Digital Marketing Online Business Models
As one would expect in the global $3.5 trillion ecommerce market there are a few different business model in existence. They all have their specialties, making them either more or less suitable for your new business. The obvious question for you is to think about uis, which business models suits your future business needs best. As you’d expect. they all have their pros and cons. Today I introduce and discuss four common online business models in digital marketing, with the goal to already provide give you with a pretty good feel of what’s available out there in the marketplace.
Sell Your Own Product
In this business model you market and sell your own products, which you have either developed yourself or bought to sell on at a profit. The wholesale market for the latter is on Alibaba.com When building your online shop you can either choose one of the online store software providers. such as Shopify, Wix, Woocommerce, BigCommerce, Weebly, or Bookmark, or you can build your website/online shop with Wordpress. For a newbie with no previous website building experience, I found it easiest to use Shopify when I built my Sublimes Online Shop (. ). With a software provider like Shopify, you get. the whole package, covering everything you need for a fully functional online shop, such as payments processing, inventory management, and order management, as well as some basic CRM functionality. To set up the online store you follow a step-by-step online guide. It’ s easy to do and more or less fail safe. In this business model you own your product inventory, which costs money to acquire and store, and you control the client interaction in the sales process.. When you get a purchase order, you are responsible for the fulfilment of the transaction. i.e. to process the sale and to ship the purchased product to the customer. You always have the option to outsource your inventory and the fulfilment process to a fulfilment center, which will do inventory management and shipping the purchased products to your customers, against a fee. When you first start off with your shop, outsourcing is not really an option, as in all likelihood you won’t have the sales volume required to make it financially viable. Remember, once you store and ship physical products, it involves extra manual work (which means extra cost) for you. That extra manual work isn’t required, if you instead of physical products choose to sell information products. Information products are products where the most important part of what you sell is knowledge. Examples are digital books (or e-books) , a digital report, a white paper, audio or video files, websites, e-zines (magazines that are only available online), or a newsletter. Any product that’s informational, instructional or educational can be considered an information product. The main advantage of information products is, once they are produced they can be sold again and again at no additional costs. Information products also don’t require the manual interventions in the sales process as physical products do, as once they’re purchased they are usually made available for the buyer to download, as opposed to manually being shipped to the buyer. A special way of selling information products is PLRs (private label rights) In internet marketing, private label rights is a license, where the author tells most or all of the intellectual property rights to their work. The license defined by the author of the work and has no legal definition. Private label rights are derived from private labelling. .From the PLRb uyer’s viewpoint, it’s almost like “outsourcing” some writing work, as the buyer of full private label rights can use the acquired product as his own production, since he has bought all the intellectual property rights attached to it.
2. Amazon FBA (Fulfilment By Amazon)
Amazon has one of the moat advanced fulfilment networks in the world. Simply put, FBA works like this: You sell it, then Amazon ships it. You send your items to Amazon to be stored in their fulfilment centers. After Amazon receives your inventory, you can monitor it through their tracking system. The customer orders your products either from Amazon or from another ecommerce platform. It is for example possible to implement Amazon FBA for a Shopify online shop.
The following is a visualization of the process for an order using Amazon FBA:
Advnbtages of this business model are that Amazon is managing your inventory and your order fulfilment. Naturally Amazon charge a fee for their services. Again, I think certain mimimum sales volumes are necessary to make this business model financially viable. If you advertise your products on an Amazon page, another advantage is that you benerfit from the huge online traffic Amazon generates.
3. Affiliate Marketing
Affiliate marketing is in essence an advertising model in which a company compensates third party publishers (affiliates) to generate traffic and leads to the company’s products and services. If that traffic leads to a sale, the company pays the affiliate a sales commission (also called an affiliate commission). In other words, as an affiliate marketer you advertise someone else’s products and send traffic to their shop/website. A personalized affiliate weblink is used by the company to be able to recognise the orders that were initiated through the various individual affiliates.
Affiliate marketing is very widely used . It’s the business model most internet marketers start off with. Amazon popularized affiliate marketing by creating an affiliate marketing program whereby websites and bloggers put llinks to the Amazon page for a reviewed or discussed product to receive a commission when a purchase is made. In this sense, affiliate marketing is essentially a pay for performance marketing program, where the act of selling is outsourced to the affiliates network of a company.
The following is a visualization of how affiliate marketing works:
According to Business Insider 15% of ecommerce revenue can be attributed to affiliate marketing.
Affiliate marketing actually predates the internet, but it’s the world of digital marketing, analytics, and cookies, that have made it a billion-dollar industry. Any company running an affiliate marketing program can track the links that bring in leads and, through internal analytics, see how many convert to actual sales.,
An ecommerce merchant wanting to reach a wider base of internet users and shoppers may hire an affiliate. An affiliate could be the owner of of several websites or email marketing lists. The more websites or marketing lists an affiliate has, the wider his network. The hired affiliate then communicates and promotes the products offered on the ecommerce platform to his network. The affiliate does this by implementing banner ads, text ads, or links on his multiple owned websites or via email to his clientele. Marketers use advertisements in the form of articles, videos, and images to draw an audience’s attention to a service or a product.
Affiliates redirect visitors who click on one of these links or ads to the ecommerce website. If they purchase the product or service, the ecommerce merchant credits the affiliates account with the agreed upon commission, which generally is around 5-10% of the sales price.
