Business-to-Consumer

views updated May 17 2018

Business-to-Consumer

"Business-to-Consumer," usually abbreviated B2C, is a phrase that has become attached to electronic business activities that focus on retail transactions rather than activities conducted between two businesses; the latter, business-to-business, is called B2B. These uses appeared along with Internet commerce in the 1990s and have been current since then. The usage has expanded so that, in the mid-2000s, B2C is also used as a handy abbreviation in talking about retail trade where electronics is just one component of the transaction and other cases where simply "retail trade" is meant. Combined forms are also referred to by other catchy phrases such as "bricks-and-clicks," "click-and-mortar," and "clicks-and-bricks."

SIZE AND PRODUCTS

Curiously, retail activity on the Internet is by far the best known new business model of the Information Age—yet it is a rather small proportion of total electronic commerce. The U.S. Census Bureau began collecting and tabulating data on electronic commerce in 1999, with the first comprehensive tabulations available for 2000. The data capture all economic exchanges for major economic sectors whether they take place over the Internet or by means of privately maintained electronic data interchange (EDI) channels.

Between 2000 and 2003 (the last year available), electronic trade as a whole increased from 7.2 percent of total trade activity to 10.1 percent. During this four-year period, B2C has represented a small fraction of total e-trade: 6.1 percent in 2000 and 6.3 percent in 2003 (including both retail sales and services); but in 2002, the B2C's share dropped temporarily to 5.7 percent.

In light of the rather extensive publicity regarding Internet business activity, these results may appear surprising. But the reasons for this lie in the fact that business-to-business electronic transactions predate the rise of the Internet by many decades; they were already massive when the Internet appeared; and businesses were also first in exploiting the Internet for B-to-B trading.

In 2003, B2C volume was, nevertheless, a respectable $106 billion and represented 1.3 percent of all business-to-consumer sales. B2C was also growing more rapidly than its more massive B-to-B electronic counterpart, reflecting its relative novelty and immaturity. The B2C activity was further subdivided into retail sales of products (52.8 percent of total) and services delivered by electronic means (47.2 percent).

Electronic Retail

As reported by the Census Bureau, and using the Bureau's industrial categories, B2C retail sales in 2003 were dominated by Nonstore Retailers, more specifically by Electronic Shopping and Mail Order Houses, a subdivision of Nonstore: 72.4 percent of all B2C retail flowed through the category. Other major participants and their shares were Motor Vehicle and Parts Dealers (17.1 percent); Other Nonstore Retailers (2.1); Miscellaneous Retailers (1.7); Sporting Goods, Hobby, Book, and Music Stores (1.5); Electronics and Appliance Stores (1.4), Clothing and Clothing Accessories Stores (1.3); and Building Materials and Garden Equipment and Supplies Stores (0.8 percent).

Within the largest category, Electronic Shopping and Mail Order Houses (those that do not have physical "stores"), the top five subdivisions (ignoring the large miscellaneous category), were Computer Hardware (12.1 percent of B2C retail), Clothing and Accessories, including Footwear (9.9); Office Equipment and Supplies (6.2); Furniture and Home Furnishings (6.2); and Electronics and Appliances (5.2 percent of B2C retail).

Based on these data, in electronic retailing the winners are … Autos, Computers, and Clothing, together claiming more than a third of all sales. And pure electronic retailing wins over brick-and-click by a long country mile.

Electronic Services

Within the services categories delivered by electronic means, all of which the Census Bureau classifies as B2C, the biggest categories, arranged by share of total e-services delivered, were Travel Arrangements and Reservation Services (13.5 percent of total e-services); Publishing Industry (12.0); Computer Services (10.9); Stock Transactions (8.8); Truck Transportation (6.6). The last category, somewhat puzzling, is presumably centered on the truck rental business.

