Digital Payments on the Rise

One of the best way to connect online and offline purchases is through data provided by payments. With an increase in digital payments omnichannel retail becomes an easier target.

Consumers seem to be adopting digital payment options at a staggering speed, all over the world. Here are the numbers:

China: Union Pay reports 260 million digital (internet and mobile) payment users

The 260 million internet and mobile payment users show a great appetite for change. The number of mobile payments itself increased by over 445% in the past year as numbers from Q2 show.

PayPal grows steadily and lists 169 million users

Across the globe e-payment leader PayPal shows a steady increase in the number of users and has big plans after its separation from eBay. Though the separation has been long debated, it seems it is for the best.

Number of PayPal Users [source]

51 million mobile payment users expected in Europe, 2016

Europe lags behind with just 51 million mobile payment users expected in 2016. However – that may change in the future as there is lots of potential. For example Iconiq, an investment fund described as “Zuck and friends” backed Dutch payments company Adyen this year.

Adyen alone is expected to process roughly $45 billion this year, so there is still hope for the old continent.

Meanwhile tech giants such as Apple or Google are engaging one another for the mobile payments market, a seemingly enchanted land in the world of future finance.

Is The Store Associate a Dead Job?

For a very long time the store associate has been at the heart of brick and mortar stores. Store associates would greet customers, respond to queries, help find products and generally help customers with their purchases.

However, the emergence of digital tools and especially smartphones has rendered store associates almost obsolete.

In a recent study by MillwardBrown that focused on customers purchasing athletic footwear we can see just how useful a store associate is these days.

Of those that chose to shop in store, only 12% listed the sales person as one of the reason to purchase offline. Most (88%) chose to try on the product before purchasing.

It’s not just sports shoes. A study by Deloitte Digital shows that customers would rather receive help from an interactive kiosk or their own smartphone rather than a store associate.

As you can see above the willingness to use a smartphone rather than discuss with a sales associate is almost double. Even an impersonal unmanned device such as an interactive kiosk would fare better than a store associate.

So if you were to combine this data with the fact that most of the sales in global retail will be influenced by digital by 2017 the conclusion is simple. The store associate is a soon to be dead job. If you were planning a career in this area, you’d better jump ship.

The Death of Small Web Shops

Small Shoe Shop [Source]

We have a growing industry that builds upon the dreams of small web shop owners thinking they can build the next Amazon. That’s about to change.

Services such as Shopify, open source projects such as Magento and Prestashop and a myriad of other tools and would-be digital panacea cater to entrepreneurs trying to build ecommerce businesses.

But the truth is very few of them will ever become self sustainable. Very few will go beyond small web shops. Even well funded startups can crush and burn (Fab for example burned through more than $300 million until calling it quits).

I find it hard to believe that there is a future for the small web shop. Just like web pages today or the Gopher protocol in the past, one day the small web shop will be gone and something else will take its place.

Here are a few things that will be either causes of reactions to this change in digital commerce:

1. There are going to be fewer, but bigger, digital commerce outlets

Think of these increasingly influential outlets as the shopping mall for the next century. The likes of Ebay, Amazon and even Walmart will become larger marketplaces catering for both more consumers AND more suppliers / vendors.

In the (near) future ecommerce entrepreneurs will find that the window of opportunity previously open will close and consumers will increasingly rely on larger marketplaces for better prices and more diversity.

Think of it in offline terms. There are little if any incentives in opening a small store in a mostly un-visited area. A better approach is to open your store in an already trafficked shopping mall. Amazon for example caters to sellers and offers a marketplace, fulfillment services and marketing options.

The takeaway is simple: if you can’t build your shop into a shopping mall, you’d better join one or do something else.

2. There is a bubble of marketing tools, experts and know-how that is soon going to burst.

We live in a time where a more educated consumer switched from “buy more” to “buy better” and the advertising agency was replaced by Google and Facebook. Creatives are now replaced by algorithms and data.

There is an abundance of digital tools, digital experts, digital know-how (maybe some can be found on this blog also) providing “support” to small web shop owners. The fact is, very few shops are really going to make it to an actual profitable business. Along the way, however, they will pay developers, designers, marketers, ads, copywriters, SEO experts, content experts, photographers. They will buy subscriptions to dozens of cloud applications that brag about the latest success story and they will try to figure out what the hell the numbers in their analytics app are saying.

In the end they will see the problem and the solution lies within one aspect. Size. You may write the best content, have the best designed Magento or Shopify theme. In the end you can’t compete with Amazon. Size does matter.

