E-commerce Explained: The Four Types of Business Models

The pandemic has accelerated a migration toward the digital realm from businesses of all natures and sectors as entrepreneurs were forced to find alternatives to connect with prospective and existing customers while everybody remained confined within their homes.

For many, the digital world is a tough nut to crack as transforming or shaping a business model in a way that its products and services can be marketed online could be a bit challenging.

In this article, we explore the four types of e-commerce business models so you can determine which one is the best for your company if you intend to take the leap toward e-commerce in 2022.

1. Business to Consumer (B2C)

The B2C model is the most common one and it involves selling products or services to individuals. Most brick-and-mortar businesses are B2C and a lot has been written about the strategies that can be employed to grow an online customer base, increase brand awareness, and accelerate sales growth.

Most marketing strategies employed by B2C businesses are focused on enticing people into buying whatever the company is selling. In the online world, paid advertising via Facebook or Google Ads and the creation of an attractive website using search engine optimization (SEO) techniques are among the most popular marketing strategies.

Profit margins will largely depend on the kind of product or service the business is selling. High-end or luxury products enjoy the highest margins but also require a thoroughly conceived marketing strategy.

Another way to boost profit margins and minimize upfront inventory costs is by leveraging dropshipping suppliers. With dropshipping, retailers can expand their product catalogs without the need for upfront inventory investment or the burden of storage, packaging, or fulfillment fees.

Meanwhile, staples and essential goods typically produce lower margins, which means that businesses will usually focus on increasing volumes to produce economies of scale.

2. Business to Business (B2B)

B2B businesses sell their goods and services to companies regardless of their size, economic sector, or business model. The most common products are industrial goods such as raw materials, equipment, components, or chemicals.

Firms that provide services going from banking to phone centrals account for the largest percentage of the B2B space. Marketing for this specific model tends to focus on generating leads that the sales team can nurture and convert into paying customers.

Profit margins will vary depending on the nature of the business and volumes tend to be high. A well-polished website, online ads, collaborations with other B2B businesses, and other similar strategies are typically employed to grow B2Bs.

3. Consumer to Business (C2B)

C2B models are not the most common but that doesn’t mean they are less successful. In summary, a business of this nature provides a platform or connects individuals with companies that they can render their services two.

One great example of this is freelancing platforms like Upwork or Fiverr. Their platform provides an environment in which professional services can be securely provided and ensures that the transaction goes smoothly.

Another interesting example of C2Bs is websites that compile consumers’ feedback about companies such as Trustpilot. Consumers are often compensated by the time they take to leave their comments via discounts or coupons.

4. Consumer to Consumer (C2C)

Last but not least, C2C models have become more and more popular as digital platforms have eliminated the need for intermediaries in many traditional markets. One great example of this is lending, where peer-to-peer (P2P) platforms are disrupting the traditional business model of banks by allowing consumers to offer loans to each other.

C2C businesses earn money by collecting fees and commissions for creating the environment in which these connections occur. Another good example of this is used goods online marketplaces like eBay where consumers can sell their stuff to other people.

Profit margins for these businesses tend to be high but startup costs could be elevated as well since the digital infrastructure required could be costly to build. From a marketing perspective, word of mouth and digital presence via online ads and SEO are the most frequently used techniques to attractive both buy-side and sell-side consumers.

Bottom line

Pivoting toward e-commerce can seem challenging and may require an initial investment that, a first glance, could seem unnecessary if the business has thrived without a digital presence.

However, once owners start to realize the incredible potential of the online realm and the still relatively early stage of its development, it will be easier to embrace and actively support all the activities required to strengthen the business’s capabilities in this particular channel.