consumer-to-manufacturer-c2m

Consumer-to-manufacturer (C2M) Business Model

Consumer-to-manufacturer (C2M) is a model connecting manufacturers with consumers. The model removes logistics, inventory, sales, distribution, and other intermediaries enabling consumers to buy higher quality products at lower prices. C2M is useful in any scenario where the manufacturer can react to proven, consolidated, consumer-driven niche demand.

Understanding consumer-to-manufacturer

Interactions between the consumer and manufacturer are nothing new. In the early 1990s, a group of car enthusiasts from the Netherlands joined forces in an attempt to persuade a car manufacturer to import a particular sports car into the country. The bid ultimately failed, but consumer-to-manufacturer lives on today.

Consumer-to-manufacturer is a disruptive form of consumer-driven demand-shaping that combines elements of social selling and tech-enabled consumer aggregation. In recent years, C2M has enjoyed a resurgence in interest thanks to technological advances.

In essence, C2M is an interaction between the end-producer and the end-consumer. Today, manufacturers use consultants to analyze consumer data and identify potential trends. Manufacturers also canvass on a much broader scale in the search for innovative product ideas. What’s more, technology has allowed small manufacturers to sell direct-to-consumer on farm-to-table platforms and eCommerce sites such as Taobao and Douyin.

Key characteristics of consumer-to-manufacturer

The key characteristic of the consumer-to-manufacturer approach lies in the initiator of demand. Rather than fulfilling one order at a time, the manufacturer receives real-time data on demand levels for specific products that is driven by a community of buyers.

This allows the business to passively source important metrics on consumer preferences, location, and purchase behavior. Note that in most cases, the manufacturer does not produce an item unless there is sufficient demand within the community to warrant it.

In essence, consumer-to-manufacturer involves consumers approaching the manufacturer as a group with what they should produce. The strategy differs from traditional methods where the manufacturer approaches consumers with what it could produce.

Some also confuse consumer-to-manufacturer with pre-ordering, but there are two important differences between the two:

  1. Demand-scoping – pre-ordering is associated with solving cash flow issues or capital requirements and relies on marketing to pursue demand. C2M, on the other hand, seeks to allow niche demand to materialize on its own before the manufacturer reacts. 
  2. Initiator – the initiator in pre-ordering is the product manufacturer or in some cases, an intermediary. In consumer-to-manufacturer, as we noted earlier, the consumer is the initiator in most instances.

Where is C2M most suited?

C2M is useful in any scenario where the manufacturer can react to proven, consolidated, consumer-driven niche demand. Note that C2M will not be able to compete in marketplaces where common products are easily sourced. Here, product demand is more predictable and is already being met by manufacturers.

Instead, consumer-to-manufacturer should be employed to analyze niche demand infrastructure within specific verticals such as insurance. In this context, demand is more difficult to detect and typically occurs in industries with high production costs for high-value or high-importance items. 

How are manufacturers benefitting from C2M?

To capture more value from the C2M approach, manufacturers are now incorporating a range of upstream and downstream initiatives. This can be better understood by detailing the evolution of manufacturer business models as C2M has started to become more popular:

Original equipped manufacturer (OEM)

The traditional model where manufacturers take orders from other brands and produce them according to detailed specifications.

Original design manufacturer (ODM)

In this case, the manufacturer has more freedom to design and produce products. Brands reach out to manufacturers without detailed specifications in place, with some simply choosing a design from a list. This increases efficiency since the manufacturer already knows it can produce the design and has the necessary infrastructure in place.

Original brand manufacturer (OBM)

Where the manufacturer has full control of product design and production. When we consider the previous two business models, we can see that OBM is the next logical step for manufacturers. Before C2M was sufficiently developed, however, most had little experience in building a successful brand. Today, social eCommerce platforms in particular have allowed traditional manufacturers to flourish.

Consumer-to-manufacturer models

According to Chinese consumer insight company iResearch, there are three general C2M models in use today:

Consumer-to-manufacturer (C2M) eCommerce platform

The first C2M model to emerge and one which we explained earlier. Manufacturers join the platform, own the brand, but only go into production after demand meets a certain threshold. Chinese platform Biyao was one of the first to implement C2M, selling a range of brandless products in fashion, eyewear, food, and electronics.

Factory-to-consumer (F2C) eCommerce with a self-operated brand

Or any eCommerce platform that sells a brand of private label products by partnering with a factory to handle the manufacturing process. Note that the brand itself belongs to the eCommerce company. There is also an inventory risk here since the products are manufactured before they are sold.

Factory-to-consumer (F2C) eCommerce platform

As the name suggests, this is a marketplace that connects factories with consumers. In this case, the brand belongs to the manufacturer. But like the previous example, there is an inventory risk as products are manufactured before there is demand.

Real-world examples of customer-to-manufacturer

The customer-to-manufacturer strategy has seen great success in China with several apps helping Chinese enterprises respond to consumer demand.

Pinduoduo

pinduoduo-business-model
Pinduoduo is a Chinese agriculture-centric platform founded by Colin Huang and Chen Lei in 2015. The platform connected farmers and distributors with consumers through an interactive shopping experience. Today, it offers a much more diverse range of products to ordinary consumers. Pinduoduo has a typical revenue generation strategy for an eCommerce giant under the marketplace business model. Pinduoduo also offers advertising to merchants in a system not dissimilar to Google’s PPC advertising model.

In 2018, the Chinese eCommerce platform Pinduoduo (PDD) launched its “1,000 New Brand Initiative” giving small and medium manufacturers access to huge buyer traffic. 

Consumers use Pinduoduo to buy full-price items or get a discount if they invite others to participate in a group purchase. In most cases, the discounted order is shipped once a certain number of purchases has been met. 

Jiaweishi

Manufacturing company Jiaweishi used C2M to redesign the appearance of its robotic vacuum cleaners and give them a less randomized cleaning route. 

As a new brand, it also live-streamed the manufacturing process to allay consumer concerns over product quality.

Sanhe

Cookware company Sanhe also used C2M to great effect. Although one of Europe’s biggest cookware manufacturers, Pinduoduo helped the company identify strong Chinese demand for pots made with the same quality and craftsmanship as export models. 

This demand was backed by consumer data on product functionality, material, and color. Sanhe also received valuable data on the age, gender, and spending power of its Chinese market.

Key takeaways:

  • Consumer-to-manufacturer allows consumers to purchase directly from the manufacturer. With most third parties omitted, consumers get access to higher quality products at lower prices.
  • Consumer-to-manufacturer is less effective in general product marketplaces where demand has been met by established players. Instead, it is more useful in industries with hidden demand and higher product pricing or production costs.
  • Consumer-to-manufacturer has been popularised in China by eCommerce apps such as Pinduoduo. The company uses technology-driven insights to help Chinese enterprises produce products based on consumer demand and preferences.

Read Next: Manufacturer-to-Consumer.

Connected Business Model Types

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Marketplace Business Models

marketplace-business-models
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

Wholesale Business Model

wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Retail Business Model

retail-business-model
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

B2B2C

b2b2c
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

Crowdsourcing Business Model

crowdsourcing
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Open-Core Business Model

open-core
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Open Source vs. Freemium

open-source-business-model
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

freeterprise-business-model
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Franchising Business Model

franchained-business-model
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.

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