Think back to how you shopped five years ago. Better yet, ten years ago.
Where did you go to buy clothes? How did you get your groceries? What did you do when it was time to buy a new mattress?
Our mattresses come in boxes, meals are shipped to our doors, and we try on clothing and mail it back at no cost.
Innovative ecommerce businesses have transformed the way we shop today and redefined what we call possible.
Over the past ten years, the percentage of retail sales in the U.S. that have come from ecommerce has increased by nearly 300%, from 3.3% to 9.7%.
Now read that again. Even with all this growth, ecommerce represents less than 10% of all retail sales.
There’s plenty of opportunity ahead for those who choose to innovate.
Today, it’s easier than ever for creative founders to make their ideas a reality. Each year, we see new businesses dethroning “the way we’ve always done it” monoliths.
While many of the tools are new and rapidly improving, the rules have stayed the same. If you want to innovate and defy expectations, you’ll need to know your business model and define how you’ll innovate.
And who knows? Maybe the next thing we can’t live without is yours.
This blog is a primer for considering what your next move will be. We’ll talk about the central business models of ecommerce, some examples of innovators, and the principles of innovation in ecommerce.
If you have a new idea but don’t know how to put it together logistically, this is the read for you.
Four Traditional Ecommerce Business Models
If you’re starting an ecommerce business, odds are you’ll fall into at least one of these four general categories.
Each has its benefits and challenges, and many companies operate in several of these categories simultaneously.
Knowing what bucket your big idea fits in will help you think creatively about how what your opportunities and threats might be.
1. B2C – Business to consumer.
B2C businesses sell to their end user. B2C is the most common business model, so there are many unique approaches under this umbrella.
Anything you buy online as a consumer — think wardrobe, household supplies, entertainment — is done as part of a B2C transaction.
The decision-making process for a B2C purchase is a much shorter than a business-to-business (B2B) purchase, especially for items that have a lower value.
Think about it: it’s much easier for you to decide on a new pair of tennis shoes than for your company to vet and purchase a new email service provider or food caterer.
Because of this shorter sales cycle, B2C businesses typically spend less marketing dollars to make a sale, but also have a lower average order value and less recurring orders than their B2B counterparts.
B2C innovators have leveraged technology like native advertising and remarketing to market directly to their customers and looked to compete on price by cutting out middlemen.
2. B2B – Business to business.
In a B2B business model, a business sells its product or service to another business. Sometimes the buyer is the end user, but often the buyer resells to the consumer.
The B2B model generally means a longer sales cycle, but higher order value and more recurring purchases.
Recent B2B innovators have made a place for themselves by replacing catalogs and order sheets with ecommerce storefronts and improved targeting in niche markets.
In 2015, Google found that close to half of B2B buyers are millennials — nearly double the amount from 2012. As younger generations enter the age of making business decisions, B2B selling in the online space is becoming more important.
3. C2B – Consumer to business.
C2B businesses allow individuals to sell goods and services to companies.
In this ecommerce model, a site might allow customers to post the work they want to be completed and have businesses bid for the opportunity. Affiliate marketing services would also be considered C2B.
Elance (now Upwork) was an early innovator in this model by helping businesses hire freelancers.
The C2B ecommerce model’s competitive edge is in pricing for goods and services.
This approach gives consumers the power to name their price or have businesses directly compete to meet their needs.
Recent innovators have creatively used this model to connect companies to social influencers to market their products.
4. C2C – Consumer to consumer.
A C2C business connects consumers to exchange goods and services and typically make their money by charging transaction or listing fees.
Companies like Craigslist and eBay pioneered this model in the early days of the internet.
C2C businesses benefit from self-propelled growth by motivated buyers and sellers, but face a key challenge in quality control and technology maintenance.
Innovators like GOAT have created novel solutions for quality control, and Depop has leveraged social media for rapid C2C growth.
Five Value Delivery Methods for Ecommerce Innovation
If your business model is the car, then your value delivery method is the engine.
This is the fun part – where you find your edge. How will you compete and create an ecommerce business worth sharing?
Here are a few of the popular approaches taken by industry-leaders and market disruptors.
1. D2C – Direct to consumer.
By cutting out the middleman, a new generation of consumer brands have built loyal followings with rapid growth.
Companies like Warby Parker and Casper set the standard for vertical disruption, but up and coming brands like Native Union and LARQ are showing us how D2C can continue to be an area for innovation and growth.
2. White label and private label.
To “white label” is to apply your name and brand to a generic product purchased from a distributor.
In private labeling, a retailer hires a manufacturer to create a unique product for them to sell exclusively. With both, you can stay lean on your investments in design and production and look for an edge in technology and marketing.
In a wholesaling approach, a retailer offers its product in bulk at a discount.
Wholesaling is traditionally a B2B practice, but many retailers have offered it to budget-conscious consumers in a B2C context.
One of the fastest growing methods of ecommerce is dropshipping.
Typically, dropshippers market and sell items fulfilled by a third party supplier, like AliExpress or Printful. Dropshippers act as a middle man by connecting buyers to manufacturers. Easy-to-use tools allow BigCommerce users to integrate inventory from suppliers around the world for their storefronts.
5. Subscription service.
As early as the 1600s, publishing companies in England used a subscription model to deliver books monthly to their loyal customers. With ecommerce, businesses are going beyond periodicals and fruit of the month clubs. Today, virtually every industry has seen the arrival of subscription services to bring convenience and savings to customers.
5 Examples of Innovative Ecommerce Business Plans
Many companies have flourished with the freedom ecommerce gives them. These brands have combined classic business models with something new, making them innovative leaders in the field.
