Digital Commerce Explained – Business Models and Success Factors

Here you’ll find digital commerce explained and a clear idea of what digital commerce success means and the issues that affect it. The term digital commerce explained – digital commerce enables customers to purchase goods and services through an interactive and self-service experience. That means digital commerce involves a purchase of goods and services, provides an interactive experience meaning that the buyer can control several elements, and that is also  a self-service experience with no salesperson interrupting the buyer.

The purchase could be a fully online experience, as when you find and buy a service online, which is then delivered online. Or it could be partly online and partly offline, as when you order a product online which is delivered physically at your doorstep by a courier. In practical terms, it is digital commerce if the marketing and order placement are done online. For example, you create a website describing your offer and accept orders at the site. Next, you promote the website so that it comes to the notice of those looking for your kind of offer.

Table of Contents

• Why is Digital Commerce such a Great Thing?
• Important Digital Commerce Business Models
• Tapping the Digital Commerce Business Opportunity
• Creating a Venture for Digital Commerce Success
• Conclusion

Why Adopt Digital Commerce?

A business transaction involves a buyer and seller. If both of these parties receive a better experience by completing the transaction in a certain way, it tends to become a more preferred way. Let us look at the buyer and seller experiences under digital commerce.

Buyer Experience: Convenient, Personal and Private

Under digital commerce, the buyer can complete the purchase:

• In the privacy of his or her home
• Selecting what to buy and from whom, after browsing available choices and  prices
• At any time 24 hours  a day, 7 days a week, depending on when the buyer is in the mood and
• Pay for it in different ways – credit or debit card, net banking or even COD if available

The buyer can even select items and keep it in the digital shopping cart for days or months until he or she is ready to buy.

Seller Experience: Low Cost and Low Risk

The digital seller:

• Doesn’t need an expensive outlet in the business district. Instead, the merchandise can be stored say, in a surplus shipping container for example
• Doesn’t have to incur costs of salespersons, signage, display racks and such incidental facilities
• Can even eliminate merchandise (and associated costs such as storage space and transport) by choosing the drop shipping business model (see next section)
• Can sell to the whole world, particularly under the drop shipping model where the merchandise is shipped by drop shippers located in different countries

Important Digital Commerce Business Models

The Dropshipping Business Model

While starting a dropshipping general store business business sounds relatively easy, a generic business model works as follows:

• You select a product that you can market
• You find a supplier of the product who would be willing to ship it under your name and address. This is the “drop shipper” and you agree on the prices and  other terms with them
• You promote the product in different ways say, by creating a website and using SEO, social media and email campaigns
• If you are effective in your promotional efforts, you will get orders
• You get payment from the customer and then pass on the order to the drop shipper, paying the price you have agreed with them
• The excess of the price you get from the customer over the price you pay the drop shipper is your margin
• If you sell in sufficient volumes, you can cover your marketing and other costs and generate a profit

There are several agencies that help you find marketable products, find drop shippers and help you create and promote a website for digital commerce success. So if you are ready to work at it, to go into all details and do all that is necessary, you can create a drop shipping business.

The Private Label Model

Many digital commerce businesses have a great idea for a product but they don’t have the resources or the capacity to manufacture those products themselves. That’s where the concept of private label comes in.

In this concept, the digital commerce business can give their idea to an existing manufacturer, let the manufacturer know about the exact product specifications and then label and sell the product under their own brand name.

Let’s take an example to understand this better.

Suppose, a salon owner sells different hair care products online on its website. All these products are from different brands. Now, he wishes to sell a product that is exclusive to his own salon. He can then contact a manufacturer, give them the exact specifications of this product that they produce in-house. The salon owner thus has a private label product (product that has his own salon’s name). He can sell this same product from the salon’s ecommerce store.

The benefits of this business model are:

• The startup costs are minimal as you don’t have to invest in starting a manufacturing facility or gather that much labour.
• When you get private label products manufactured, you can be more agile and react more swiftly if consumers start to demand new product features or improvisations.
• You can have on-demand manufacturing so that you can test your product and quickly change things if you encounter problems with product quality
• It’s a great way to test your product and target market before opening your own production facility.

Some ecommerce businesses that have made use of this business model are:

Flipkart

In 2016, Flipkart launched Smart Buy, its first private label brand. It deals with multiple categories ranging from household items to consumer durables. Flipkart’s subsidiary Myntra is also known to have its own private label fashion products. Just a few years back, Myntra stated that its private label brands have brought in a profit of 5%.

Amazon 

Amazon isn’t far behind in the game of private label. Under the private label AmazonBasics, it sells everything ranging from power banks to stationery, Solimo for dry fruits, Myx for women’s clothing, Echo is a smart speaker private label and “10.or”, a budget smartphone brand.

