In 2018, consumers spent over $517 billion online with U.S. companies. Each year, ecommerce takes a larger bite out of traditional retail sales as consumer demand for online shopping and convenient delivery grows stronger. As a result, your company has a huge opportunity if you wish to expand (or establish) your online offering.
Fortunately, it’s easier than ever before to set up an ecommerce business. Previously, an aspiring online merchant would need exceptional coding talent to create its online presence - or the start-up capital to hire said talent. Today, there are a number of online platforms like Shopify and BigCommerce. Not to mention marketplaces like Amazon that help companies get up and running in a matter of days.
But there’s something an online tool or platform can’t decide for you, and it requires careful consideration of your business, your potential customers, and the way they shop.
It’s your ecommerce business model.
Here’s what you’ll find in our Ecommerce Business Model Guide:
- What is an Ecommerce Business Model?
- Business-to-Business (B2B) ecommerce
- What about Direct-to-Consumer (DTC)?
BONUS: Before you read further, download our Inventory Management Software Whitepaper to see how Logiwa uses real-time tracking to help customers get up to 100% inventory accuracy and increase shipments by 2.5x.
What is an Ecommerce Business Model?
Your ecommerce business model is simply “how you plan to make money”. It’s the way you set up your company’s operations, marketing, customer service, and financing in order to meet this objective. While there are several ecommerce business models, many ecommerce businesses fall into one of two boats: business-to-business (B2B) or consumer-to-business (B2C).
Recently, a third business model emerged as a compelling option: direct-to-consumer (DTC). We’ll focus on these three business models in this article.
The B2C Business Model
What Are the Characteristics of a B2C Ecommerce Company?
B2C businesses sell directly to consumers. That said, B2C companies can also have B2B channels, like Microsoft, which sells word processing software to both individual consumers and to corporate clients. Microsoft also has a B2G (business to government) channel, but we aren’t traveling down that road today.
Platforms like Shopify and Amazon drive the growth of B2C ecommerce, giving online merchants easy availability to off-the-shelf web design, checkout, and accounting tools.
B2C businesses share the following characteristics:
- Products are for personal use: Companies sell low volumes to individual customers for a premium price. Consumers typically don’t benefit from bulk, bundled, or discounted pricing.
- Customers don’t require big name recognition: Immediate use and price are two factors that impact B2C customers. The purchase risk is relatively low. This means that they don't require the company to have significant name recognition or market share.
- Emotion-based marketing: Consumer purchases are based on feelings rather than facts. A B2C company’s marketing must elicit an emotional response to drive sales.
Amazon is a B2C company. The online retailer dominated the competition by slashing prices and prioritizing convenience through same-day and two-day delivery options. Additionally, they built a powerful recommendation tool that showed customers other products they might like. Today, this B2C goliath is one of the most valuable companies on the planet.
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How Can Your Company Succeed at B2C Ecommerce?
By 2021, global retail ecommerce sales will hit $4.5 trillion making it an exciting industry for aspiring entrepreneurs. It’s also a flexible industry since online merchants can choose from several product models based on their capabilities: To start an ecommerce business you can select multiple product strategies.
- Single product: Ideal for new businesses who don't want to stretch themselves too thin.
- Multi-product, single category: A single product business can expand within the same category. This allows the company to attract repeat customers and diversify its sales mix without growing unsustainably.
- Multi-category business: Most companies who expand to this model start off as single product businesses or multi-product, single category businesses. Amazon started off as an online bookseller and now sells millions of products.
- Subscription: If your product or service provides enough value, a subscription model is a brilliant way to ensure recurring revenue.
Whichever model you use, your B2C company must pay attention to the following to be successful:
Building a Strong Brand
B2C companies don’t need widespread brand recognition the way B2B companies do. However, they should still have a strong brand relationship with their prospects and current customers. This creates the emotional response B2C companies need to increase online sales, and turns their products into a must-have rather than a want-to-have.
Almost everything associated with your company, from the customer's unpacking experience to the helpfulness of customer service, affects your brand. So pay attention to all instances in which the public interacts with your people, products, or marketing.
Recall that many consumers make purchase decisions based on emotions. This means that they also make quick purchase decisions, and they can be easily deterred. A customer compelled to buy your product based on an Instagram ad might quickly abandon the purchase if your website takes too long to load. A poor mobile experience can cost your company a neat sum in sales considering how many people shop through their phones.
“A 1 second delay in page response can result in a 7% reduction in conversions.”- Kissmetrics.com
Make it easy for customers to find the products and information they need. Above all, provide a seamless customer experience when they’re ready to pay.
Mapping Out an Effective Delivery Strategy
Your customers expect an excellent customer experience. Delivery experience accounts for a critical chunk of their experience. Customers expect their packages delivered accurately, on time, and at low cost. This requires a strong delivery strategy that accounts for different shipping providers and the best shipping rate by using algorithms such as carrier rate shopping and shipment rule automation.
What B2C Ecommerce Platforms are Available?
