According to Statista Digital Market Outlook, the e-commerce market is set to grow over the next few years. The growth rate for the next four years (2021 – 2025) is predicted to be 16%. With more people made aware of the ease and convenience of online shopping, investing in an e-commerce business model may be the next big step your business takes. But how do you choose which business model to follow? Let’s look at three aspects which will determine which business model you will adopt.
Aspect 1: Who do you sell to?
There are a variety of people who could be your customers but the most common are:
1. B2B (business to business): With this business model, you are most likely to deal with bulk purchases. The invoice orders will be high, and you can grow steadily. Some points to consider are that it is a highly competitive model, and you will need to keep track of trends and prices on a continual basis. The buying cycle is also longer than in other business models.
2. B2C (business to consumer): This business model is easier to enter as the costs can be lower than B2B businesses. This is the most common business model. The benefits of a B2C e-commerce model are that your shop is open 24/7, and the transactions between customers and business can be smooth and easy. The drawbacks are that customers have high expectations regarding delivery times and the quality of the product. It is also a very competitive market.
3. C2C (consumer to consumer): This is when a consumer produces or purchases a product and then sells it on a third-party platform to another consumer. This model is great to test out an idea and see what the demand is for your product or service. With this model you have direct contact with the consumer, your costs are lower, and you have a wider audience. The biggest disadvantage of this model is that you don’t have control of some of the systems in your business and this could cause problems for you.
Aspect 2: What are you going to sell?
Whether e-commerce is part of your brick-and-mortar shop or a standalone, there are different products or services that can be sold.
Let’s look at the different items that can be sold:
1. Physical goods: You could sell physical goods, like cups and saucers. These goods would need to be stored and have an inventory created of them. You will also need to consider how you would transport the goods from your warehouse to your customer and ensure they arrive in good condition and on time.
2. Digital goods: These are items which are created on a computer. They can be an e-course, music, e-book, software, or any other digital items. The advantage of offering digital goods is that you won’t need to pay for warehousing, but you will need to pay for online storage for your customers to access the items you sell. You will also be able to sell numerous copies of your digital items and lastly, the goods can most times be consumed as soon as they are paid for.
3. Service: Do you offer a service? There are a wide variety of services offered from office management to website design and implementation. Depending on the service you offer, it may happen online and offline. When choosing a service, it is important to clarify which niche you want to work in.
Aspect 3: How will you sell your product or service?
Depending on what you choose to sell from your e-commerce store will depend on which option you choose.
Here are five ways to get the products to sell:
1. Private labelling: This method has a manufacturer who creates a product according to your business’ design and specifications.
2. White labelling: Here the manufacturer creates a variety of products and you put your branding on to the product. You won’t design the product.
3. Drop shipping: In this method, your business acts as a middleman between the consumer and the manufacturer. You will collect the money and deal with the customers. One disadvantage of this method is that you don’t have control over the shipping of the product which could cause problems for your client base.
4. Wholesaling: Instead of selling your products individually to consumers, you sell your products in bulk and at a discounted price to other businesses. This model is usually used with B2B business models.
5. Subscription: This method relies on regular payment from the customer for items that are sold. It started with newspaper subscriptions but nowadays almost every industry has a subscription business model. Customers enjoy subscriptions because they are convenient, and they often offer discounts.
After reviewing these three aspects, you will be able to select the ideal e-commerce business model for your company.
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