The biggest industrial grouping within services is Information (24.8), which includes Publishing but also Broadcasting and Telecommunications and Online Information Services. Second is Administrative Support (23.2) which holds Travel Arrangements and many other linking services. Third is Professional, Scientific, and Technical Services (16.4 percent of all e-services); it includes computer-based but also laboratory, legal, tax preparation, and other similar services.

TYPES OF B2C

In its article on "Business-to-consumer electronic commerce," based in part on the work of Sandeep Krishnamurthy, Wikipedia divides B2C commerce into five major categories: 1) direct sellers, 2) online intermediaries, 3) advertising-based models, 4) community-based models, and 5) fee-based models. These categorizations somewhat mix apples and oranges in that they put side-by-side strategies of distribution, positions in the sales channel, and strategies aimed at reaching particular audiences. Thus the categories present views of B2C that are not necessarily mutually exclusive.

Direct sellers are further subdivided into e-tailers and manufacturers. E-tailers ship product from their own warehouse and also, as Amazon.com does, from other's stocks by triggering deliveries. Manufacturers (e.g., of software, computers) use the Internet as a sales channel and thus entirely or in part avoid intermediaries. The Internet thus becomes a manufacturer's catalog.

Intermediaries perform a brokerage function. In these cases the B2C business fulfills the role of a middleman between consumers who visit its site and businesses whom it represents. Brokers provide a variety of services to buyers by assembling attractive arrays of products and to sellers by, for instance, facilitating the financial side of the transactions.

Advertising-based models make use of high-traffic or specialized sites in order to attract consumers by advertising placed at these sites. Advertising itself may be the "business." These approaches are identical to traditional marketing but are specifically adapted to the Web. The high-traffic approach emphasizes sheer numbers and thus offers products of wide interest at median price-point. Those using the niche approach are willing to pay substantially for a pre-qualified audience with specific income and/or interest profiles (sports aficionados, conservatives, executives, etc.).

The community-based model may be seen as a hybrid of the two advertising approaches. The communities in question are "chat groups" and interest groups with specific preoccupations. Thus sites used by computer programmers for exchanging information—or by gardeners trading advice—are good venues for advertising software and hardware product to one group, tools and seeds to another.

Fee-based models rely on the value of the content that they present on the Internet. Paid subscription services or pay-as-you-buy services are differentiations within the category. The latter approach is used, for example, by sellers of single articles of which they show parts or a summary as teasers; the former approach is used to sell on-line subscriptions to journals.

THE FUTURE

The future of B2C appears to be bright. This type of commerce may still only be in its infancy and likely to grow simply because it is a convenient form of purchasing and also because looming storm clouds on the energy horizon may soon cause a quick trip to the store cost consumers a tidy sum. Leaves in the wind, suggesting the trend, are provided by the recent history of electronic retailing, more than half of all B2C.

Total retail sales in the U.S. (overwhelmingly "brick") experienced an annual compounded rate of growth of 4.8 percent between 2000 and 2005—yet in that same period the electronic portion grew at an annual rate of 26 percent each year. In 2005 e-retail was just a small fraction of total retail at 2.3 percent of total—but it was almost zero in 2000 (0.9 percent). These results were achieved during the time and in the quite visible presence of the so-called dot-com bust. It came early in 2000 as the tech-heavy NASDAQ Composite Index reached its all-time high and then dropped sharply. This meant that new B2C startups could no longer count on deep investment pockets—but the dot-coms that survived the bust have been doing very well. Many of them are small businesses—some of which are pure B2Cs serving niche markets very effectively. For a closer look at the factors that spell success, see another entry in this volume, Dot coms.

see also Business to Business; Dot-coms

BIBLIOGRAPHY

"Business-to-Consumer Electronic Commerce." Wikipedia. Available from http://en.wikipedia.org/wiki/Business-to-consumer_electronic_commerce. Retrieved on 3 May 2006.

"Data Clinic: How to buy … B2C lists." Direct Response. 6 February 2006.