3. We will see an increase in manufacturing entrepreneurship

As the small web shop will start fading away, a new breed of entrepreneurs will show up. The manufacturers. With so many options for cheap production, distribution and marketing the only thing that’s missing is but the great product one passionate entrepreneur can come up with.

There will be little place for small commerce entrepreneurship. But that doesn’t mean consumers will buy less. They will buy better and they will buy from more. We are witnessing a rising trend of small manufacturers popping up with amazing models. A very fun example is the the Dollar Shave Club, a startup that’s manufacturing personal care products for men. The Dollar Shave Club takes on the large companies such as Gillette in a very straightforward way.

So about the death of the small web shop… It’s coming but don’t hold your breath. There are many vested interests in the small webshop industry.

First there are the startup owners that still believe their small web shop has a future in its present form. Then there are the billions of dollars that have been poured by VC’s in web shop apps and marketing tools.

Plus there is a (still) growing literature that tells anyone with a few bucks and a dream that they can be the next Jeff Bezos. What they don’t tell them is that the world has place for only one Jeff Bezos but plenty of open slots for other success stories. Just not one involving a small web shop.

Demand Sensing is a $1.1 Trillion Opportunity for Retailers

Consumer demand is the one thing that can decide whether a retailer is successful or not. Of course, there is a whole field of marketing studies to determine how we can influence consumers to purchase. But a really important aspect of how good retailers fare in the market is their ability to “sense” demand, not just influence it.

In a recent study, IHL Group claims Overstocks and Out-of-Stocks cost retailers almost $1.1 trillion world-wide. To put it in perspective, that figure is the size of Australia’s GDP.

What that means is that Overstocks and Out-of-stocks, collectively defined as Inventory Distortion, are a problem that cost retailers world-wide 7.5% of their gross revenue.

The most important overstock causes

The figures translate into poor performance, decreased customer satisfaction, decreased sales and increased costs of inventory warehousing and inventory spoilage. Basically there are two really simple outcomes:

  • Either retailers stock up on too much inventory which turns to increased warehousing costs and spoiled products.
  • …Or they don’t and they miss on sales opportunities

Either way, one thing is for sure: Inventory Distortion leads to poor retail performance.

How do you solve Inventory Distortion? (Not exactly) Simple: Demand Sensing

Demand Sensing is a concept and set of technologies that make use of analytical and prediction models to estimate … well … demand. Imagine a retailer that runs a network of 10 stores, one online store and has a mobile app that drives sales also, along side a call center.

Said retailer probably has an inventory management system, an warehouse management system, a sales reporting tool and probably some type of integration with suppliers and manufacturers.

Let’s imagine this retailer selling a type of red shirts that is available in one of the 10 stores and that inventory is not available online. If a customer will visit 3 of the stores in search of that particular red shirt and then search for it online and still not find it, it will probably consider it to be out of stock and the retailer would lose a sale opportunity.

You probably see where the problem lies: even though the product was available, it was not available to the customer and opportunities were lost. The same thing goes for products that are not exposed to the customers, or they are, say, unreachable on the shelf or unfindable on the web store if the search engine is not fit for the job.

The opposite situation, where demand is not correctly estimated and out-of-stocks become a reality, are just as bad as sales opportunities are lost.

The solution lies in gathering enough data across all sales channels, compiling this data and using models to predict demand. That easier said than done because …

To make demand sensing a reality, inventory transparency has to be achieved

As you are reading a blog on omnichannel retail, the term was bound to appear somewhere along the line. So here it is. You can’t have Demand Sensing without a connected sales operation and inventory transparency. All inventory sources have to be connected and data should be generally available. So should sales data across channels.

The picture below shows an example of omnichannel supply chain, one where all the operational pieces work together and share data. When such a structure is implemented, demand is easily “sensed” and estimated and thus inventory distortion can decrease.

So now we have the data. Implementing omnichannel retail can lead do a better demand sensing and therefore improve inventory distortion, a small glitch in the global retail system costing “only” $1.1 trillion.

3 Strategy Mistakes by Big Online Retailers

It’s impossible to predict the future and basically that’s what strategy is. Based on historic evidence, data and outside factors, companies try to predict how the market is going to evolve and how they can best benefit from this evolution.

While strategy is rarely un-debatable and never perfectly executed, it is a very important part in evolving companies. Having a vision and the plan to achieve that vision is what makes companies such as Amazon, Walmart or Apple stay ahead of the competition.

But sometimes things go wrong and strategy mistakes happen. Here are three cases:

1. Overstock plans to develop media service, as predicted by The Onion

Overstock is one of the largest online retailers in the US. It is an Utah based retail company that has a 20 years background in commerce.

