Business-to-business (B2B) refers to a situation where one business makes a commercial transaction with another. This typically occurs when:
- A business is sourcing materials for their production process, e.g. a food manufacturer purchasing salt
- A business needs the services of another for operational reasons, e.g. a food manufacturer employing an accountancy firm to audit their finances
- A business re-sells goods and services produced by others, e.g. a retailer buying the end product from the food manufacturer
Contrasting terms are business-to-consumer (B2C) and business-to-government (B2G). B2B branding is a term used in marketing.
The overall volume of B2B (Business-to-Business) transactions is much higher than the volume of B2C transactions. The primary reason for this is that in a typical supply chain there will be many B2B transactions involving sub components or raw materials, and only one B2C transaction, specifically sale of the finished product to the end customer. For example, an automobile manufacturer makes several B2B transactions such as buying tires, glass for windscreens, and rubber hoses for its vehicles. The final transaction, a finished vehicle sold to the consumer, is a single (B2C) transaction.
Compared to B2C
Some differences between organizations and consumers as customers include:
- For consumer brands the buyer is an individual. In B2B there are usually committees of people in an organization and each of the members may have different attitudes towards any brand. In addition, each party involved may have different reasons for buying or not buying a particular brand.
- Since there are more people involved in the decision making process and technical details may have to be discussed in length, the decision-making process for B2B products is usually much longer than in B2C.
- Companies seek long-term relationships as any experiment with a different brand will have impacts on the entire business. Brand loyalty is therefore much higher than in consumer goods markets.
- While consumer goods usually cost little in comparison to B2B goods, the selling process involves high costs. Not only is it required to meet the buyer numerous times, but the buyer may ask for prototypes, samples and mock ups. Such detailed assessment serves the purpose of eliminating the risk of buying the wrong product or service.
- A B2B product in many cases is bought by a committee of buyers. Buyers are usually well-versed with costing levels and specifications. Also, due to constant monitoring of the market, these buyers would have excellent knowledge of the products too. In many cases the purchases are specification-driven.
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