Kremer, Dennis B. "Vive La Difference: Consumer vs. Business Sales." Westchester County Business Journal. 3 October 2005.

Krishnamurthy, Sandeep. E-Commerce Management. Thomson South-Western, 2003.

Margolis, Nik. "Why is B2B So Far Ahead of B2C in the Digital Marketing Arena?" Precision Marketing. 20 May 2005.

"Minding Our Business." Multichannel Merchant. 1 March 2006.

U.S. Department of Commerce. "E-Stats." 11 May 2005. Available from http://www.census.gov/eos/www/papers/2003/2003finaltext.pdf. Retrieved on 29 April 2006.

Darnay, ECDI

Encyclopedia of Small Business

Business-to-Consumer (B2C) E-Commerce

views updated May 17 2018

BUSINESS-TO-CONSUMER (B2C) E-COMMERCE

Business-to-consumer (B2C) e-commerce has woven itself into the fabric of business and consumer relations. Major strategic alliances have been formed among e-commerce giants. Television advertisements for e-commerce Web sites are plentiful, and consumers and the business community generally seem to accept that B2C e-commerce is here to stay.

Even as the United States weathered a general economic slowdown in the early 2000s, online spending continued to grow, with consumers spending more on average with each online purchase. Meanwhile, stocks of leading e-tailers began to level off after losing much of their value in 2000. There was a general sense that the worst was over, and certainly long-term prospects looked good for B2C e-commerce.

GROWTH AND GROWING PAINS

Swift growth has been perhaps the most celebrated feature of e-commerce. According to the U.S. Census Bureau, online shopping grew from $7.7 billion in 1998 to $17.3 billion in 1999 to $28 billion in 2000. Those figures are lower than other estimates of online consumer spending because the Census Bureau typically does not include online travel services, financial brokers or dealers, or ticket sales agencies in its totals.

The 1998 holiday season represented the first "e-tail Christmas" for U.S. consumers. Online consumers spent an estimated $4 billion during the fourth quarter of 1998 for goods and services, including travel, and nearly $10 billion for the year, according to the Boston Consulting Group. For the first time, online retailer Amazon.com surpassed $1 billion in annual sales as a result of the 1998 holiday shopping season. Internet portal America Online generated $1.2 billion in sales in the 10-week holiday season alone.

The next year marked an even greater success for online retailers, with big gains over the previous year. Jupiter Communications (now Jupiter Media Metrix) estimated total holiday Internet sales at $7 billion, while PC Data Online reported online holiday sales of $5 billion. Other estimates of 1999 holiday sales online varied from $8 billion to $13 billion, but all agreed that the 1999 holidays posted a large gain over the 1998 holiday shopping season.

One of the biggest problems online shoppers have faced, particularly during a holiday rush, is late delivery of merchandise. In December 1999 the U.S. Federal Trade Commission (FTC) received numerous complaints about prominent e-tailers failing to deliver merchandise by promised delivery dates. As a result, seven top e-tailers, including Macys.com ,Toys-rus.com, and CDNow, were fined a total of $1.5 million. The FTC found that those e-tailers violated the agency's mail-and-telephone order rule that required an order to be shipped within 30 days. If delivery could not be made on time, the customer should've been told and given the option of agreeing to a new shipping date or canceling the order. In 2000 the FTC issued a delivery warning to more than 100 e-tailers reminding them of their obligation regarding shipment dates, consumer notification, and refunds.

A holiday season field-test of e-tailers conducted by Resource Marketing of Columbus, Ohio, reported in Fortune magazine, found it was easy to find and order products, but the service component was flawed. The company noted that shoppers could not even place an order 25 percent of the time; 20 percent of the packages arrived late or never; and 36 percent of the sites had busy or unhelpful customer service phone numbers. Another study released by Datamonitor estimated that poor customer service cost e-tailers $11 billion in lost sales during 2000, including incomplete purchases that could have been salvaged if better service were provided.

