Unit II (Business Models of E-Commerce)

Business Model
A business model is the way in which a company generates revenue and
makes a profit from company operations. Analysts use the metric gross
profit as a way to compare the efficiency and effectiveness of a firm's
business model. Gross profit is calculated by subtracting the cost of goods
sold from revenues.
A business model is the conceptual structure supporting the viability of a
business, including its purpose, its goals and its ongoing plans for achieving
them.
At its simplest, a business model is a specification describing how an
organization fulfills its purpose. All business processes and policies are part
of that model. According to management expert Peter Drucker, a business
model answers the following questions: Who is your customer, what does
the customer value and how do you deliver value at an appropriate cost?
A business model is similar to a business plan in its makeup and content.
However, a business plan specifies all the elements required to demonstrate
the feasibility of a prospective business, while a business model
demonstrates the elements that make an existing business work
successfully.
A business model defines how the enterprise delivers value to customers,
gets them to pay for that value, and converts those payments to profit.

Importance of Business Model

A clear business model is crucial to the success of any business and is also
the foundation of optimizing innovative technology – a must in today’s
competitive global marketplace. Without a business model, new technology
can have limited value. A successful business model can maximize the

Page 1 of 20
commercial return from this high cost investment as well as drive
innovation.
A business model is a blueprint for small business success
Building a business is a lot like building a house – and who can imagine a
house built without preliminary sketches? Creating a small business model
means planning – on paper – the fundamentals of your business. It helps
you, as an entrepreneur, to put aside the excitement and make a
realistic evaluation of the potential success of your business idea. A proper
business model helps you to figure out elements such as: Your business
concept – what problem are you solving for whom; how you will create
customer value; how your product or service will get to customers; how your
business will stay competitive; and all revenue and costs you can anticipate.
Developing a business model forces you to thoroughly think about the
overall business plan.
an effective business model should address include the type of product or
service being offered, how to draw revenue from the product or service, and
what advantages and disadvantages the company has compared to others in
the same industry.

Business-to-Business (B2B)

Business-to-Business (B2B) e-commerce encompasses all electronic

transactions of goods or services conducted between companies. Producers
and traditional commerce wholesalers typically operate with this type of
electronic commerce.
A website following the B2B business model sells its products to an
intermediate buyer who then sells the products to the final customer. As an
example, a wholesaler places an order from a company's website and after
receiving the consignment, it sells the end product to the final customer who
comes to buy the product at the wholesaler's retail outlet.

Page 2 of 20
 B2B identifies both the seller as well as the buyer as business entities. B2B
covers a large number of applications, which enables business to form
relationships with their distributors, re-sellers, suppliers, etc.
Uses of B2B
B2B ecommerce is the sale of products or services between businesses
through online transactions. Examples include manufacturer websites that
sell to distributors or wholesale sites that allow retailers to purchase new
inventory online. B2B ecommerce websites often require sophisticated
functionality like ERP integration and personalized pricing.
Following are the leading items in B2B e-Commerce.
 Electronics
 Shipping and Warehousing
 Motor Vehicles
 Petrochemicals
 Paper
 Office products
 Food
 Agriculture

Advantages and Disadvantages of B2B e-Commerce

Advantages

1. Scalability – An effective e-commerce solution will enable your organization

to grow and scale easily to meet market demand and customer needs by
opening new sales channels and continuously reaching new market
segments.

2. Improved efficiencies – Through integration to the enterprise resource

planning (ERP) and other back-end business systems, e-commerce provides
marked efficiencies for B2B organizations. Customers are able to order

Page 3 of 20
 online at their convenience, customer service can focus on actual customer
service functions rather than simply being order takers, and the need to
rekey data in independent systems is eliminated, thereby eliminating the
possibility of errors and improving shipping processes and increasing order
throughput.

3. More customers – A B2B e-commerce site with public-facing catalog pages

is a powerful way to reach new B2B customers. Your future buyers not only
prefer to shop online but will demand it. As B2B buyers head online to find
the best prices, manufacturers and distributors can leverage the power of
the search—and therefore, ready to index—pages of their site to locate new
visitors and convert them into customers.

