Business-to-Business Marketing (Encyclopedia of Small Business)
Business-to-business marketing (often referred to as B2B) is the development and marketing of services and products to business, governmental, and institutional markets at the local, national, or international level, rather than private retail consumers. The vehicles of business-to-business marketing are fundamentally the same as those that are used to reach the consumer market. They range from traditional methodologies such as newspaper and magazine advertisements, direct mail, catalogs, television and radio marketing, outdoor advertising, sales promotions, and other long-established public relations/advertising media to the relatively new business avenue of the Internet. According to business analysts and participants alike, the World Wide Web is revolutionizing this aspect of the corporate world. In fact, the Internet has already surpassed many traditional marketing avenues for both business-to-business and business-to-consumer marketing, transforming the term "B2B" into one that is practically synonymous with electronic commerce. "What's behind this [tremendous growth]?" asked The Practical Accountant. "The intention is to enable buyers and suppliers to find each other much more easily, and still be able to take a slice of every transaction. That's the basic business model behind the thousands of business-to-business firms that have already started operations."
Business-to-business selling is much different than business-to-consumer marketing in several important respects. The average business buyer, for instance, is more knowledgeable about the merits (price value, ability to meet business needs, etc.) of products and/or services under consideration. Business buyers are also governed by organizational buying behavior, whereas consumer purchases are typically made by individuals or small groups (such as married couples or roommates). Major business purchases, whether of bulk shipments of office supplies, a single major piece of manufacturing equipment, or an ongoing business service (from security and maintenance to accounting and graphic art services) require far more research on the part of the buyer than do retail purchases by individual consumers, both because of their complexity and their price tag. "Many people influence the [business purchase] decisionrom the purchasing agent and company president to technical professionals and end-users," noted Robert Bly, president of the Center for Technical Communication. "Each of these audiences has different concerns and criteria by which they judge you." Finally, and most importantly, business-to-business marketing is based on the knowledgehared by both buyer and sellerhat the buyer needs to purchase goods and services merely to keep its operations going. The question is whether the buyer chooses to utilize your company's goods and/or services, or those of one of your competitors. "Most consumer advertising offers people products they might enjoy but don't really need," stated Bly. "But in business-to-business marketing he business buyer wants to buy. Indeed, all business enterprises must routinely buy products and services that help them stay profitable, competitive, and successful."
B2B MARKETING ON THE INTERNET
Traditional means of reaching business customers such as catalogs, direct mail, and convention booths remain an important element of marketing for many companies, and they will continue to be valuable tools. But the business-to-business market was fundamentally transformed by the growth of the Internet in the late 1990s, and e-commerce is widely expected to drive the expansion of the B2B world in the foreseeable future. In fact, many analysts believe that B2B spending on the Internet will quickly eclipse that of business-to-consumer spending in that medium. Gartner Group reported in 1999, for instance, that business-to-business transactions reached $237 million, a figure four times greater than the amount generated by business-to-consumer electronic commerce transactions. And Forrester Research, an Internet consulting firm, claimed that business-to-business e-commerce reached about $406 billion in 2000, and estimated that the figure would increase to about $2.7 trillion by 2004. A 2000 analysis by Jupiter Communications offered an even more optimistic assessment of the business e-commerce scene, predicting that the B2B market will account for more than $6.43 trillion in online trade by 2005. The same study indicated that 35 percent of that money will be attributed directly to business-to-business exchanges (also known as net marketplaces, net markets, B2B auctions, and online trading areas).
Marketing exchanges are an important facet of this explosion in business-to-business activity on the Internet. B2B marketing exchanges are electronic marketplaces that allow companies to place goods and/or services out for bid on the Internet. Any qualified supplier can then bid on the job order. "Some online exchanges allow businesses to search for particular products or suppliers and agree on the terms of transactions online (with actual transactions being conducted offline)," explained Entrepreneur's Melissa Campanelli. "Other exchanges allow complete transactions to take place online. Either way, B2B exchanges make it easy for buyers and sellers worldwide to come together on the Web to do business."