The company sells more than 1 million items on the Overstock.com web-store. The products range from home deco to jewelry to electronics to cars to insurance. Did I mention they run a pet adoption online service? And a farmer’s market?

You’ve probably guessed where I’m going with this. Focus is really not their strongest asset. The company has basically organized its strategy around the old “let’s just try everything and see what sticks” motto. This is, of course, the winning formula to tackle Amazon. This and of course Bitcoin, a surefire solution by the company’s CEO to fight the upcoming zombie revolution.

No, really, he actually said that:

“Someday, either zombies walk the Earth or something close to that[…]. Bitcoin is the solution.”

Patrick Byrne, Overstock CEO and Bitcoin Messiah. Source: Wired.

The strategy is so hilarious, Onion can predict it

Overstock’s strategy turned “un-focused” to hilarious when it announced its new media service aimed at Amazon’s Prime earlier this year. A bold move one might say, as Overstock is missing a few things called content, digital infrastructure, hardware (think about the Kindle), Amazon’s market share and media know-how. But they did get featured in the Onion a full 2 years before they’ve made the move.

2. Walmart spins off its ecommerce operation, then acquires it, then ignores it, then develops it, then makes it central. Sort of.

Make no mistake. Walmart is huge. Walmart is on top of the retail food chain (excuse the pun). It has more than 11.000 stores, in 27 countries and employs more than 2.2 million people. The company is the biggest retailer in the world with a revenue of $485 billion.

President and CEO of Wal-Mart Global eCommerce Neil Ashe

But that doesn’t mean it should be successful online, does it?

Walmart’s digital strategy is a bit … puzzling, if I may. The company’s “ecommerce” store has been online since 1996, about the same time Amazon started to grow. Unlike Amazon, Walmart.com didn’t really matter in the company strategy until 1999. That’s when the company announced the customers that no orders placed after the 14th of December could be fulfilled in due time for the holidays.

Walmart then decided to spin off that pesky thing called the online store in 2000 and transferred the operations in Silicon Valley, under a partnership with Accel Ventures. The reason, as mentioned in this throw-back article from 2002, is thatonline is “not where their customer base is”.

After an unusually horrible decision to shut down the store for a month in the fall of 2000, for a revamp, the store was just as bad as before. But it did managed to miss the 2000 holidays season due to a late re-start.

The company eventually realized the blunder and in 2001 bought back Accel’s share in the ecommerce company. Good thing they’ve realized just how important ecommerce was. It didn’t even take long to improve and redesign the webstore: just 5 years, until 2006.

Walmart was also quick to realize it can make a connection between the online and offline channels. In 2007, 11 years after it launched its online store, it launched the Site to Store program, allowing customers to order online and pick up in store.

Blunder after blunder, the company eventually realized the importance of stepping into a new era, one where customers are connected to Walmart digitally. The company has since changed its perception on ecommerce, hired talent and started experimenting with upcoming technologies.

But if there’s something worse than an un-focused strategy and a rigid strategy, that has to be … no strategy:

3. Fab.com turns from gay social networking site to daily discounter to flash sales retailer to catalogue retailer to custom furniture designer. Within 4 years.

There are very few cases where the lack of strategy and extensive investments are seen so clear within the same company. Fab is one of these rare fails. The company was founded by Jason Goldberg and Bradford Shellhammer and experimented with some pivots. Five that I know of, mentioned above.

Fab’s evolution

It went on to raise a total of $336 million and for a while it could have been the next Amazon, or Ikea, or Apple, or whatever founder Jason Goldberg thought was the fad of the day. Eventually it went on to be a huge whole in the investors’ pockets and was acquired by an undisclosed sum in march 2015.

The whole story is outlined in this cautionary tale. It could be a very funny strategy fail if it weren’t such a sad story for investors, founders, employees and in the end – the whole online retail market. Fab is the story of what could have been, if someone were to lay out a smarter strategy. Or some strategy for that matter.

Functional Online Marketplaces

The marketplace has been a very influential social and economic construct for a very, very long time.

It has been a central concept to commerce all over the world since the dawn of man kind. In time, the marketplace has been refined and evolved to include ever more complex structures. During the past century it morphed from temporarily trade gatherings to large permanent structures such as shopping malls and eventually it evolved into what we now know as the online marketplace.

Ebay, Alibaba, Etsy, Amazon and others have one thing in common – they get sellers and buyers in one place. These online marketplaces are fueled by a business model that has seen a steep increase and proved excellent in the past years. But now, it’s time for the next step:

Functional Online Marketplaces

I believe the times they are a-changin’, like Dylan would chant. The Online Marketplace is not enough any more. The markets demand something more.

