Business-to-business
Commercial transaction between businesses
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Through Commerce, Business and Accounting
- A business sources materials for its production process for output (e.g., a food manufacturer purchasing salt), i.e. providing raw material to the other company that will produce output.
- 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).
Business-to-business activity is thought to allow business segmentation.
B2B is often contrasted with business-to-consumer (B2C) trade, the latter of which typically sells directly to the general public and consumers, rather than other businesses and organisations.
Organization
Successful B2B operations depend upon sales personnel understanding the purchasing behaviour and outlook of the types of business they wish to work with.
B2B involves specific challenges at different stages. At their formation, organizations should be careful to rely on an appropriate combination of contractual and relational mechanisms. Specific combinations of contracts and relational norms may influence the nature and dynamics of the negotiations between firms.
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Business to business models
Vertical B2B model
Vertical B2B is generally oriented to manufacturing or business. It can be divided into two directions: upstream and downstream. Producers or commercial retailers can have a supply relationship with upstream suppliers, including manufacturers, and form a sales relationship. As an example, Dell works with upstream suppliers of integrated circuit microchips and computer printed circuit boards (PCBs).
A vertical B2B website can be similar to the enterprise's online store. Through the website, the company can promote its products vigorously, more efficiently, and more comprehensively, enriching transactions by helping customers better understand their products. Alternatively, the website can be created for business purposes, where the seller advertises their products to promote and expand transactions.
Horizontal B2B model
Horizontal B2B is a type of transaction pattern where a platform connects buyers and sellers from various different industries for similar, general-purpose transactions. It consolidates similar transactions from various industries into one platform, offering trading opportunities for both buyers and suppliers. Typically, it involves companies that do not own or sell the products but serve as a platform to connect sellers and buyers online. The better platforms help buyers easily find information about the sellers and the relevant information about the products via the website.
A good example of a horizontal B2B model is bankers vs corporate lawyers.
Growth of e-procurement
A 2022 Amazon report highlighted a "rapid transformation of B2B e-procurement in recent years", with 91% of the B2B buyers surveyed in their study stating that they preferred online purchasing.
In addition to online purchasing, the introduction of advanced AI tools has changed the way strategic decisions are taken by procurement executives. 94% of procurement executives are using AI in sourcing activities.
B2B2C
B2B2C means "business-to-business-to-consumer". According to the TechTarget website, the purpose of the terminology is to "extend the business-to-business model to include e-commerce for consumers". An aim of B2B2C is to "create a mutually beneficial relationship between suppliers of goods and services and online retailers". According to Lomate and Ramachandran, it enables manufacturers (the first "B" in B2B2C) to connect with, understand and serve their end customers ("C") without undermining their sales and distribution networks, including online sellers (the second "B") or excluding them from continuing customer engagement.
Comparison with selling to consumers
The defining difference between B2B and business-to-consumer trade (B2C) is that the first one refers to commerce transactions between manufacturer and retailer, and the second one it is the retailer supplying goods to the consumer. In B2B commerce, it is often the case that the parties to the relationship have comparable negotiating power, and even when they do not, each party typically involves professional staff and legal counsel in the negotiation of terms, whereas within a B2C context, relationships are shaped to a far greater degree by the economic implications of information asymmetry. However, in B2B, large companies may have many commercial, resource and information advantages over smaller businesses. The United Kingdom government, for example, created the post of Small Business Commissioner under the Enterprise Act 2016 to "enable small businesses to resolve disputes" and "consider complaints by small business suppliers about payment issues with larger businesses that they supply."
In many cases, 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 subcomponents or raw materials, and only one B2C transaction, specifically the sale of the finished product to the end customer. For example, an automobile manufacturer makes several B2B transactions such as buying tires, glass for windows, and rubber hoses for its vehicles. The final transaction, a finished vehicle sold to the consumer, is a single (B2C) transaction.
National characteristics of B2B trade
Business-to-business companies represent a significant part of the United States economy. This is especially true in firms with 500 employees and above, of which there were 19,464 in 2015, where it is estimated that as many as 72% are businesses that primarily serve other businesses.