How to Choose an eCommerce Business Model That's Right For You

Benefits

Risks

Convenience

As a business based online, it allows both advertising and ordering to occur in the same 'place'. Business owners also benefit from efficient order processing thanks to this digital transaction model, allowing for easier bulk ordering.

Complex setup process

Getting started often requires thorough research to advertise to potential businesses, set up a custom ordering system and adapt when sales are underwhelming.

Higher profits

Selling items in wholesale quantities allows buyers to benefit from a good deal and restock less often. As well as this, communication with other businesses through sales platforms will slash marketing costs and boost conversion rates.

Limits to sales

While your business can move large amounts of stock, you may miss out on potential deals with individual customers. The smaller pool of business buyers and the need to negotiate contracts can limit profits, and profit can hang on to a few critical buyers.

Greater stability and market predictability

Unlike newer and internet-based models, the B2B market is comparatively stable, with a greater level of predictability and a less volatile customer base and revenue stream.

B2B sellers need to stand out

The B2B market has many companies competing and selling similar products and services and seems oversaturated at times. You may need to cut prices and find unique ways to grab companies' attention to succeed in the market.

Relationships with retailers

Forming relationships with retailers and other companies will result in regular orders and long term-partnerships, effectively guaranteeing stable business and opening up possibilities for further collaboration.

Particular ordering experience needed

As a business, you’ll need to design a website and ordering system that buyers find easy to use, which means presenting product and service information, offering online demos or consultations, and using order forms with appropriate quantities and customization.

Benefits

Risks

Data

A B2C model means you have direct access to customer data. You can track your online success, monitor customer behaviour, see which products are most popular and create a better customer experience as a result. The access to this type of data can be an incredibly powerful tool when utilized correctly.

The low value of orders

B2C purchases are often lower in value as most purchases are for individuals or family units, and not businesses with thousands of employees across different territories. This means profit margins are lower than a B2B website.

Increased opportunities

Through a B2C online store, you can reach a wider audience, not only locally but also internationally, which makes it easier to expand and uncover more interested buyers.

Increased competition

The ease with which the B2C model can be adopted has made the industry an incredibly competitive one, with many established businesses with purchasing power and low-cost operations already dominating the market.

Personalized marketing

In order to remain competitive, you'll need to create a more personalized marketing strategy. By doing this, you can connect more deeply with your customers and better respond to their needs by displaying what they want when they’re ready to see it in the customer journey.

Marketing costs

The competitive nature of the market also means it’s challenging to retain customers, so you’ll need to invest more in digital marketing and services in order to create better buying experiences and promote customer loyalty.

Benefits

Risks

Greater control, oversight and profit

Having full control of the selling process means you won’t have to make any compromises and can craft unique personalized experience for your customers that will increase their loyalty. On top of this, your business won’t lose a cut of the profits to distributors or intermediaries.

Increased responsibilities and liability

While the idea of having more control over the entire process could be appealing to manufacturers, this comes hand-in-hand with increased responsibility and liability. Issues that would usually have been handled in conjunction with third parties like handling customer data, complex supply chains, shipping, and cybersecurity will now be the sole responsibility of the manufacturer.

Direct access to valuable customer data

Having full access to data aids your understanding of your customer base and helps you improve your overall customer experience, as you can learn quickly what they like and how you can improve your products and overall service.

No share of the costs

While D2C manufacturers get all the profits from transactions, the flip side of this is that they can't share the costs needed to acquire customers. In the D2C model, manufacturers have to account for the marketing budget and pay for ads, marketing campaigns, promotions and discounts.

Ownership and understanding of the customer lifecycle

Customers have direct lines of communication with your business, allowing you to act more quickly and amend negative customer feedback.

Not a short-term friendly approach

The D2C model shouldn’t be viewed as a temporary fix – it’s an approach that requires total commitment from an organization. Its viability should be assessed both in the short-term and during the pandemic, and in the long-term once COVID-19 subsides. Failure to do this could cost your business.

Freedom and opportunities

Without being constrained by the limitations of traditional channels, your business can react to change and have the freedom to try new methods of selling, trial new offers, launch new product lines, and expand your business to new countries without the need to consult retail partners.

A competitive landscape

Unsurprisingly, the success of this approach has made the D2C landscape a competitive one. Ten years ago, it was largely inhabited by niche start-ups, but today the D2C market is dominated by the likes of Amazon and Walmart. In this way, you’re also under greater scrutiny – with expectations so high and no intermediary between you and your customers, mistakes like delayed deliveries will be noticed.

Benefits

Risks

Less coordination required

With fewer parties involved and one distributor handling selling, repairs and general maintenance, working with distributors requires less coordination as they take ownership of the general process with a focus on individual client needs.

Higher longterm costs

Smaller distributors like VARs aren’t as financially secure as larger vendors and subsequently tend to charge more, making this a more expensive channel in the long-run than the other alternatives listed.

Lower upfront costs

You only need to pay VARs when you successfully make a sale of a product.

Limited interaction with customers

When selling through distribution channels, you give up your access to both customer relationships and crucial customer data, giving you little information on who’s actually buying your products and as a result have limited control of your messaging or branding.

A more specialized approach

Relative freedom to selecting an appropriate distribution can allow specialized and niche businesses to distribute according to their specific commerce needs and requirements.

Potentially complex working relationships

While you have the freedom to select different channels for different products with distribution channels, the nature of these businesses mean it can be hard to maintain their interest if your products don’t sell, especially in the long-run. If you’re using multiple sellers or using your own sales service in alignment with VARs, you also run the risk of creating channel-conflict.