manufacturer-to-consumer

What is Manufacturer-to-Consumer (M2C) Business Model?

Manufacturer-to-consumer is sometimes referred to as factory-to-consumer (F2C) because the manufacturer sells direct to the consumer. In essence, the company that produces the item takes the place of the retailer and any other third-party such as a wholesaler or supplier.

Understanding manufacturer-to-consumer

Manufacturer-to-consumer is the process of a manufacturer selling directly to the consumer.

Manufacturer-to-consumer has become more popular in recent times for a few reasons.

The internet is at least partly responsible, opening up new eCommerce channels that enable businesses to reach the customer and distribute their products more easily. 

Consumers themselves are also driving the trend and causing online marketplaces to evolve.

Many also enjoy buying directly from the manufacturer because without an intermediary taking a cut, product prices are cheaper. 

Benefits of manufacturer-to-consumer to the consumer

Why else may a consumer buy direct from the manufacturer aside from discounted products? 

Here are but a few reasons:

  • Convenience and authenticity – manufacturers offer access to larger inventories with more likelihood that a product is in stock. When consumers buy direct, they can also rest assured that the product is authentic which is no small concern in the era of counterfeit and knockoff products.
  • Direct line of communication – in the event the consumer requires customer service, they deal directly with the manufacturer. With fewer intermediaries involved, there is less chance that communication will be misinterpreted or confused.
  • Better customer service – since the manufacturer is the maker of the product, they understand how to maximize its utility and can provide useful advice to the consumer. When consumers visit a traditional retailer for troubleshooting advice, for example, they may find that the advice offered is sub-standard and not helpful.

Benefits of manufacturer-to-consumer for the business

There are also several benefits for the manufacturer:

  • Brand loyalty – customers love buying directly from a manufacturer, particularly if the experience is positive and the company is mindful of their specific needs. This makes them more likely to make repeat purchases.
  • Improved profit margins – with no intermediaries involved in the process, businesses can sell products for a lower price but at the same quality and improve their profit margins at the same time.
  • Brand and price control – companies that sell via third-party retailers essentially relinquish control of their brands and prices. In other words, they permit some other company to handle their marketing efforts in a way that may not reflect their best interests. In manufacturer-to-consumer, the four Ps of marketing remains under the manufacturer’s control.

How can manufacturers take advantage of direct selling?

In the past, manufacturer-to-consumer would have required a sizeable capital investment and a complex assortment of extra services.

Thanks to advances in eCommerce, the process is now much more simple and affordable.

Nevertheless, manufacturers who choose this route can no longer rely on the services traditionally provided by third parties such as customer service and fulfillment.

They will instead be required to invest in infrastructure that centralizes every aspect of the business

This may include: 

  • Technology – website design and optimization, shop platform, integration with warehouse operations, customer relationship management (CRM), and enterprise resource planning (ERP).
  • Operations – inventory management and forecasting, fulfillment, storage, shipping and returns, and multichannel store operations such as marketing and click-and-collect.
  • Data and analytics – analytics tools and reporting, platform and architecture, and compliance.
  • Operating modelkey talent and capabilities, Agile practices, organizational governance, and structure (with KPIs).

Key takeaways:

  • Manufacturer-to-consumer is the process of a manufacturer selling directly to the consumer. In essence, the company that produces the item takes the place of the retailer and any other traditional third-party such as a wholesaler or supplier
  • For consumers, the business model is more convenient since the manufacturer of a product has a wider assortment of brands and products in stock. It is also an effective way to ensure that purchased products are authentic. 
  • Manufacturer-to-consumer was a complex and costly exercise in the past, but thanks to simpler and more affordable eCommerce tech, it is now a viable option for businesses. Those who choose this route must use a platform that centralizes all aspects of operations.

Read Next: C2M Business Model.

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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