There are many ways to start and grow a business. Some businesses, focus on selling products and services to other businesses (B2B), while others focus on selling direct to consumer (B2C). Some businesses do both.
In this short guide, we'll cover everything you need to know about the business-to-customer business model (B2C), including it's benefits and why it's often the best way to get started when starting out.
What is B2C?
B2C (Business-to-Consumer) is a business model where companies sell products or services directly to individual customers or end-users. It refers to transactions between businesses and consumers.
It differs from Business to Business (B2B) in the since that B2C companies focus on selling their products or services directly to customers as opposed to other businesses. B2C is by far the most popular method of business for those building an ecommerce store.
To understand how B2C really became a mainstream business model, it's helpful to look back to the late 1990s, with the 1998 holiday shopping season becoming the first “e-tail Christmas.” That year, Amazon surpassed more than $1 billion in sales for the first time largely due to their focus on serving their customers directly.
In recent years, the growth in business-to-consumer online sales has created significant challenges for traditional “brick-and-mortar” businesses and services that are losing in-person sales to online competitors.
As a result, many brick-and-mortar retail businesses are establishing their own online presence to stay competitive. This has created opportunities for consumers, who can now enjoy the convenience of online ordering while saving on shipping expenses with certain retailers by picking up or returning orders to the online retailer’s brick-and-mortar stores.
Selling directly to the consumer is a great way for small businesses to save on costs as opposed to involving a 3rd party which can reduce potential profit.
5 Business-to-Consumer B2C Sales Models
In online B2C sales, there are generally five business models:
1. Direct Sellers
This is the type of B2C most people are familiar with—they are the online retail sites where consumers buy products. They can be manufacturers such as Gap or Dell or small businesses that create and sell products, but they can also be online versions of department stores selling products from a wide range of brands and manufacturers.
Direct sellers include Target.com, Macys.com, and Zappos.com. In this model customers purchase products and services directly from the seller, usually from popular house-hold name brands who have an online store. You'll frequently find that direct sellers have a strong ecommerce and brick and mortar presence.
2. Online Intermediaries
These “go-betweens” put buyers and sellers together without owning the product or service. Examples include online travel sites such as Expedia and Trivago and arts and crafts retailer Etsy. Online intermediaries do business with other businesses in the sense they sell advertising to other businesses, but their end consumer is at the individual level.
Creating a valuable product that aggregates the best products and services for consumers is becoming an increasingly popular business model. Online intermediaries market their products and services to potential customers by making it easier customers to find exactly what they are looking for.
This advertising-based B2C approach leverages high volumes of web traffic to sell advertising which, in turn, sells products or services to the consumer. This model uses high-quality free content to attract site visitors, who then encounter online ads. In addition, this model relies heavily on strategic marketing campaigns to generate traffic and improve conversions.
It's important to note, the advertising model can be used in both B2B and B2c contexts.
Media outlets that have no paid subscription component, such as the Huffington Post and Observer.com, fall under the business-to-business category. The media company is selling advertising to other businesses, despite those ads ultimately driving sales to products designed for individual customers.
On the B2C side, an ecommerce business running ads on platforms such as Facebook, Instagram, and Google targeting consumers directly would fall under the B2C umbrella.
This B2C model uses online communities built around shared interests to help advertisers market their products directly to site users. It could be an online forum for photography buffs, people with diabetes, or marching band members. B2C businesses that are able to target their marketing to specific pain points in niche communities can begin to sell products at scale quickly.
The best-known example is Facebook, which helps marketers target ads to people according to very specific demographics. Consumers use social media sites such as Facebook to stay connected and in touch with friends and family, but there are also growing amount of community based activities on the platform which make it an ideal place for businesses to advertise.
Again, businesses can use Facebook to advertise regardless if their focus is B2B or B2C. A more professionally oriented social network such as LinkedIn would be an ideal place for B2B marketing. Potential customers on the B2B side frequently use LinkedIn to promote their brand and hire new employees, meaning it's an optimal place to share products and services designed for businesses as opposed to an individual consumer.
These direct-to-consumer sites charge a subscription fee for access to their content. They typically include publications that offer a limited amount of content for free but charge for most of it—such as The Wall Street Journal – or entertainment services such as Netflix or Hulu.
Businesses selling directly to consumers should take into account how their target customers like to shop and buy products like theirs as they explore various business-to-consumer options, whether those possibilities involve in-person or online transactions.
From a B2C perspective, Netflix is selling entertainment directly to consumers for a small monthly fee. At the same time, the streaming service Hulu incorporates both B2B and B2C in their business strategy. On one hand, they need individual customers to consume their content for a monthly fee.
On the other, they are selling advertising space to businesses (business to business) that is incorporated throughout content on Hulu. Businesses who sell both B2B and B2C have some protection to down market conditions due to the diversity of revenue sources, but that can divert focus away from a singular focus.
There are of course, many other variations to business models operating under the B2C framework but most fall under one of the five categories.
Benefits of Business to Consumer (B2C)
Now that we've looked at some of the many B2C business models, let's take a look at some of the many benefits of B2C.
- Lower prices: Direct to consumer business models are often able to charge lower prices due to not having to involve multiple 3rd parties.
- 24/7 reach: B2C in the context of ecommerce allows a business to generate sales 24/7 365. Post a product or service on your website, and you can continue to make sales even while you sleep.
- Quicker sales cycle: As opposed to B2B, B2C traditionally has a much faster sales cycle. If you're selling candles for example and advertise on Instagram, the consumer can choose whether or not to purchase the candle in just a few seconds. Whereas, in B2B, sales are often a month long process, you need buy-in from a variety of stakeholders etc.
Although the B2B market is technically larger than B2C in terms of potential revenue, you have more potential customers under the B2C model.
With B2B there are a limited amount of folks you can sell to, where B2C the global audience pool is much larger from an individual perspective. B2B sales also typically involve tens of thousands of dollars, where a B2C might just be $20.
What is an example of B2C?
An ecommerce store selling products directly to a consumer at home. For example, a T-shirt brand selling t-shirts online.
What's the difference between B2C and B2B?
B2C (Business to consumer) is a business model where products and services are sold directly to the consumer. B2B (Business to business) is a business that sells products or services to other businesses.
Why is B2C a popular business model?
B2C businesses are popular business models for many reasons, including:
- Faster sales cycle.
- Larger target audience pool.
- Ability to charge less for your products and services but still make profit.
- Lower operational and over-head costs for your business.