What Is Business-to-Business (B2B)?
Business-to-business (B2B), also called B-to-B, is a form of transaction between businesses, such as one involving a manufacturer and wholesaler, or a wholesaler and a retailer. Business-to-business refers to business that is conducted between companies, rather than between a company and individual consumer. Business-to-business stands in contrast to business-to-consumer (B2C) and business-to-government (B2G) transactions. Keep reading this article with PK Halder to understand the module of B2B.
Understanding Business-to-Business (B2B)
Business-to-business transactions are common in a typical supply chain, as companies purchase components and products such as other raw materials for use in the manufacturing processes. Finished products can then be sold to individuals via business-to-consumer transactions.
In the context of communication, business-to-business refers to methods by which employees from different companies can connect with one another, such as through social media. This type of communication between the employees of two or more companies is called B2B communication.
Late in 2018, Forrester said the B2B e-commerce market topped $1.134 trillion—above the $954 billion it had projected for 2018 in a forecast released in 2017. That’s roughly 12% of the total $9 trillion in total US B2B sales for the year. They expect this percentage to climb to 17% by 2023. The internet provides a robust environment in which businesses can find out about products and services and lay the groundwork for future business-to-business transactions.
Company websites allow interested parties to learn about a business’s products and services and initiate contact. Online product and supply exchange websites allow businesses to search for products and services and initiate procurement through e-procurement interfaces. Specialized online directories providing information about particular industries, companies and the products and services they provide also facilitate B2B transactions.
How does B2B work?
In B2B, one business sells a set of products or services to another business. Typically, there is a group or department that uses the vendor’s products and services. Occasionally, a single user on the buyer side makes a transaction in support of the company’s business goals. And some B2B transactions involve the entire company’s use of the products, such as office furniture, computers and productivity software.
For larger or more complex product purchases, the B2B product selection process is handled by a buying committee, including:
- A business decision-maker, such as the person responsible for the budget.
- A technical decision-maker, or someone who evaluates the capabilities of the prospective products.
- And influencers, such as individuals who provide input on the decision.
Large purchases might involve a request for proposal, in which the buyer invites prospective vendors to submit proposals detailing their products, terms and pricing.
Why is B2B important?
B2B is important because every business needs to purchase products and services from other businesses to launch, operate and grow.
A company’s B2B suppliers offer office space, office furniture, computer hardware and software, and so on. The food that companies stock in their kitchen and the signs displayed on their office building are purchased from suppliers.
Types of B2B companies
There are several types of B2B companies, including the following:
Producers design, create and manufacture their own products. Producers may sell their products directly to businesses or indirectly through retailers or resellers.
Retailers and resellers sell products and services made by other companies directly to businesses. Retailers and resellers may sell online, from physical stores or both, including B2B e-commerce vendors.
Agencies and consultants provide advice, oversight and subcontracted work to businesses. For example, an advertising agency manages and executes a multimillion dollar advertising budget for a consumer brand. A website agency designs and builds a website and mobile app for the same brand.
B2B companies operate in many industries, such as:
- Financial services
- Marketing and sales
- Real estate
- Food and beverage
Benefits of B2B
The following are benefits of B2B:
Large average deal size. A B2B company can grow sales with a smaller number of high-value deals compared to a B2C company, which may require thousands or even millions of individual sales. Since B2B companies sell and buy in bulk, the average B2B transaction is about $491, as opposed to $147 for a B2C sale.
Higher switching costs. B2B customer loyalty is likely if they are satisfied with the product and service. In contrast, B2C customers can be finicky and not loyal, resulting in large churn rates.
Large market potential. B2B companies can target enterprises across many industries and geographies, resulting in a big playing field. Or they can specialize in one industry, such as technology, and become leaders in that field.
B2B organizations advertise their products and services and conduct business online, making it easy for clients to place bulk orders via an efficient digital transaction model.
Faster delivery. Because B2B e-commerce tools make the sales process efficient for sellers, they accelerate the process for buyers. Integrated systems enable the transacting companies to sync data across channels, automate fulfilment and inventory updates, and manage complicated orders.
Built-in order management Cloud-based e-commerce platforms easily integrate with back-end systems or order management systems. This enables B2B sellers to synchronize order inventory and customer data across every channel.
B2B e-commerce has some challenges, such as the following:
Long-term customer retention. B2B companies often have a difficult time convincing buyers to make repeat purchases.
Limited market. Although B2B companies can target organizations in many industries, the business market is still limited in size. This makes B2B particularly risky for small and midsize B2B organizations.
More competitive. Since the B2B market is small, it’s competitive.
Longer decision-making process. Decision-making in business can be slow because many stakeholders are involved in the process.
Price negotiation. Since B2B buyers purchase in bulk, they typically negotiate for better prices, ask for discounts or demand extra services.
E-commerce supply chain management can be complicated. This is especially true when multiple partners are involved in the supply chain and they all need access to the same information. Miscommunication at any point in the supply chain can slow down the process.
What are examples of B2B companies?
Here are some examples of B2B companies:
Amazon, one of the best known B2C companies, also has a B2B business in e commerce called Amazon Web Services (AWS). AWS provides compute power, database storage, content delivery and related features to businesses. It is one of the leading cloud providers with customers such as GE, Hess, Expedia, Philips and BP. AWS Cloud spans 80 availability zones within 25 geographic regions, globally.
Caterpillar manufactures construction and mining equipment, diesel and natural gas engines, industrial turbines and diesel-electric locomotives and sells these products to other businesses. The company also provides financial services to businesses through its Caterpillar Financial Services business unit.
Alibaba is one of the world’s largest online commerce companies. The Alibaba B2B marketplace is where buyers and sellers worldwide connect and transact business.
Owned by Staples, Quill is a B2B e-commerce company that sells office supplies to small and midsize businesses. Quill markets over 100,000 products under the Quill brand, as well as under the Medical Arts Press, Mead, Coastwide, Snack Jar and Java Roast names.
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