It has been many years since ecommerce was invented; it was May 1989, when SequoiaData Crop introduced Compumarket, the first Internet-based ecommerce system.
Since then, online shopping has become an increasingly integral part of our lives as consumers and a pivotal element in corporate sales strategy; as Casaleggio Associati’s annual report highlights, in 2021, ecommerce retail sales were worth about $4.9 trillion worldwide, and this figure is expected to grow at double-digit rates again in the coming years, reaching about $7.4 trillion by 2025. In Europe, sales also accelerated in 2021 to be worth $732 billion. In this context, Italy has played its part, although the figures involved are still very low compared to other countries; according to the report, the ecommerce sector recorded an aggregate turnover of 64 billion euros in 2021, for growth of 33% YOY.
These data clearly show that from startups to small and medium-sized businesses to big brands, there are a large number of companies that can benefit from their own online store, where they can sell their products/services.
Many people think that selling online is a piece of cake: a good site, a good image, some ADS and you’re done! In reality it is a very complex and challenging project, but, as you will read in the next few lines, if well structured from the beginning with a scalable and successful business model, it can be a great opportunity for your startup, if not the only way to continue growing your business.
The main types of business models for ecommerce
As we have seen, the move to digital marketplace is a very current trend, if not a necessity, and companies not yet online will have to make the races to enter the ecommerce landscape as soon as possible. Whether you are a startup or an established business, the first step will be to apply the right business model to your online store.
Not taking the time to evaluate your value proposition and understand your target market can be extremely detrimental and lead to wasted money, if not failure itself. Advertising, SEO and marketing are useful ways to drive traffic and help you realize a great ROI, but they will not be as effective without a well-planned business strategy.
So if you are a startup and looking to create or expand your online presence, it is important to identify among the business models the one that best suits your needs and requirements.
Below we will take an in-depth look at the most important and popular models that you should consider when starting or expanding your online store.
B2C
An online business that follows the Business to Consumer (B2C) model sells its products/services directly to its end users. Everything you buy in an online store as a consumer, from clothes to fashion to household products to food to entertainment, is part of a B2C transaction. The decision-making process for a B2C purchase is much shorter than for a business-to-business (B2B) purchase, especially for low-value items. Because of this shorter sales process, B2C companies generally spend less money on marketing to make a sale, despite having a lower average order value and fewer recurring orders than their B2B counterparts.
In B2C ecommerce, there are five different submodels:
- direct selling: this is the most common model, which is when consumers buy products from online retailers;
- online intermediaries: are online businesses that bring sellers and consumers together and take a % for each transaction made;
- ads-based: In the advertising-based model, information is provided for free and profit is made from publicity on the site;
- community-based: in the community-based model, online businesses generate profits by targeting ads to users based on their demographics and location;
- fee-based: In the payment-based model, online businesses sell services, information, or entertainment to consumers for a fee, such as Netflix or subscription newspapers.
B2B
An online business that follows the Business to Business (B2B) model sells its products to an intermediate buyer who then eventually resells them to the end customer. B2B transactions generally have a longer sales cycle, but a higher order value and more recurring purchases.
The B2B ecommerce business model can be divided into two methodologies; vertical, when companies sell to customers within a specific industry, and horizontal, when customers belong to different industries. Each approach has pros and cons, such as industry expertise and market depth (vertical) versus widespread market coverage and diversification (horizontal).
Historically, B2B businesses have always been a few steps behind their B2C counterparts, and the problem lay in negotiating and updating prices, as many companies were used to leveraging sales reps and paper catalogs as their main revenue-generating channel. However, the modern B2B buyer has become quite savvy with innovation and technology and now shares many of the same demands and habits as the average buyer, namely speed, convenience, flexibility, customization and integrated experiences.
B2B2C
B2B2C stands for Business to Business to Consumer. It is a business model in which an online business sells its product/service in partnership with another organization to an end customer. Unlike white label, which we will see later, in which a business “rebrands” a product to present it as its own, in B2B2C the end customer understands from the outset that they are buying a product or using a service from the original business.
C2B
In the Consumer to Business (C2B) model, users sell goods and services directly to companies. It is a system most commonly used on websites that allow people (contractors or freelancers) to share the work or services in which they are experts with requesting companies.
Typically, when we think of business strategies, we tend to think of them from the company’s point of view. However, consumer-oriented models, such as C2B, are becoming increasingly popular.
One of the main advantages of this business model is that it allows end users to set their own rate and increase their visibility as a professional.