4. Improved brand awareness – Improve brand awareness in the market

place. Developing pages that can be indexed by search engine crawlers is
a fast way to improve your site’s search engine optimization and improve
the likelihood that your target audience will know who you are.

5. Increased sales – Not only will you reach new customers, e-commerce
also allows you to easily implement an automated cross-sell and up-sell
recommendation program, offering relevant suggestions to customers on the
site and encouraging them to purchase related items or items with more
features and functionality.

6. Analytics – B2B e-commerce provides the perfect platform for an

organization to launch a comprehensive analytics campaign. Through
ecommerce, organizations can more easily measure and evaluate marketing
campaigns, sales effectiveness, product mix, inventory turns, customer sales
effectiveness, and customer engagement. Google Analytics offers e-
commerce tracking, but integrating analytics with your ERP as well gives you
much more valuable data with actionable insights.

Page 4 of 20
7. Customer-centric experience – Amazon.com sets the standard for
providing an exceptional e-commerce experience and today’s online shopper
expects an Amazon-like experience whether they are shopping for business
or pleasure. While there are certainly differences in experiences for retail
shoppers and B2B buyers, B2B organizations still need to employ intuitive
design, rich content, and interactive functionality in their websites.

8. Exceptional customer service – E-commerce provides an exceptional

opportunity for the B2B organization to improve its customer service
initiatives. E-commerce sites can provide access to self-serve portals with
account, order, history and tracking information. Through integration with an
organization’s enterprise resource planning (ERP) system, a robust e-
commerce site can display customer specific products, services and pricing
based on customer log in credentials.

9. Improved sales engagement – Your physical sales team will also benefit
from the launch of a comprehensive e-commerce effort. A B2B e-commerce
site or portal will improve your sales teams’ visibility into customer orders,
pricing, and history while on the road or working remotely.

10. Multi-site capability – Launching channel-specific or co-branded e-

commerce sites is easy with the right B2B e-commerce platform. This
capability allows you to offer co-branded websites or microsites for each of
your distributors or key clients as well allow for sites that cater to a specific
international audience by presenting content in alternate languages or
currencies.

Page 5 of 20
Disadvantages

Limited Market
Businesses selling to other businesses face a much smaller buying pool than
businesses selling to consumers. The total number of prospective buyers
may top out in the low thousands, rather than the potential millions of
customers for consumer products. These limited numbers make every lead
and every existing customer more valuable and the loss of a single, large
customer can devastate the bottom line. For example, if you supply parts to
businesses in mature markets, where only a handful of competitors normally
operate, your business might not survive if one of your buyers closes shop.
Long Purchase Decision Time
The majority of consumer purchase decisions involve one or perhaps two
decision makers and the total time for a purchase decision tends to run on
the short side. The B2B sales cycle involves a complicated set of factors,
involving multiple stakeholders and decision-makers, with total decision
times that can stretch out for months. B2B sellers cannot depend on a fast
turnaround with new clients for an influx of working capital and must
maintain the financial solvency to operate with long gaps between sales.
Inverted Power Structure
Within limits, average consumers remain at the mercy of the businesses in
terms of what products they can buy the available features and at what price
points the products sell. In B2B, buyers wield more power than sellers. A
B2B buyer can, also within limits, demand certain customizations, impose
exacting specifications and drive a hard line with pricing because the seller
depends much more heavily on retaining its customers. This requires B2B
sellers to retain a level of flexibility in both product development and
production not typically seen in B2C businesses.

Page 6 of 20
Sales Process
The typical sales process in B2B demands considerable face time, often
multiple meetings, and gets driven by quantifiable factors, rather than the
qualitative and emotional factors that drive sales in B2C. This stems in part
from the high costs involved in B2B sales from the purchase of thousands of
units of a product, a small number of very expensive machines or software
that impacts the performance of hundreds to thousands of employees. The
sales process often depends on the salesperson’s ability to demonstrate
what the product does or allows modifications that solve the very specific
problem the buyer faces, and can deliver a solid return on investment.

