What is B2B?

Business-to-Business (B-to-B) or B2B is a form of transaction between businesses. These transactions involve manufacturers and wholesalers or wholesalers and retailers. A B2B company therefore, is a supportive business that offers the raw materials, finished parts, or services that other businesses need to operate, grow and profit.



 

What is B2B Ecommerce?

Business-to-Business electronic commerce (B2B Ecommerce) refers to commercial transactions between companies that takes place online. Examples of B2B ecommerce companies include Alibaba, Amazon, eBay, WeWork, Skype, Slack, New Relic, etc.

Types of B2B Companies

There are several types of B2B companies. They include the following:

  • Producers. Producers design, create, and manufacture their own products. They may decide to sell these products directly to businesses or sell indirectly through retailers or resellers.

  • Agencies and Consultants. These are companies that provide advice and oversight to other businesses.

  • Retailers and Resellers. They sell products and services made by other companies directly to other businesses. Retailers and resellers can either sell from physical stores, online or both.

Types of B2B Models

Many types of businesses use the B2B model. These businesses include construction companies, automobile manufacturing companies, marketing, salary payroll, web development and design, human resource management, taxes, call center companies, etc. The following are B2B business model examples.

Customer Centric Model

B2B companies using this model seek to establish long term profitable relationships with their customers even after successful sales. Customers are the main focus in this model and their value remains the same since they have a huge influence over the branding of the company. Amazon and Flipkart follow this business model.

The Direct Connection B2B Model

In this model, the B2B company is directly connected to all its trading partners and stakeholders for transferring and sharing electronic documents. This model involves a third-party IT organization connected to your business. The third-party organization manages all business-related tasks such as mapping, tech support, tracking of all documents, translation, etc.

Network B2B Model

When the direct B2B model is faced with complexities, the network B2B model comes in to solve the problems. This model used to work via a B2B Service Provider even before the invention of the internet. The Service Provider used protocols like RosettaNet, AS2, SFTP, FTPS, and FTP over VPN.

Hybrid B2B Model

The hybrid model is a combination of the direct connection model and the network B2B model. This model is used to save on the service provider’s transaction fees and to connect with the maximum transaction client.

Buyer Centric Model

The buyer centric B2B model is popular among big corporates that have higher rates of purchases. The companies set up a portal (mainly online) to accept quotations from different sellers. Sellers approach buyers with their quotations, and the buyers will choose to trade with the sellers who meet their budget requirements. An example is Walmart.

Intermediary Centric Model

This model involves intermediaries who provide a common marketplace for buyers and sellers to interact and transact with one another. The intermediaries usually get their share of the commission when sales go through. Examples include OLX and eBay.

Managed B2B Model

This business model is when a B2B company will hire an outside service provider to manage its entire B2B processes. This simplifies the process and cuts down the costs.

B2B Model Advantages and Disadvantages

Advantages of B2B

There are several benefits of the B2B business model to buyers and sellers. Benefits of B2B model include the following:

  • Convenience. B2B companies provide goods and services in bulk making it convenient for other businesses to order goods in bulk at once. Again, B2B ecommerce companies advertise and sell their goods online, bringing available goods and services in one place. This makes it easy for buyers to place bulk orders.

  • Faster Delivery. This is true especially to B2B e-commerce where companies use a range of tools to facilitate smooth sales. It includes accelerating buying processes by managing complicated orders and automating fulfilment and inventory updates.

  • B2B Businesses have more stability. Transactions between businesses is more predictable and B2B companies can easily plan their budgets accurately unlike with B2C businesses where sales are unpredictable. Here, businesses rely on other businesses for products and services and this leads to higher customer loyalty.

  • Purchases are Cheaper compared to B2C models. It is always cheaper to buy goods at wholesale prices.

  • Improved Security. There are loyalties and relationships created in B2B business dealings. As such, both parties will not have to worry about late payments or failed deliveries. The digital tracking of sales also adds to the security of this model.

  • Huge Market Potential. Business-to-Business companies usually target businesses across many industries and geographies.

  • Large average deal size. A B2B company can grow its sales with a smaller number of high-value deals unlike its counterpart, the B2C company which will need to make hundreds of sales.

Disadvantages of B2B

Even with the many benefits of B2B businesses, there are also some disadvantages including the following:

  • A more complex setup process. Usually, getting and retaining customers in your B2B business is hard work and it takes time. You will need to do thorough research before you start the business and after starting the business, you will need to do constant advertising.

  • Limits to sales. B2B companies are limited to serving other large businesses and they tend to miss out on potential sales to individual customers.

  • High competition. There are many existing B2B companies in the market which need customers to make profits. As such, B2B companies will need to design websites and ordering systems that clients find easy to use. They will also need to offer excellent customer service so that they stand above the competition.

  • B2B businesses have a longer sales process. The sales process in a B2B setting takes a longer time since there are always multiple meetings for consultations either through emails, phone calls, and other communications.

  • Adjustment difficulty. With B2B businesses, if you spend months developing a product that ends up being rejected by your target market, there is very little or no room for adjustments.

Final thoughts on What is B2B?

B2B Businesses are critical to the success of other businesses. If you are an entrepreneur seeking to start a B2B company, there are many models to pick from. You can also decide to combine several models to generate great opportunities.

Daisy Neema is a graduate of Chuka University. She is a prolific writer and researcher and has an interest in finance. She also loves writing about businesses and startups.