Let’s talk about merchants…
Looking at the eCommerce landscape there are terms that come up often that depending on who you talk to mean something completely different.
We want to use this article to define and provide examples of what a merchant is because we’ve seen some confusion.
Prior to making sales online a merchant was a person that represents a retailer on behalf of a bank to process a sales transaction. With the growth of eCommerce the term “merchant” is being used differently and that’s what we want to cover today.
Let’s start by defining what a merchant is…
What is a Merchant
Simply put a merchant is a business or individual that sells a good or provides a service. And more recently an eCommerce merchant is someone that sells a product or service over the internet.
There are two types of merchant transactions:
- B2B (Business to Business) Example: Office cleaning company
- B2C (Business to Consumer) Example: Home pool maintenance
A business can either sell products and services to another business or directly to a customer. That distinction can completely change the business model of a company along with it’s messaging.
4 Different Types of Merchants
Not much has changed over the years besides the slight invention of the internet. Because of that now we have a 3rd and 4th type of merchant that only does business over the internet.
These are the 4 types:
- Wholesale Merchant: Similar to a wholesaler, a wholesale merchant is buying products in bulk and sells them in smaller quantities to retailers for a profit. Wholesale merchants are big box warehouses like Costco and BJ’s Wholesale where you need to buy products in bulk for a slight discount.
- Retail Merchant: These businesses are the middle-men between wholesalers and customers. Retailers are able to buy products in a decent sized quantity to turn around and make a profit. They specialize in finding customers, sales and marketing while not creating products. Think of huge retailers like Target. They have the ability to run nation-wide promotions that manufacturers or wholesalers just can’t do.
- eCommerce Merchant: A recent addition to the group, an eCommerce merchant is someone that sells a product or service exclusively online. They use online marketplaces like Amazon, eBay or their own websites. They’re also experts at marketing and finding customers. Wholesalers and manufacturers have grown tremendously because of eCommerce merchants and their ability to tap into different markets. eCommerce merchants are small business retailers that focus on everything from brand building to setting up the technical side of payment processing.
- Affiliate Merchant: An affiliate merchant is an online business that makes their money by referring business to another company. They’re masters at grabbing attention and digital marketing. Affiliate merchants don’t buy or make their own products but instead receive a commission when someone they refer buys a product they recommended. People make a full time income with this business model.
Real World Merchant Examples
According to Business Insider, these are the top 5 retailers in the United States based on total sales in 2018.
If you notice the names on the list each one of these businesses has a different business model and they all work. Let’s go over the business model of each one:
Walmart is strictly a retailer that hovers the line of a wholesaler because of the volume it buys products with. But it’s still a heavily discounted retailer that sells directly to customers. Walmart has become so large they sell everything from clothes, car parts, jewelry, all the way to groceries.
Kroger is the largest supermarket in the United States. They’re a retailer that buys wholesalers and manufacturers and sell directly to consumers. They focus on food, home and garden.
Amazon is a completely 100% eCommerce merchant without a single physical location to sell their products. In fact to grow their business they became affiliate merchants and allow individuals to sell on their platform for a percentage of the sale. 50% of Amazon’s sales come from 3rd party sellers that pay Amazon an affiliate commission.
Costco is a wholesale merchant that sells bulk items in a warehouse to consumers. They have everything from tires to baby formula. They buy direct from manufacturers and pass the savings to the customers.
Finally, HomeDepot is a standard retail merchant that sells directly to consumers. Their focus is on home improvement and construction supplies.
Wrapping This Up…
There’s no one type of merchant that’s better than another. Each one has their own strengths and role to play in the economy.
As you’re starting a business and learning about what’s out there, it’s important to have a firm grasp of what’s possible. And, with the rise of eCommerce more people are opting out of physical stores because of the cost.
Now to start a retail business all you need is information and a WiFi connection to get started.
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