Whatever their form, Internet marketing exchanges can be beneficial to businesses in several specific ways. David Pyke, writing in Supply Chain Management Review, cited process cost savings and unit cost reductions as key bottom-line benefits: "Process costs include developing supplier relationships, handling proposals and quotations, and processing purchase orders. To the extent a company can automate procurement, it saves time, needs fewer people, and makes fewer errors Unit cost savings arise when a company solicits bids from multiple suppliers, rather than repeatedly awarding the contract to the same one or two companies If a company can attract bids from 25 suppliers rather than 5 and, if suppliers can see the bidding real time, the market appears to approach the economists' ideal of perfect competition." Many experts, however, urge B2B buyers to consider more than the bid price when evaluating suppliers. "Exchanges can be used o put suppliers against one another," noted Pyke. "If there is a lot of fat in the system, exchanges should create real and long-term supply chain savings." But he warns against taking good suppliers for granted. "A company could restrict the number of bidders or reserve a portion of the volume for select suppliers, even if their prices are slightly higher," he wrote. "The bidding information can be a basis for discussions about price reduction, but it is important that purchasers use exchanges to support their strategy, not to undermine supplier relationships Managers should take care not to employ the B2B products in ways that disrupt existing, successful relationships or that create unnecessary confusion in the supply chain." Besides, dropping transaction costs on B2B sites have made it easier for many buyers to avoid making bid price the sole consideration in awarding business. In 1999, for instance, buyers and suppliers were charged an average fee of 12 percent of total transaction; in 2000, average transaction fee dropped to about 4 percent. Some analysts believe that transaction fees may disappear altogether in the future, if exchange owners can instead be compensated with business information about buyers that they can in turn package and sell as a value-added service to suppliers.
Other observers, meanwhile, point to other advantages that can be gained from involvement in B2B exchanges, from exposure to suppliers/buyers that they might not otherwise meet through traditional channels (because of distant location, limited visibilility of other marketing media, etc.) to general networking opportunities. "A trading exchange can be defined as a dynamic electronic marketplace that allows participants to conduct commerce, collaborate on projects and purchases, review industry news and trends, and use information for smart decision making within a trading community," summarized Jay McIntosh in Chain Store Age Executive.
USING B2B EXCHANGES
Before selecting an exchange on which to do business (as either a buyer or seller of business goods and/or services), small business owners and managers should first conduct extensive research to make sure that they are dealing with a reputable exchange that can satisfy their business needs. Industry publications are a good source of information in this regard, as is the Internet itself.
Characteristics of good, reliable B2B exchanges include the following:
- It can and does integrate full product catalogs onto the site. "Suppliers don't want to be a line item in a catalog," one analyst told Manufacturing Systems. "Rather, they want rich systems to differentiate themselves, profile customers, and segment prospects."2) It is a well-known site that targets your industry. Suppliers who establish a presence on a B2B marketplace site that sees heavy traffic can save money on advertising and may be able to forgo the expense of establishing and maintaining their own Internet web site. Conversely, buyers want to frequent exchanges that have a variety of suppliers to choose from so that they can better their chances of securing the goods/services they require at an advantageous price.
- It is an innovative site that is responsive to rapidly changing business dynamics, both in your industry and in the larger business world. "The ongoing challenge is to have the people and processes in place to cope with any crisis or development, whether a new trend, market fluctuation, security issue, product shortage, or other situation as they arise," wrote McIntosh. "These cannot be dealt with on an ad hoc basis. However, the more layers put into a trading exchange, the less efficient they can be. In other words, the trading exchange must achieve a delicate balance between efficiency and security to become a viable part of the supply chain."
- Usage is compatible with other current business practices and dovetails with desired buyer/supplier relationships. "A company can concurrently use many different B2B products with many different suppliers" that range from close partners to distant sellers, noted Pyke. "As the B2B industry consolidates, companies will be able to use one product to support multiple styles of relationship."
- Other services provided on the site have value to your company. Many B2B marketplaces provide valuable information to participating companies, including current marketing information and data, industry news, and customer feedback. In addition, technically sophisticated exchanges can provide valuable assistance in closing the sale. "Credit checks are an essential part of commercial transactions, yet very few B2B sites have any kind of support for either party to the transaction, in terms of qualifying buyers and providing credit histories, guarantees, and so forth," noted Jim Seymour in PC Magazine. Ideally, the exchange will have mechanisms in place that will certify business processes, validate transactions, and efficiently resolve disputes between parties.
Today's business-to-business marketing practices continue to evolve, driven by the current power and future potential of the Internet. "Experts insist the future lies in the B2B-exchange business model," stated Melissa Campanelli in Entrepreneur. "Because the Internet is secure and open to the worldwide community, companies can work more efficiently via faster and less expensive business processes." These basic, fundamental advantages seem destined to cement the Internet's reputation as the primary vehicle for business-to-business marketing for the foreseeable future.
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