The experiences of shopping online, dining at a restaurant, or streaming your favorite show all have something in common, they are all examples of the business-to-consumer model at work. The business-to-consumer model, or B2C model, is one of the most common business models as we all see it throughout our daily lives. Traditionally it referred to mall shopping or infomercials. However, the internet revolutionized the B2C landscape.
When starting a business, you must understand what type of business you will be running and who your customers will be. Entrepreneurs who have a potentially great product or technology to offer need to know if the best customers are consumers or other businesses. In this article, we’ll look at the business-to-consumer business model and how it works.
What is the Business-to-Consumer Model?
The business-to-consumer model covers any business transaction that goes from a business to the end user, or consumer. We see this business model in most day-to-day businesses such as grocery stores, bakeries, bookstores, and retailers. This model can also be seen in businesses that provide services such as hair salons, gyms, or spas. B2C companies can either sell their own products and services or resell products. However, this model is most often talked about regarding e-commerce as most of our shopping can now be done completely online.
This model is often compared to the business-to-business (B2B) model. The main difference is who the target audience is with these business models. Instead of selling to the consumer, or end user, the B2B model is when a business sells products or services to another business.
One of the characteristics of the business-to-consumer model is that since individuals are often the buyers, the purchase size and cost are smaller. Most B2C businesses don’t sell products or services in bulk. As well, there is a shorter sales cycle and buying decisions are more impulsive or emotion-based. Because of this businesses need to stay on top of consumers’ preferences and focus on building brand loyalty. In the next section, we’ll take a closer look at the difference between B2C and B2B.
Business-to-Consumer vs Business-to-Business
The Business-to-Consumer (B2C) and Business-to-Business (B2B) models represent two distinct approaches to commerce. As we mentioned earlier, each caters to different target audiences and uses different strategies. We’ve already established that the B2C model focuses on selling products and services directly to individual consumers. These transactions often involve smaller purchase volumes, but higher frequencies, and are characterized by a more emotional decision-making process. However, the B2B model centers on providing products or services to other businesses. Transactions in this realm tend to be larger in volume, albeit less frequent and are driven more by logical, needs-based decisions than by emotions.
Relationships in B2B are typically long-term. This means the business must understand the client business’s needs, operational demands, and professional standards. Marketing in B2B leans more towards product functionality and less on branding. Business customers value return on investment and reliability. Channels such as trade shows, whitepapers, and case studies are common tools to convey the value proposition to a business audience.
Another key difference between the two involves how long it takes to close a sale. The sales cycle in B2B, as we mentioned earlier, is often more extended. It can involve multiple stakeholders, negotiations, and approval processes. This is much more complicated compared to the relatively quicker, straightforward decision-making seen in B2C.
Payment terms, after-sales support, and customization levels also differ vastly between the two. While the B2C model prioritizes speed, convenience, and customer experience, the B2B model emphasizes reliability, efficiency, and tailored solutions. Although both models operate within the realm of commerce, their strategies, operations, and priorities differ greatly.
Types and Examples of B2C Businesses
The business-to-consumer model can vary widely. These are the 5 common types of B2C businesses, and companies can choose to implement a mix of these types for their business plan:
- Direct Sellers: This is a model where a company directly sells to the consumer, with no intermediaries involved. They market their own products. An example would be if you were purchasing a new pair of shoes and bought them directly on the Nike website.
- Intermediaries: This is when a company connects buyers and sellers. They don’t have their own products but instead typically have a platform that shows products or services from multiple sellers. They make money by collecting a commission or transaction fee per purchase. Websites like Amazon, Expedia, and Etsy are all examples of intermediaries.
- Advertising-based: These companies often offer products or services for free, but collect revenue by displaying ads on their platform. The free products and services often attract heavy traffic which means companies advertising on the platform have a wide reach. This business model is used by companies like YouTube and The Guardian.
- Community-based: This type is similar to the Advertising-based model. Companies will provide online communities around people’s shared interests and then allow other companies to advertise on their platforms. The difference is that community-based companies can provide demographics for more targeted ads. Facebook is one of the best known community-based B2C company models. In fact, it is a business model used by many social media platforms.
- Fee-based: As the name suggests, consumers must pay a certain fee to access all of the products and services offered by a fee-based B2C company. Often the company will provide a free trial or limited free version to pique interest.
We have an article with more specific examples of B2C model companies here.
Advantages of B2C Businesses
There are a number of advantages and disadvantages of using the B2C model for your business. In this section we will look at a few of them starting with the advantages.
Lower Overhead Costs
It’s quite easy to open up an e-commerce store now. Businesses don’t have to invest heavily upfront in finding a physical store or staffing. A lot of online shops are individually run. Costs such as rent, electricity, payroll, and large amounts of inventory are not required to launch a business. E-commerce stores can often produce products as sales come in and more easily manage inventory with an online-only store.
Direct Relationship With Consumers
By selling directly to consumers, companies can focus on relationships and build brand loyalty. They can create processes around customer engagement and loyalty rewards. This will foster trust between users and the company. Also, by using customer feedback and the many data points that can be collected online, companies can pivot to better serve their customers.
With the launch of the internet, companies can more easily reach audiences all over the world. They are no longer limited to their city or even country. There is a market or niche for just about everything, and businesses can more easily find their target audiences online. Marketing efforts, especially for larger B2C businesses, can reach millions of potential customers.
Disadvantages of B2C Businesses
As it is so easy to start a B2C business, the market can be highly competitive. There are businesses in just about every type of niche industry. Certain industries can be a bit oversaturated and it can be difficult to stand out in the crowd of companies vying for attention. This is why brand identity and customer relationships are so important as well as being able to bring a unique value proposition to consumers.
Consumer Behavior Changes
With an increasingly online world, businesses must keep up with how consumer behaviors change. Trends, opinions, and consumer appetites are constantly changing. One thing may be super popular now and forgotten about a week later. Businesses have the challenge of needing to continuously adapt. This can include developing new products or consistently evaluating marketing messaging being sent out.
Staying up to date with the evolving technology can be a challenge to some business owners. To reap all of the benefits, business-to-consumer companies must be online and make it a priority to understand the intricacies of online business. Things such as search engine optimization, a user-friendly website, and simple payment processes are important to cater to the online consumer. More and more businesses are also shifting to focus on the mobile user experience.
Business-to-consumer companies serve millions of consumers daily. From neighborhood stores to global e-commerce giants, the B2C model has demonstrated its adaptability. This model will continue to evolve and thrive alongside emerging trends such as mobile and social media shopping.