That something is the Functional Online Marketplace, a virtual hub that combines the features of a marketplace (buyers and sellers, reputation management, transaction handling) with functions that improve the lives of either sellers or buyers.

The Functional Online Marketplace goes beyond just letting sellers and buyers trade. It helps the seller run its business better and the buyer benefit more from the product purchased.

And some of the biggest tech companies we know have created this type of Functional Marketplaces. We’ve used them and most customers love them. We just didn’t put a name on it. Have a look at some examples:

The Apple Ecosystem

Steve Jobs envisioned the PC as a digital hub, a central unit that connects the user’s digital activity. From email to web surfing, from music to pictures and more. It than proceeded to create this vision and along the way he built much more.

By launching the iPod and than the iPhone, Apple moved the digital hub inside the consumer’s pocket. With such a valuable real-estate in the reach they’ve had to build a system that shipped music, video and applications from third parties to these devices.

The iTunes Store and the AppStore were born. Apple built the platform to consume apps, the place where customers could download these apps, empowered developers to build these apps but did something else too.

It built Xcode (the development tool for iOS developers), it launched Objective C and than Swift (the programming languages used to build apps) and helped developers create useful apps.

Apple went beyond the marketplace paradigm. Yes, it allowed media and software consumers to meet developers but it also created the platform where they could be consumed and the tools to build them. It built an extraordinarily effective Functional Marketplace.

But Apple is not the only one …

The Uber-marketplace

Uber is an extraordinary successful company that connects freelance drivers to those in need of their services. It connects buyers to sellers. It is technically a digital marketplace. And more.

First of all Uber empowered a set of freelancers that didn’t know they’ve actually had a market. The driver app allows drivers to see potential riders and provides GPS-linked functionality inside a simple mobile device.

The functional side of Uber not only improves the way sellers (drivers) provide their services but actually it makes it possible.

For customers, the app makes hailing a driver an easy task, it allows direct payment on mobile phone and brings the comfort previously unattainable. The functional marketplace at its best.

Google – the biggest functional marketplace

Google is many things. Search giant, mail provider, mobile os developer and robot builder among others. But at its core, the business model is quite simple: Get people to pay for ads. Show ads to customers. Make people click on said ads.

Advertising accounts for 89.5% of Google’s total revenue so it’s safe to say that ads are its bread and butter.

To achieve these levels of revenue Google has to place together “The Sellers” (Advertisers) and “The Buyers” (Customers clicking on ads). Though customers don’t technically buy on Google, those that generate the company’s revenue end up as leads or buyers on advertisers’ websites.

To do this, Google built its ad market on top of its primarily function: Search. Users searching for information of interest are effectively buyers in the Google functional marketplace.

The marketplace, therefore provides functional support to buyers. The search, Gmail, Android – are all basically functions that lock in the ad-clicker and in turn generate revenue through these types of transactions.

These are just three functional marketplaces examples but they illustrate the concept. To be successful, a newly established marketplace has to provide more than just a connection between buyers and sellers. It needs to provide function beyond the commercial. By improving the lives of buyers and sellers beyond the commercial, Functional Marketplaces provide the type of lock-in and effectiveness previous models don’t.

How To Start an Online Store: The Complete Guide

If you are here you’re probably thinking about opening an online store and you need some help to get your business up and running. The good news is you’ve come to the right place. This guide contains all the information you need to get your business started.

I’ll guide you through the most important steps in starting an online store. You’ll notice that, just like a car, the things that make an online store are usually under the hood. Of course, an efficient web store and a carefully crafted logo are important but even more important are the products you sell, where do you get them from and how you fulfill your promise of sending them to your customer.

Basically there are ten main areas you need to focus on when starting your online retail business. These are:

  1. Finding your niche and understanding your market. Building The Plan;
  2. Finding the right business model;
  3. Registering your business;
  4. Finding suppliers, developing a supply chain, pricing the products;
  5. Developing a fulfillment operation (pick, pack, ship and handling returns) and preparing for customer care;
  6. Building a brand identity and building your web store;
  7. Posting products and adding relevant content;
  8. Adding sales channels to your business;
  9. Marketing your store;
  10. Testing and fine tuning;

 

That’s a whole lot of bullet points. Of course: an online store is still a business and businesses are not simple. If you’re trying to build a business because you need money fast or because you’re tired of your day to day job, you should stop reading this post right now.

The truth is building your store or any other type of business is hard work. Seems obvious, right? If it were easy, everyone would be running their own business. It’s hard but if you are ready to take on this challenge, prepare yourself with grits and start chewing as much info as you possibly can. The more information you have and the more data you gather, the more likely you are to succeed.

