The acronyms B2B, B2C and B2D can be a bit confusing to those who are unfamiliar with the business world. These business concepts involve terms that are commonly used to describe specific business models. The difference from one to the next depends on the target customer of the company: other businesses, consumers or developers.
What Are B2B Companies?
The acronym B2B is shorthand for “business to business.” This type of business model focuses on serving companies instead of individual customers. Any B2B company focuses on distributing products or services to other businesses. An example of a business-to-business company that serves a specific industry is one that sells plastic bags to grocery stores and restaurants.
Most B2B companies do not focus on a wide range of products or services. Instead, they focus on one or two things that they market to a wide range of other businesses. For example, the company that installs large windows in storefronts and offices is not typically locked in to working with one specific company. It serves any company that needs windows and is willing to meet its price point.
Many companies that sell to consumers (a B2C model) require B2B services and products to remain in business. In the business world, most B2B companies are also called vendors. Vendors are a link in most corporate supply chains. They sell goods and services individually to other companies.
Understanding Business-to-Business Companies
B2B businesses do not only support other companies. Some B2B companies also sell directly to consumers. Some examples of B2Bs directly servicing customers would be flooring overstock or furniture liquidator companies. They typically sell the product to other companies, but when they reach the end of a product line or have extra stock, they then place those items for sale to consumers directly.
B2B companies also commonly provide services to other businesses. Examples of business-to-business companies include those that offer tax preparation, research, advertising, call center services and payroll. For example, a company may hire an agency to build its website. It then could hire call center employees to manage calls. It might also need a cleaning company and one to maintain the office landscaping as well.
B2C Meaning and Examples
B2C companies are those that sell directly to consumers. Think of companies such as grocery stores, hardware stores, restaurants or clothing retailers. These companies can range widely in size and scope.
B2C companies are arguably riskier than any B2B company because they must know their customers very well. B2C companies have a more substantial requirement to leave assumptions behind as they study their customers and their competition.
Understanding B2C Companies
Many B2C companies operate under different brand names depending on the area. For example, the Kroger grocery store company also own Fred Meyers, Owens Market, Pay Less Super Markets and QFC. These companies are not situated in the same geographic location, and some of what they sell may be different from place to place. For instance, Pay Less Super Markets may have a more extensive selection of frozen food than Owens Market depending on the needs of the area.
From this example, it is evident how important branding is to any B2C company. While the same primary vendors serve Pay Less and Kroger, the way that they set up their supply chains and the quantities of their products will be different. Higher-end brands under a corporate umbrella may even have totally separate vendors depending on the needs of a particular location.
Why do B2C businesses structure themselves this way? Sometimes, complex business relationships crop up over time as B2Cs grow and acquire other similar or complementary companies. In other instances, company rebranding is needed to better serve customers in different locations. For instance, American Signature Furniture and Value City Furniture are the same company; they simply serve different areas.
B2B Businesses and Target Markets
How does a B2B company reach potential customers? There are numerous ways that companies handle this, and they range widely in effectiveness. Some vendors cold call potential customers. Many businesses have vendor policies in place and may not permit unsolicited visits, calls or emails, however.
If reaching out in this manner does not work, then how does a B2B acquire its customers? Some industries hold vendor days or trade fairs, where multiple companies send representatives and products to a location in an attempt to win business. Other companies require you to go through specific channels, such as speaking directly with a procurement office. Conferences are another excellent way for B2B corporations to get their name and product in front of potential clients.
Laws and Standards Regarding Sales
It is essential that a company’s sales team be aware of any applicable rules that a prospect has in regard to vendors. A few decades ago, it was common for vendors to woo companies with expensive gifts such as NFL tickets or even cars. These practices effectively put a halt to open market practices, so they are frowned on today.
Many companies go even further than what is on the books legally to avoid bribery. For example, a vendor could provide lunch with a demonstration of a product in some instances. Other prospective clients might require them to forgo lunch to avoid any possible claims of bribery.
B2B businesses live and die by their reputations. B2B companies, therefore, should always operate fully above board when it comes to acquiring new business to avoid any potential scandals or bad press.
Benefits of B2B Networking
Many B2B companies rely on one another when it comes to their operations. For instance, your payroll company might work for a local tax adviser. In turn, that tax adviser might provide services to your payroll company. This underscores the importance of maintaining excellent service across the board because everyone with whom you deal is a potential client.
In addition, networking is a critical part of the B2B world. Once again, everyone you meet, even your own vendors, is a potential client if you are operating a B2B company. As such, it is essential that you always carry a business card and have an elevator pitch prepared to sell the benefits of your business and what you have to offer.
History of Business Models
The idea of distinct business models has been around for decades, but this concept has changed a bit as the industry moves increasingly online. The entire B2D designation, for instance, is a newer concept related to selling to developers.
The history of business models can be traced back at least as far as Michael Lewis’s work "The New, New Thing," which states that a business model is a “term of art.” Lewis also defines business models as “how you plan(ned) to make money.”
Peter Drucker’s Business Model Questions
Later, another business philosopher named Peter Drucker extrapolated on this concept. He indicated that there are a few questions that every business model needs to answer in order to be successful. If the model does not answer these questions, it runs the risk of being an incomplete plan that misses significant points. These include:
- Who is the customer?
- What does the customer value?
- How does the business make money?
- What economic concepts drive our costs?
Who Is the Customer?
Understanding your customer is a complicated task that requires a great deal of more effort than merely choosing a demographic to target with your marketing. After all, you must understand your customers before you can provide any products or services of value to them. A marketing plan must specifically identify these target customers and what they need.
In a business-to-business company, you might wish to cater to companies that need payroll services if that is what you offer. Therefore, you probably would not advertise to sole proprietorships or other payroll companies. Conceivably, the first does not need payroll at all, and the second provides that service themselves.
In a business-to-consumer model, generational differences are often used when determining a target market. This can be more nuanced than you would expect, however. Younger millennials are over a decade younger than the elders of their generation. As such, it is important to conduct thorough market research before making marketing decisions.
What Does the Customer Value?
Knowing your customers means that you know what they value. For some customer groups, you may be focusing on a very specific or niche market. To understand what your customers value, you will need to either pay for some customer research or do it yourself. Knowing about your customers has become critical to success, even in a business-to-business model.
Many companies make use of UX researchers to help them narrow down their customer base. These research professionals are experts in interview skills and know how to get the most information from prospective customers. By doing continuous research on your core customer needs, your company can continue to deliver quality to those customers.
How Do We Make Money?
Once you know your customers, you can focus on how you are going to make money. This also requires you to know about your competition. You should focus on what they offer your target customer base so you can then figure out how to provide a service that will be able to compete. This can be achieved by offering extra services, superior quality, different products or a more attractive package of services.
One of the most important things to consider when you are attempting to determine the viability of your company is to determine how many competitors you have. This is known as market saturation. In addition, you should identify how many new businesses in your industry have failed in your area in the past five years. The best way to succeed is to do a post mortem on failed businesses in your industry so you will not repeat their mistakes.
As with any B2C business, it is important to consider economic logic before starting your B2B venture. Economic logic refers to primary supply and demand questions, such as:
- How much does your product cost to make or obtain?
- How much does advertising your product cost?
- What are other outside costs, such as your building, taxes, utilities, etc.?
- At what price point do your competitors offer the product?
Once you know the answers to these questions, you will be able to understand what your price point needs to be to remain competitive. If you can make a healthy profit after you have answered these questions, then you should be well positioned to start your B2B business.