Online merchants can use the following platforms to power their B2C ecommerce business:
- Big Commerce
- Site Builder
- Wix Stores
BONUS: Before you read further, checkout top trends in ecommerce
What Are the Characteristics of a B2B Business Model?
Under the B2B model, businesses sell directly to other businesses. Selling to businesses rather than consumers is different in a few key ways:
- It’s a “value” game, not a numbers game: The number of potential customers is lower than B2C, but the value generated from a single customer is much higher.
- Reputation management is critical: If one business customer has a bad experience that isn’t remedied, poor word of mouth could poison your relatively small prospect pool.
- Fact-based marketing: Facts, statistics, and case studies convince B2B decision makers. A poor B2B decision can cost someone their job and a business its profitability. As a result, they expect fact-based marketing that demonstrates how a product or service meets their company’s needs. Don’t confuse this with boring marketing though. Use numbers and facts to support your marketing storytelling.
Flexfire LED is an example of a B2B company. The ecommerce company, which enjoys $5 million in annual sales, sells LED strip lighting products to companies like Apple, Google, and Disney.
How Can Your Company Succeed at B2B Ecommerce?
Powerful trends move the B2B ecommerce industry forward. What may have been useful for B2B companies five years ago, may not be so effective today. And keep in mind that just because you’re a B2C company, doesn’t mean you’re not already a B2B company - you just may not have tapped into that opportunity yet.
Flexfire LED is an example of a company with both B2B and B2C business channels. Their customer base is split between homeowners (consumers) and businesses, nevertheless only 20% of the company’s revenue comes from consumers.
Taking a B2C Approach to B2B E-commerce
Early literature on B2B ecommerce sales focused on differentiating between B2B and B2C. Today’s experts recommend taking a B2C approach to B2B. This is because while the two models have different objectives, they should share the following tactics to meet their goals:
- Defining and maintaining product master data
- Producing high quality images of their products
- Developing visual merchandising and powerful online search capabilities
- Encouraging customers to leave reviews and ratings to provide social proof
- Building mobile-friendly online storefronts
- Developing user-friendly online categories for painless browsing
- Providing real-time inventory information and available to promise (ATP) inventory
- Providing multi-channel customer service options (e.g. chatbots)
Building Content for the Entire Customer Journey & For Multiple Decision-Makers
B2B customers have a buyer’s journey, but it’s different from the B2C journey. While B2C customers move through the buyer’s journey relatively quickly and mostly on their own, B2B customers consult with superiors, seek approval from a decision maker, and have to comply with internal procurement policies. Generally speaking, such companies need content that addresses the following stages of a B2B buyer’s journey:
- Stage 1: Identifying the Problem and Need
- Stage 2: Outlining Product Specifications
A prospect will identify the need for a product, typically during business strategy development. Before and during this stage, a prospect may know they have a problem, but struggle to define it. A business will take time to clearly document what a product must do, what results it will achieve for a company, and how much it will cost. These requirements either follow internal processes or are decided by a committee.
B2B companies should think about what problems often drive customers to their product, and ensure there is content available to help them understand the problem. They should also clearly outline their product’s features, how those features translate to benefits, and how their company serves as a partner.
This content is not meant to hard sell your product. In fact, it’s best to provide product-agnostic content. Your prospect is still identifying what they need. Pushing them towards a pricing page is a harsh interruption to the stage they’re in. Rather, continue to nurture and push them towards content that answers questions they likely have.
This is your opportunity to demonstrate an understanding of your prospect’s industry, business, and pain points. In doing so, you build trust.
- Step 3: Evaluating Suppliers
At this point, your prospect understands their problem and is looking for potential solutions. As a business, they likely have procedures about obtaining quotes from several suppliers to ensure fairness and the best possible value. Before they do this, they’ll eliminate options and request quotes from a shortlist.
B2B companies should present information on all of the solutions available to companies. Remember: They don't care to work with you just yet, so it might be premature to start selling your product. At this stage, develop content comparing several tools or solutions, so they start to view you as the expert in the industry. Presenting the competition’s offering also builds trust.
- Step 4: Purchase Decision
A prospect can reach this stage in several ways. They might spend a significant amount of time on your blog before exploring your pricing page or they may request a quote. At this point, they will want information on topics like buying on account, volume-based discounts, and more.
B2B companies should prepare content that answers these questions. Once the ball’s rolling, you want to keep the momentum going. The more information your company makes readily available, the faster a B2B purchaser can navigate internal decision-making processes at their company.
Understand Your Various Stakeholders
Are you dealing with a gatekeeper, an influencer, a decision-maker, or a blocker? Understand who the different stakeholders are and how to engage with them. For instance, an influencer may not make the final buying decision, but have been dispatched to conduct research and present it to executives.
In this case, it’s important to assess how often they meet with the person holding the purse strings and assess whether you should speak to another influencer. Moreover, understanding the people whose job it is to avoid risk and maintain the status quo (e.g. legal) is critical for B2B companies. These are the stakeholders who may kill your sales opportunity.
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What B2B Ecommerce Platforms are Available?
