There is more to e-commerce than just websites and buying products. Nearly every imaginable product and service is available through e-commerce transactions. As a result, it is considered a very disruptive technology. Since the first e-commerce transaction in 1994, the industry has matured to include a variety of business models and delivery methods. Knowing the various e-commerce platforms available isn’t enough. Understanding the six types of e-commerce is vital to determining which model works best for you.
Types of E-Commerce
At its core, e-commerce is about companies selling products online, which happens in several ways.
- Business-to-Business (B2B) – B2B e-commerce happens when one business sells to another online. These sites tend to cater the shopping experience to higher order volumes.
- Business-to-Consumer (B2C) – B2C business encompasses individual people visiting online stores where a business sells or curates its products. The terms B2C and direct-to-consumer (DTC) are interchangeable.
- Consumer-to-Consumer (C2C) – Online marketplaces that allow consumers to sell their goods directly to other consumers use the C2C model. The larger retailers tend to rule the market, but a new generation of businesses, like Poshmark and Grailed, have started to show value in a tailor-made C2C experience.
Types of B2C E-Commerce Business Models
There are multiple B2C models available for businesses, and picking the most suitable B2C model is crucial for business success.
A DTC model is one in which businesses manufacture products and sell them directly to consumers. This model is beneficial as it allows businesses to have a competitive price point, strong margins and good product quality control. Owning manufacturing is a massive undertaking.
Subscription e-commerce is similar to DTC but with a twist: purchasers need to sign up for subscription services to buy anything. This type is not the same as a DTC business offering a “Subscribe & Save” feature. True subscription businesses require customers to opt-in to a recurring purchase. This agreement is beneficial as subscription businesses can have a high customer lifetime value (CLTV) — if successful at customer retention. Subscription businesses aren’t a good fit for many reusable product categories.
White Label and Private Label
If you don’t do your manufacturing but still create unique products for e-commerce, consider a white label/private label model. This model means an e-commerce business contracts with a supplier to create a product to their specifications, which the e-commerce business sells. White and private labelling is common in highly specialized sectors where manufacturing takes niche expertise and a strong branding focus. ‘Private labelling’ happens when a supplier makes products exclusively for you. If it’s not exclusive, it’s ‘white labelling.’
When a supplier handles manufacturing, the e-commerce business is simpler to run, and you can focus primarily on branding. When you don’t own the supplier, you will have less margin and quality control. There is also an upfront cost to having the supplier design and sample your products.
The e-retail business model allows businesses to purchase products from other brands at a wholesale price and sell them to customers. E-retail has the value add of allowing for bespoke product curation and a unique shopping experience. E-retail works well for retailers where taste and selection matter, like food and fashion. This model allows for a wide product selection without requiring the development of every product. Remember, it’s harder to distinguish your brand without products from your own company. Management of wholesale inventory can also be tricky.
Dropshipping happens when you don’t produce your own goods or store inventory. A third-party partner handles storage and fulfilment requirements. All you do is inform them when someone places an order. Dropshipping is a modified form of the white label or e-retail business model, but businesses don’t hold their own inventory. This model is the most logistically light and least capital-intensive, making it attractive for first-time business owners. Dropshippers rely on their supply partners to run smoothly and tend to have lower margins than other e-commerce models.
We promise you that “B2C wholesale” is not an oxymoron. Lots of businesses started out serving only other businesses until they realized they could use e-commerce to offer their products to the general consumer. These sites usually offer the features of a traditional B2B site but are open to small-sized orders from customers. This model allows businesses to benefit from the operational efficiencies found in large order sizes. It allows and provides for the diversification of offline-oriented businesses. Unfortunately, customers in the B2C model are highly price-sensitive and businesses with a cost advantage tend to win.
How to Choose An E-commerce Business Model
The number of models can seem overwhelming. You can help ensure you pick the correct model by asking a few simple questions.
What Resources Do You Have?
Don’t make the mistake of defaulting to an optimistic outlook — this is where it pays to be skeptical and pragmatic. Ensure you understand what each model does and does not offer. Dropshipping and marketplaces benefit from great supplier contacts. DTC and private label models require more cash upfront and more time to begin operation. When you take stock of your supplier relationships and the funds available to invest, you ensure you make a comprehensive decision to safeguard success.
What Are You Best At?
This question is one of the most important to ask. Any successful business is built on a competitive advantage, starting with the owner. The skills you possess can form the backbone of your competitive advantage. These can inform your model.
- If you excel at customer experience dropshipping or marketplaces may be best for you.
- DTC may be the best fit if you know product development in your industry.
- Branding or social media experts find white/private labels can be the best fit.
- B2C works well when you have a sustainable cost advantage.
E-commerce offers many advantages, including its ability to reach a global market, without the need for a large financial investment. The most lucrative form of e-commerce is dependent on your skills, experience and interests. You cannot succeed if you don’t choose an e-commerce business model that aligns with your strengths and passions. If you are considering an e-commerce site, contact the friendly team of experts at Alley Kat Web Consulting for your free needs assessment and get started on the path to e-commerce success.