FALLING STOCKS, FULFILLMENT FOIBLES

During 2000 the stock prices of many top online retailers fell dramatically as the stock markets in general, and technology firms in particular, suffered a broad and protracted sell-off amid investor concerns about future growth and general economic conditions. The E-Commerce Times Stock Index fell 82 percent from the end of 1999 through the end of 2000. The year 2000, as a result, was also the year of the dotcom shakeout, with many e-tailers going out of business. An estimated 150 dot-coms folded during the year, including Boo.com, Toysmart.com, Petstore.com, Living.com ,Pop.com, WebHouse Club, Eve.com ,Pets.com ,MotherNature.com, and Garden.com. While the downturn was devastating for many of the companies involved, not to mention their long-term shareholders, lower stock prices made it easier for large offline companies to acquire online retailers during 2000. German media conglomerate Bertelsmann AG, for example, acquired the struggling online retailer CDNow.

B2C e-commerce was also tarnished in 2000 by a rash of denial-of-service attacks on prominent Web sites and service outages caused by high levels of customer traffic. The attacks, believed to be orchestrated by individual hackers, forced well-known consumer destinations like Amazon.com offline for hours at a time and caused them to lose sales due to the down-time. Out-of-stock merchandise and late shipping continued to be problematic and, in e-commerce jargon, signaled a problem of scalability for some etailers who couldn't handle peak volume. In fact, some believed the biggest challenge to B2C e-commerce was order fulfillment, as consumers grew frustrated with out-of-stock merchandise, high shipping costs, and late deliveries of products ordered over the Web. For e-tailers, meanwhile, high shipping and fulfillment costs often resulted in negative operating margins. Successful B2C firms were those that focused on operational excellence and pleasing customers. Many in the business believed fulfillment was handled most economically by outsourcing it, not by attempting to fulfill orders in-house.

UNDERLYING STRENGTH

Despite difficulties, during 2000 online shopping continued to rise. Growth was attributed to new shoppers as well as to more spending by established customers. During the year online retailing received greater support from offline retailers who wanted to add new distribution channels and shore up their revenues. Strong ties to established brands in 2000 helped the growth of "bricks and clicks," further integrating traditional retailing with online channels.

In 2000 approximately 64 million Internet users participated in some form of online shopping-related activity, and 24 million households purchased at least one item online, according to a report from eMarketer. According to the U.S. Census Bureau, the third quarter of 2000 saw a 15.3 percent increase in online sales over the previous quarter. Total Internet sales reached $6.37 billion in the quarter, but online purchases made up only 0.78 percent of all retail sales, up from 0.68 percent in the second quarter. The categories of online retailers with the strongest growth in the quarter were mail-order firms, automobile companies, and online bookstores. Mail-order companies and traditional retailers showed faster growth in the quarter than pure-play e-tailers. Their strong performance was attributed to having infrastructures in place, such as distribution, customer relation, and billing systems, as well as having recognizable brands. Consumers also appeared more comfortable making online purchases: repeated Internet use and knowing other people who bought online were reducing concerns about security and Internet fraud.

For the 2000 holiday season, online shoppers spent an estimated $10.7 billion, according to a study by Goldman Sachs and PC Data Online. That included $878 million spent online in the week after Christmas. The report found that online sales during December increased 60 percent over the previous year, and online sales for the 2000 holiday season more than doubled from the $5.2 billion spent during the 1999 holiday season. A study by Media Metrix (now Jupiter Media Metrix) found that traffic to e-tail Web sites during the 2000 holidays increased by more than 30 percent over 1999 levels, with online retailers reporting an average of 34.2 million unique visits each week. Other estimates of online spending for the 2000 holidays ranged from $10.8 billion to $12.5 billion.