The goal of using an affiliate marketer is to increase sales – a win-win situation for the merchant and the affiliate, as both parties’ interests are fully aligned.
Advantages and Disadvantages of Affiliate Marketing: The advertising company sets the terms of an affiliate marketing program. Early on, companies largely paid the cost per click (traffic) or cost per mile (impressions) on banner advertisements. As technology evolved, the focus turned to commissions on actual sales or qualified leads. The early affiliate marketing programs were vulnerable to fraud because clicks could be generated by software, as could impressions.
Now, most affiliate mar4keting programs have strict terms and conditions on how to generate leads. There are also certain banned methods, such as installing adware or spyware that redirect all search queries for a product to an affiliate’s page. Some affiliate marketing programs go as far as to lay out how a product or service is to be discussed in the content before an affiliate link can be validated.
So an effective affiliate marketing program requires some forethought. The terms and conditions must be tight, especially if the contract agreement pays for traffic rather than sales.
Dreopshipping is an order fulfilment method that does not require a business to keep an inventory of products. Instead, the store sells the product, and passes on the sales order to a third-party supplier, who then ships the order to the customer. Many people think dropshipping looks like easy money. You sell other people’s product and take a cut for yourself.But when you factor in all the drawbacks, obstacles, and day-to-daymangement, it’s far from easy!
Let’s look at it like this: If you’re only doing dropshipping, it’ll be difficult to get your business off the ground; but, if you are already well established in ecommerce, you can use dropshipping to complement your existing business and diversify your revenue streams.
The following image is an illustration hoiw the dropshipping business model works:
There are hard truths about dropshipping nobody talks about: It is difficult to maintain a business doing dropshipping alone, let alone starting one from scratch! The reasons are as following:
1. Low profit margins
Sure, since you don’t have to manage or store your own inventory, your overhead costs are low, but so are the returns. Consistently low margins means you have to do a lot of business just to stay afloat., let alone generate a profit. The profit margins are hardly enough to cover your expenses for marketing, mainrainingyour website, managing sales orders, and covering your office costs.
With the following rule of thumb you can predict your income, using the following variables (Note they are averages, so real results will very likely differ):
2% conversion rate
You can now calculate a working estimate using the following equation:
(Traffic x 0.02) x (Average order value x 0.2 =Gross Profit
While this equation is fine for a quick starting estimate, there are a few additional problems also to be considered:
Chances are your discount on buying from manufacturers and wholesalers will be less tyan 20%.
These are gross profit calculations and don’t include your aforementioned costs of running your business.
In reality, you have to sacriface some of your margin to stay competitive. If yiu insist on 20% margin, other companies will quickly and easily undercut you.
On top if these additional factors, you will be aware that your calculation depends on traffic. This means if you are starting from scratch you will be struggling as long as you’re building a client base.
Plus, according to Adam Enfroy from BigVCommerce, dropshipping is a lot of work no matter how you dice it.Although it seems hands off, dropshippers always have to deal with their wholesale suppliers, order processing, returns and customer service.
When I evaluated dropshipping as a business option, I made some realization, which don’t make the task any easier. Most of the manufacturers and wholesalers are in China, which brings with it language issues. The products I could have offered from these Chinese counterparts were across the board very low quality products, which to be frank, I would never purchase for myself! Now bear in mind that you have zero control over the quality of products and over the timeliness of shippings from the manufacturers to the customers, but the customer will come and complain to you, if something is wrong. And I was sure after I sawtall these low quality products, there will be potentially many client complaints to handle. In othe rwords, you sell something you have no control over, but the customers hold you rewponsible! This sounds like a very undesirable situation n to me and I wouldn’t want to build a business on such grounds!
2. Highly competitive
There will always be the overly optimistic entrepreneurs, who only see the low overhead part, and ignore the problems mentioned above. Because very little capital is needed to start a dreopshipping business,, that low barrier to entry means a lot of competition. Before long you will be competing on price, and end up being priced out of the market by much larger dropshippers than you, who can affod to drop their margins to levels uo8u can’t!
3. No Control over Supply Chain:
In standard ecommerce, if customers complain about product quality, fulfilment speed, or return policies ,you can address the problems yourself ,but in dropshipping you are more or less at the mercy of your suppliers. Dropshippers are essentially trapped, doing little more than hoping the supplier addresses the problems, while simultaneously reassuring the customers about something that’s out of their control. No, thank you!
4. Legal Liability Issues
Although it’s not a very common problem for dropshippers, it’s worth mentioning that some suppliers are not as legti imate as they claim and you don’t always know where the merchandise comes from. Even more deceptive is when suppliers illegally use a trademarked logo, or another company’s intellectual property. Whatever illegal activities your suppliers do , as their vendor you’re.automatically complicit.
5. Difficult to Build a Brand
You sell other people’s products and on the box is not your logo. Branding is crucial in ecommerce, as shoppers tend to go to their favorite online stores first. Without customer loyalty, you’ll never get the regular traffic needed to sustain an online business, especially a dropshipping one. That’s just another reason why dropshipping makes more sense for already well established ecommerce players with established brands.
Drposhipping makes a better sideshow than the main event. While its faults make it hard to support a business case on its own, it still seems to offer enough bene3fits to help ecommerce companies improve their businesses substantially.
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