The term B2B generally refers to B2B commerce or business-to-business commerce, which is any transaction or commerce between two businesses. This is a common business model where the sale or purchase of products or services occurs between two businesses.
For example, buying and selling manufacturing materials fall into the category of B2B transactions. Other than transactions, B2B can be in the form of communication and sales as well. The B2B market is quite vast, including raw materials the finished products.
Sales cycles in B2B transactions are usually large and quite complex. It involves multiple decision-makers and is usually a long-term partnership among companies.
Types of B2B Businesses
Product Based
Businesses that sell or buy products come under the category of product-based B2B business. This takes in all types of products exchanged among businesses. From clothing to construction materials and furniture to toys, all sorts of product exchanges come under this category.
Service Based
Other than products, another category deals with the exchange of services between businesses. These services include law, property consultation, media advertising, etc.
Software Based
Next comes the software-based B2B transaction in which software services are exchanged between two businesses. In this type of B2B business model, a business designs a software program to cater to specific business needs. Some of the common examples of software-based B2B businesses include software, CRMs, databases, web hosting, customer support, etc.
Company Types in B2B Business Model
Manufacturer-Distributor
This is the standard business model that comes to our mind when we talk about B2B. In this B2B model, manufacturers are responsible for the manufacturing of products by focusing on their quality.
Manufacturers then hand over the products to distributors who then market, sell, and distribute the products. Distributors can deal with a range of products coming from manufacturers and can earn a profit. Some examples of manufacturer-distributor models include electronics, pharmaceuticals, and automobiles.
Manufacturer- Retailer
Another type of B2B business model is the manufacturer-retailer model. This is similar to the previous business model with the difference that manufacturers supply the product to the retailers. These retailers then further make the product reach the end consumer.
This model benefits both manufacturers and retailers as manufacturers have more control over product quality and pricing. Retailers also provide exclusive products to customers because of their direct contact with the manufacturer. Examples include the fashion and cosmetic industries.
Manufacturer-Wholesale
Just like the manufacturer-distributor model, manufacturers only focus on product quality and manufacturing. However, other than distributors, wholesalers are the ones responsible for product selling and advertising.
Manufacturers provide the products to the wholesalers in large quantities to secure profit margins. While wholesalers get bulk discounts and further sell the product at a higher price. Food, beverages, etc., work on this type of business model.
Service Providers-Customers
Just as the name says, service providers provide their services to the end customers or clients who need them. Service providers come up with their best services and can offer more personalized services for their customers and thus offer their services to the customers who need them. Examples include legal services, real estate consultation, advertising, marketing, etc.
Pros and Cons of B2B
Pros
Profit Margin
B2B market players are often businesses that prefer buying in larger quantities. This increases sales and results in high profit margins for the businesses.
Growth Opportunities
B2B businesses can grow their business at a much faster pace by making some small high-value deals as they are dealing in bulk buying and selling of products. However, B2C businesses need to make thousands of individual sales to grow.
Business Stability
B2B business models are relatively more stable than other business models due to high customer loyalty. Furthermore, customers have to buy in larger quantities and they find it quite risky to go from one business to another while dealing in bulk.
Cost Effectiveness
B2B business models are cost-effective as B2B businesses often deal in large quantities and long contracts. This reduces overall business expenses as well as minimizes the chances of coming across undue expenditure.
Huge Market Potential
Next on the list of B2B model benefits comes the market potential. B2B businesses can target multiple industries and geographical locations. This results in high market potential that can be beneficial for B2B businesses.
Customer Relationships
Another benefit of B2B businesses is the improved customer relationship. B2B businesses work in close contact with their customers which enables them to focus better on product quality and cater to their requirements in a better way. Also, B2B business models are customer-centric so they ensure to have a great customer relationship which is eventually good for their business.
Cons
Customer Retention
B2B companies work on long-term business contracts. Amidst this, some companies may find it difficult to retain customers and convince them to make multiple purchases.
Limited Market
Despite all the growth opportunities, B2B companies face the problem of limited market size which makes it risky for them.
High Market Competition
Competition in the B2B market is quite high which makes it difficult for businesses to survive.
Prolonged Decision-Making Process
There are multiple stakeholders involved in the decision-making process. So, longer time to make decisions which results in slow processes.
B2B vs. B2C
B2B(Business to Business) |
B2C(Business to Consumer) |
|
| Meaning | Selling of goods or services between two businesses. | Selling of goods or services from businesses to consumers. |
| Customer | Businesses | Consumer |
| Business volume | Low | High |
| Price | High | Low |
| Buying Decision | Depends upon features and logic | Depends upon benefits and needs |
| Relationship | Long-term | Short-term |
| Sales Cycle | Lengthy | Short |
FAQs
Q1: How many types of B2B business models are there?
Ans: B2B business models can be of the following three types, including:
- Customer Centric Model
- Buyer Centric Model
- Intermediary Centric Model
Q2: Are B2B marketing and B2B sales the same?
Ans: No, B2B sales and marketing are different from each other. B2B marketing is any campaign or strategy that aims to increase your brand awareness and engage more businesses. While B2B sales are the process of conversion of potential businesses into actual customers.
Q3: What is the D2C (direct-to-consumer) business model?
Ans: The D2C business model also known as direct-to-consumer is the one in which a product directly reaches the customers through a digital channel. This is a type of B2C business strategy that ensures the selling of products directly to the consumer.
Examples include a clothing brand displaying its products on the website and consumers directly purchasing from their website.
Q4: Are customers and consumers the same thing?
Ans: A customer is an entity that buys a product or service but may or may not use it and can be the reseller. However, in contrast, a consumer is the end user of the product.