1. Wone – D2C.
When Kristin Hildebrand founded Wone, she didn’t set out to make the cheapest or the trendiest activewear.
She didn’t set her sights on being the more famous or talked about. She simply aimed to create the world’s best performance apparel.
Wone rejects the typical marketing plan and instead focuses on building deep relationships with customers and designing products that perfectly serve their niche.
This niche is women who want the highest performing activewear, period.
Wone items are not a fashion statement, not in the traditional sense, but make a statement with their quality and exclusivity.
Hildebrand seeks out the very best materials and production methods for every piece, no matter the cost, a bold move that separates her from mainstream activewear brands. Wone produces collections in limited, numbered runs and customers must be members to shop the site.
Relying on word of mouth, Wone has grown substantially since its launch in 2018 and continues to build a loyal following as it releases new collections.
2. Beer Cartel – Subscription service.
Expert-selected craft beers from around the globe delivered to your door each month.
Some ideas sell themselves.
Beer Cartel offers Australia’s longest running beer subscription service.
Each month, thousands of Australians come home to a package full of top-rated beers at their doorstep.
They’ve attracted the curious and the connoisseurs by giving their customers a unique selection at a price better than what they could get in stores.
Beer Cartel has also done a great job of offering several different subscription options to serve customers of all appetites and budgets.
3. Berlin Packaging – B2B.
Fortune 500 companies and family-owned startups alike trust Berlin Packaging for sourcing, designing, and distributing their containers and closures. As a hybrid supplier, Berlin Packaging brings their expertise to every level of the supply chain to increase efficiency and lower cost for their customers.
Berlin Packaging is over 80 years old but has kept their advantage by innovating every step of the way. By adopting an ecommerce business model, they stayed competitive by making it easy for their customers to shop from their large selection of containers sourced from more than 200 different partner vendors. Berlin Packaging also prioritized a strong connection between their site and ERP, making it easier for customers to see their credit limits, balances, and past due balances.
4. Atlanta Light Bulbs – B2B.
Atlanta Light Bulbs is no stranger to innovative ecommerce. While other B2B companies lagged behind, ALB launched their first ecommerce site in 1999.
This gave them a huge head start on creating a unique site experience for their customers.
As their market has shifted to the millennial generation, Atlanta Light Bulbs has focused on adding more to their online platform that will set them apart from their competition. Part of their strategy has been using apps for their BigCommerce storefront.
These pre-built and easy-to-install tools have helped them to try new tactics without over-investing in custom technology.
One of their most successful features has been their mobile shopping app.
This app has primarily helped grow Atlanta Light Bulbs’ B2C sales, but even their commercial clients have come to enjoy the convenience of ordering from their mobile devices.
Another creative tactic from ALB is their make an offer feature.
On their product pages, they allow buyers to name a quantity and price and submit an offer. On the backend, pricing rules are used to auto-calculate the lowest price Atlanta Light Bulbs can give. Customers receive a message letting them know their proposal has been accepted, or, if the price is too low, a different deal is offered.
5. Grace and Lace – Wholesaling
Melissa Hinnant discovered her love for knitting while on bed rest during a high-risk pregnancy.
When she began knitting lacey leg warmers, her friends and family couldn’t get enough of them.
In 2011, she launched Grace and Lace with an online shop and was immediately overrun with orders.
Things only got busier when Melissa and her husband presented on The Shark Tank in 2013.
Since then, they’ve expanded to have a full studio, warehouse, and a full line of original women’s clothing designs. Part of their success has been a result of their strategic decisions to include affiliate sales and wholesaling on their ecommerce site.
While much of their growth has come from their active social media accounts and extensive media coverage, these additions to their ecommerce model have helped them effectively scale and expand their product line to more and more categories.
Finding Your Niche Online
We’ve talked about your broader options for choosing an ecommerce business model, now let’s look at the specifics.
Here are a few questions that will help you create a plan that will set your company apart.
The key here is honesty and research.
Spend time learning about the market you’re targeting and be honest about what unique value you can bring to the space.
1. Who is your customer?
Who are you looking to serve?
Consider what their expectations are when purchasing the type of product you plan to sell.
You’re most likely to succeed if you can understand their behaviors and habits and find ways to improve them or save money.
To do this, you’ll need to look for pain points in the way things are currently done.
This is where you as an innovator can carve a space for yourself.
2. What are you capable of?
What do you know better than anyone else?
Build around your existing strengths and the pieces that are energizing to you.
Be realistic about what elements you can do yourself and what you will need to find help for.
It can be challenging to know your limitations but it will help you make better long-term decisions.
3. What is best for your product?
Depending on your product, different models will serve you better than others.
For example, if you are manufacturing the product yourself, you may want to consider wholesaling or subscriptions to help cover production costs and break even more quickly.
If you are a distributor of other people’s products, you’ll want to invest more heavily into direct marketing and strategies that will grow your customer base.
4. What is your positioning?
You understand what makes your product better, but will consumers?
Evaluate your competition and make sure it’s clear why your product is the best choice.
Are you competing on price? Selection? Convenience?
From your back end processes, to your marketing, to your website’s shopping experience, your unique value should be clear.
We’ve covered the most common ecommerce business models, several tactics for ecommerce innovation, and examples of ecommerce businesses that have blazed their own path.
We’ve talked about the questions you’ll need to answer to find a niche where your new endeavor can thrive.
Planning is important, but innovation doesn’t happen in a vacuum. It’s time to get your solution out into the world and begin to refine your business based on the feedback you receive.
You’ve got this.