B2B E-commerce Model: Advantages & Disadvantages
The global B2B e-commerce market share was 18,665.95 billion US dollars in 2023. This is projected to grow at a CAGR of 18.2% over the next five years from 2024 to 2030.
This exponential growth has stemmed the evolution of B2B e-commerce into strategic models. These models are business approaches helping companies achieve their sales targets efficiently with set procedures and operation pipelines.
In this blog, we have described different types of B2B e-commerce models. They are classified based on the types of products or services they provide. Each model has its benefits and challenges, making the selection based on specific business capabilities and requirements.
B2B E-Commerce Models Explained with Pros & Cons
A poorly strategized model can harm every function of your business. Adopting the right B2B e-commerce model will win you half the battle.
Let’s discuss the advantages and disadvantages of different B2B e-commerce models in-depth below and decide which one is the right fit for your business!
Supplier-Centric Model (eDistribution)
In this model, a few suppliers with many buyers form a common marketplace. Thus, suppliers are the primary driving force behind web-based transactions. These sellers collaborate to set up an online marketplace and sell to various business buyers through the common platform.
The loyalty and goodwill of businesses play a pivotal role in the success of the eDistribution model. Buyers purchase directly from suppliers, which helps them collect detailed customer insights for further improvement.
Recent research by McKinsey shows that 46% of B2B buyers prefer to purchase from a supplier’s website if it’s available and efficient.
While this approach is excellent for finding wholesale items to sell, it isn’t the best for learning how to find vendors. However, it is ideal for suppliers who want to offer customized solutions and maintain reliable customer relationships.
Other features of the supplier-oriented marketplace include supplier control, direct integration with buyers, product specialization, diversity, personalization, flexibility, scalability, brand building, and more.
The players involved in the supplier-centric marketplace are suppliers, customers/buyers, marketplace operators, payment processors, technology/service vendors, logistics/shipping providers, and regulators/compliance bodies.
For instance, Dell is a big believer and a practical example of an e-commerce platform. Here, businesses can purchase computers, servers, and other IT equipment directly from the manufacturer.
Advantages
- Suppliers have complete control over the price of products and inventory management.
- Direct integration leads to more robust, personalized customer relationships.
- It is easy for suppliers to maintain brand consistency across the e-commerce platform.
- Suppliers can access detailed customer insights and crucial data to optimize their marketing strategies.
- Suppliers can offer flexible payment options, such as installment plans, credit terms, or bulk purchase discounts.
Disadvantages
- Developing and maintaining an online platform can be technical and expensive regarding frequent updates.
- Acquiring new customers requires exceptional digital marketing skills compared to other marketplace models.
Buyer-Centric Model (eProcurement)
Buyers are the primary driving force for this model. They maintain a common online platform and invite sellers or manufacturers to promote their products. Thus, buyers can control the purchasing process, negotiate better deals, and streamline procurement.
Buyers decide after comparing offerings from multiple suppliers. Suppliers also compete to offer the best products, pricing, and terms of conditions to the buyers.
This approach offers buyers cost savings, as they can select the best products after competitive bidding and bulk purchasing. It also mitigates or reduces supply chain risks by involving multiple suppliers and diversifying their sources.
If you follow sustainable procurement practices, your brand value might increase by 15-30%.
Here, the buyers are usually the large businesses or consortia of the companies that manage the e-commerce marketplace. They also select suppliers and devise procurement policies.
These e-commerce models are rich with features such as online catalogs, management of RFQ (Request for Quotation), and order processing.
It is also referred to as systematic sourcing, which is when long-term relationships are intended between sellers and buyers. So, MRO Hubs and Catalog Hubs fall into this category.
Examples of MRO Hubs include Ariba, BizBuyer.com, and MRO.com. The best instances of Catalog Hubs are Chemdex, SciQuest, and PlasticsNet.com.
Advantages
- Buyers benefit from competitive bidding and bulk purchasing.
- Buyers can negotiate better discounts with suppliers.
- It involves greater flexibility in choosing suppliers based on set parameters such as quality, price, terms, and conditions.
- Buyers can also establish and maintain preferred supplier lists to build long-term relationships.
- Integrated e-commerce platforms also reduce administrative burdens and boost procurement cycles.
Disadvantages
- Maintaining integrated online portals requires a good investment in technology, infrastructure, and training.
- Suppliers may feel less loyalty to a buyer-oriented platform than a direct buyer relationship.
- Businesses operating in niche markets with limited supplier options may not benefit from this supplier diversity approach.
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Intermediary-Oriented Marketplace (eExchange)
To make this model work, third-party intermediaries step up to process transactions between buyers and suppliers. They are commonly called distributors, brokers, wholesalers, or most recently, marketplaces that bring buyers and sellers to a common platform.