The White Label Business Model

White label products are those products that are manufactured by one company and sold by another company that puts its brand name and logo on the product. For example, you might have seen a lot of products under the Great Value Brand in Walmart. Are all those products manufactured by Walmart? Absolutely not. Various companies already provide those products but they are willing to put those products in Walmart’s packaging.

This type of business model is most popular in the beauty and wellness industries, electronic good industry, etc. As a white label ecommerce business, it’s critical to understand the demand for the concerned product as most suppliers set a minimum order quantity and you may get stuck up with large batches of unsold inventory.

LevelUp

They develop their own mobile payment and loyalty program application but they have also white labeled it for restaurants like Dig Inn and Sweetgreen so these restaurants can market and promote it as their own.

The Subscription Business Model

Suppose you joined a new organization. There’s so much work there that you just can’t get the time to go home and cook dinner and eat it. So you skip dinners every now and then. But recently you got news of a diner that delivers a healthy meal pack at your home for cheap rates. They have different plans ranging from weekly, monthly to half yearly. You can subscribe and pay for any one of those.

Wouldn’t it be convenient and so nice? That’s the power of subscription based business model. In fact according to a research done by McKinsey, the subscription economy has grown 100% year on year since the last five years. Subscription businesses can have relatively reliable and stable income streams. It also incentivizes customers to purchase additional subscriptions and encourages their contacts to subscribe.

There are many advantages to having this model like: planning inventory and delivery in advance, enjoying low inventory risks and high margins, maintaining high customer retention and loyalty and helping reduce cart abandonment rates.

Friction Free Shaving

When a customer signs up on Ffs, they receive new razor and replacement blades at regular intervals that can be chosen by the subscriber. They also offer their subscribers the ability to pause, cancel or restart at any time. The customers save, the company gains.

Blue Apron

This is a US-based meal kit service that provides high quality food ingredients regularly. All subscribers need to do is set their food preferences and then the Blue Apron team takes care of everything.

The Wholesale Business Model

Wholesaling as the name suggests means setting up an ecommerce store that offers products in large quantities at discounted rates. While wholesaling majorly used to be done offline, many ecommerce stores have adopted this business model in the recent years and done well.

You will require a lot of investment at the start because you’ll have to invest in the warehouse space, manage inventory, keep track of customer orders, shipping information and a lot more which will require a large investment in labour as well. But if all this and the marketing bit is taken care of, the returns can be manifold. Ecommerce stores like Laird Superfood have managed to increase their annual revenue by 550%.

IndiaMart

This is one of the best ecommerce wholesale platforms in India and has more than 3 million suppliers. It provides services to both B2B and B2C markets.

Tapping the Digital Commerce Business Opportunity

Considering the benefits to both buyer and seller, it would be safe to say that digital commerce is going to increase in volumes in a major way. It has become a great business opportunity for entrepreneurs.

However, the entrepreneurs have to attend to several important issues to tap the opportunity successfully:

• Compete on costs: Large sellers like Amazon, Walmart and Reliance can afford to organise merchandise in huge volumes and also save on incidental costs such as warehousing and logistics. A new entrepreneur will have to find some way to compete against them on costs.
• Compete on quality: The entrepreneur can seek to source a niche product for which he or she has some unique advantage, such as local availability or innovative technology.
• Build a reputation for dependability: Digital commerce has attracted its share of fraudsters, and buyers have become wary of buying from unknown sellers. A new entrepreneur will have to find a way to build and maintain a reputation for quality products and dependable delivery.
• Effective marketing: The online seller is primarily a marketer. He or she has to build a brand name, a reputation for quality and dependability, and offer some unique value to compete against big players.

Effective operations: Sourcing quality products, organising the logistics involved in delivering orders at remote places and getting paid for all deliveries are other challenges that need attention and practical solutions.

Creating a Venture for Digital Commerce Success

A good option is to start with the drop shipping model. You will gain experience in marketing products effectively. For example, you will gain first-hand experience of:

• Products that sell well, and the prices at which they can be sold
• Creating a website that creates a desire for the products being offered
• Promoting the website cost-effectively using say, PPC, Social Media, Ecommerce SEO, and Email
• Providing the kind of support that makes customers happy

You will also become familiar with issues of:

• Logistics of delivering the orders in a way to meet your promises
• Getting paid for all the deliveries you make
• Handling returns and customer complaints
• Ensuring quality of the products

Conclusion

The experience, familiarity, and contacts will prove of superb value when you start your own venture for digital commerce success. On the other hand, if you invest serious money in a new venture without the above kind of familiarity, you could meet unexpected problems. And run the risk of losing your investment and more.