4.1 The Business-to-Business (B2B) Market

Characteristics of the B2B Market

B2B markets differ from B2C markets in several ways (see Table 4.1). Let’s take a closer look at each of these differences.

• Nature of the buying decision. It may seem a little obvious, but it’s important to remember that B2C buyers generally make buying decisions for themselves or their households, whereas B2B buyers make buying decisions for their companies, which serve either consumers or other companies. When you go grocery shopping, you’re buying a loaf of bread, a gallon of milk, and a dozen eggs for yourself or your household. However, if you are buying food to be prepared and served at a large hospital or a university, the complexity and volume of that purchase will be far greater.
• Fewer buyers, higher volume. Another difference between the two markets is that B2B markets deal with fewer buyers, who purchase a much higher volume than the B2C market. For example, when Barnes & Noble sells textbooks to students, the potential market includes hundreds of thousands of students worldwide. These students purchase one or more textbooks for their semester’s classes. However, Barnes & Noble is just one commercial buyer purchasing those hundreds of thousands of textbooks.
• Direct demand versus derived demand. Another difference between the two markets lies in the nature of the demand for products. B2C markets are driven by direct demand, the demand for goods and services for direct consumption purposes. By contrast, B2B markets are driven by what’s known as derived demand, in that demand in the B2B market is dictated by the demand for consumer goods on the B2C market. For example, as more workers are working from their homes, the demand for computers has risen. As a result, you’ll see derived demand in computer-related products, such as mice, monitors, printers, and so on.
• Longer buying cycles. As a general rule, the higher the dollar volume of the sale and the more complex the product, the longer it takes for the sale to be made. As a consumer in the B2C market, you might buy a desktop computer within a relatively short time after deciding that you need a new computer. In the B2B market, a hospital purchasing a magnetic resonance imaging (MRI) machine may well be spending millions of dollars, and the sale can take months or even years to accomplish. Not only will there be more people involved in the decision-making process, but the hospital needs to be concerned with many factors, such as safety, reliability, and post-purchase service. A lot of time and effort is typically required to “close the deal” with a big-ticket item like an MRI machine. We’ll be examining the stages in the B2B buying process in depth later in this chapter, but the B2B buying process is typically longer and more complex, not only because of the involvement of different decision makers, but also because these decision makers must consider a wide range of factors when making high-volume or high-dollar purchases.
• Reliance on personal selling. Whereas B2C markets tend to rely more heavily on mass marketing, B2B markets typically are characterized by increased reliance on personal selling. Additionally, B2B purchasing is more likely to involve complex negotiations concerning price, delivery schedules, technical specifications, etc., so personal selling plays a vital role. Typically, because B2B buyers and sellers often need to work together to define problems and implement solutions, they focus on building long-term relationships rather than a one-and-done purchase. For example, it took nearly four years to negotiate the contract, but the Indian government and Airbus finally reached agreement on the purchase of 56 Airbus C295MW tactical transport aircraft from Airbus.²
• Geographical concentration. Finally, the scope of the market is different. In the B2C market, you have millions of potential customers dispersed throughout a region, a country, or perhaps the world. On the other hand, the B2B market is more concentrated. The B2B market has far fewer customers that are often geographically concentrated in areas based on cost, access, and availability of resources. Detroit (the heart of the US automotive industry) and Silicon Valley (home to many technology-based companies) are prime examples.