Market Predictability and Stability

B2B markets enjoy more predictability and stability. After you secure
relationships with your buyers, your ability to supply them may last for at
least a year or longer. In fact, B2B buyers often sign contracts with suppliers
to guarantee pricing and terms. These contracts allow you to plan revenue
budgets with accuracy.
More Customer Loyalty
The evolution of supply chain management and a collaborative mindset in
distribution channels contributes to high levels of customer loyalty. After you
establish a relationship with a buyer and prove your dependability as a
supplier, it is typical to have an ongoing commitment. B2B buyers do not
have the luxury of being as fickle as consumers. It is costly and time-
consuming for company buyers to make major changes in product or service
suppliers. Companies and their customers rely on consistency in product
quality, service dependability and value. As long as you take care of your
responsibilities, loyalty is aB2B strength.
Smaller Customer Pool

Page 7 of 20
The number of potential buyers in a B2B market is much lower than in a
typical consumer market. You sell to the businesses that then sell to
customers. If you make niche products (for specific target market) or offer
specialized services to a small industry, you may only have 10 to 20
customers in a given geographic area. Even if your goods or services have
broader appeal among businesses, the pool of companies is diminished
because many have established supplier networks. You not only have to go
after unattached buyers, but you need to steal customers away to generate
enough revenue to survive.
Marketing Challenges
B2B companies face significant marketing challenges relative to B2C peers.
Digital marketing is especially challenging. Whereas B2B companies rely
heavily on content marketing and social media to attract online users, B2B
businesses have a much harder time. Social media is used by B2Cs to
engage consumers. The way you interact with B2B users online and in social
media is more complex. Therefore, B2B providers must plan carefully and
invest in quality staff or outside agencies to benefit from these digital tools.

Business to Consumer E-Commerce

In B2C model, a business website is a place where all the transactions take
place directly between a business organization and a consumer.
In the B2C model, a consumer goes to the website, selects a catalog, orders
the catalog, and an email is sent to the business organization. After
receiving the order, goods are dispatched to the customer.
B2C is an acronym used for ―business to consumer‖. B2C e-commerce or
electronic commerce is used to describe a transaction conducted over
the Internet between a business and a consumer for his/her personal use.
B2C as a business model differs significantly from the B2B model, which
refers to commerce between two or more businesses.

Page 8 of 20
B2C Applications
On line shopping is quickly becoming a way of shopping in the world of
retail. With hundreds of new e-commerce sites going on the net every day, a
well developed site needs to be implemented to retain and keep your
audience with you. Any change, at any time you can add, delete and change
products listings as often as necessary with an online catalog. You can make
the changes right form your desktop, and they are instantaneously reflected
in your catalog.
Saving on Support costs:-
Are customer service costs cutting into your profitability? Online catalogs can
significantly reduce the amount spent to support a sale. Before the sale, a
customer can access the site and gain valuable product information on their
own schedule and at their own pace without typing up your inside sales
staff. Online credit card processing requires no intervention. Payment
authorization is received before the order is sent to you for fulfillment. Order
and shipping confirmations can be sent automatically. And customers can
track their own orders online.
Build customer loyalty:-
With online catalogs, there are many ways to encourage repeat sales. Gain
the competitive advantage by creating one to one relationships with your
customers. Our software automates the process of providing price discounts,
contract price and special offers based on volume purchase. If you have
different prices for different types of customers, you can be sure they see
only what they are supposed to.
Saving on order processing cost:-
It is now possible to arrange fast and efficient products delivery by
processing all orders online using interactive catalogs. No errors and delays
from manually entered orders. No more phone tag. No more missed faxes.
No wasted time. There are just more business and satisfied customers.
Catalog Features:-
 Custom design and layout for any kind of application or product line.

* Built in online ordering / shopping cart options.

* Online credit card verification & payments.

Page 9 of 20
 * Members registration, level discounts / pricing wish lists.

* Ability to up sell and cross sell products.

* Customized online forms to collect family info for gift reminders,

size, colors etc.

* Integrated online administration panel for updating catalog items

and preferences, tracking orders.

