Developing an eCommerce strategy is a crucial piece for many organizations. A huge component of this is identifying your target market and understanding what your eCommerce business model will be. Here at Elastic Path we have experts with more than twenty years of experience in the four main business models outlined below.
Not taking the time to evaluate your business model and understand your target market can be extremely detrimental to your business and lead to thousands in wasted spend. Digital advertising, SEO, content marketing and more are effective ways to drive traffic and revenue and bring a large ROI but won't be nearly as effective without a thorough evaluation of your eCommerce business needs.
At Elastic Path we work tirelessly to help you identify the right eCommerce solution but that begins with properly evaluating and identifying your business model. Let's take a deeper look into the four major business models and the important differences and nuances that come with each.
The four eCommerce business models:
- Business to Business (B2B)
- Business to Consumer (B2C)
- Business to Government (B2G)
- Business to Business to Consumer (B2B2C).
Let’s take a look at each one…
As the name implies, business to business (B2B) is when a company markets its products or services directly to other businesses. Wholesale eCommerce fits under the B2B model quite often, and those customers expect similar experiences that they get with B2C eCommerce websites.
B2B can be divided into two main models: vertical and horizontal. The vertical B2B model primarily involves manufacturing companies and can be categorized as either upstream or downstream. Downstream is when a manufacturer develops a business relationship with a parts or raw materials supplier. An example of a downstream B2B relationship is when a pencil company sources graphite and wood from other companies.
The upstream B2B model is the opposite of the vertical. The upstream model is when a parts or raw materials supplier forms a relationship with a manufacturer. The materials are flowing upstream. An example of an upstream B2B relationship is when a paper mill forms a relationship with a bookbinding company to supply it with paper for the books it produces.
The horizontal B2B model involves products and services that do not involve parts or raw supplies but are used by the company in other ways. Generally, these are the products and services that are used in maintenance, repair, and operations. An example of a horizontal B2B model is when a janitorial supply company sells cleaning supplies to another company for the cleaning of its production floors, restrooms, and other areas.
In eCommerce trends, online B2B still has a little catching up to do with regards to the traditional B2B model. The problem lies in price negotiation and collaboration. While many businesses appreciate the simplicity of ordering online, they are used to working with sales representatives who often give special discounts for ordering in bulk. A potential solution is a hybrid model where relationships are built with sales reps, but customers also have the ability to order online and get the same prices by entering special codes.
As the name implies, business to consumer (B2C) is when a company markets its products or services directly to end users. It is the most widely known form of commerce by the general public. The B2C eCommerce business model relies on having a platform that can be adjusted quickly and adapt to new customer needs without causing delays in service.
It’s very easy to understand the B2C model. You complete a B2C transaction every time you purchase food from a grocery store, eat dinner at a restaurant, watch a movie at a theater, and get a haircut. You are the end user of the products and services these companies sell.
In eCommerce, there are five different B2C models: direct sellers, online intermediaries, advertising-based, community-based, and fee-based. Direct selling is the most common model. It is when consumers buy products from online retailers. Online intermediaries are online businesses that bring sellers and consumers together and take a cut of each transaction made.
In the advertising-based model, information is given away for free and money is made from advertising on the site. Facebook is an example of a community-based site that makes money from targeting ads to users based on their demographics and location. Finally, the fee-based model involves companies that sell information or entertainment to consumers for a fee, like Netflix or subscription-based newspapers.
In recent years, online B2C sales have been trending upward. Many traditional brick-and-mortar retailers have been closing as shoppers go online for the things they need. This is good news for eCommerce B2C retailers, as they pick up the customers the traditional retail companies lost.
Another trend in B2C is the hybrid model where companies have both a traditional brick-and-mortar presence and an online shopping platform. Many companies are combining elements of the two business models to maximize the customer experience. For example, some companies now let you order your products online and pick them up at one of their local stores. Many companies also allow customers to return products they bought online to local stores for a quick and easy refund or exchange.
Business to government (B2G)
Business to government (B2G) is when a company markets its products and services directly to a government agency. This agency could be a local, county, state, or federal agency.
An example of a B2G relationship is when an ammunition manufacturer sells ammunition to the US Army. And an example of a local B2G relationship is when a private engineering company sells its engineering services to a county government to develop a new water and sewer system for the community.
In B2G, companies typically bid on projects when governments announce Requests for Proposals (RFPs). Interacting with government agencies is very different from working with other businesses or consumers. Due to having to deal with bureaucracies, business deals tend to move at a much slower pace than in other sectors.
Ecommerce companies can definitely bid on government contracts, the same as other companies. Unlike many B2C transactions, however, many government agencies will not go directly to an eCommerce website and place an order. There are exceptions to this, of course. A local government agency could, for example, place an order directly from an eCommerce company for a part to repair a piece of equipment. It depends on a variety of factors including the size of the agency and the need.
Business to business to consumer (B2B2C)
The last of the eCommerce business models is known as business to business to consumer (B2B2C). This model is actually a combination of both the B2B and B2C models. it’s an arrangement where a company sells products to another company which are then sold to consumers.
An example of a B2B2C arrangement is when a wholesale distributor sells merchandise to retail stores that then sell the merchandise to end users. The B2B2C model is comprised of three parts: the first business (the business of product origin), an intermediary, and the end user.
There are several different ways the B2B2C model can be used in eCommerce applications. For example, a company could partner with another company to promote its products and services, giving the partner a commission for each sale.
The primary advantage of the B2B2C business model for eCommerce companies is the acquisition of new customers. This is an important consideration for new eCommerce companies that need a way to rapidly grow their customer base.
Improve Your Strategy by Focusing on Your Business Model
Identifying your eCommerce business model gives you a distinct advantage over your competition. Once you have identified your target market and the correct business model you need to best serve your customer base, you can focus your marketing efforts and fine-tune your business model to maximize revenue.
This also gives you a distinct advantage over your competition. Surprisingly, many companies take a very haphazard approach to selling. While your competition is pursuing the “if you build it, they will come” approach to sales and marketing, you can be enjoying increased sales with less effort and expense by identifying the best business model for your market and then focusing your marketing efforts on serving that model.