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Business-to-Consumer

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"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.

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.





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