The Two Types of Ecommerce
In the world of ecommerce, different businesses use different sales models to drive revenue. You might have noticed some are B2B (business-to-business), others are B2C (business-to-consumer) or D2C (direct-to-consumer), and a few leverage BOTH a B2B and B2C approach. Finding the right ecommerce business model is crucial for anyone looking to build their business online.
Let’s say you are a garment manufacturer and want to add an ecommerce channel to grow your overall sales and revenue. You first have to decide whether you intend to sell your products in bulk to other resellers, or directly to consumers, as that will dictate what technologies you’ll need to support your online sales.
If you’re like many business entering the ecommerce space and unclear about which ecommerce model is the right fit for your business goals, this article is for you! In a few short minutes, we’ll explain the four key differences between business-to-business (B2B) and business-to-consumer (B2C) ecommerce.
Key Differences Between B2B and B2C Ecommerce
1. Define WHO Your Customer Is
Is Your Target Audience Other Businesses?
Assuming your customers are other businesses (i.e. you are NOT selling retail products directly to end users) and they purchase commercial or industrial items and/or retail products in large quantities to sell to other retailers, then you would necessarily fall into the category of B2B sales.
B2B ecommerce is a modern way of selling commercial products or retail products in bulk at a lower price to retailers and other businesses.
A manufacturer of specialized industrial equipment filters like Fluitek, is a perfect example of a B2B business model, as they only sell products for commercial use. They do NOT sell common automotive or residential HVAC filters to maintain your car or home.
Is Your Target Audience Retail Customers?
If your target audience is individual customers who may only purchase a single product from you one time, like a jacket or a pair of shoes, then your business would be classified as B2C.
With this model, a manufacturer is able to sell individual products they manufacture directly to the end user, WITHOUT the need for selling in bulk to a wholesaler and/or distributor.
Avon Cosmetics is a great example of a manufacturer that leverages a B2C ecommerce model. Despite being one of the largest cosmetic manufacturers in the world, they sell their products directly to consumers through their website.
Shoe manufacturers like Adidas, Nike, and Reebok all employ a B2C ecommerce model, allowing anyone to bypass the shoe store and purchase one or multiple pairs of shoes directly through their website.
2. Transactions & Payment Processing
Defining WHO your customer is will directly influence HOW they’re able to buy through your website. And this is critical, as the way you setup your order entry system and payment processor will be very different for a bulk purchase than it will be for an individual purchase.
When it comes to B2B sales, a transaction is occurring between two businesses. This is a more complex transaction that may include purchase orders and lines of credit, custom freight options, and a myriad of other variables, and often occurs directly through a manufacturer’s website. As a result, the technology required to support these types of purchases often requires a robust investment to effectively setup and integrate with a business’s other systems, such as an Enterprise Resource Planning (ERP) software, a Customer Relationship Management (CRM) solution, an Enterprise Content Management System (ECM), and an accounting platform.
That said, many businesses, specifically wholesalers looking to sell their products in bulk, are beginning to leverage a B2B wholesale marketplace, as this approach minimizes the cost of developing and deploying a custom ecommerce site because it already has all the necessary tools built in. The decision you have to make here, outside of a large capital investment in inventory and being able to weather slow cashflow, is whether you want to keep your customers focused on your product or share their attention with other products.
On the opposite end of the ecommerce spectrum, B2C transactions are relatively simple and tied to a single customer. This type of transaction requires a basic shopping cart linked to one of many common payment and shipping tools. There are numerous out-of-the-box platforms that support B2C ecommerce like Magento, BigCommerce, and Shopify, so it’s relatively easy to get a B2C ecommerce site up and running.
3. Quantities & Pricing
When it comes to pricing, there is a distinct difference between the cost of buying products in bulk vs purchasing a single item.
For example, as a wholesaler or distributor your cost per item from the manufacturer is significantly less because you are buying in volume. The manufacturer’s margins on products sold in bulk are lower (per piece), but they are able to sell more of them at one time. Many manufacturers thrive in this model, as they are able to manufacture more of the products they are trying to sell because they don’t have to store inventory in warehouses for a long period of time. At the same time, wholesalers are able to be profitable because they are able to buy a product for less than what they sell it for because they are buying in volume.
For example, if you buy 10 pencil cases for $70, the cost per unit would be $7/ea (70/10=7).
However, if you purchase 60 pencil cases at a total cost of $300, you’re investing more up front, but the cost per unit goes down to $5/ea (300/60=5).
Based on different purchase quantities, wholesalers offer multiple pricing points to their customers. Hence, the more you buy, the lower the per unit cost will be, which in turn allows you to generate more profit per unit as you sell them to the end user for $10/ea.
Now, let’s talk about HOW selling in bulk affects a manufacturer’s ecommerce strategy. Selling in bulk means that if they want to sell their products online they will need to invest in a B2B ecommerce technology that supports customers (wholesalers, distributors, retailers, etc.) buying with lines of credit that often have unique payment terms (ex: net30, net60, etc.), and shipping via commercial freight carriers. And depending on the product a manufacturer is selling, this could equate to anywhere from hundreds to thousands of transactions per day. Supporting ecommerce at this scale can get real complicated real fast, as these variables are NOT supported by traditional, out-of-the-box shopping cart/merchant processor solutions that work for B2C models.
Selling direct to the consumer is technologically easier, but a good B2C ecommerce strategy still requires a lot of thought to ensure the user experience (UX) is smooth and enjoyable. If not, those individual customers will buy from whomever offers the simplest path to purchase and enjoy their new products.
4. Customer Relationships
In a B2B business model, manufacturers often develop stronger relationships with their customers due to a longer selling cycle and larger investments made by those customers. By virtue of forging a great working relationship, businesses will often continue to do regular business with each other over longer periods of time.
In contrast, the relationship between a business and the end customer is only as strong as a business’s marketing (to create desire) and buying experience (how easy they make it for people to buy from them). In today’s world there is not a lot of brand loyalty. Customers will gravitate towards whomever offers the “cooler” design, the best price, or the best overall buying experience. As a result, for a manufacturer to be successful in the B2C ecommerce space, they must invest in marketing their brand and deploying the right marketing technologies to continue positioning their products in front of their target audience.
So, What's the Next Step in Growing Your Ecommerce Business?
Whether you’re looking to setup a B2B or B2C ecommerce site, the next step, BEFORE building any kind of ecommerce website, is to clearly define your business objectives (via a proven Product Management approach) in order to map out the requirements necessary to achieve them.