Characteristics of B2B markets

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The B2B markets differ from the B2C markets in several regards. It is not just about the size of the purchases, which are generally much larger in the case of the B2B markets but in the various other aspects of selling including marketing and buying decisions also, B2B markets can be very different from the B2C markets. The B2B markets are also often marked by a higher degree of complexity in terms of products, and decision making.

Less Buyers and Concentrated Geographically

In B2B markets, the number of customers is lower compared to the B2C markets. Moreover, the customers may not be as geographically dispersed as the customers in B2C markets. For example, a business that supplies parts of automobile businesses in the US has to deal with just three or four customers that are all located in the same region. Some businesses may have a very limited number of customers. For example, a company that makes parts for electric vehicles may have a very limited number of customers. On the other hand, an automaker targets millions of customers from around the world located from Asia Pacific to the Americas.

Higher number of products and transactions

The number of products sold in business markets is much higher compared to those sold in the consumer markets. Now, suppose you bought a vehicle from Ford. While it represents a single transaction for the individual customer, it marks several transactions for the maker since the company purchases hundreds of parts from different suppliers to assemble the final product. It is not just the sourcing of various parts that costs the company but there are many more things that it had to spend on to complete the product.

A single product for the customer in this way does not mean a single product for the maker but a vast number of products and related services. The company has to maintaining its manufacturing and assembly plants and spend on employees. Ford also provides related financing services and maintenance services to its customers. Moreover, the company spends on marketing of the product. It runs campaigns and advertises the products. So, a very large number of transactions happen before the consumer buys a car.

Business products are more complex

Business products are generally very complex. For example, a lot of engineering and research and development goes into the creation of these products. Apart from that, several of them have to be customized according to customer needs. These products can vary from the construction equipment that Caterpillar sells to the commercial planes, airlines companies buy and military equipment purchased by governments.

Fewer buyers accounting for substantial sales

There are several such businesses which depend on a handful of other brands for sales. For example, a business that is a local supplier of parts to the automakers based in the United States will depend on the automobile brands mainly for sales. So, if the automobile industry in the United States is affected by economic decline or other adverse conditions, the supplier business will be severely affected.

Complex buying decisions and longer sales cycles

However, just as products are complex in the B2B market, buying decisions are also. You do not clearly know who will decide the purchase of a particular product or service since there are so many people involved in these buying decisions. This is also what makes marketing in a B2B environment much more complicated since businesses do not know whom to target through their marketing efforts. On the other hand, businesses buy in very large quantities which means the stakes are very high for sellers. So, if a seller wins a critical deal it is like a bonanza and if it loses a critical buyer whom it has been selling to, it can mean a big loss for it. It is why buyers have the upper hand in the B2B markets mostly. For example, if a business has become a supplier to Nike, it can mean a change of fortune for that business. However, if a supplier lost business with Nike or another similar big brand, that can be financially devastating for the supplier since finding another similar buyer that buys in very large quantities might be difficult or even impossible.

Sales cycles can be much longer in the B2B markets compared to the B2C markets. It is especially the case with the big ticket items. For example, deciding to buy smaller low cost items and selecting vendors for them might be easier and may have less people involved because of the lower financial risk. However, in the case of big ticket purchases like an airline company planning to expand its fleet by adding new commercial aircrafts will take years to make the final decision. Even a construction business buying construction equipment might take months to make these decisions. It all depends on the size of purchase since the business is concerned about lots of factors when making a major investment. It would carefully consider the product or equipment and evaluate its options with regards to product safety, reliability, efficiency, maintenance, durability and overall costs before making a final decision. If an airline business is planning to buy a commercial plane, it might also want additional features or customizations according to its need.

Rigid Quality Standards

In B2B markets, the quality standards can also be much more rigid compared to the B2C markets. For example, a business that wants to select suppliers for critical raw materials would check several of them to find out the ones that can only provide the best quality raw materials continuously. This may involve checking hundreds of them. However, an individual consumer would not consider hundreds of options and would not conduct as rigorous quality checks as the businesses do when buying from other businesses. Businesses want to ensure that the raw materials they are sourcing meet their quality standards so that the final product meets the consumers’ standards.

Reliance on personal selling

Another important characteristic of B2B markets is that there is a lot of personal selling involved in B2B buying. In the case of B2B markets, sales people visit the customers more often when compared to the B2C markets. While sellers target the customers in the B2C markets using advertising and other methods and the level of personal selling involved is generally low. However, these methods cannot be successful in B2B markets where sales people meet the buyers more often. Businesses send their salespeople to buyers for making convincing presentations regarding their products and services and a lot can change if the sales people are able to convince the buyers. So, it is not uncommon to find sales people visiting buyers’ offices multiple times daily.

The table below lists the main characteristics of both B2B and B2C markets that differentiate the two from each other:

In the B2B markets, sellers closely observe the general economic conditions to anticipate consumer buying patterns. Firms observe the economic conditions to get an idea of how demand for certain products might change. Its main reason is that the demand for B2B products is based on derived demand which means rather than the primary buyer of the product, demand emerges from the secondary sources. That secondary source is the final consumers. If consumer demand for a particular product is high, then the related supplier businesses will benefit from that demand. Businesses will build more of the products that are enjoying higher customer demand and will need the raw materials from suppliers to make them. As a result, the suppliers will benefit when the consumer demand for the products that they supply raw materials for is higher.

If the general economic condition is good, the demand for specific products is expected to remain high. When the economy is flourishing and the level of employment is higher, people spend more on nonessential products. The reverse happens when the economic activity is declining and level of unemployment is higher, since people stop spending on the nonessential items because of lower disposable income. It will hurt the sales of businesses selling those items and their suppliers.

While derived demand in one important characteristic of B2B products, the B2B markets are also characterized by fluctuating demand. It means a small change in demand at the final consumers’ end can have a solid impact on businesses making those products and those supplying raw materials, goods and services to build those products. It can also be understood as the bullwhip effect where the end consumers characterize the handle of the whip and even a minor shake on the handle end, results in a major snap at its tip. While consumers are the handle or the most powerful force, the businesses that characterize the chain including the supplier businesses form the rest of the whip and feel a powerful shake when the handle shakes. It is why several major suppliers go to the extent of marketing their brand and products to the end consumer aggressively to maintain the demand.

Suppose the demand for PCs falls by 10 percent. Its impact on the businesses of the suppliers will not be proportionate but greater. While the number of shipments will fall, so will the prices because of lower demand and the orders placed by OEMs to the suppliers will also be less since the manufacturers may have extra inventory they want to clear before ordering raw materials. As a result, the impact at the supplier’s end can be much bigger which may even experience 30 or 50% less orders.

This is also why major supplier businesses rather than trying to influence only their buyers or the manufacturers try to influence the customers to maintain the demand for their products. Consumers do not buy Intel chips directly. While consumers would not generally care for which microchip is built into their laptop while purchasing, Intel markets its brand aggressively so that consumers look for the Intel Inside logo on their PCs and laptops. Intel is driving its brand awareness higher in this manner among the end consumers. It wants the consumers to look for the logo when making purchases. However, while it will not affect the OEM, the manufacturer brand may still like to add Intel chips to its hardware since consumers trust it and demand it.