The intermediaries also provide backend support in addition to managing the e-commerce operations. This includes shipping, accounting, and technical infrastructure management, among others. Their income is usually derived from commission, subscription, ads and the likes etc.
In addition to helping you source products, they may offer other value-added services like logistics, financing, warehousing, and customer support.
Both buyers and sellers sign up as clients or vendors on the platform. The platform is a middleman connecting clients and vendors to form a beneficial partnership by providing vetted vendors and outsourcing services.
In some cases, these intermediate marketplaces will also insist on sellers following certain criteria relating to product catalog and information.
Key features of this model include:
- A centralized platform for product sourcing.
- Wide variety of products.
- Value-added procurement services for both market players.
Marketplaces like Alibaba and Mangtas serve as the best example of this model.
Advantages
- It offers a diverse display and selection of products from multiple suppliers.
- Procurement process is smoothened with an online portal.
- Intermediaries help offer value-added services such as logistics, financing, and customer support.
- It facilitates secure and assured transactions due to a specified system set by intermediaries.
- Intermediaries provide valuable data insights to buyers and suppliers, such as market trends, pricing information, and customer behavior.
Disadvantages
- It may involve high fees or commissions for services.
- Businesses may limit their flexibility and become heavily dependent on the services of intermediaries.
Business to Employee Model (B2E)
B2E eCommerce (business to employee) is used to centralize procurement and develop organizational best practices. One such practical example is of businesses selling stationery to office workers or special tools to field workers for training purposes.
Recent Gallup research indicates 40% lower turnover rates in companies with disengaged employees.
However, companies or budding startups with limited employees may not fit into this model. They may also find it challenging to invest heavily in the advanced technology and other resources required to operate with this approach.
Employees can access an internal e-commerce platform to browse products, place orders, and manage purchases. The platform is accessible from anywhere, which is a plus for employees’ convenience.
Businesses also offer corporate discounts and attractive deals to employees. They can further tailor the product offerings to meet the specific employee needs and their preferences.
Thus, this approach has less to do with sales and more with employee retention and satisfaction. You may confuse an intranet with a B2E model, but both serve different purposes. Intranets aim for smooth communication, productivity, and organization among team members.
On the contrary, B2E models are designed to prioritize employees’ needs while featuring custom features such as a common URL and company software solutions.
B2E portals are used for online insurance company management, online supply requests, employee benefits, and corporate announcements. Brands like Southwest Airlines and Sephora have also invested in this model.
Advantages
- Employees can easily track and manage work-related expenses through the platform.
- Employees can access exclusive corporate benefits and are happy to be included in a positive corporate culture.
- Businesses can strengthen loyalty and encourage long-term commitment with this employee-centric model.
- The B2E model is scalable, allowing businesses to expand their platform as the company grows.
- It also promotes remote work by offering employees relevant tools and resources.
Disadvantages
- Managing a B2E e-commerce platform can be complex, especially when dealing with many employees and suppliers.
- It is a tech-oriented model where businesses may face technical challenges.
Business to Government Model (B2G)
Businesses targeting regional or federal governments are the best candidates for the B2G eCommerce model. For instance, a PPE manufacturer could sell to law enforcement, and a tools distributor could sell to building inspectors.
It involves businesses supplying products, services, or solutions to local, state, or federal government agencies. This approach is an ideal fit for infrastructure, defense, healthcare, or public services sectors.
Government agencies often use this approach to streamline the purchasing process. It also makes it convenient for counter businesses to submit bids and proposals online. However, due to the government’s involvement, this model has strict regulatory and legal requirements.
Businesses benefit the most with these models, provided they comply with each government rule and regulation. If selected, they are usually allotted long-term contracts with detailed agreements. Thus, companies make stable and predictable revenue streams. Government agencies generally solicit services from the private sector through requests for proposals (RFPs).
Senseware, Archer Soft, and Mark43 are top examples of B2G e-commerce models. Construction and engineering firms like Bechtel and Fluor Corporation work on infrastructure projects for government agencies, such as highways, bridges, and public buildings.
Advantages
- Government contracts provide long-term, stable revenue streams while mitigating the financial uncertainty.
- Government agencies usually place large volume orders, providing businesses with significant benefits.
- Winning government contracts can enhance a business’s reputation and credibility.
- It opens doors to new sectors and markets for companies that are otherwise hard to access in other B2B models.
- Companies can display their expertise by utilizing advanced technologies and innovation in B2G models.
Disadvantages
- Companies might need help complying with strict government regulations.
- Government contracts can require extensive documentation, evaluation, and approval.
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Direct to Business Model (D2B)
This model is designed with zero intermediaries in mind. It involves direct interaction of companies with business customers. Thus, transactions also flow freely and directly between them.
So, you may see direct sales channels in this model, such as dedicated in-person sales teams, e-commerce portals, and more. Since everything is direct, understanding and communication is also better and smooth between the suppliers and business customers.
