What’s it: Business-to-consumer (B2C) refers to a business model in which a company sells directly to individual consumers. This term is usually associated with selling via online channels or eCommerce. When a buyer is a company, we refer to it as business-to-business (B2B).
Amazon.com is a well-known example of a business-to-consumer. Shopee, Bukalapak, and Tokopedia are some examples of B2C business models in Indonesia.
Why is business-to-consumer important
B2C started to develop in the late 1990s. For the US market, one of the pioneers was Amazon, which was founded by Jeff Bezos in 1994. Four years later, Amazon recorded sales of more than $1 billion for the first time. And in 2019, the company posted revenue of $280.522 billion. According to Forbes, its success led to its owner becoming the world’s richest person in 2019.
The presence of this business model has destroyed conventional retails. It has changed the way we interact with sellers. Conventional retailers are losing sales, as many consumers switch to online channels.
To deal with this, some retailers then entered the online business to remain competitive and survive in the industry. Some combine online shops with traditional shops. This shift creates more benefits for consumers, who can now enjoy online ordering convenience while saving costs.
Indeed, in essence, eCommerce is only moving market locations to online sites. All transactions are done online, from advertising, ordering, payment, to delivery (for digital products).
However, eCommerce offers more quality and price choices and offers greater flexibility. You only need to use a smartphone to shop. And for companies, it allows them to develop various business models to generate income.
The future of B2C still looks bright. This type of sale is still in its infancy and will continue to grow. According to Grand View Research, the global B2C e-commerce market’s size is estimated to grow with a compound annual growth rate (CAGR) of 7.9% during 2020-2017. Meanwhile, in 2019, the market size has reached USD3.35 trillion. Increasing internet users, disposable income, and the convenience offered are the driving factors for future growth.
B2C offers several advantages. First, companies can reach a broader range of consumers, not only domestically but also abroad.
Second, the company benefits from a richer database of customer profiles and transactions. Such information makes it easier for them to adjust their marketing strategy or product strategy.
Third, B2C also saves costs. Companies don’t need to build or rent retail space to sell their products. Also, online channels have the potential to bypass distribution and retail chains. In conventional channels, products may go through multiple channels to reach the end consumer. Through online, they can serve customers directly.
Fourth, for consumers, online transactions save costs. You don’t have to come to the shop. You can shop and transact anywhere, at home or on the go, and anytime. After the transaction is complete, all you have to do is wait for the goods to arrive at your doorstep.
Five types of business-to-consumer business models
Many types of business-to-consumers exist, and here are five of the most popular:
- Direct selling
- Online intermediaries model
- Advertising-based model
- Community-based model
- Fee-based model
Retailers sell their products directly to consumers through their own websites. Retailers can come from small to large businesses and offer a wide variety of products. Some traditional retail stores have also adopted this business model.
Building this business model is also relatively easy. Just by creating a website and a payment system, you can build your online store. Alternatively, you can take advantage of social media such as Instagram and Facebook to sell your products.
Online intermediaries model
In this model, the site owner does not sell the product directly. They only facilitate transactions between buyers and sellers. In other words, the site owner is an online market maker.
Owner’s income can come from various sources, depending on the feasibility of the site. Some may charge producers and consumers fees, while others rely on revenue from advertising.
Sites only take advantage of the high traffic volume to sell ads. The owner uses high-quality free content to attract site visitors. This business model differs from online intermediaries in that it does not facilitate interaction between buyers and sellers.
The site owner displays advertisements from several product sellers. When a visitor clicks, the visitor will be redirected to the seller’s site. If a visitor buys a product, the seller then shares a certain percentage of the sale with the site owner. Thus, the higher the site traffic, the greater the chance for visitors to click on ads and transact, and the higher the site owner’s income.
This model uses online communities with specific interests to help advertisers market their products directly to site users. This could be an online forum for photography enthusiasts, gadget fans, etc.
Site owner income works in the same way as an ad-based model. It’s just that both of them have different segment targets.
This site charges a subscription fee for access to content. Site owners usually offer some free and paid content. Online media sites usually adopt this business model.
Several variations of this model exist. On some sites such as the Harvard Business Review, you can access free articles per day. After reaching the maximum quota limit, the owner will direct you to subscribe.
Meanwhile, on other sites, owners have some articles for free and others for premium. How many free articles it depends on the strategy of each site. The Wall Street Journal, for example, charges a fee for most of its content.