Are you planning to start a business? Maybe you are struggling to identify what to sell and the best way to reach your target customers. For you to turn your business into a profitable venture, you must identify a strategy to drive sales. Here is where a business model comes in. your model determines the movement of items you are selling.
Whether you will involve middlemen or sell directly to your customers is a guiding principle in the model selection. The merchant business model is one of the common approaches that many entrepreneurs use. But what is it, how does it work and does it have some benefits and shortcomings?
This article covers the merchant business model, how this model works, and the pros and cons of this model that you should be aware of. Therefore, keep reading on to get to understand much more about this model.
What is Merchant Business Model?
Probably, it is not the first time to hear the word merchant. It a common term in the business world. In a simple definition, a merchant business model refers to an approach to selling goods or services online.
It is a model where you sell products and services directly to the customer through a virtual platform. Other terms for this model are e-business, e-tailing, online retailing, or e-retailing. They do it through an auction or price listing.
Many e-commerce website owners use this model in their startup stage before moving to other models when their business grows. For instance, if you sell items to customers ordering through the internet only, you are applying the merchant business model.
How Does Merchant Business Model Work?
The merchant business model involves three parties. The producers/manufacturer, merchant, and consumers. The producer is the company making products and services. They then sell them to wholesalers and retailers in bulky and at a lower price. Also, they are the brand owners and production resources.
Merchants act as middlemen. They connect a manufacturer with buyers through their online platforms. These merchants are either retailers or wholesalers who sell goods and services through online auction or price listing.
They buy products in bulk, store them, and sell them to customers who order through online stores or websites. The merchant has the responsibility of developing product images and descriptions for the items they list on their online websites.
Consumers are the last party in this process. They order products online from the merchants. Customers can buy single items or wholesale. Since the merchants do not rebrand the products, the buyers can peek at items from their preferable brands.
Example of Merchant Business Model
As stated earlier, many e-commerce businesses start as merchants before moving to other models. There are many examples that companies have used this model; for instance, Amazon is an excellent example of a merchant business.
Though it combines other models, amazon acquires items from manufacturers and suppliers in bulky and sells them to online buyers through its online platform. The company list products with their accompanying prices and descriptions.
Also, it has stores spread in a different part of the globe that handles inventory and shipping of the products sold. Unlike businesses, Amazon does not have brick-and-mortar stores. Its operations are solely through the website.
Apple iTunes music store is another example of merchant business. This store sells music on their digital platform only. It does not run a physical shop or store. Rather, you can only buy their products online.
As you can see, merchant businesses are either wholesalers or retailers without brick-and-mortar stores. Instead, they operate online stores where they sell the products to consumers who order them virtually.
Pros and cons of Merchant Business Model
No business model is 100% and a merchant is not exceptional. Like other models, it has its share of merits and demerits. Here are some of them:
Pros
Easy to scale
Merchant businesses are easy to scale. Since you do not deal with one brand, you can offer as many products as possible in your online store. The option allows you to open an online retail or wholesale storefront. Your sales levels and revenue depend on your efforts and the goals you set.
With commitment and effort, you can easily scale your business. Also, since it is online, you do not have boundaries on the customers you can sell your products to base on their location. Hence, you can easily grow your business within a short period.
Exceptional buying experience
Unlike in a physical store, it is easy to offer exceptional customer expiring in a virtual shop. All you need is to work on your website design and responsiveness. This aspect will ensure an easy customer journey that results in more sales.
The merchant model allows customers to view the prices of various items in one place. They do not need to move from one shelf to another. With this aspect, the customer gets a desirable buying experience leading to increased sales.
No branding struggles
In the merchant model, your goal is to sell products to customers directly. You sell items of already established brands. So, no struggles for building a renowned brand. Your role is to create an access point where customers can place their orders and ensure the purchased items reach their doorsteps.
Cons
High chance of fraud
With the web being the only transaction point, cybercriminals and hackers are likely to target your venture. For you to be safe, you must invest in cybersecurity. Otherwise, your website will become the main target for hackers and online fraudsters.
Requires large investment
Unlike dropshipping, merchant businesses require to manage and maintain inventories. This means you must have some warehouses or storage space for items you are selling. So, you require a large investment to run this type of business.
Conclusion
As you can see, the merchant business model is a common practice among many webpreneurs. You can adapt it as a person seeking to try their fate in online business. The model is superb as you deal with customers and manufacturers directly.
So, you can easily enhance customer loyalty. Also, since it is online, your operations are around the clock with no holidays or nighttime. As such, it is a good model that can help you start and scale an online venture.
