulfillment and provide low quality products, you would have problems to capture more orders.
2. Private Label
This model is suitable for business owners with great ideas of products but minimal cash. Business owners hire a manufacturer to create a unique product for them to sell exclusively. With this model, you could just focus on marketing and technology, while keeping minimal focus on production and design. This would be a good way to test a product or concept before setting up your own factory / production.
3. White Label
White labelling is similar to private labelling. You choose a product that is successfully sold by another distributor, and you apply your name and brand onto it. It is commonly seen in the beauty market as the formula for these products does not differ much. One of the challenges in white labelling is MOQ (minimum order quantity). It requires a minimum placement of orders to buy the products. You would need to craft a brand story and do marketing well to sell fast. Otherwise, the products would be stuck in your shop or warehouse.
4. Subscription plan
Subscription model delivers customers products on a regular basis. Companies using this model have a more stable income stream from its loyal customer pool. They can use the data for CRM (Customer Relationship Management) purpose, to send out mailers, newsletter to incentivise customers to subscribe additional plans or introduce new users to join in.
5. Wholesaling
Wholesaling approach refers to selling products in bulk at discount. The more you buy, the greater saving you will entitle. It is usually a B2B practice, but many sellers are now trying to use this approach for budget conscious buyers. It usually involves necessity products (milk powder, diapers, shampoo, body wash, detergent etc). All these categories are used very frequently and there is no worry to buy at a cheaper price and stock up.
Conclusion: What Idea Fits Your Business Best?
Now that you know the good and the challenge of different models of starting eCommerce, it is time for you to get started.
Choosing the right model is just the first step of jumping into this sales channel. There are other fundamentals of eCommerce (What is the must do on website, customer journey, marketing funnels etc) that you cannot miss out to know.
Planning is important, but what makes a difference is to start NOW