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One must always get the basics of their eCommerce businesses right if they want it to succeed! Learn from Willy what are the 5 Fundamental eCommerce Business Models, and identify how you can build a solid foundation for your business by following these models!

In this episode, Willy is going to cover:

  • The 5 Fundamental eCommerce Business Models;

  • How these eCommerce business models differ from one another;

  • The unique traits of each business model their impacts on your business.

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TRANSCRIPTION

Many people often ask me, “Willy, how do you build such a successful eCommerce business?” And I will answer: well, you have to get the basics of your business right and then work hard at it.

Now, the ‘basics’ of an eCommerce business refers to the business model you are following. Each business model has its unique traits, and how you play them to your advantage will determine if your business can succeed or not. So, in this episode, I shall introduce you to the 5 Fundamental eCommerce Business Models and their special traits. Decide for yourself which one best fits your personality, skills, available time, and risk appetite before you jumpstart your business!

Okay, here comes the No. 1 eCommerce Business Model, that is, Reseller, or Retailer.

Reseller is a type of business whereby the business owners buy products from elsewhere, and then sell them to consumers again. You can perceive this type of business owners as ‘partners’ of the original manufacturers, just that they are reselling the finished products to their customers with marked-up prices to make profits for themselves. Examples of common local resellers include Challenger, iStudio and Courts etc.

Generally, resellers sell items that already exist and can potentially be sold by many different stores. These items may be branded or they may be generic, unique items. How resellers add value is by bringing items that are not readily available to local markets, and providing buyers with the expert knowledge of those products. Other than that, resellers will offer consumers with a wide assortment of products within the same niche and bundle these products with complementary accessories or services

The keywords about the reseller business model revolve around “specialization” and “niche”. As a rule of thumb, being a reseller is not for those who want to sell easily available everyday items. You must possess a certain type of expert knowledge, and establish a name for yourself before you can compete against the other bigger players in the field!

So, if you are clear, let’s move on the No. 2 eCommerce Business Model – Private Label.

Now, sellers who do private label, or private labelling, are the people who add their own brand name to generic products and sell them off. This business model occupies an interesting place between reselling and full-blown product development. Like resellers, they buy new products and sell them off. However, they take things one step further by adding a brand name, and they may customize the products. Sometimes, the modifications are so great that the finished products may seem like an entirely different item from the original product!

Private label businesses typically succeed by doing the below things:

No. 1: They add brand names and logos to the products to increase their perceived value;

No. 2: They create user-friendly instructions and packaging to provide better product information;

No. 3: They create their own marketing materials, such as photos, videos, and text to sell their products more effectively;

No. 4: They make design modifications to address the consumers’ needs better and to differentiate themselves from competitors.

Right now, private label is a very popular business model amongst Amazon sellers. However, do take note that this is not a magic pill – not everyone who does private label will succeed. Just like any business, you still need to put in your 100% efforts to make it work!

And now, let’s go on to the No. 3 eCommerce Business Model, which is the Liquidation business model.

Business owners who follow this model work by importing stocks from liquidated companies, and then sell them off in bulk at discounted prices. Now, you may wonder if such a business model can thrive for long, but truth is, people will go and buy products from such businesses and there are several reasons for doing so. 

First, some of these products are actually new. This is because some products may be leftover stocks by businesses that had gone bankrupt. The original business owners want to sell off these stocks as fast as possible to pay their creditors, so other business owners who are smart enough to grab this chance will be able to buy the products at very low prices, and then sell them off again to eager customers.

Next, these products are still usable. They may simply just be items from older production batches, or they may be returned items with damaged packaging. The interior contents are therefore intact and largely functional, so consumers may still want them. 

In any case, sellers who choose this business model will always have a constant need to find new sources. After all, a clearance-based business cannot simply keep reordering their ‘bestselling products’, because it will run out sometime. Here’s a tip though – if you want to adopt this business model, do try your best to build close relationships with other businesses. This is so that you will be ahead of the competition for their clearance sales, and you may be able to get somewhat more reliable stock sources.

And with that, let’s move on to the No. 4 eCommerce Business Model, which is Retail Arbitrage (RA), or Online Retail Arbitrage.

Now, this is a business model where sellers source for discounted NEW products in bulk from retail stores, then resell the products at a profit. It occupies an interesting place between the liquidation business model and private labelling, but the discounts of source products are usually not as high as when you buy products from liquidated companies. Next, business owners of the RA business models will not add private labels to their products, even if they make some modifications to the products’ packaging and marketing materials.

However, one must take note that competition within the RA businesses is very intense. This is because with few barriers to sell through online marketplaces, and even fewer to buy products from ordinary retail stores, RA is open to absolutely anyone with some time and capital to invest. As such, the Return on Investment (ROI) margins for RA has dropped to an extremely low value - just around 5%.

Another practical concern about RA is that many people do not know some brands require reseller certificates to sell their items. So if you accidentally bought such items, you will end up getting stuck with a lot of goods which you have to dispose of, and this is going to cause a huge headache for you.

Last but not least, we have the No. 5 eCommerce Business Model, which is Selling Used Items.

This is a business model where business owners specialize in handling other people’s used items and deal with second-hand goods. It’s the least exciting out of all the eCommerce business models I mentioned, but some particular types of used items can actually bring in great profits for you.

For example, books. Sometimes, second-hand books need a large market like Amazon to find their true value. A textbook that sells for very little can fetch a hundred dollars plus online, because students and academics who urgently need that exact title may have little chances of finding it locally, and they are willing to pay a high price to get it online. 

Trouble is, products like these don’t come by every day, and business owners will need to be very keen to be able to spot them within the mass sea of second-hand items. Personally, I won’t recommend anyone to follow this business model, unless they are very confident about what they are doing.

So, these will be the 5 Fundamental eCommerce Business Models: Resellers, Private Label, Liquidation Business Model, Retail Arbitrage and Selling Used items. Take note though, these models are not mutually exclusive of one another. For example, what retail arbitragers do is actually reselling stocks from retailers, which makes them resellers in themselves. Also, some private label sellers may also choose to buy products from liquidated supplier companies who have excess stocks, but they can modify the products to better suit their needs.

The important thing to take note is to understand the different traits of the various business models and play them to your advantage. After all, the quality and creativity of your execution matter a lot more than the business model you are following, and it will determine your success more than anything!

So, do stay tuned if you want to know more information like these, and I shall see you in the next episode.

Need Help? Book Your FREE
Strategy Session With Our Office Today!

We'll discuss to see if we are a good fit to work together to help you start or scale your ecommerce business.

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