Advantages and Disadvantages of B2C E-Commerce

Advantages
The following are some of the advantages that are identified in Business to
Consumer Model:
Catalog Inflexibility
Direct "link" capabilities to content information and visual displays already
existing on other client web site. You can update your E-Catalog anytime,
whether it's adding new products, or adjusting prices, without the expense
and time of a traditional print catalogs.

1. Extensive search capabilities by item, corporate name, division name,

location, manufacturer, partner, price or any other specified needs.

Shrinks the Competition Gap

Reduced marketing/advertising expenses compete on equal footing with

much bigger companies; easily compete on quality, price, and availability of

the products

Unlimited Market Place

Page 10 of 20
The Internet gives customers the opportunity to browse and shop at their

place. They can access your services from home, office, or on the road, 24
hours a day, 7 days a week, monthly or yearly.

1. The Internet allows you to reach people around the world, offering

your products to a global customer base there you can buy the product
easily.

A 24 Hour Store Reduced Sale Cycle

Reduce unnecessary phone calls and mailings.

Lower Cost of Doing Business

It has Reduced inventory, employees, purchasing costs, order processing

costs associated with faxing, phone calls, and data entry, and even eliminate
physical stores. Reduce transaction costs.

Eliminate Middlemen

Sell directly to your customers.

Easier Business Administration

1. By using with right software, store inventory levels, shipping and

receiving logs, and other business administration tasks can be

automatically stored, categorized and updated in real-time, and

accessed on demand of customers.

Frees Your Staff

Page 11 of 20
 1. Reduce customer service and sales support service.

Customers will love it

1. Gives customers control of sales process.

2. Builds loyalty of customer.

More Efficient Business Relationships

Better way to deal with dealers and suppliers.

Workflow Automation

1. By using this process we can Shipp, real time inventory accounting

system which adjusts stock levels and site, location availability

instantaneously

2. Secured, automated registration verification, account entry and

transaction authorization features

3. Banking and accounting features customized for pre-approved third

party direct sales, vendor, consignment or internal transfer

transactions.

Secure Payment Systems

1. Recent advancements in payment technologies allow encrypted,

secure payment online

Advantages and Disadvantages of B2C E-Commerce for Consumers

Advantages
 Lower prices
 Shop 24/7

Page 12 of 20
  Greater search ability
 Shorter delivery times for digital products
 Sharing of information with other consumers
 Improved customer service

Disadvantages
 Delay in receiving physical products, plus shipping
 In areas without high-speed Internet service, slow download speeds.
 Security and privacy concerns, especially with rise of phishing.
 Inability to touch, feel, or even smell products prior to the purchase.
 Unavailability of micropayments for purchase of small-cost products.

Advantages and Disadvantages of B2C E-Commerce for

Businesses
Advantages
 Expansion of marketplace to global proportions.
 Cheaper electronic transactions.
 Greater customer loyalty through customized Web pages and 1-to-1
marketing.
 Expansion of niche marketing opportunities.
 Direct communications with customers through Web site, resulting
in better customer service.
Disadvantages
 Increased competition due to global marketplace.
 Ease of comparison between competing products drives prices
down.
 Customers want specific choices and will not accept substitutes.
 Customers control flow of information instead of companies.

Page 13 of 20
Consumer-to-Consumer E-Commerce
Have you ever bought or sold an item on eBay.com or craigslist.org? If so,
you have participated in consumer-to-consumer (C2C) e-commerce.
Here people come together to buy, sell or trade items online take part in
C2C e-commerce. This type of e-commerce is the modern version of using
the classified advertising section of your local newspaper or going to an
auction. C2C e-commerce is a convenient way for consumers to buy and sell
goods without getting in their cars and driving to a store.
C2C e-commerce differs from a business-to-business model or a business-
to-consumer model because consumers interact directly with each other.
However, a business does operate the online platform on which C2C
transactions take place. Typically, buyers can shop for free, but sellers
sometimes have to pay a fee to list their products. Consumers often play an
active role in monitoring e-commerce sites for scams and other
inappropriate content.
The C2C model entails lower costs and higher profits for buyers and sellers.
Sellers can store inventory in a home office, and it costs less to market and
distribute products than in a traditional business-to-consumer model. Both
new and used goods are sold through C2C e-commerce, and fewer
middlemen are involved in the transactions. Advances in technology and
ease of access to the Internet have also made it possible for a growing
number of individuals to launch C2C e-commerce businesses.
Uses of C2C
Some examples of C2C include eBay, an online auction site, and Amazon,
which acts as both a B2C and a C2C marketplace. EBay has been successful
since its launch in 1995, and it has always been a C2C. Anybody can sign up
and begin selling or buying, giving an early voice to consumers in the e-
commerce revolution. Sites like eBay and Amazon use PayPal to mitigate
any payment processing risks.