C2C
Consumer to Consumer (C2C) businesses, sometimes referred to as marketplaces, connect consumers to allow them to exchange goods and services and typically make money by charging transaction fees. Online companies such as Craigslist, Walmart, Alibaba, and eBay have pioneered this business model.
The benefit is to allow users to sell their products without having to open and maintain their own online storefront.
B2G
Business to Government (B2G) is the model in which a company sells and markets its products to government agencies or public administrations, whether municipal, provincial, regional or state.
This model is based on successful bidding in government procurement. A government agency typically submits a request, and companies will have to bid specifically for these projects.
Although it is a very secure business model, B2G is by its bureaucratic nature very slow.
Finally, there are other e-commerce business models such as:
- Government to Consumer o Citizen (G2C): refers to the set of solutions that support the relationship between PA and citizens. The main objective is to provide through the web or mobile applications information and services to citizens;
- Consumer o Citizen to Government (C2G): refers to the relationship between citizens and the public administration through the use of digital tools that facilitate the implementation of procedures such as paying taxes, requesting, sending documents or other services;
- Government to Business (G2B): refers to the set of interactions between the PA and businesses through all those digital solutions, mainly through the web, by which the PA publishes notices and competitions for the purchase of goods and services from private companies or for the sale of goods to private individuals;
- Government to Government (G2G): refers to the set of software solutions that aim to improve communication between various government agencies, improving all those processes that require the interaction of multiple agencies;
- Business to Employee (B2E): refers to the strategies adopted by a company that focuses on employees rather than consumers.
Some practical examples of business model for ecommerce
Based on the different production and shipping methods used, then, it is possible to identify different examples of ecommerce business models. Let’s find out some of them:
Affiliations
Affiliation is an ecommerce business model in which affiliates earn a commission for marketing your startup’s products. It is a simple relationship between two parties: an advertiser and a publisher. An advertiser (your online business) has products they want to sell and a publisher (the affiliate) promotes these products on their site and earns a commission on each sale or action. With this model you can leverage the publisher’s influence, traffic and expertise to generate sales for your business and pay only after the sale has been completed, while the publisher will leverage its influence to earn and increase traffic to its site; a win-win relationship for both parties.
Dropshipping
Dropshipping, rather than a business model, is an order fulfillment method in which a company’s products are stored, packaged and shipped by a third-party vendor (i.e., you sell someone else’s products through your store). The good thing with dropshipping is that your startup team doesn’t have to worry about inventory management, warehouse storage or shipping management; they need to focus solely on the front-end customer experience and building their customer network.
But of course, it also has downsides; in fact, you have to consider that your startup will have absolutely no control over the supply chain; if products arrive damaged or late or if the quality is lower than expected, this will all reflect negatively on brand reputation. While the onus of delivery is on the dropshipper, you are in direct contact with the end customer and ultimately responsible for handling support requests and managing the relationship.
Wholesale Purchase
If bulk buying is the model for your startup, you will have to manage everything except the production of the product. You will have to order goods directly from the supplier, and you will be responsible for warehousing, managing inventory, tracking orders and shipping to customers. Usually this model is the preserve of a B2B e-commerce, but it can also be leveraged as part of a B2C strategy.
Subscription products/services
With a subscription model, you commit to continuously sending your products to customers for an extended period of time at predetermined and consistent intervals. There are many different types of subscriptions, such as unlimited product or service discovery; in this case, pricing, billing and account management will depend on your business, your products and your customers’ consumption behaviors.
Food is one of the most popular categories of consumer goods with good results with subscriptions, along with fashion, beauty or even pet items.
Although the model can prove to be quite profitable, however, it is not suitable for all businesses.
Industrial production (white label/private label)
If you intend to start a private label business, you will need to identify a supplier who can produce your branded items based on your unique ideas and design. This will save you from having to invest in production machinery and give you exclusive rights to sell your goods. Once the products are ready you can manage the process so that the subcontractor ships to the customer, to a marketplace, or directly to you for direct management. Initial costs may vary, but if you have a clear plan, a good brand and the right finances to get started, private label can be a great way to start or test new ideas.
With white label, you brand and sell under your own name and logo items already in a third-party distributor’s catalog; the most interesting sectors are fashion and health, such as clothing, cosmetics, and essential oils.
White label can increase the visibility of your brand, without the need for investment in research, development, design and production; you will only have to devote yourself to sales.
