On the internet, B2B (business-to-business), also known as e-biz, is the exchange of products, services or information (aka e-commerce) between businesses, rather than between businesses and consumers.
Although early interest centered on the growth of retailing on the internet (sometimes called e-tailing), forecasts have predicted that B2B revenue will soon far exceed business-to-consumer (B2C) revenue.
B2B websites can be sorted into the following categories:
- Company websites. The target audience of many company sites is other companies and their employees. These sites can be thought of as round-the-clock mini-trade exhibits. Sometimes, a company website serves as the entrance to an exclusive extranet, available only to customers or registered site users. Some company sites sell directly from the site, effectively e-tailing to other businesses.
- Product supply and procurement exchanges. These are exchanges in which a company purchasing agent can shop for supplies from vendors, request proposals and, in some cases, bid to make a purchase at a desired price. Sometimes referred to as e-procurement sites, some serve a range of industries, while others focus on a niche market.
- Specialized or vertical industry portals. These portals provide a "sub-web" of information, product listings, discussion groups and other features. Vertical portal sites have a broader purpose than procurement sites (although they may also support buying and selling).
- Brokering sites. These sites act as an intermediary between providers and potential customers that need their specific services, such as equipment leasing.
- Information sites. Sometimes known as infomediaries, these sites provide information about a particular industry to its companies and their employees. Information sites include specialized search sites and those of trade and industry standards organizations.
Many B2B sites fall into more than one of these groups. Models for B2B sites are still evolving.
Another type of B2B enterprise is software for building B2B websites, including site-building tools and templates, databases, methodologies and transaction software.
How B2B works
In B2B, one business sells a set of products or services to another business. Typically, there is a group or department (i.e. rather than an individual) that uses the vendor's products and services. Occasionally, there is a single user on the buyer side. That person's use, however, is to serve a particular purpose related to the buyer company's business goals. With some B2B companies, the entire company uses the product, such as office furniture, computers and productivity software.
For larger or more complex products, the B2B product selection process is handled by a buying committee made up of the following:
- a business decision maker, such as the person who holds the budget
- a technical decision maker, such as the person who evaluates the capabilities of the prospective products
- influencers, such as individuals who provide input on the decision
Large purchases might involve the issuance of a Request for Proposals (RFP), in which the buyer invites prospective vendors to submit proposals detailing their products, terms and pricing.
Why B2B is important
B2B is important because every business needs to purchase products and services (e.g., from other businesses) in order to launch, operate and grow. A company's B2B suppliers sell them office space, office furniture, computer servers and computer software. The food that companies stock in their kitchen and the signs they display on their office building are purchased from suppliers who sell to other businesses.
Types of B2B companies
There are several types of B2B companies, including:
- Producers design, create and manufacture their own products. Producers may sell their products directly to businesses or use retailers or resellers.
- Retailers and resellers take products and services made by other companies and sell them directly to businesses. Retailers and resellers may sell online, from physical stores or both. This category includes B2B e-commerce vendors.
- Agencies and consultants provide advice, oversight and subcontracted work to businesses. For example, an advertising agency manages and executes a multi-million-dollar advertising budget for a consumer brand. A website agency, on the other hand, designs and builds a website and mobile app for the same brand.
B2B companies operate in a number of industries, including:
- Financial services
- Marketing and sales
- Real estate
- Food and beverage
Benefits of B2B
The following are benefits of B2B companies:
- Large average deal size - B2B purchases have a large average deal size. A B2B company can grow sales with a smaller number of high-value deals, whereas a B2C company may require thousands or even millions of unit sales.
- Higher switching costs - Because B2B purchases are thoroughly considered, customers tend to stay longer if they're satisfied with the product and service. B2C customers can be finicky, resulting in large churn rates. It's easier for B2C customers to switch from one product to another.
Differences between B2B and B2C
B2B and B2C have the following differences:
- Decision maker - In B2C, the decision maker is an individual consumer. In B2B, there are more people involved in the decision. The committee involved includes decision makers and influencers.
- Decision process - In B2C, the decision to purchase a product can be made on a whim, such as thirst, unexpected needs or simply wanting a product. In B2B, the decision process is more formal and has more steps. The B2B process might include a review of the vendor landscape, a series of vendor demonstrations, the creation of a vendor shortlist and then a final decision.
- Marketing - B2C marketing seeks to reach and influence individual consumers, while B2B marketing seeks to reach companies, as well as specific roles or titles within those companies. Social media marketing is used to reach both B2C and B2B buyers. While B2C marketing focuses on direct response (e.g., a purchase), B2B marketing covers a longer time horizon, focusing on a progression from awareness to consideration to selection.
- Timeframe - The timeframe for a B2C purchase can be instantaneous, or range from minutes to hours. The timeframe for a B2B purchase is much longer and often involves weeks or months. Products that have high complexity and high costs can have a timeframe (also known as "average sales cycle") of two years or more.
While Amazon is one of the best-known B2C companies, it also has a B2B business called Amazon Web Services (AWS). AWS provides compute power, database storage, content delivery and related features to businesses. AWS is one of the leading cloud providers in the market, and its customers include GE, Hess, Expedia, Philips and BP. AWS provides a global service, with availability in 22 geographic regions around the world.
Another example of a B2B company is Caterpillar, which manufactures construction and mining equipment, diesel and natural gas engines, and industrial turbines and diesel-electric locomotives for sale to other businesses. Caterpillar also provides financial services to businesses from a business unit called Caterpillar Financial Services.
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