Page 14 of 20
Craigslist is another well-known site where people can buy and sell goods, as
well as trade services. With more than 20 billion page views per month, this
classifieds site creates a community feel in the C2C business model.
Craigslist does not facilitate the payment or processing of money, however
— it simply facilitates the relationships, whether between a landlord and
potential renters, or someone seeking specific services and the expert who
can provide them.
Advantages and Disadvantages of C2C E-Commerce
C2C has a number of benefits for users. There are minimal costs involved
with the lack of retailers and wholesalers, keeping the margins higher for
sellers and prices lower for buyers. There is also the convenience factor —
instead of trying to sell items in person at a brick-and-mortar store,
consumers can simply list their products online and wait for the buyers to
come to them. Buyers don't need to drive around and search through stores
for an item they want — they just have to search for it on a C2C site.
Most C2C sites make their money from fees or commissions charged to
sellers for listing items for sale. C2C sites act simply as intermediaries,
matching buyers to sellers, and they have little control over the quality of
the products being sold. Companies often try to prevent the sale of illegal
goods or services, like pirated CDs or drugs.
But C2C is not without its problems. Credit card payments can be difficult, as
the platforms are not necessarily secure and able to process such payments.
There is a lack of quality control — since the sellers are consumers
themselves, there is little recourse for poorly made or misrepresented
products. On the flip side, because the buyers are consumers themselves,
the payment guarantees can be hard to enforce.
Consumer to Business (B2C) model
The C2B (consumer-to-business) model allows businesses to extract value
from consumers – and vice versa. In the C2B model, businesses profit from

Page 15 of 20
the willingness of consumers to name their own price or contribute data or
marketing to the company, while consumers profit from flexibility, direct
payment, or free or reduced-price products and services.
The distinguishing feature of C2B is that customers bring value to the
company. "This could involve consumers co-creating ideas, product/service
concepts and solutions with a company through social media. C2B can also
mean that a business brings consumer insights and consumer-centric
solutions to another business as its primary service or value-added offering."
C2B business models include reverse auctions, in which customers name the
price for a product or service they wish to buy. Another form of C2B occurs
when a consumer provides a business with a fee-based opportunity to
market the business's products on the consumer's blog. For example, food
companies may ask food bloggers to include a new product in a recipe, and
review it for readers of their blogs. YouTube reviews may be incentivized by
free products or direct payment. This could also include paid advertisement
space on the consumer website. Google Adwords/Adsense has enabled this
kind of relationship by simplifying the process in which bloggers can be paid
for ads. Services such as Amazon Affiliates allow website owners to earn
money by linking to a product for sale on Amazon.
The C2B model has flourished in the Internet age because of ready access to
consumers who is "plugged in" to brands. Where the business relationship
was once strictly one-directional, with companies pushing services and
goods to consumers, the new bi-directional network has allowed consumers
to become their own businesses. Decreases in the cost of technologies such
as video cameras, high-quality printers and Web development services give
consumers access to tools for promotion and communication that were once
limited to large companies. As a result, both consumers and businesses can
benefit from the C2B model.

