MODULE 2
Business models for e-commerce
Business model is a set of planned activities designed to result in a profit in a
marketplace.
In order to develop a successful business model, it is essential that the model
effectively addresses the eight elements :
● Value proposition: It defines how a company’s product or service fulfils the
needs of customers.
● Revenue model: It describes how the firm will earn revenue, make profits,
and produce a better return on invested capital. The major revenue models
are :
advertising model
Subscription model
transaction fee model
sales model
affiliate model.
● Market opportunity: It refers to the company’s proposed market space
and the overall potential financial opportunities available to the firm
in that market space.
● Competitive environment: It refers to the state where other companies
selling similar products and operating in the same market space.
● Competitive advantage: Firms achieve a competitive advantage when they
can produce a superior product and/or bring the product to market at a lower
price than their competitors.
● Organizational development: All firms need an organization to effectively
implement their business plans and Strategies.
● Market strategy: It is the plan that details exactly how we can enter a new
market and attract new customer.
● Management team: The most important element of a business model is the
management team responsible for making the model work.
E-commerce models are classified into 2
1. E-Business model based on relationship of transaction parties
2. E-Business model based on relationship of transaction types
E-business models based on the relationship of transaction parties
1.Business to Consumer (B2C)
● It consists of the sale of products or services from business to the
general public.
● Here, businesses directly sell to the end customer. However these
websites require huge investment in terms of advertisement effort,
hardware and software required to support themany millions of hits
that hey experience.
● To maintain consumers always with company's website, the company
must update the information on the web regularly.
B2C process:
● Consumer visits site
● Customer register
●Ordering
● Payment
● Shipment and delivery
● Service and support. -
Examples:
1. Amazon
2. Google
3. Facebook
4. Flipkart
-Benefits of B2C:
●Lower marketing cost: *Expenses relating marketing is comparatively cheap in
electronic medias than traditional medias. It can also catch the attention of large
number of consumers with minimum expenses.
● Lower order processing cost: *Business firms can check orders from customers
and ensure its accuracy before proceeding delivery goods.
● Better customer service: Customers can visit the website at any time on other
convenience and get all information regarding various matters online.
● Lower customer support cost: Customers can refer to the website for basic
questions and doubts, so that number of customer service staff can be Reduced.
● Wider markets: The website is open and accessible at any
time on any day that reaches customers all over the world.
B2C business models:
1. Portal: A web portal is a specially designed website that brings information
from diverse sources, like emails, online forums and search engines, together
in a uniform way. Portals do not sell anything directly. Portals make income
mainly through advertisement, collecting referral fees for directing
customers to other sites, and charging for premium services.
2. E-tailer: Those firms who engaged in online retailing are called e-tailers.
E-tailers are very similar to an ordinary retail store, except that customers
only have to connect to the internet to check their inventory and place an
order. [Link] is an example.
3. Content provider: An Internet content provider is a website or organization
that handles the distribution of online content such as blogs, videos, digital
news,photos,music or files. Content providers make money by charging a
subscription fee.
4. Transaction broker: A transaction brokerage provides third-party real
estate services to buyers and sellers. Instead of acting as an agent for the
buyer or seller, the transaction broker can be described as a professional
assistant. Middleman roles of facilitating search, contract, regulation and
maintenance. The brokers earned commissions each times a sales transaction
is made.
5. Market creator: Market creators provide a digital environment in which
buyers and sellers can meet, display products,search for products and fix
prices. Example : [Link]
2.Business to Business (B2B)
● Business-to-business (B2B) is a situation where one business makes a
commercial transaction with another business.
● Business-to-business (B2B) is a form of transaction between businesses, such
as one involving a manufacturer and wholesaler, or a wholesaler and a retailer.
Business-to-business refers to business that is conducted between companies,
rather than between a company and individual consumer.
B2B business models:
● E-distributor: Companies that supply products and services directly to
individual businesses are e- distributors.
● E-procurement: E-procurement is the B2B purchase and sale of supplies work
and services through internet. Elements for e-procurement include request for
information, request for proposal, request for quotation etc.
● Exchanges (B2B hubs): A B2B hub is a digital marketplace where many
suppliers meet a smaller number of very large commercial purchasers. Exchanges
are owned by independent firms whose business is creating a market and they
make profits by charging a commission or fee based on the size of the transactions
conducted among trading parties.
Benefits of B2B:
● Helps to remove barriers raised by geographic fragmentation of the market.
● Suppliers discover new buyers.
● Enhances transparency.
