Business-to-business

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The "electronic components district" of Guangzhou, where numerous shops sell electronic components to other companies that would use them to manufacture consumer goods.

Business-to-business (B2B) describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer. Contrasting terms are business-to-consumer (B2C) and business-to-government (B2G). B2B branding is a term used in marketing.

The overall volume of B2B (Business-to-Business) transactions is much higher than the volume of B2C transactions.[1][2][3] The primary reason for this is that in a typical supply chain there will be many B2B transactions involving sub components or raw materials, and only one B2C transaction, specifically sale of the finished product to the end customer. For example, an automobile manufacturer makes several B2B transactions such as buying tires, glass for windscreens, and rubber hoses for its vehicles. The final transaction, a finished vehicle sold to the consumer, is a single (B2C) transaction.

B2B is also used in the context of communication and collaboration. Many businesses are now using social media to connect with their consumers (B2C); however, they are now using similar tools within the business so employees can connect with one another. When communication is taking place amongst employees, this can be referred to as "B2B" communication.

Etymology[edit]

The term was originally coined[by whom?] to describe the electronic communications between businesses or enterprises in order to distinguish them from the communications between businesses and consumers ("business-to-consumer"). It eventually came to be used in marketing as well, initially describing only industrial or capital-goods marketing. As of 2012 it is widely used[by whom?] to describe all products and services used by enterprises. Many professional institutions and trade publications focus much more on B2C than B2B, although most sales and marketing personnel operate in the B2B sector.[citation needed]

Definition B2B vs. B2C[edit]

The terms B2B and B2C are short forms for Business-to-Business (B2B) and Business-to-Consumer (B2C). Both describe the nature and selling process of goods and services. While B2B products and services are sold from one company to another, B2C products are sold from a company to the end user.

While almost any B2C product or service could also be a B2B product, very few B2B products or services will be used by consumers. For example, toilet paper, a typical B2C product, can be seen as a B2B product if it is bought in larger quantities by a hotel for their restrooms and guestrooms. However, few people will buy an excavator for their private use.

Most B2B products are purchased by companies to be used in their own manufacturing, producing goods and services to be sold on. The value added product can then be either sold to yet another company; or to the consumer.

Any consumer product would have gone through numerous value-add processes before it is being purchased by the final user. Numerous suppliers from various industries would have contributed to the finished product. For instance, a can of soft drink will require different companies to provide the can, water, sugar, other ingredients, label-printing, packaging, transportation and paint for the printing. The can itself is made from aluminium that needs to be processed and extracted. Only the very last transaction in the sales/ purchase chain is a true B2C relationship.

In terms of perceived risks, a B2B product is commonly viewed to possess higher perceived risks compared to B2C products due to the value of each transaction: e.g. buying machinery can cost $2Million compared to a tube of toothpaste which would cost just $2. However in reality, risks levels in terms of duty-of-care, can be fairly similar depending on the nature of the product. A faulty machine similar to a contaminated tube of toothpaste can bring grave harm to its respective users. However, because of the quantum of purchase, buyers of B2B products tend to place more focus on the evaluation and selection process.

Differences between B2B and B2C[edit]

The main difference between B2B and B2C is who the buyer of a product or service is. The purchasing process is different in both cases and the following is a list of key differences between them.

Risks[edit]

Buying one can of soft drink involves little money, and thus little risk. If the decision for a particular brand was not right, there are very little implications. The worst that could happen is that the consumer does not like the taste and discards the drink immediately.

Buying B2B products is much riskier. Usually, the investment sums are much higher. Purchasing the wrong product or service, the wrong quality or agreeing to unfavourable payment terms may put an entire business at risk. Additionally, the purchasing office / manager may have to justify a purchasing decision. If the decision proves to be harmful to the organization, disciplinary measures may be taken or the person may even face termination of employment.

In international trade, delivery risks, exchange rate risks and political risks exist and may affect the business relationship between buyer and seller.

Strong brands imply lower risk of using them. Some of them in detail:

Buying behaviour in a B2B environment[edit]

Some characteristics of organizational buying / selling behaviour in detail:

B2B brands need to be differentiated[edit]

One of the characteristics of a B2B product is that in many cases it is bought by a committee of buyers. It is important to understand what a brand means to these buyers. (Note: Temporal) Buyers are usually well-versed with costing levels and specifications. Also, due to constant monitoring of the market, these buyers would have excellent knowledge of the products too. In many cases the purchases are specification driven. As a result of this, it is vital that brands are clearly defined and target the appropriate segment.

As explained above, every one product can only be associated with one brand. Because of this, it is vital that companies find a white space for their brand, an uncontested category to occupy space in the minds of the buyer.

Differentiating one’s brand, companies can use various strategies, leveraging on the origin of the goods or the processes to manufacturing them. Some have identified up to 13 such strategies. Depending on the company’s history, the competitive landscape, occupied spaces and white spaces, there could be one or many strategies any one company could use.

Ultimately, a strong B2B brand will reduce the perceived risk for the buyer and help sell the brand.

References[edit]

  1. ^ Sandhusen, Richard (2008). Marketing. Hauppauge, N.Y: Barron's Educational Series. p. 520. ISBN 0-7641-3932-0. 
  2. ^ Shelly, Gary (2011). Systems analysis and design. Boston, MA: Course Technology, Cengage Learning. p. 10. ISBN 0-538-47443-2. 
  3. ^ Garbade, Michael (2011). Differences in Venture Capital Financing of U.S., UK, German and French Information Technology Start-ups A Comparative Empirical Research of the Investment Process on the Venture Capital Firm Level. München: GRIN Verlag GmbH. p. 31. ISBN 3-640-89316-6.