Page 16 of 20
For the C2B relationship to be fulfilled, the participants must be clearly
defined. The consumer could be any individual who has something to offer a
business, either a service or a good. Examples could be a blogger, as
mentioned before, or a photographer offering stock images to businesses.
The consumer could also be someone answering a poll through a survey site,
or offering job-hiring services by referring someone through referral hiring
sites such as elance.com.
The business in this model could be any company planning to buy goods or
services from individuals either directly or through an intermediary. An
intermediary would connect the business that needs a service or a good to
the mass of individuals, acting as a portal both for buyers and sellers. The
intermediary promotes goods and services through distribution channels,
and gives individuals promotional, logistic and technical expertise. For
example, the intermediary could be a company looking to fill a job through a
referral hiring site, a company seeking to advertise online through Google
Adwords, or a company that needs individuals to take surveys and provide
market research.
Because C2Bs are relatively new, underlying legal issues such as how to bill
and receive money have yet to be fully sorted out. A traditional firm would
pay wages to a limited group of employees, but C2B businesses could
potentially have to process thousands of customer payments. Fortunately,
intermediaries often take care of the financial and legal aspects of C2B
transactions. Services like PayPal and Google Wallet ease the burden of
payment, and Google Adsense pays webmasters by sending them checks in
dollars, incurring shipping fees for Google and currency conversion fees for
international users.
Growing your C2B business requires dedication and a few special skills. "B2B
typically relies on its sales function and account management team to
establish and strengthen customer/client relationships.

Page 17 of 20
Companies interested in extending their models to reach a C2B audience
should consider the following marketing tools:
 Market research (quantitative surveys, qualitative interviews,
segmentation).
 Consumer feedback channels, such as rating and reviews, customer
service lines, avenues for suggestions/comments.
 Social media, such as online consumer user communities, Facebook
pages, Twitter followings, etc.
"Marketing may include advertising in trade journals, having a presence at
conventions and trade conferences, digital marketing (online presence, SEO,
email outreach) and other traditional awareness efforts,".
C2B is a new and growing segment of the business market that can function
as a company's entire business model, or that can augment an already
successful venture. As in all models, your company's success will depend on
your thorough understanding of the marketplace and your willingness to
pursue new technologies that make reaching your customers easier than
ever.
"Pursuing a C2B approach is a strategic choice and requires a commitment
to involving the consumer in business decisions. This takes extra effort,
resources and discipline to avoid being internally focused, but it is critical for
a business to succeed in a consumer-driven marketplace.‖

Consumer to Business transactions occurs online when, for example, a

Blog owner sells advertisement space to Target on their Blog. In that
scenario a consumer is selling something to a business. Also, someone
with a certain skill can provide a service to a company without being in
business themselves, such as a consumer building a website for a local
small company. Here is an example of a C2B website that offers a
Lending Tree advertisement at the top of the

Page 18 of 20
page, www.thefreemortgagecalculator.com. The advantage of this
website is that the owner doesn't have to sell mortgages, meet with
customers or pay for everyday business operation expenses in order to
make money. If, and when, the Lending Tree advertisement is used by a
visitor, the website owner gets paid a commission from Lending Tree for
the lead. Two disadvantages of C2B transactions are that one must be
well versed in web design to create such a website and the amount of
money earned is far less than what could be earned by selling the
mortgage directly to the consumer instead.
C2B - Consumer-to-business
•A type of commerce where a consumer or end user provides a product or
service to an organization.
•The idea is that the individual/end user provides a product or service that
the business can use
•Examples
–A food company began paying a food blogger to market their products
–A website owner could be paid to review products or services, whether
through blog posts, videos or podcasts.
–Paid advertisement space on the consumer website.
–Google Adwords/Adsense
C2B - Consumer-to-business
•Examples
–A food company began paying a food blogger to market their products–
Another possible form of C2B is when a consumer specifies a need and
various businesses bid to fulfill that need, such as referral hiring sites.
•Consumer Examples could be–a blogger,–a photographer offering stock
images to businesses,–a survey site,–offering job hiring service by referring
someone through referral hiring sites.

Page 19 of 20
Advantages
–low premises costs
–low inventory costs
–24 hour shop window
–global market place
Disadvantages
–Security
–Customer distance
-Payment

Page 20 of 20