Estimates of the amount spent online during all of 2000 varied considerably. In January 2001 Activ-Media Research reported that online shopping in 2000 reached $56 billion, with sales during the holiday season of about $9 billion. That compared to an estimated $3.5-to $4.5 billion spent during the 1999 holiday season. Factors contributing to the surge in online holiday spending included better order processing systems and more effective marketing promotions. Some 57 percent of all consumer-oriented Web sites had e-commerce capabilities, while an additional 36 percent provided pre-sale information and post-sale support without actually taking orders. The research firm projected that online B2C sales would reach $1.1 trillion by 2010.

The U.S. Census Bureau reported that online shoppers in the United States spent $28 billion in 2000, an increase of 62 percent over the $17.3 billion spent in 1999. The Census Bureau said that online shoppers spent $7.8 billion on airline tickets in 2000, followed by $5.1 billion on personal computers and $2.1 billion on hotel rooms. The Bureau's figures did not include online travel services, financial brokers and dealers, or ticket sales agencies. The study was prepared for the Census Bureau by Jupiter Media Metrix, which projected that total e-commerce sales would reach $213 billion by 2005.

A 2001 report by the Boston Consulting Group found that 68 million Internet users in the United States—representing 55 percent of all Internet users—purchased something online in 2000, up from 53 million in 1999. Some 70 percent of Internet shoppers reported problems with Web sites taking too long to load, followed by 20 percent having trouble getting a site to accept their credit card. About 11 percent reported a problem of not receiving merchandise that was ordered and paid for.

ONLINE SPENDING GROWTH CONTINUED IN 2001

Consumers spent a reported $3.4 billion online in February 2001, according to the National Retail Federation and Forrester Research. That represented a 13.3 percent increase over January, when consumers spent $3 billion online. Those figures compared to $2.8 billion for January 2000 and $2.4 billion for February 2000.

In March 2001 online consumer spending reached $3.5 billion, according to Nielsen/NetRatings and Harris Interactive. The report, based on a survey of 39,000 Internet users, found that more than 81 percent of all adults with Web access had purchased something online since being connected to the Internet. The Nielsen-Harris study found that online travel and apparel accounted for more than half of online spending growth. A similar report from Forrester Research and Greenfield Online agreed on the total level of spending in March 2001, but reported a much lower dollar value of apparel purchases than those estimated by Nielsen and Harris. Both studies agreed that apparel was the most popular small-ticket item purchased online, however.

For the first quarter of 2001, the U.S. Census Bureau reported that e-commerce sales reached $7 billion, excluding online travel services, financial brokers and dealers, or ticket sales agencies. E-commerce sales represented 0.91 percent of total retail sales for the quarter, according to the Census Bureau.

In May 2001 the Boston Consulting Group predicted that online retail sales in North America would grow from $44.5 billion in 2000 to more than $65 billion in 2001. BCG, together with online retail trade association Shop.org, found that the three strongest online retail segments in 2000 were computer hardware and software, books, and travel reservations. The travel segment included air, lodging, car, cruise, and tour reservations. For 2000 travel generated $13.8 billion in online sales, followed by computer hardware and software at $8.2 billion, then books with $1.9 billion in online sales. As a percentage of overall retailing, online sales were projected to increase from 1.7 percent in 2000 to 2.5 percent by the end of 2001, according to the study.

BUSINESS MODELS SEEK PROFITABILITY

B2C e-commerce is conducted essentially via three business models.

Pure-play online retailers, such as Amazon.com, sell only over the Internet. They do not sell offline and do not have traditional brick-and-mortar stores that consumers can visit.
A second type of online retailer includes companies that have traditional stores or sell offline through catalogs or mail-order, but that also have a presence on the Web. These are known as "bricks-and-clicks" because they sell to consumers both through an offline channel and an online storefront.
A third category consists of portals, such as America Online, where goods and services from several online retailers are offered to consumers.

