The merchant model is a business model that consists in selling goods or services over the internet. This type of e-business is the most popular amongst wholesalers and retailers, and its sales are usually made through auctions or based on list prices.
It is often the case that online merchants offer products at a discounted price, this is attributable to the way they operate because of the following reasons:
- Merchandise is purchased from manufacturers in large amounts
- Operations are usually done from inexpensive warehouses located in peripheral areas
- Drop shipping is frequently used as supply chain management technique, which means that the retailer does not keep goods in stock; instead it instructs the manufacturer or wholesaler to ship the purchased merchandise directly to the customer.
The Different Types of Merchants
Based on the sales level and the distribution channel, merchants can be classified in the following manner:
- E-tailer (also known as Online Merchant or Virtual Merchant): wholesale and retail companies that only operate across the internet. Giant Amazon.com is the best example of an E-tailer.
- Bit Vendor (also known as Digital Merchant): a merchant that exclusively offers digital products and services, it does its sales and distribution over the internet. The classic example is the Apple iTunes Music Store.
- Click and Mortar: companies which operate both online and offline. These are businesses that have a physical store or office where they offer face-to-face service in addition to an online shop. Some examples of click and mortar merchants include: Zara, Walmart, etc.
- Catalog Merchant: retailers selling from a printed and/or online catalog. This type of merchant receives and processes mail, telephone and online orders. One example is Argos, which is a general-goods catalog merchant with strong presence in Ireland and the UK.
Successful Implementation of the Merchant Model
There are two main aspects to successfully implement the merchant model, namely generating traffic to a company’s website and having an attractive and simple-to-use website. Indeed, with the intention of attracting visitors to their websites, companies frequently make use of the services offered by affiliates (internet publishers).
One major drawback of the merchant model is that chargebacks are more frequent in online shopping (or any other card not present transactions) than in face-to-face transactions. Therefore, taking fraud prevention measures is essential to guarantee the model’s success.