If you set up your eCommerce store as an extension of your bricks-and-mortar shop, you probably already know what kind of eCommerce retail model you will follow – the same as your existing venture. However, if you set up an eCommerce business from scratch, then determining the retail model to follow will need to be a high priority in your early days of planning.
As we wrote in our Step-by-step Guide to Writing an eCommerce Business Plan, you need to define what your business is, who it involves, what you hope to achieve, and what sets you apart from your competitors. As part of this, you will have to make fundamental decisions about what niche will be worthwhile to enter and who your ideal type of customer will be. As you better understand what would make a viable niche for you, you can better understand how your eCommerce business could fit into the market. An in-depth, intimate understanding of your target audience is crucial as this will continuously guide your decision-making.
What are the Different Types of eCommerce Retail Models?:
What are eCommerce Retail Models?
When discussing eCommerce retail models, we are talking about the approach an online retail organization takes to its operations. We’re looking at whether it should structure as a business (as most, although not all, do) and who it targets as a preferred customer. If you’re not already used to the most common models, you might be confused by the acronyms. On the surface, they seem to be a strange mix of numbers and letters. But in reality, they are straightforward: organization type - 2 (“To”) - customer type. So, for example, if you structure as a business and sell to end consumers, you are operating a B2C eCommerce retail model – Business to Consumer.
Despite the many similarities between eCommerce stores and traditional retail models, the internet has provided opportunities not generally available to brick-and-mortar stores, particularly concerning delivery frameworks. For example, few traditional stores can get by with carrying no stock and relying on others to store and distribute their products. However, one of the easiest ways for a beginner to set up an eCommerce business is dropshipping, where you will probably never see the stock you sell. eCommerce businesses follow a simpler model than their traditional counterparts, often with fewer steps between manufacturer and consumer.
Types of eCommerce Retail Models
Many eCommerce businesses follow the traditional retail models, like Business to Consumer (B2C), Business to Business (B2B), Business to Business to Consumer (B2B2C), and Business to Government (B2G). However, the flexibility of operating online has seen expansion into other areas like Consumer to Consumer (C2C) and Consumer to Business (C2B). These latter types existed before the arrival of eCommerce but were nowhere near as typical. However, while the fundamental retail models that not changed dramatically with the advent of eCommerce, there are now many more delivery frameworks than in the pre-digital world.
1. Business to Consumer (B2C)
This is the most common retail model in the traditional shopping world and continues to be so for online retailers. Here, the retailer is structured as a business (company, sole trader, partnership, or some other valid type) and sells goods to end users (consumers).
B2C retailers are the last link in a supply chain between manufacturer and consumer. This chain can sometimes be lengthy, particularly for complex products with many components. Traditionally, a manufacturer will send their goods to a wholesaler who sends them to a distributor, who in turn sells to a brick-and-mortar store who, finally, sells to a consumer. The online retailer who uses a B2C model follows this model to some extent, but the chain may be flatter as the online retailer has more options for storing and shipping their goods.
2. Business to Business (B2B)
In many ways, B2B eCommerce retailers are similar to their B2C counterparts, except they primarily sell to other businesses rather than consumers. We have previously examined some excellent examples of successful B2B businesses in 14 B2B eCommerce Examples That Customers and Designers Love.
In the past, B2B ventures have tended to be more conservative than their B2C counterparts in recognition of the types of people acting as decision-makers in their client businesses. For example, in the past, most decision-makers were born in the 1950s and early 1960s, and they responded better to printed ads and catalogs rather than using technology. However, nowadays, millennials are participating in their company’s purchasing process. As a result, they have grown up with digital marketing and expect to visit a well-designed eCommerce site with many of the features they use on B2C retailers’ sites.
3. Business to Business to Consumer (B2B2C)
Although B2C is the most common online retail model, B2B2C better represents the traditional model. This effectively combines B2B and B2C in one process and caters to firms engaged in vertical integration, i.e., they operate in more than one stage of a distribution chain.
