There are several types of business models, which include Business to Business (B2B), Business to Consumer (B2C), and Business to Government (B2G) models. In this article, we look at the B2B meaning and draw comparisons with other business models.
What is Business to Business (B2B)?
Business to Business (B2B), or in some other countries BtoB, is any commercial transaction between two companies.
It typically exists in four (4) main forms; Which are:
- A business buys raw material from another business. For example, a car manufacturer buys iron sheets from a steelworks company.
- A business buys production machinery or tools from another business. For instance, a plastic manufacturing plant buys extruders and bag-makers from another company. Another example, a software development company that buys a software tool from another company to develop its own software.
- A business buys products or services from another business to sell to other entities (retailing). An example, A retailer ( e.g., a supermarket) buys products from wholesalers or manufacturers to resell.
- A business hires another business’s services, like auditing or accounting services, to help their operations.
According to studies, a majority of businesses operate on a B2B business model. Only a lesser percentage of businesses rely on other business models like B2C or B2G.
This is because to produce each finished product that is ready for end-consumers, a company must first buy a variety of raw materials or semi-finished goods before making them into a finished product. For example, before a car manufacturer can produce a finished car for consumers, they must first buy glass panels, iron sheets, engines, bulbs, etc.
B2B transactions tend to happen in the supply chain before the product reaches the consumer. For example, from manufacturer to wholesaler, wholesaler to retailer, manufacturer to manufacturer, etc.
Types of B2B Business Models
In a Vertical B2B model, companies at different levels of the supply chain have transactions. For example, HP – a laptop manufacturer, has a supply agreement with Intel – a microprocessor manufacturer. The relationships or transactions in a vertical supply chain are classified into Upstream and Downstream.
- Upstream: An upstream B2B starts from the raw material processor/manufacturer up to the final retailer. In other words, upstream is input
- Downstream: A downstream B2B is the opposite of Upstream B2B, it is the output of the supply chain.
Supplier > Manufacturer > Wholesaler > Retailer
Horizontal B2B transactions happen between companies in the intermediate or middle of the supply chain or trading market. They provide a common ground or meeting place for companies at different levels of the B2B spectrum.
Horizontal B2B involves a middle-man or marketplace. A good example is Alibaba.com, a platform that connects buyers and sellers online. Alibaba also has certain protections in place to create a reliable trading atmosphere.
B2B vs B2C vs B2G
Business to Business (B2B) business happens between companies, whereas, Business to Consumer (B2C) occurs when a company sells products directly to final consumers. Lastly, B2G (Business to Government), also called B2A (Business to Administration), is when a company sells its product (good/service) to a government.
B2B trade is mainly driven by corporate networking, personal relationships, negotiation, and contractual agreements. On the other hand, B2C is moved by marketing and advertising campaigns. Finally, B2G is driven by government tenders and negotiation.
B2B and B2G transactions have multiple decision-makers, whereas B2C only relies on an individual buyer. Also, B2C and B2G purchases are usually once-off affairs, whereas B2B buyers are frequent and repeating clients.
B2B buyers favor reliability and punctual delivery on schedule, whereas B2C buyers look for speedy delivery or instant access.
The differences between B2B, B2C, and B2G are many as you can keep drawing comparisons based on how they operate, how they perform transactions, how they generate leads, etc.
Conclusion – B2B meaning
The term B2B is often used in online transactions. However, it is universal in its application for all commercial trades – whether they are online or otherwise.
Since B2B goes on between companies of various sizes, it is inevitable that larger businesses often take advantage of or bully their smaller suppliers into unfair trades. This is due to the bigger companies having much larger resources (e.g., information, legal counsel, etc.) than their smaller counterparts.
In the UK, they eventually had to create a Small Business Commissioner post to help smaller businesses protect and resolve their grievances with large corporations.
B2B’s meaning in today’s modern market continues to expand as companies gain more avenues of trade due to increased globalization