While larger brands develop their own ecommerce capabilities, small to medium sized businesses can leverage the following B2B platforms:
What About Direct-to-Consumer (DTC)?
The DTC business model is quickly growing in popularity, spurred on by trends in influencer marketing, peer-to-peer marketing, and the emergence of ecommerce capabilities on social media websites. This business model has the following characteristics:
- No middlemen: DTC companies don’t use a wholesaler or retail store to manage their products.
- Manage the end-to-end process: DTC companies manufacture, market, sell, and ship their products themselves.
- Platform-based: Many DTC companies use platforms like Amazon, Instagram, Facebook, and Google to sell their products directly to customers.
While this may sound like a small potatoes game played by influencers and home businesses, DTC has attracted the attention of larger brands. Companies like Nike have increased their focus on their DTC channels in an effort to strengthen their brand relationship with consumers and own the customer journey. In fact, Nike expects its DTC sales to hit $16 billion by 2020.
Why Are Companies Adopting the DTC Business Model?
The Difference Between B2C and DTC
The typical B2C product journey looks something like this:
- Manufacturer → Wholesaler → Retailer → Customer
With DTC, the journey looks like this:
- Manufacturer → Customer
While experienced retailers like Nike experiment with DTC, startups like Casper, Warby Parker, and Dollar Shave Club are jumping right in because of the benefits described below.
Brands Have More Control Over the Customer Experience
Brands invest tremendous resources into getting their marketing, products, and packaging just right. But once their products hit a reseller’s shelf, they’re at the mercy of a store’s sales associates. A poor interaction with a rep may lose the sale or worse, damage a consumer’s image of a brand thereby reducing the chances of a future sale.
A direct-to-consumer model gives brands more control over the customer experience.
Brands Have More Control Over Customer Data
Brands who use DTC have more data on their customers, empowering them to maximize their cross-selling and upselling marketing activities. They can analyze the customer lifecycle better to understand why their customers buy specific products.
Brands Can Sell Products at a Lower Cost
By going the DTC route, brands effectively eliminate the middleman. In doing so, they can reduce prices and attract more customers. Warby Parker found success by applying the DTC model to an industry where middlemen drive up the cost exponentially.
How Can You Succeed at DTC Ecommerce?
If you want to adopt the DTC model, you’ll need to take the following activities seriously.
- Developing and protecting your brand identity: The buck stops with your company. If you’re about to take on the manufacturing, marketing, selling, and shipping of your company, a strong brand that consumers trust and respect is essential.
- Upgrading your website with powerful ecommerce capabilities: You’ll need an excellent website where customers can easily browse high definition photos of your product. They need to be able to search for specific items, collect items in a shopping cart, and check out with a variety of payment methods. You’ll also need a website with strong analytic capabilities, so you can analyze your data and refine your business strategy.
- Using a DTC Ecommerce Fulfillment Software: Start managing your inventory and fulfilling your orders right away with an expert warehouse management software or 3PL warehouse management software the offers exactly what “new age DTC fulfillment” businesses need – nothing more, nothing less.
- Managing your relationship with current retail partners: By adopting the DTC model, you’re essentially eliminating a revenue stream for your retail partners. It’s important to manage this relationship effectively, especially in the beginning when you’re slowly phasing into DTC and retaining some retail channels. If DTC doesn’t work out, and you need to return to retailers, it’s helpful to have a positive relationship.
Who is Succeeding at DTC Now?
Glossier, the beauty company now worth over $1 billion, started with a beauty blog, Into the Gloss, founded by Founder & CEO Emily Weiss. When Weiss launched her first products in 2014, community engagement, inbound marketing, and social media influencers propelled the company to its current unicorn status.
As one Sequoia partner put it, “This is one of the most efficient direct-to-consumer businesses we’ve encountered.”
Casper took a traditionally boring industry - mattresses - and built a billion-dollar DTC company. For starters, Casper took a needlessly complicated process and simplified it by offering one, well-made mattress at a great cost. No furniture salesman rattling off facts about the ideal number of springs. Just a simple, seamless process for a product everyone needs. And as all DTC companies should, Casper took its brand story seriously. They built a brand around sleep, rather than mattresses. They made partnerships with celebrities and social media influencers to post photos of their Casper deliveries.
The DTC model presents a huge ecommerce opportunity, and the number of companies witnessing success, from Warby Parker to Bonobos to Dollar Shave Club to Barkbox, are proof of its success.
With the Right Business Model, Online Merchants Can Thrive
These ecommerce business models serve one overarching purpose: To help your business make the most money in the most effective way. With the right strategy, online merchants can build a profitable company, keep their operational costs low, and earn a nice piece of the growing ecommerce pie.
The real beauty of it? You don’t have to pick just one. If you begin as a B2C company, but it makes sense to build a B2B or DTC channel, then you can do that. You’re only limited by your creativity and capacity for innovation.
Written by Ruthie Bowles
Ruthie is a content marketing consultant for Logiwa. Her specialties include small business development and inventory management.