In this case, a business may wholesale a range of products in one division and sell them to an online retailer in another, who then sells them to end consumers. Many online affiliate marketing businesses also follow a version of his model. First, one company produces or assembles a product to distribute using affiliate marketing. Next, those affiliates who structure as businesses (the second B) sell online to consumers.
4. Business to Government (B2G)
Some businesses operate in the relatively narrow niche of supplying goods and services to the various levels of government. Depending on your country, this could range from providing a few goods to a local council to having a significant contract to supply products to a division of the national/federal government.
You don’t have to use the B2G eCommerce retail model exclusively. For instance, many retailers sell to government (B2G) and private (B2B) enterprises.
Businesses often find synergy between B2G and B2B trading, particularly when selling to larger enterprises with stricter, more formal procedures. Many types of products will have demand from both businesses and the government sector but will be of little interest to private consumers.
Government agencies often follow rigid rules when making purchases. For example, they may face requirements to call for tenders on a project and award the contract to the tender proposing the lowest price.
To a large extent, this will depend on the value of a contract. For example, a local government might let employees spend up to a specific limit without authorization. Purchases of a greater value will require additional scrutiny.
As a result, while many online retailers sell low-value items to the government sector, you are less likely to see many online businesses selling high-value items to government agencies. They may have websites with virtual showrooms showing off the products, but the actual purchases are more likely to be made using more traditional means.
5. Consumer to Business (C2B)
Although we typically think of businesses as the sellers of goods and services, there are a few exceptions where consumers are the sellers. For example, freelancing has become commonplace recently, where ordinary people sell their services to businesses. In addition, there are marketplaces, such as Upwork and Fiverr, that specialize in matching consumer suppliers of services with business customers. For example, a business may look to work with specialist designers or writers for a website project.
Influencer marketing is an example of C2B activities, and influencer marketplaces facilitate C2B transactions. Indeed, much of the creator economy utilizes C2B activity.
6. Consumer to Consumer (C2C)
Another standard eCommerce retail model that many people miss is C2C. A typical example is somebody listing goods on online marketplaces like Craig’s List, eBay, or Facebook Marketplace. Often the marketplace is the only business involved in these transactions – the other participants, buyers and sellers, are consumers engaging in one-off transactions.
While the above eCommerce delivery models look at the big picture of how retailers operate (both online and brick-and-mortar), there are also considerable variations in how these sellers deliver their products and services to their customers.
1. Direct to Customer (D2C)
D2C is rapidly becoming a popular model for online eCommerce stores, as it involves fewer parties than the traditional sales chain and drops out the intermediaries. Here, producers or manufacturers sell their products directly to consumers. The offline equivalent would be a factory store.
2. Online Intermediaries
The business model for an online intermediary is to bring other sellers and consumers together so they can make a transaction. The online intermediary makes its money by taking a cut of each transaction made. Arguably the best-known example of this is eBay, which brings together businesses (or indeed consumers with spare products to dispose of) and consumers looking to make a purchase. However, online marketplaces like Amazon Marketplace (as distinct from “Sold by Amazon” products) also act as online intermediaries.
3. Making Your Products
Many hobbyists and small manufacturers run online stores to sell their products. Indeed, you can look at most of the C2C activity we referred to above as being a service-based equivalent of this – creators sell their services and, in some cases, like art, goods.
This can be particularly appropriate when you make one-off creations, for example, as a fashion designer or an interior designer. You can control the distribution of your products and don’t have to pay for any middlemen. Likewise, you have complete control over the usage of your brand.
4. Private Labeling
Private labeling typically involves a seller identifying a product type with high demand and low competition. They then find a manufacturer to produce the product. Ideally, they can enable marketable improvements to differentiate their brand from their competitors’ products.
Private labeling is the most common delivery framework used by Amazon sellers. According to JungleScout’s 2022 State of the Amazon Seller, 59% of Amazon sellers create their own product labels or brands, which they sell and promote on the platform.