● Both the buyers and sellers enjoy reduced order processing costs and lower cost
of interacting with each other.
3. Consumer to Consumer (C2C)
It consists of individuals using the internet to sell products and services directly to
other individuals.
● A common example is the online auction, in which a consumer posts an item for
sale and other consumers bid to purchase it. The third party generally charges a
Commission.
● The sites are only intermediaries, just there to match consumers.
● It is essential that both the seller and the buyer must register with the auction
site.
● While the seller needs to pay a fixed fee to the online auction house to sell their
products, the buyer can bid without paying any fee.
● The highest bidder at the end of the bidding period purchases the item. The site
then provides connection between the seller and buyer to complete the transaction.
Eg: eBay
4.Business to Government ( B2G)
Business-to-government (B2G) is a business model that refers to businesses selling
products, services or information to governments or government agencies.
● B2G networks or models provide a way for businesses to bid on government
projects or products that governments might purchase or need for their
organizations.
● Public-sector organizations generally post tenders in the form of requests for
proposals, requests for information, requests for quotations to which private
suppliers respond.
● One of the main B2G activities is paying government taxes and fees online such
as vehicle tax, property tax and income tax.
5. Consumer to Business(C2B)
It is a business model in which consumers (individuals) create value and businesses
consume that value. For example, when a consumer writes reviews or when a
consumer gives a useful idea for new product development then that consumer is
creating value for the business if the business adopts the input.
● Another form of C2B is the electronic commerce business model in which
consumers can offer products and services to companies, and the companies pay
the consumers.
● It is a business model where an end user or consumer makes a product or service
that an organization uses to complete a business process or gain competitive
advantage.
● The C2B methodology completely transposes the traditional business -to-
consumer (B2C) model, where a business produces services and products for
consumer consumption.
E-business models based on the relationship of transaction types
1. Brokerage model
● Brokers are market makers.
● They bring buyers and sellers together and facilitates transactions.
● Usually a broker charges a fee or commision for each transaction it enables.
Advantages of brokerage model:
● Allow buyers and sellers to trade directly bypassing intermediaries.
● Reduces cost for both the parties
● Global reach
● Provide continuous up to date information.
2. Aggregator model
In the model a firm not produce or warehouse any item or products.
●They collect or aggregates information on goods and services from several
competing sources at its website. They are known as
information aggregators.
● Information aggregators are entities that collect information from a wide range of
sources.
Types of aggregators: ●Content aggregators
●Mainstream aggregators
●Event aggregators
●Shopping aggregators
3. Infomediary model
An organiser of virtual community is called an information intermediary
or infomediary, which helps sellers to collect,manage, and maximize the value of
information about consumers.
● It is characterized by the capture and/or sharing of information.
● The simplest form of infomediary model is the registration model. Here,
companies require users to register before gaining access to information on their
Website.
● Registration is a condition for viewing or downloading the articles so the
company can capture contact information and other data and use it to make sales
calls.
Types of infomediaries: ●Specialized agents
● Generic agents
● Supplier agents
● Buyer agents
4.Community model
The e communities are formed when groups of people meet online to
fulfil certain needs or serve their common interest, exchange information, share
interests, trade goods and services, entertain and seek help.
● Communities utilize electronic tool such as forums, chat rooms, message board
and other interactive internet mechanisms, which are usually designed to the
particular community.
5.Value chain model
A value chain for a product is the chain of actions that are performed
by the business to add value in creating and delivering the product.
● For example, when you buy a product from a website the value chain includes
the business selecting products to be sold, purchasing the components or tools
necessary to build them from a wholesaler or manufacturer, arranging the display,
marketing and advertising the product, and delivering the product to the client.
6. Subscription model
Users are charged a periodic, say daily, monthly or annual fee to
subscribe to service.
● The site may include both free content and “premium”(ie,subscriber or member
only) content.
7. Affiliate model
It is a popular ecommerce relationship in which n online merchant
agrees to pay an affiliate in exchange for providing an advertisement
and link to the merchant’s site.
● Each sale generated as a result of a customer “clicking through” from an affiliate
to the merchant results in a small commision for the affiliate.
Influencing factors of successful ecommerce
● Website presentation
● Accessible and easy to use website
● Use new technology
● User friendliness
● Offers
● Adequate stock
● Select suitable mode of delivery
● quickness
Reasons for the failure of ecommerce
● Poor management
● Poorly designed website
● Lack of marketing
● Selling the wrong product
● ● Poor order fulfilment
● Poor customer service