Self-production
If your startup intends to sell handmade items (jewelry, clothing, cosmetics for example) self-production is the right business model as it gives you more control over the quality of your products and your brand image. You will have to worry about purchasing raw materials, management, inventory and labor.
This business model is therefore ideal if you love DIY, have original ideas, are able to produce on your own, have the resources to do so, and want to focus on low initial inventory costs.
Direct to consumer (D2C)
If your goal is to sell products from your startup directly to end users, without wholesalers, middlemen, retailers or marketplaces the D2C model is perfect. It is a new business model that is becoming increasingly popular, especially compared to multichannel retailing, because it improves the shopping experience for customers, who do not have to waste time searching and choosing from thousands of brands.
Print on demand
Do you need to sell customized products with your own graphics? Then on-demand printing is the optimal solution for your startup! Once the customer proceeds with the order, the printer will take care of the fulfillment and shipping; similar to dropshipping, this business model relies mainly on variable costs, as you will not have to pay for a product until it is purchased. This way you can allocate more funds for marketing and advertising.
Digital products (infoproducts)
If your startup involves the distribution of downloadable, playable or transferable digital files, such as MP3s, PDFs, NFTs, videos, plugins and templates, selling digital products is your model; although initial creation costs may be high, variable sales costs are relatively low. Once a good has been created, delivering it to customers costs relatively little, as it is repeatable.
How to choose the right business model for your services/products
We have just seen that there are different types of e-commerce business models to choose from. Identifying the one best suited for your startup may not be easy, so here are some questions that may help you recognize the one best suited for you:
What are you selling?
First, identify your product by type:
- Physical products: Physical products are the most commonly sold merchandise online and often get the highest sales. From fitness items, to pet products, from kitchenware to office products; your entry into the online marketplace will not be difficult if you know what item you want to produce and sell.
- Digital goods: as the world moves ever more rapidly to a digital marketplace, selling such goods and products has never been easier. From e-books to templates, from plugins to online courses; as long as you’re not infringing copyright, this world is an opportunity.
- Services: even selling services in an increasingly interconnected world has never been easier; in the past, selling was usually done through newspaper ads or word of mouth. Now, companies can create their own websites to market their services themselves.
Who is your customer? Who are you trying to serve?
Consider your customers’ expectations when starting an online business. You are most likely to succeed if you understand their behaviors and habits and find ways to fully satisfy them.
What are you capable of? What do you know better than anyone else?
Build your value proposition around your strengths and work on your weaknesses. Discovering your limitations can be difficult, but it will help you make better decisions in the long run.
What is best for your product?
Based on your product, with a good analysis, you will be able to identify, among the best business models, the one suitable for your business. For example, if you are manufacturing your own items, you might consider wholesale or subscription sales to help you initially cover production costs and get to breakeven more quickly. If, on the other hand, you are a distributor, you will want to invest more in direct marketing and strategies to grow your customer base.
What is your positioning?
Figure out what makes your product better and whether you can communicate this unique selling proposition to your customers. Assess the competition and make sure it is clear why your product is the best choice.
But identifying the right ecommerce business model is only a small part of the challenge you will face in creating a functioning and profitable online store. Indeed, its development, proprietary and/or on marketplace, involves a detailed feasibility study: from the already seen analysis of e business models to the choice of technological infrastructure, from customer care to marketing, from logistics to optimization. How then to realize a successful store? Below you will find out how and, more importantly, who to turn to in order to realize the best e-commerce for your startup.
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The importance of innovating (adapting the business model)
As I think you know, it is not enough to identify the right initial business model, because companies change, society evolves and the world is constantly moving; it has to be updated and, if necessary, changed over the years. Therefore, the role of innovation in transforming startups in the fast-paced modern landscape and adapting them to the future is undeniable. Business model review and innovation is a constant and ongoing practice that helps those doing business understand the areas that need to be improved and implemented to provide value to their customers and at the same time, enable companies to enhance their profits and long-term growth; in the latter case we are talking about ecommerce business revenue models.
Since adaptability is the key requirement for startups in today’s competitive landscape, it is impossible to ignore or neglect constant revision and innovation in business models. But of course you will understand that this is no child’s play! It is, in fact, necessary to understand the ways in which companies, industries and the business environment change and adapt, if not revolutionize the way you do business.
To find inspiration on this journey, remember the words of William Edwards Deming:
“Quality is meeting the customer’s needs and exceeding the customer’s own expectations while continuing to improve”.
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