Wholesaling businesses buy products directly from brands and firms with extra stock and then sell them through their eCommerce store or another online marketplace. Wholesaling is the second most popular model businesses use to sell on Amazon.
6. Retail Arbitrage / Online Arbitrage
With retail arbitrage, firms buy discounted products in bulk from retailers and then sell them through an online marketplace, such as Amazon. A variation on this is online arbitrage, where the sellers buy goods online, which they can then resell at a profit.
7. White Labeling
With white labeling, you take an existing product and (legally) package and sell it using your name and logo. You would typically purchase this product from a third-party distributor, although you may make such an arrangement with a manufacturer.
Dropshipping can be particularly useful for individuals or small businesses looking to start selling online on a small scale. Here, you don’t have to worry about the mechanics of storing and delivering stock. Instead, you simply buy goods directly from a manufacturer who fulfills the order on your behalf, shipping the goods directly to the consumer. With dropshipping, you never have to hold any stock on hand. Instead, you act as the middleman between a manufacturer and the end consumers.
In Dropshipping in 2023 Answers to FAQs, we examined the model in more detail. We saw that a surprisingly large 27% of online retailers had adopted a dropshipping model because it’s easy to start and doesn’t require a lot of upfront investment.
9. Subscription/Fee-Based Services
Some online retailers make their products/services available when somebody pays a subscription or fee. For example, if a consumer pays Netflix an agreed amount each month, they gain access to stream Netflix’s catalog of movies and TV programs.
YouTube uses a variation of this model. You can access most YouTube videos for free, but you must “pay” by watching ads on the videos (or at least going through the motion of skipping past the ad after its first five seconds). On the other hand, if you prefer to go ad-free, you can pay a monthly subscription to YouTube Premium.
Subscriptions aren’t restricted to services, however. For instance, Dollar Shave Club sells shaving accessories and toiletries. You can create a box of products that the company will send you monthly.
Print-on-demand is a relatively recent trend, making it easier for artists, writers, and designers to sell physical products. However, print-on-demand isn’t restricted to small creatives. Even Amazon uses it for niche or less popular works. It is a way of keeping books and other printed items in existence that would otherwise have gone out of print long ago and been uneconomic for an entirely new print run.
Grand View Research found the global print-on-demand market size valued at $4.90 billion in 2021, and they expected it to show a compound annual growth rate (CAGR) of 26.1% from 2022 to 2030.
Print on Demand products aren’t just books. They can be anything that involves printing – even something like a custom-designed coffee mug or a backpack with a particular design. First, you place these products on an online marketplace. Then, when a customer places an order, you send an order to your print-on-demand supplier for printing. Finally, they package the product and ship it directly to your customer.
11. Digital Products
Most of the examples we have given here involve some form of physical product. However, nowadays, many digital products are sold and distributed online. They often come as downloadable, streamable, or transferrable digital files. While it may cost a considerable sum to create digital products, they will usually have little, if any, additional costs for each copy sold. However, there can often be a risk of people stealing and reusing your products as their own.
12. The Hybrid Approach
Many existing retailers take a hybrid approach to their delivery framework. They already have a traditional brick-and-mortar system for obtaining and selling products. They add additional methods to cater to customers of their eCommerce store. They tend to use the same retail model for both their bricks-and-mortar and eCommerce stores, e.g., if they have traditionally focused on selling to consumers (B2C) in their shops, they will most likely target the same types of people in their online store, although probably over a wider geographical area. This synchronization between physical and online stores can go as far as encouraging online customers to return any faulty products to a local store or perhaps providing samples of products locally that potential customers can try out before making an online order. Service businesses might set up systems where you can book online, but the activity happens in a local outlet.
Wrapping Things Up
If you want to sell goods or services online, you will have to decide which eCommerce retail models and delivery methods are best for you. There is no single best approach to selling online. You must look at the specific circumstances relating to your product, your structure (i.e., whether you will set up as a business or not), and your potential target market. You will need to examine your strengths and weaknesses and whether there will likely be a demand for what you have to sell online.