In the last two decades, the shift from offline/brick-and-mortar retail to online eCommerce has garnered much attention and commentary. In the past, a niche market focused on selling a few select products and services has radically transformed into a multi-trillion dollar industry whose influences now dominate the retail industry in more ways than ever. This trend has also resulted in more competition in the business as there are hundreds and thousands of websites selling online products or services in every retail sector. As an effect, more failure rates are being observed in newly launched e-commerce businesses, and an underlying major effect is, the inability to choose the right business model.
If you are a retailer or manufacturer and looking forward to diving deep into the eCommerce business world, but are confused about choosing the right business model, then this article is for you. To start with let us take a look at a few different types of business models.
Different Types of Business Models
As a general term, a business model encompasses everything that pertains to a business. The eCommerce business model can be categorized on several factors, but in this article, we have categorized them on the basis of the target market, inventory, and revenue, which are as follows:
- Target Group (TG) based Business Model
Any business plan needs a target market, and you should research the potential buyers of your product before development begins. This could range from a few to millions of people if you are starting an online business. This model can be further differentiated into:
- B2B model
B2B refers to a type of business model where products and services are exchanged between two or more businesses. For instance, in terms of services, there are consulting companies or software companies that sell their products or services to other companies. Alibaba.com, eBay, and Bloom Wholesale are a few B2-B eCommerce platforms to mention.
- B2C model
In a business-to-customer model or B2C, a company’s website is a place where all the transactions take place directly between the company and the consumer. A B2C model involves a consumer visiting the website, selecting a catalog, ordering the catalog, and placing the order. Amazon, Billabong, TopShop, Smashbox, and MAC are some of the prominent ones in the B2C type eCommerce business.
- C2C model
A customer-to-customer business model is one in which customers trade with each other, frequently online. C2C businesses are a type of business model arising from the e-commerce and sharing economies. For example, OLX, letgo, Kick Starter are the leading players in this segment.
- C2B model
The consumer-to-business model, or C2B, is one in which the customer provides a service or product to the business. In contrast, this is the reverse of the typical business-to-consumer model (or B2C), in which companies sell goods and services to consumers. Cashify, Upwork, Design Hall, etc. are some of the common examples of this type.
- Inventory Based Business Model
Any business model relies heavily on inventory. Keeping an eye on the movement of inventory is crucial to the success of any business, which is why savvy entrepreneurs always emphasize inventory management. Inventory-based models of e-commerce are categorized on the basis of how you deal with your inventory of goods and services, stock levels, packaging, shipping, returns, etc.
- Drop-Shipping model
A business that uses dropshipping does not need to keep inventory on hand to fulfill orders. A third-party supplier ships the order to the customer instead of the store selling the product. Its main advantage is that you do not need to spend on inventory, and shipping charges and can easily focus on marketing solely. However, in this segment, there are low-margin products that are easily available on other websites. Club factory, teledynamics, infuncity, fashion stories,etc. These are some of the dropshipping platforms to mention.
- Wholesaling & Warehousing model
It involves outsourcing the product from a manufacturer or middlemen at a discounted price, storing them, barcoding, and packaging them before selling them to the consumers at a profitable margin. This is a more robust business model when compared to the previous one, but requires more investment as you have to deal with inventory, employees, IT & software, security, packaging, etc.
- White-labeling & Manufacturing model
There are two ways to source the product you wish to sell, either you manufacture it or white label it. The white-label producer is a third-
manufacturer who allows other companies to distribute its goods under their brands, appearing as their own. Often, the same product or service is offered by different marketers under different brand names.
- Revenue Based Business Model
A revenue model is a part of a business model that explains how and where income is generated. The following is a high-level answer to the question of how you will generate revenue from the value we bring to a certain customer group. A digital business may have multiple revenue sources and, therefore, multiple revenue models. Revenue models vary based on industry and product/service type
- Direct Sales model
It is the most commonly used method. It may consist of an online website where the consumer comes in and pay for the purchase.
- Freemium model
It is typically used by software companies where they give away their basic features free of cost and charge the customers only for the advanced features. Dropbox, EVERNOTE, and Skype are some of the community leaders.
- Subscription model
The subscription-based revenue model is one of the best types of business models as there is a high rate of retention among the customers. The customers are charged at a regular interval of time which may be weekly, monthly, or yearly. For instance, Zoom and One Drive, etc.
- Credit model
This type of business model allows the customers to buy now and pay later, just buy the credits and pay later along with the interest fee. A case study of “next” – British-based fashion retail is a fine example of this model.
Why Choose YRC
Still confused about which model to choose for your eCommerce startup or struggling to reach your goals if already have a one. Your Retail Coach is a progressive retail consultancy firm with 11+ years of experience in providing phenomenal and exclusive services to retail industry.
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To learn more on the topic, refer to following video by Dr. Rupal Agarwal