E-commerce Defined – Traditional and Online Commerce, Types, Business Models, and Distribution Channels
Commerce refers to the exchange of goods and services between two or more parties for a consideration, along with all the activities involved which directly or indirectly facilitates the smooth exchange of goods and services such as Transport, Warehousing, Distribution, Insurance, Advertising & Banking.
It is commonly understood as purchases and sales of goods and services at large scale. And is considered as a subset of business that focuses on the distribution of goods.
Commerce has existed from the times humans started exchanging goods and services with one another. From the days of bartering to the creation of currencies and the establishment of trade routes, humans have sought ways to facilitate the exchange of goods & services by building various systems & processes of supply chain, distribution channels such as offline and online stores, marketplaces to bring together sellers and buyers under the same roof.
Business vs Commerce vs Trade
Commerce vs Business
The word commerce and business are often used interchangeably, but commerce is rather a subset of business.
Business includes sourcing, manufacturing, production, and marketing whereas commerce pertains to the distribution side of the business, specifically the distribution of goods and services.
Commerce vs Trade
The distinction between commerce and trade is a quite fine line. Both involve direct exchange of goods and services between two or more parties but commerce implies a series of commercial transactions for the purpose of generating a recurring income whereas Trade is considered as an event of transaction in which a seller provides a finished product and a consumer pays for it.
In this sense, trade is a subset of commerce as commerce is a subset of business.
The nature of traditional commerce is such that it’s more of an active buying and selling of goods and services which are either carried out face to face, via telephone lines or through mail systems. Here goods & services can be categorized as physical products like – television, table, grocery, etc, and services like Car Mechanic service, insurance, warehousing, communication services, etc.
There has never been one type of commerce for all kinds of products and services. Based upon the needs you are fulfilling, defines the Type of Commerce you must be in. Primarily, one falls under either of the following – Consumers buying from businesses is one form of commerce i.e B2C, businesses buying from other businesses is another form i.e B2B. And based upon that you will regulate all the commerce activities like sourcing, production, distribution, marketing, transportation, etc. which leads to an exchange of goods and services.
The Rise of E-commerce
Traditionally, brick-and-mortar mode has been the most dominant form of doing commerce. Brick-and-mortar refers to a physical presence of an organization or business in contrast to a virtual stores at the time of Internet.
Also, buying and selling of goods & services majorly involved active and physical interactions between the parties. Example – buying a ceiling fan from a physical electronics store, calling out for a plumber service via telephone, etc.
With the introduction of Internet, its increasing rate of availability and accessibility and the rapid growth in technology in the recent times, commerce has evolved manifolds. This evolution is the rise of E-commerce.
What is E-commerce?
E-commerce (electronic commerce) is buying & selling of goods & services over an electronic network (primarily the internet) which can be conducted through computers, tablets, smartphones, and other smart devices. Basically, it’s nothing more than an online mode of exchanging goods & services for a consideration (primarily money).
E-commerce created new ways to conduct the same businesses which required new modes of selling and therefore opened a hump of new opportunities for the unique skilled professional to get things done. Example – Digital Marketers, Graphic Designers, Web Developers, etc.
Also this new way of doing commerce created the need for new products and services to support the online trade. Example – SaaS Products like Shopify, Zoom, Shopfy, Hubspot, Slack, etc; Payment gateways like Razorpay, Paytm, Paypal, etc; Marketplaces like Amazon, Indiamart, etc; Online fulfilment partner services like Shiprocket; Online Product packaging material providers like Inkmonk, etc.
And even the high internet penetration gave rise to the new market needs and hence created opportinities for individuals/businesses to create new products and services that could be purchased online. eg Netflix, Prime, etc.
And today, nearly every imaginable product and service is available through e-commerce transactions. Electronic items, e-books, music files, software subscriptions, and legal services to name a few of the kinds. And e-commerce may be the only or one of the many sales methods used by businesses. But it has definitely become indispensable owing to modern times.
Here Goods & Services can be majorly categorized as-
Physical products – Refrigerator, Mobile device, T-shirt, etc.
Digital products – E-books, online Training program, Wallpapers, stock library images, Printable Posters, etc.
Services – Video Editing, Graphic Designing, Digital Marketing, etc.
SaaS products – Google Excel, Chatbot software, Video Editing Software, etc.
E-commerce vs E-business
As we understood above, commerce is a subset of business. And you may misunderstand the terms e-commerce and e-business in a relatively similar manner but both the terms share different meanings when added ‘E’ as a prefix to them.
E-commerce is nothing more than an ‘online mode’ of transacting and exchanging goods & services for a consideration (primarily money). Whereas an E-business involves the entire process of running a Business online (using the internet). To put it simply, E-commerce is actually just one part of an E-business.
On the other side Commerce and Business are much wider concepts.