You can also refer to D2B as the D2C version of B2C e-commerce models. Direct interactions make developing integrated solutions, such as bundled products or comprehensive service packages, easier.
A successful D2B strategy relies on innovation. The key is to build and offer innovative solutions after determining common business problems.
For instance, patenting an invention that solves a specific problem, such as a bag that can easily be converted into a backpack for cyclists, differentiates the product and provides a competitive advantage.
You can best understand this model by assuming a manufacturing company that sells machinery directly to businesses in the automotive industry through its e-commerce platform.
Advantages
- The involvement of zero intermediaries reduces costs associated with markups, commissions, and additional logistics.
- Direct sales to businesses result in greater profits for suppliers since intermediaries don’t share profits.
- Customer loyalty and satisfaction are higher when direct interactions are conducted.
- Suppliers can address issues promptly and improve their offerings with direct communication channels.
- Suppliers control customer experience, ensuring consistency and quality.
Disadvantages
- Managing transaction volumes and maintaining personalized service can be challenging as the business grows.
- A robust customer service system is required for direct-to-business models.
Software-Based B2B E-Commerce Model
A software licensing business model involves licensing source code created by a company. Source code licensing has two main types: proprietary and open-source.
However, it involves the same players as in other models, including suppliers, business customers, sales teams, e-commerce platforms, customer support teams, and logistics/fulfillment teams.
Direct-to-Business (D2B) B2B e-commerce offers significant benefits, including cost savings, improved margins, and improved customer relationships.
It is also known as the B2B SaaS business model in which companies provide subscription-based software services to other companies. This model involves the customer accessing the Internet rather than owning software.
Overall, the SaaS market size will grow from 248.76 billion US dollars in 2023 to 256.6 billion US dollars in 2024 at a CAGR of 3.2%.
Businesses that provide B2B SaaS solutions typically target specific industries or business functions. Customers can also customize and integrate the software to meet their unique needs.
You can adopt various pricing strategies for these models, such as flat-rate subscription pricing, freemium, per-user pricing, tiered pricing, a pay-as-you-go model, and value-based pricing systems. The best examples include Google Workspace, Slack, HubSpot, and Zoom.
Advantages
- Subscribing to services is more cost-effective than building fancy infrastructure and software.
- SaaS applications are usually accessible on various devices, including desktops, laptops, tablets, and smartphones.
- It is a scalable business model because you can easily adapt usage to fit your customers’ needs, whether you’re a budding startup or a corporate giant.
- You can rely on B2B SaaS providers to safeguard your data with top-notch security.
- SaaS providers are like tech wizards, consistently inventing new solutions.
Disadvantages
- Despite their flexibility, SaaS solutions may offer a lower level of deep customization required by large enterprises.
This model may lead to vendor lock-in and make it complex or expensive to switch between different software providers (except the pay-as-you-go model).
Hybrid B2B E-Commerce Model
It is a blend of B2B e-commerce models, including buyer-centric, supplier-centric, and intermediary-oriented models. It is a comprehensive business approach designed with flexibility in mind.
Companies that fully commit to hybrid models and expand their capabilities accordingly are 79% more likely to be market share winners.
It allows companies to increase their audience base and boost revenue without investing heavily or spending resources into building entirely new brands or models. So, companies go for versatility and mix multiple selling channels.
It combines marketplace participation and direct sales and facilitates intermediary inventory within a single platform. This approach suits companies with a broad portfolio of products and services that need different models for different segments.
However, a hybrid model is not designed for every business. Understanding the preferred purchasing channels of different customer segments (e.g., digital self-service, in-person, and remote) is crucial for effectively implementing this model.
A company with complex products and services can consider implementing this hybrid approach. Products that require customization or specialized support may necessitate a mix of sales approaches to provide adequate service.
GEA and Hitli are two practical examples of this model. By integrating various tools and channels, they have improved sales efficiency and customer satisfaction.
Advantages
- Companies have access to a broader customer base through multiple channels.
- It facilitates operational flexibility by adapting to dynamic markets and varying customer needs.
- Companies can make better decisions via detailed customer insights and comprehensive data analytics.
- Multiple revenue streams also reduce dependency on a single channel.
- It increases customer satisfaction as customers are served based on their preferences.
Disadvantages
- Coordinating various channels and ensuring consistency can be challenging.
- Requires substantial human and financial resources to implement and sustain effectively.
Conclusion
B2B e-commerce models have several advantages over other business models, including a stable and predictable market, a high volume of sales and orders, and a desired level of customer loyalty.
However, this model also has certain limitations, such as long purchasing decision timelines, a limited target market, and handling the bargaining power of business customers. We’ve discussed 7+ B2B e-commerce models with their respective pros and cons for businesses.
Consider adopting a business model after checking its compatibility with the type of products or services your business offers, determining the place of your target clients, and assessing your knack for handling big technology tasks.
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