This guide will work as a framework, an outlook on what you have to do to maximize your chances for success. Depending on your current location and specific market factors, you may need to adapt as you go but you can rely on this framework to guide you through.

So let’s dive in:

1. Finding a niche for my web store. Building The Plan.

There are three very important things to take into account when starting your online store and looking for your niche:

  1. provide value for other people
  2. provide the type of value that other companies don’t
  3. provide value for lots of people

The first thing you have to understand is that your business has to provide value for other people.  Just as people do, businesses strive for purpose. Without providing value in a clear and straightforward way, you cannot expect your business to be successful.

Find out what people need or want. A combination of both is great but if you have to choose, go for need – it is way better in the long run. Find out how you can supply these products or services. This is the value.

The second thing you have to take into account is that other online stores may provide the same kind of value. Do your research. Google the type of products you want to sell. Check Google Trends to see how the terms for your products have evolved throughout the years. Compare the number of product searches with the number of companies providing the same type of value you’re planning on offering.

There is a dynamic between demand and supply that you cannot ignore. You are looking for a market that is booming but there are not many competitors. And that’s were the third point comes in: you have to provide value for lots of people. You may like hoodies for cats very much. But it is probably not such a great idea. You are addressing people in your country (don’t think you’re going international just yet), who own cats, who think that dressing up cats is a good idea and who like hoodies. A pretty small market, don’t you think?

The lower the market size, the lower your chances for success. The higher the market size, the higher are your chances at building a great business.

See the graph below on where you’d want to place your business in:

So there are two great combinations that you can choose. Both need as many customers as possible. You should strive for a market where there are plenty of people ready to buy your product.

The ideal situation is the one in the lower right corner. That’s where few companies will compete with you and there are plenty of customers willing to buy your products. But to position your online shop there, you need to identify a need before the competition and quickly get as much market share as possible. However, in this situation, you’ll need to market your products and your brand, advocate product usage and purchase. That means actually building a market. This is no easy feat for a startup.

The upper right area shows a combination of many competitors and many customers. This means this is an established market and you’re more likely to succeed if you prove yoruself better than (part of) the competition. With slight adjusments to the business model, you can compete to established leaders (see below for innovative ecommerce models).

The Plan

Once you have discovered the kind of product(s) you will be selling it’s time to start building The Plan. You will notice that I’m using the term “the plan” and not business plan. That is because this is your plan. It has to come as a natural idea and set of targets you want to acomplish in the future with the business you’re building.

There are nine big questions you need to answer here. You have to be as pragmatic as possible when answering these questions because when you start building your online store there won’t be any place for wishful thinking.

These questions are simple but the answers are usually not:

  1. What are you selling?
  2. Who are the competitors?
  3. Who is the customer?
  4. How do you get the customer to buy your products?
  5. Who supplies the merchandise?
  6. How much will the products cost and what is the proffit?
  7. What are the costs you expect?
  8. How are you going to cover the costs?
  9. How much revenue are you expecting in the first 3-5 years?

 

Answering these questions will get you thinking and preparing for the future. You will notice that these are actually the questions you need to figure out the answers to when building a business plan.

However, take your time to think through these questions. Find information to support your expectations. Question your own assumptions because the market will surely do so. If you’ve taken into account all these questions you are likely better prepared to starting yoru online shop. Remember, “failing to plan is planning to fail”.

 

2. Finding the right business model for my online shop

You’re probably thinking the ecommerce business model is pretty straight forward. You post some goods online, someone orders them and then you ship them and collect the big bucks.

Well, that is why you need to know that even if the logistics and operations may look the same in all ecommerce business, the differences can have a huge impact on how you’re building yours.

I’ll walk you through the 4+1 main segments of ecommerce business model. Than we’ll look through different implementations of the B2C model (business to consumer), the one you’re probably aiming for.

B2C eCommerce

B2C Ecommerce is the most popular form of commerce online. The B2C stands for Business to Consumer and that’s exactly what it means.

Online retailers (aka “The Business”) will stock goods, post them online and sell directly to the customer (“The Consumer“). The Consumer will reach the web shop, browse and hopefully buy the items posted online. When this happens, the operational team will be notified. They will pick the merchandise from the warehouse shelf, pack it and ship it to the consumer.

Most of the online shops you are familiar with are focused on this type of ecommerce business model. Some examples you might be familiar with are Walmart.comTarget.com or HomeDepot.com.

But B2C is not just for the big players. Many ecommerce startups employ this type of business model. For example Bonobos.com and WarbyParker.com are doing just great selling directly to the consumer.