PURE PLAYERS

Most pure-play e-tailers had little concern for profits when they first launched. They focused on acquiring market share, spending to gain new customers, and building their brands. They succeeded in driving traffic to their Web sites, but their margins were not enough to achieve profitability. As a result, many pure-play e-tailers went out of business in the wake of the dot-com shakeout of 2000. Others faced cash shortages and needed to raise funds to cover their cash-burn rate and lack of profitability.

In early 2001 some of the leading pure-play etailers, such as Amazon.com and Buy.com, took steps to become profitable by the end of the year. Amazon.com cut its work force by 15 percent, laying off 13,000 employees.Buy.com announced plans to focus on higher-margin products, such as technology and consumer electronics products, instead of its entertainment offerings.

BRICKS-AND-CLICKS

By mid-2001 many considered the brick-and-click formula the leading model for success in online retailing. A study by McKinsey & Co. revealed that more than 75 percent of the best-performing e-tailers were online cousins of traditional retailers. Bricks-and-clicks had the benefit of existing brands, established marketing and distribution arrangements, and an installed information technology base. The study found that e-tailers that sold clothing and apparel did the best in terms of gaining revenue from customers, with an average 21 percent operating margin. In fact, it was the only e-tail category with an average positive operating margin. In other categories, such as electronics, books, and gifts, the average operating margin was negative, with only the leading players making money on every sale.

Bricks-and-clicks also had the ability to bring the Internet into their traditional stores. In-store kiosks with Web access allowed consumers to research potential purchases online, then find the merchandise they wanted in the store. Brick-and-click bookseller Barnes & Noble took steps in 2001 to more fully integrate its online bookselling with its stores. For example, the company allowed customers who purchased books online the convenience of being able to return them to a Barnes & Noble bookstore.

PORTALS

Portals such as Yahoo! and America Online (AOL) have evolved from being large directories that helped people find places on the Internet to places that offered their own content and services. Leading portals such as Yahoo!, AOL, AltaVista, and MSN all offer shopping areas for consumers. In June 2000 the top portal shopping site was Yahoo! Shopping, which attracted 5.8 million unique home-based visitors, or nearly 7 percent of all Internet users. AOL's Shopping Channel had more than 3.4 million unique visitors that month. AltaVista's shopping area attracted 2.6 million unique visitors, while MSN's shopping sections had 1.2 million unique visitors.

Portal shopping areas provide added value to new and experienced online shoppers alike. They offer specialized search engines and many give consumers the opportunity to comparison shop across several sites. The storefront business model made popular by Yahoo! Shopping has also succeeded in attracting more small businesses. These online store-fronts enable small businesses to maintain an online presence with minimal expense, and they benefit from the traffic attracted to the major portals.

A January 2001 study by the Yankee Group found that B2C e-commerce at portals and online malls grew at a faster rate than for stand-alone etailers during the 2000 holiday season. AOL reported an 84 percent increase in holiday sales over its 1999 holiday sales of $2.5 billion, while Yahoo! and Lycos reported that their holiday sales doubled over the previous year. Stand-alone e-tailers, on the other hand, reported an average growth rate of 40 percent. Another Yankee Group study found that 57 percent of online consumers began their shopping trip at a portal or portal-based mall during the 2000 holiday season.

KEYS TO PROFITABILITY

As e-tailers seek to achieve profitability by cutting costs and spending less to gain customers, the ability to generate positive gross margins becomes the number one factor in e-tail success. Another critical factor is driving traffic to the Web site, but that needs to be combined with a high conversion rate. That is, it is important to have not only sustained visitor traffic, but also to be able to convert 10 to 15 percent of the visitors into buyers. According to a December 2000 study by the Yankee Group, the average conversion rate for e-tailers was only 1 percent.

Successful e-tailers must also provide consumers with products they want and be able to convince them that the Web is the place to buy them. Successful etailers must be able to provide consumers with a positive Web experience, make it easy to find products and information about products, and ease any fears or concerns that consumers may have.