Types of E-commerce Businesses
All trades under commerce (and through e-commerce) can be categorized into different types on the basis of the market segment (type/s of buyers) the Seller is catering to. Whether it’s consumers, businesses, administrations, or a combination of them.
Different E-commerce businesses operate in different market segments (may be one or more than one) depending upon who are they, what are they offering and who are they offering to. Such as –
1. B2B (Business to business) – An e-commerce business where the exchange of products, services or information takes place for a consideration among the businesses rather than from a business to a consumer.
Sellers in this category includes Producers (manufacturers, creators, owners); Intermediaries like Distributors, Wholesalers who serve other businesses with their products and services through e-commerce. A few examples B2B e-commerce could include –
A raw material supplier sells raw material to a Producer; a manufacturer/supplier of physical products sells products to distributors/ wholesalers; a software company sells their software to businesses to use it to achieve their unique goals; a digital product owner sells its product for a consideration; a service business sells their services to another business.
And the above e-commerce businesses can be conducted either through a seller’s own e-commerce platform or a marketplace or a combination of both.
Examples of such B2B Platforms – Indiamart, Adobe for enterprises, Shutterstock, JioMart, E-kart, NP Digital Marketing Agency, etc
2. B2C (Business-to-Consumer) – This category include e-commerce businesses who serve only consumers with their offerings. This category of Sellers include – Producers (manufacturers, creators, owners) who sell through D2C (Direct-to-Consumers), and/or E-Retailers; and other Independent E-retail businesses who source the products and sell under Private/White Labelling.
E-retail, is a business which sells retail products and services through an online store and marketplaces. An e-retail company can be a purely digital presence, or can also be a brick-and-mortar shop with an online presence.
Examples of a few popular B2C businesses – Amazon, Flipkart, Nykaa, Myntra, Spotify, Netflix, etc
3. C2C (Consumer-to-Consumer) – C2C e-commerce represents a market where one customer purchases goods from another customer using a third-party business/platform to facilitate the transaction. C2C transactions often take place through online platforms or marketplaces, such as eBay, Amazon, or Etsy. These platforms provide a way for individuals to sell their goods or services directly to other consumers, without the need for a traditional business structure.
Some examples of businesses that operate using a C2C model include:
1. Online marketplaces: Olx, Truevalue, eBay, Amazon, and Etsy are all examples of online marketplaces that allow individuals to sell their goods to other consumers.
2. Social media platforms: Some social media platforms, such as Facebook and Instagram, have built-in features that allow users to buy and sell goods and services to one another.
Business running C2C marketplaces must maintain safe platforms and quality controls, otherwise desirable buyers and sellers won’t use them.
4. C2B (Consumer-to-Business) – A consumer-to-business model, or C2B, is a type of commerce where a consumer or end user provides a product or service to a business rather than the other way round. Consumers can offer their products or services directly to businesses, often through an online platform or marketplace. This model is increasingly popularity in the gig economy, as more and more people are turning to freelancing and offering their skills and services on a contract basis.
Some examples of businesses using a C2B model include freelance websites like Fiverr, Upwork; online design marketplaces like 99designs and Crowdspring which allow businesses to hold design contests and choose from submissions by freelance designers and software development platforms like Topcoder and HackerRank which allows businesses to post software development projects and have them completed by freelance developers, etc.
5. B2A (Business-to-Administration) – Also called as Business-to-Government (B2G), refers to all transactions between companies and public administrations or government agencies. This can include everything from selling office supplies to providing information technology (IT) services to the government.
Some examples of goods and services that businesses may sell to government agencies or other administrative organizations include:
- Office supplies and equipment
- Information technology (IT) services
- Construction and engineering services
- Consulting services
- Legal and financial services
- Marketing and advertising services
6. C2A (Consumer-to-Administration) – The C2A model refers to eCommerce activities between consumers and the government. This type of eCommerce is often used by governments to provide services and information to the public, such as paying taxes or fees, obtaining permits or licenses, and accessing government records or documents. C2A eCommerce can make it easier for people to access and use government services, and it can also help governments improve efficiency and reduce costs by automating administrative processes. Examples:
1. Paying for a passport or a driver’s license online.
2. Registering a vehicle or renewing a vehicle registration online.
3. Paying taxes online, such as property taxes or income taxes.
4. Applying for or renewing a government-issued permit or license, such as a building permit or a business license.
Various E-commerce Business Models
Depending upon the type of E-commerce, the business chooses a specific business model/s to run their e-commerce business. It could be among the following popular ones-
1. D2C (Direct-to-Customers)
D2C is where a producer (manufacturer/producer/creator) directly sells to their consumer themselves without the involvement of intermediaries such as retailers or distributors. This can be done through a company’s own website, through online marketplaces, or through other channels such as social media or email marketing.