Bonobos is a fashion ecommerce retailer for men. The company manufactures and sells its own line of men wear and its main selling point is it makes shopping easier. How it does that? You’ll find out later in this guide.

WarbyParker.com sells stylish eyeglasses and sunglasses directly to the consumer. It is a great example of finding the right type of product at the right time and packaging it with the right type of social activism twist. When you buy a pair of glasses from them, a social mechanism makes sure that part of the money you’ve paid go to those in need of eyewear in the developing world.

But wait, isn’t Amazon a B2C ecommerce site, you might ask? Glad that came up. See, Amazon has started as a B2C online shop but since then it evolved past a single model. Most of its sales are still directed at the end consumer but Amazon also ships items to businesses (B2B ecommerce) through its Amazon Supply outlet. It also brings other sellers (businesses and consumers) in contact with its own customer database. This means Amazon is indeed the largest online retailer in the world, but it’s not just a B2C ecommerce website.

B2B eCommerce

Another business model that works great is the B2B Ecommerce model. In this model Businesses sell merchandise to other Businesses through an online shop.

You might wonder why even mention this model. I mean, couldn’t those listed above just allow businesses to buy from their shops? Of course they could and most do. But here, I’m talking about a different type of companies, different type of products and most of all – different number of items purchased and different pricing.

(B2B model illustration)

Say you’re a company manufacturing hoodies for cats. Supposedly your market is not as popular as the smartphone market and your factory can ship 1000 beautiful cat hoodies every year. You could, of course, open an online shop and ship these hoodies directly to the consumer. But you’ll find out that it implies development costs, marketing costs, customer service costs and you just want to be in the factory all day, trying to finally manufacture the perfect cat hoodie.

Along come Business A and Business B. These companies are probably retailers and have an established commerce operation, with a huge database of customers and they think they can sell 500 hoodies this year. And they want everything you manufacture.

Before these companies came along you’ve done the math and thought: “My cost for each manufactured hoodie is 10$. I’ll sell these hoodies for 20$ and make a nice proffit.” But then you went on and started selling on your own and saw that including marketing, shipping and other expenses your cost rose up to 18$ and you’re actually making only 2$. Not that much, is it?

But now both Business A and Business B decide they can offer you 15$ for each hoodie and they are going to buy everything you manufacture. On one hand they are offering you less than your asking price but in the end your earning 5$ instead of 2$ so you decide you’re better off selling directly to Businesses.

This simplified scenario is the basis of the B2B ecommerce business model. It means that businesses (either manufacturers or wholesalers) sell directly to businesses and offer incentives to those that buy in bulk. The usual incentives are lower prices, extended payment conditions, free shipping or custom manufacturing.

Some of the most popular B2B ecommerce sites are Quill.com, AmazonSupply.com and of course AliBaba.com, the largest B2B marketplace, connecting businesses in China to buyers all over the world.

B2B2C eCommerce

(Business to Business to Consumer business model graph)

This is a rather new type of ecommerce business model. It stands for Business To Business To Consumer.

How does it work? Say you have your own stocks and you’re selling your cat hoodies through your very own ecommerce website and it works pretty well. But you’re thinking – why not sell more?

So you think of new sales channels, the type of opportunities where your cat hoodies can sell even better if exposed to a larger number of customers. Kinda like Amazon or eBay.

Larger retailers, such as Amazon, offer you the possibility of selling on their own website. You supply the goods and post them on the Amazon Marketplace, for example, and next thing you know -bam! – your cat hoodies can be purchased by Amazon’s customers. Depending on your decision you can either fulfill orders on your own (receive orders from Amazon, pick, pack and ship yourself) or just let them handle the logistics, through their Fulfillment by Amazon program.

C2C eCommerce

So we’ve covered businesses selling to customers and other businesses. Shouldn’t consumers sell to other consumers too? But they do and this area is actually booming.

Consumers usually meet other consumers through online marketplaces. By far, the most popular is eBay.com, the place where anyone can sell and buy anything. Even though eBay hosts businesses also, we will focus on the individuals selling their items through these type of systems.

The online marketplaces enabling C2C ecommerce help sellers post their goods online and buyers to find them.

There are many mechanisms in place to handle these transactions, things such as product showcasing, selling, payment and feedback. But if we were to look at what makes C2C marketplaces work this has to be the network effect and peer review. The network effect means that the more people engage in trading goods in a marketplace, the more people will come and more successful the marketplace will be. This effect also ensures seller and buyer lock-in: the more people are buying or selling, the harder it is for someone to leave the marketplace. The reason – where else will this person find so many customers or merchants?

