What is Business to Business?
Business to business or B2B is a business model when a company sells its products and services to another company’s customer for further processing and then reselling it. In simple words, one business sells its product/service to another business. The reason B2B is different from business to customer (B2C), where a business sells its product/service directly to the customer who consumer.
Characteristics of Business-to-Business
Since business to business usually happens in the supply chain, where one company supplies products and services to the other company. That relationship among companies tends to last for years. Therefore, companies in B2B don’t make their decision in haste. They follow the standard protocol and proper documentation, visitation, evaluation, and inspection of products, negotiation, and contract signing.
When everyone agrees like visiting officer, evaluation and inspection officer, and the management checkmark their concerned lists, and then they sign the contract.
Longer Decision Cycle
As we know that there are multiple decision-makers are involved, and they have to perform their duties. Sometimes it takes months and years to close the deal.
Since the nature of the relationship between business to business is long term, and so many stakeholders are involved. Sometimes, only one full-time customer is sufficient for the companies. Companies want the B2B relationship to work for a longer time because it is good for both of them. Therefore, they give special discounts and rates to their business customers.
Conflict with Direct Sales Channels
When we talk about direct sales to the customers or B2C type, then it involves a lot of issues. The relation between the business and the customer is limited, short terms, and uncertain. If the customer doesn’t like the product, price, or color, then he would move on to the store. B2B relationship is free of such conflicts.
B2B is not confined to the geographical borderlines. Companies are doing business globally, both in physically and digitally as well. Oil and gas is a very good example of it. How governments and companies work with one another.
B2B Vs B2C
Business to customer (B2C) is where businesses directly sell their products and services to the ultimate consumer. In B2B, businesses sell their product/service to the other business for further processing and then reselling.
The difference is that customers consume the product in the B2C, and they consume, add value, and resell the product/service in B2B.
Types of B2B Models
There are many types of business that uses the B2B model like human resource management, salary payroll, taxes, construction companies, research and developments, marketing, call center, advertisements, web development, and design. You can find other businesses that use the B2B eCommerce and what category of product or service they deal through the internet. Here are some of the following types of B2B;
The customer-centric model is where the company prefers to establish a long term profitable relationship with the customers even after the sale. The value of the customer remains the same; it doesn’t change after the transaction. When customers are the main focus of the business, then they would have a great influence over the branding and other operations of the company.
Amazon and Flipkart are the two major examples of e-commerce businesses, and they follow the customer-centric model. It took them years to develop reliable and trustworthy relations with their customers, and they are also loyal to their brand.
Buyer Centric Model
Buyer centric is a type of model where different companies set higher purchase prices for buyers. Then the marketers and sellers of different companies approach buyers with different offers and packages, that how their quotation would serve them better. In the end, the buyer would compare all the quotes and offers, and choose one of the offers most relevant to his budget.
Walmart is the best example of the buyer-centric model because it has a shopping mall across the world. Every branch of Walmart has different and multiple suppliers. However, different suppliers approach the company and bid, and the best bidder becomes the supplier of the company.
Intermediary Centric Model
Intermediary centric is a B2B type of model where buyers and sellers get together at a common shared platform to complete the transaction. It establishes a shared common platform to attract buyers and sellers. At every complete transaction, intermediary would get its share of the commission. Customers can’t check out all the products in the digital market. But this intermediary provided platform is a great place to check out all the products.
OLX and eBay are two major examples of such intermediary eCommerce platforms where buyer and seller meet, check out the product/service being offered. Earning of the platform is either through commission after a successful transaction or through advertisement.
The Direct Connection B2B Model
The direct connection is also a type of B2B model where the company is directly connected to all of the partners and stakeholders for sharing and transferring of all the electronic documents.
In simple words, a third-party IT organization is connected to your business, and it would manage all the business operations of your company like mapping, tech support, translation, and tracking of all the documents. Once your platform starts getting bigger, managing partners and stakeholders would become the top priority to manage their communication and resolve their issues.
Network B2B Model
Network B2B model is when your direct model has multiple problems and complexities, then the network jumps in and resolves it. This type of business model used to be functioning before the arrival of the internet. By using this model, you can create a single connection to the service providers to use the protocol like FTP over VPN, RosettaNet, FTPS, AS2, and SFTP.
Hybrid B2B Model
Hybrid B2B model is a combination of two models; direct connection and network B2B model. The purpose of this model is to save the transaction fee of a service provider, and the company would connect with the maximum transaction client. When you use this model, then your company would have the advantage of the service provider, and to work with many low volume trading partners.
Managed B2B Model
Managed B2B model is when your company outsource or hire an outside service provider to manage its entire B2B processes. The most obvious advantage of outsourcing is lower cost and simplicity. This model works only if the service provider of your company shares documents through the ERP (enterprise resource planning) system.
Managed B2B model would perform activities like translation, mapping, tech support, document tracking, and data center operations.
Advantages of Business to Business Model
Some of the advantages of the business to business model are given below;
Unlike business to customer (B2C) model where businesses and customers keep on their relations from one buyer or seller to the next buyer or seller. On the other hand, B2B (between buyer and seller) is a very stable relationship that goes for years.
Before signing any contract in the B2B model, buyers and sellers both go at a length to plan their budget, revenues, and rates. When both parties close the deal, then they rely on one another in terms of supplies and payments. Business to business supplier market is not big and limited parties are loyal to one another.
In a business to business relationship, both parties spend a lot of time planning and working on the details. Therefore, it leaves no room for mistakes and errors. As a result, everything works out as plan without costing any extra expenses.
Most importantly, you can buy the product or service through online auction at a much lower price. Therefore, it becomes so easier for them to calculate the sales because the figures are based on the facts.
Disadvantages of Business to Business Model
In the B2B market, you won’t find a plethora of buyers and sellers just like you see it in the B2C market. Although the market is small with fewer buyers and sellers, but their orders are big.
Since the orders of business to business clients are big, and their relations are of a long term in nature. But the process of finding and building with B2B clients is so lengthy that you can’t go and buy products and services just like in the B2C market.
It also involves a lot of formalities like documentation, quotations, negotiations, and meetings. Sometimes, you have to bribe and make under the table deals in order to sign the contracts.
Examples of B2B E-commerce Companies
Alibaba is a Chinese world-leading e-commerce, retail, internet and technology company. It has supplying partners worldwide. Those suppliers are business companies, and Alibaba is also an e-commerce company. Therefore, it’s a perfect example of a B2B model.
Slack is a windows tool that brings multiple separate tools working and functioning at a singles platform. For communication, and sharing of files and documents, many B2B companies use slack.
Skype is an online tool and application which provides the service of free audio/video calls, text messaging, and file sharing. Many businesses use Skype for communication and file sharing.
WeWork is a world-leading co-work spacing company. Many businesses rent the workspaces of WeWork to run their daily business operations. WeWork is also a very good example of a B2B model.
After understanding the definition, types, characteristics, and advantages/disadvantages of business-to-business model. You must have got a clear idea that how it works and it differs from the business to the customer model.
If you want to start a business; B2C or B2B, both are good. Knowing their categories, types and their functionality would help you to make a better decision.