Example – A subscription-based service that provides streaming access to a wide variety of movies and TV shows directly to consumers, without going through traditional cable or satellite providers.
2. White Labeling
White Labeling is when a company brands and sells a product under its own name and logo, but the product or service is typically produced by the company that is providing the white labeling service, and the brand or company that is purchasing the white labeled product or service is able to sell it as if it were their own.
Example – A manufacturer of natural cleaning products offers white labeling services to other companies. A small business that sells eco-friendly products can purchase a batch of natural cleaning products from the manufacturer and have them branded with the business’s logo and packaging. The small business can then sell the products as if they were their own.
3. Private Labeling
A private label product is one that a retailer gets produced by a third party but sells under its own brand name. The retailer controls everything about the product or products. That includes the product’s specs, how it’s packaged and everything else besides. Private label products are then delivered to the retailer to sell.
Private labeling is often used in a variety of industries, including consumer goods, food and beverage, and healthcare. Some common examples of private label products include store-brand packaged goods, such as chips, cookies, and cereals, and private label clothing and accessories.
Recieved an order, order received by your manufacturer and fulfills it on your behalf. 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 can allow users to integrate inventory from suppliers worldwide for their storefronts.
5. Print on Demand
Print-on-demand is a process where you work with a supplier to customise white-label products (like baseball hats or tote bags) with your designs to sell them on a per-order basis under your own brand. This is in contrast to traditional manufacturing and distribution models, in which products are produced in large quantities and then stored in warehouses until they are sold.
Wholesale ecommerce refers to selling products to another business, in bulk and at a discount, online. Wholesale ecommerce is a B2B ecommerce model where, instead of selling your products individually to consumers, you sell them in bulk and at wholesale prices, essentially as the intermediary between the manufacturer and the distributor or retailer. Wholesale eCommerce can involve the sale of a wide range of products, including physical goods, digital goods, and services.
7. Subscription Service
Subscription E-commerce refers to selling products or services on a recurring basis, typically through a subscription model. In a subscription eCommerce model, customers pay a regular fee in exchange for access to a product or service, which is typically delivered on a recurring basis, such as monthly or annually.
Subscription model is often used to sell physical goods, such as boxes of snacks or beauty products, as well as digital goods and services, such as access to streaming media or software, etc.
8. Marketplace E-commerce
The marketplace business model is when an online store allows multiple sellers to sell their goods and services through its platform, connecting them to possible buyers. Marketplace eCommerce platforms often provide a range of features and services to support the buying and selling process, such as payment processing, order fulfillment, and customer support.
A Marketplace can involve a variety of different types of transactions, including business-to-consumer (B2C), business-to-business (B2B), and consumer-to-consumer (C2C) sales. Some marketplace eCommerce platforms may focus on a specific product category or type of transaction, while others may offer a more general selection of goods and services.
Examples of marketplace eCommerce platforms include Amazon, eBay, Alibaba and Etsy.
E-commerce Distribution Channels
A commerce distribution channel refers to the means by which a product or service is made available to customers. Distribution channels can be either physical or digital, and they can involve a variety of intermediaries, such as wholesalers, retailers, or distributors, that help to connect producers with customers.
For example, a manufacturer produces different types organic body care products, so either he can sell them (online/offline) directly to customers, or can work with intermediary parties to get his products to the end customers where parties could include distributors, wholesalers, and retailers.
Traditional distribution channel –
In a traditional commerce distribution channel, products are often produced in large quantities and then distributed through a series of intermediaries before they reach the final consumer. For example, a product may be manufactured by a company, sold to a wholesaler, and then resold to a retailer, who in turn sells it to the final consumer.
A Traditional Channel would somewhat look like –
Raw material Seller – Producer(Manufacturer/Creator) – Supplier – Distributor – Wholesaler – Retailer – Customer.
E-commerce distribution channel –
The choice of eCommerce distribution channel can depend on a variety of factors. Based upon the market needs you choose to fulfill, the mode of e-commerce to fulfill them and the ways how you want to reach out to your customers, guides you the right distribution channel for your e-commerce business. Some businesses may choose to use a single eCommerce distribution channel, while others may use multiple channels in order to reach a wider customer base.
There are majorly 3 categories of channels –
A direct channel allows the consumer to make purchases from the manufacturer. This direct, or short channel, may mean lower costs for consumers because they are buying directly from the manufacturer.
An indirect channel allows the consumer to buy the goods from a wholesaler or retailer. Indirect channels are typical for goods that are sold in traditional brick-and-mortar stores.
Hybrid distribution channels use both direct channels and indirect channels. A product or service manufacturer may use both a retailer to distribute a product or service and may also make sales directly with the consumer.
In the further posts we’ll understand why starting your E-commerce is good idea in 2023 by sharing various statistics. So, stay tuned for that by subscribing to newsletter.
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