The second big feature that defines C2C marketplaces is peer review. When you’re buying or selling through this type of systems, you really don’t know who’s on the other end. And because relying on luck and having faith in the good character of people is not the most efficient solution, marketplaces introduced peer review.

When someone buys from a merchant and they get what they asked for, they offer a positive review. When they don’t, and things take a turn for the worse, they slap the merchant with a negative review so others know the merchant is not to be trusted.

The same goes for the merchant. If the customer doesn’t pay up or somehow tricks the merchant – there’s always a bad review at hand to get things leveled.

Once these reviews start pilling up, they start working as a certificate of good standing (or bad standing). If you are a honest merchant or customer, you won’t leave the marketplace that stores this certificate. That’s because reviews are a valuable asset that help members trade in better conditions.

Why mention all these? Because building a C2C marketplace is really, really hard and expensive. For example eBay lost$100 million trying to enter the Chinese market before giving up to AliBaba. It’s that kind of expensive so I would rather advise against building a general C2C marketplace if you’re a startup.

You could, however find a niche where individuals are willing to trade with one another and cater to that specific niche.

For example: Etsy.com is famous for building the biggest handcrafted C2C ecommerce community. Uber and Lyft bring individuals in need of transportation in contact with those able to provide these type of services. In fact, Andreessen Horowitz, one of the leading Venture Capital firms lists Online Marketplaces as one of the most promissing directions for startups.

C2B Ecommerce

Yes, C2B (Consumer to Business) eCommerce is a thing. It might look a little off but there are great ways to start an C2B ecommerce business. There are also some great established services that help connect individuals to the businesses in need of their products or service.

(Consumer to Business Ecommerce Business Model)

Take this blog for example. You see those banners posted on the side? These ads are served through AdSense (a Google program that connects advertisers and website owners). What AdSense does is connect the individual (in this case a blogger) to those businesses in need of relevant advertising. In return for posting these ads, the blogger gets paid everytime someone clicks an ad.

Reverse auctions are a great way for individuals to post how much are they willing to pay for a certain product or service. A C2B Ecommerce site can collect these auctions and forward them to companies willing to fulfill them. For example – the basic model behind the likes of Groupon.com or LivingSocial.com is a combination between B2C and C2B. Companies post their offers but the consumers have to vote by purchasing these offers. If the minimal number of offers is not met, the offers are not activated.

Another great example of the C2B ecommerce model is Elance.com. The website is one of the first businesses that connected freelancers to potential contractors (usually businesses). Freelancers would go online, post their capabilities and those in need of their services would hire them for a limited time or project based.

Monster.com is another great C2B example. Yes, people posting their resumes and getting recruited is a type of commerce where The Individual is pitching The Business to buy his services (aka hiring).

If you’re an one-man startup, this can be a great way to setup something quickly. In fact, most freelance developers or graphic designers practice this type of commerce. Either through large marketplaces such as Elance.com or just by posting their resume and portfolio online and getting orders through a simple contact page.

Other business models for ecommerce

These are the four most popular and used business models but they are not all. There is a separate class of ecommerce business models that has to do with the government. When the government wants to buy products or services from businesses it will post the tenders on a G2B (Government to Business) portal that handles auctions and offers.

If the businesses want to market their their offers to the government, they will employ a B2G business model. See that? G2B vs B2G – pretty simple stuff.

A final model is G2C – government to citizen. Using this model, government authorities can auction goods directly to the consumer. It also works as a way of connecting citizens directly to the authorities and decrease bureaucracy when issuing documents or collecting taxes.

Six innovative B2C ecommerce business models

So you’ve glanced through all these great ways of starting an ecommerce business and you finally decided on one of them. The vast majority of online shop startups are built on top of the B2C business model so the next part of this guide will focus on a few innovative ways of implementing an online shop.

The basics all stay the same. You are still an online shop owner trying to attract the right kind of consumers and provide them with products they will love. But how about some inspiration from the most innovative business models out there?

1. The right fit

Remember Bonobos.com we’ve talked about earlier? Well their whole selling point goes something like this: most men don’t really like shopping. They like to wear clothes that make them look good, without spending too much time choosing. We can make this happen.

That is especially hard when you’re an online store and your customer can’t see, touch or try on the product your selling. But it can be done. To make it happen, Bonobos mixed its great designs with few things to keep the customers happy and relaxed:

  • Ninjas. What? Well, not real ninjas but some pretty great customer service representatives that are willing and happy to walk customers through buying the right piece of clothing.
  • 365 days return. Not the right fit? Maybe the customer is too busy to return the merchandise within the standard 30 days. Why not extend that to  365 days?
  • Free shipping and free returns. This means the customer has no reason to drive up to a brick and mortar store to try on the products. Shipping and returns are free so basically everyone can try on their new chinos at home. If they don’t like them, they send them back.
  • Try on everything. Bonobos has a special kind of store – the one that lets customers schedule a “try on everything and if you are happy with what you find, you get your stuff shipped home” session. Also – preferences are saved so next time the customers wants to click-shop, he knows exactly what’s the right size.

The key take away is if you’re building an online store, it has to solve a problem. Bonobos solves the “shopping for clothes is boring” men problem and promises the right fit without the headaches of chasing a pair of pants all day.

2. Flash Sales

There’s a whole post on Netonomy dedicated to Flash Sales. Basically, these type of online shops sell discounted merchandise to registered members.

Take for example Ruelala (pic above). Customers have to provide the shop with their email address to register as a member. This means that basically anyone who enters the website is also subscribing to an email newsletter.

In exchange customers get discounted, usually designer or brand name products. If you like to know more about this ecommerce model, please click here.

3. The subscription pack

Most online shops have thousands of products listed. This is a great advantage over brick and mortar stores which have to actually stock on all those products. Online shops can stock on the minimal amount and later on deal with orders through supplier dropshipping but more on that later.

A new trend emerged that deals with showing just the right amount of products customers need in a given period and ship those products in a subscription based model.

Take Manpacks.com for example:

What Manpacks does is list just the minimum amount of products men need in any given month. Customers setup their pack and receive it every month, based on a subscription.

There are many advantage in starting such an online shop:

  • Predictability: because your revenue is subscription based, you can estimate your monthly, quarterly and annual revenue accurately. This way you can plan for the future and balance your company.
  • Economy of scales: having few products on sale and lots of customers means you can negotiate with suppliers better prices for the products you’re selling. This means you can also profit more and sell your products cheaper.
  • Marketing is easier: with few products in your offer you can simplify your marketing and communication and improve your customer acquisition (again – more on this later).

4. Community designed products

Are you familiar with the term crowd sourcing? It basically means asking lots of people to do something for you or your company. In this case, we’re talking about designing products.

What Threadless.com did was build a community around the concept of designing t-shirts. Designers would submit their designs and the community would choose what t-shirts were sold. In exchange, the website shared revenue with said designers.

Of course, going against Threadless now is probably not a great idea but you can always build a business by channeling people’s passion towards a commercial goal.

Key takeaways:

  • Community: build and stand by your community. It is the key to creating a lasting brand.
  • Share and save: hiring designers is a costly thing but if you can take independent designers’ ideas and turn them into products you can save a lot on fixed costs. But you have to be willing to share.

5. Customizing for the masses

Mass customization is an ecommerce segment that’s growing really fast. Customers want to express their creativity and they are ready to pay for this.

This type of online sales are technologically advanced and need three really important things to function:

  • a store that can handle customization input for the customers
  • a system that transforms this input to a set of instructions to a production line
  • a operational structure that can customize products in an automated manner so costs are kept in check

For example Nike launched NikeID, a great way to customize their products. After a successful trial period, the program extended to many of the company’s products.

If you’d like to find out more about mass customization, you can get more info at “Is Mass Customization the Future of eCommerce?

6. 3D printing

The final innovation I think you should take into account is 3D printing. Using specially designed machines you can build 3D objects and sell them to customers.

3D printing is a technology that is actually yet to take off but it sounds really promissing. For certain products it can mean a reinvention of manufacturing and commerce. Imagine having your customers build the product in your store and having this product instantly printed and shipped. Imagination is the only thing that could limit what can be done with such technology.

Shapeways for example, started in 2007 as a marketplace for 3D Designers willing to design and sell their ideas. In 2012 it has passed the 1 million products sold threshold so there really is a market out there.

Because it is connecting designers to buyers, Shapeways is a C2C marketplace but probably the future will show 3D printing is not restricted to individual designers so B2C online shops might also leverage the trend.

This was the last of the six innovative ecommerce trends you could use to spark the right idea for your future shop. This ends part one of this guide. To wrap things up let’s walk through what you’ve learned here. First – the importance of finding the right niche and how you cult do that. Next, you’ve learned about the necessity of building your Plan when starting an online shop and the questions you need to answer when building said plan.

Last but certainly not least, you’ve discovered the main business models you can use to build your shop and six of the most innovative B2C ecommerce models. Pretty good for a day’s work.

See Part 2 of “How To Start an Online Store“: Registering your business, finding suppliers, integrating suppliers in your business and choosing the right product prices >>

Featured image source.