B2B vs B2C

B2B vs B2C: An Overview

Business-to-Business (B2B) and Business-to-Consumer (B2C) are two different types of business models. These two terms describe a typical business relationship.

B2C is a business model in which a company sells a service or product directly to a consumer.

It is the alternative to the B2B model in which a company sells its products first to another business, who then sells the product at a retail store at a marked-up price.

In a B2B model, an entire organization could be involved in finalizing the purchase.

It can involve other departments such as, but is not limited to, a board of trustees, C-level executives, and finance. In the case of a B2C model, the customer is the sole decision maker.

What Is B2B?

B2B is a type of business transaction between two businesses. It targets other companies and involves selling products or services that will be used in the business operations of another company.

It can also target other organizations, such as government agencies and non-profit organizations. A B2B can occur between a manufacturer and wholesaler, wholesaler and retailer, or two companies that use the services or products of each other.

The B2B market encompasses everything from industrial suppliers to payroll processors to software developers.

For example, the automobile industry. A truck or car that ends up in a consumer's driveway contains dozens of parts and products that were purchased through different suppliers in a B2B transaction.

Typically, B2B transactions occur under three conditions:

• When a business is sourcing materials, like office supplies or automobile parts

• When a business is sourcing services, such as hiring an accounting firm to manage finances

• When a business is sourcing products to resell, like a dealership purchasing a car from the manufacturer to sell to a customer

In B2B business models, both businesses benefit from each other. The company selling the product or service gains revenue, while the company buying gets a product or service it needs to help run its business.

B2B companies exist in every industry, and some B2C companies generate B2B activities.

For instance, a pharmaceutical company sells medicines to consumers but also sells products and services to hospitals, clinics, and other pharmacies.

Examples of B2B

Some companies that apply the B2B model are the following:

Alibaba

Alibaba is an e-commerce platform that connects Chinese manufacturers and suppliers with international buyers. It is one of the largest B2B companies worldwide.

It sells its goods to 40 industries and serves over 18 million sellers and buyers in 240 countries and territories.

Mailchimp

Mailchimp is a software company that provides marketing automation and email marketing services to businesses of all sizes.

It helps businesses send better mail and email marketing campaigns. They provide their services from small e-commerce shops to large online retailers—reach their audience, engage with them, and build their brand.

Slack

Slack is a cloud-based set of team collaboration tools and services. It offers one-on-one messaging, file sharing, searchable message archives, and integration with a variety of business software, making it a go-to B2B communication platform for businesses.

What Is B2C?

B2C is a type of business model where a company sells products or services to individual consumers.

B2C was described as commerce between traditional brick-and-mortar retailers and people who walk in to purchase the products or avail of the services.

However, today, B2C has evolved to include digital channels such as company websites, e-commerce platforms, and social media.

In the B2C business model, the company and the customer are the only two parties involved in the transaction.

The B2C market is broad and includes companies that offer physical goods such as clothing and electronics, as well as digital goods such as books, music, and apps.

There are five distinct models that B2C companies use to move their products in a digital space.

• Direct Sellers - This is one of the most common B2C business models that sell products directly to consumers. These include small online businesses as well as large retailers, like Microsoft and Apple, that sell exclusively in-house products.

• Online Intermediaries - They do not own the products that are sold on their site, but they put sellers directly in contact with the buyers and usually profit by taking a cut of the transaction. eBay and Etsy are examples of online intermediaries.

• Advertising-Based - It involves a company purchasing advertising space on a platform that receives large volumes of traffic, like Youtube or Reddit.

Targeted advertising used criteria such as internet searches, content viewed, and demographics to strategically place advertisements in front of a promising customer.

• Community-Based - It takes advantage of online, like-minded communities occurring on media platforms and beyond. Since many of these communities form around a shared interest or a physical location, companies can identify promising leads more easily.

Examples of this B2C model are Instagram, Facebook, Twitter, LinkedIn, and other online forums.

• Fee-Based - These B2C models require payment to access a company's content. Subscription services like Spotify, Hulu, and Lynda, are prime examples of this model.

Examples of B2C

Some companies that use the B2C business model are the following:

Netflix

Netflix is a B2C company that offers its services to mass-market consumers. They offer access to various documentaries, television, and movies when consumers pay for monthly subscriptions.

It also has produced original content for viewers, which is an example of a B2C transaction.

H&M

H&M is a top B2C fashion company that sells various clothing to mass-market consumers worldwide.

They also market their other products, including beauty products and home decor, to consumers who will buy an item and perform the B2C transaction.

Uber

Uber is a ridesharing app that allows people to request a ride from drivers in their area. It is a convenient way to get around, especially in large cities where public transportation can be difficult to use.

Uber earns income by taking a percentage of each ride that is requested and completed. This is an example of a B2C transaction since Uber is selling a service directly to consumers.

Key Differences Between B2B and B2C

Let us look at the differences between B2B and B2C through the following key points:

End User

In a B2B company, the end user is typically another business, whereas, in a B2C company, the end user is an individual consumer.

Product Pricing and Presentation

Businesses as end users are typically more price sensitive than individual consumers. In B2B, the sales process is more complex, and the decision-makers are usually looking for the best value for their company.

On the other hand, in B2C, consumers are generally less price sensitive and care more about product presentation.

For example, a business that sells chocolates to another business that is going to create something with the chocolate would not care so much about the packaging the chocolate arrives in.

Because of this, pricing will typically be lesser considering that the company does not have to spend extra on marketing or packaging.

Discounts will also be given for larger orders to incentivize businesses to buy in bulk.

On the other hand, a B2C company that sells chocolates to individuals would be more focused on product presentation because the product needs to look appealing on store shelves.

Usually, a higher price will be charged for this to make up for the extra marketing and packaging costs.

Customer Segmentation and Distribution

B2B businesses typically have a smaller customer base than B2C businesses.

They often sell their products or services to other businesses through direct sales or indirect sales channels such as distributors or resellers.

On the other hand, B2C businesses usually have a larger customer base and sell their products or services directly to consumers through channels such as brick-and-mortar stores, online stores, or catalogs.

B2B vs. B2C: Pros and Cons

There are both advantages and disadvantages to using a B2B and B2C business model. Some of the pros and cons of each are as follows:

Operational Costs

B2B businesses often have higher operational costs than B2C businesses.

B2B businesses need to establish systems and hire employees to manage customer relationships and develop and maintain their products and services.

This results in high set-up and maintenance costs. B2C businesses, on the other hand, can be run with a leaner staff and have lower set-up and maintenance costs.

Revenue

B2B business models often have higher revenue potential because they sell their products or services in large-scale businesses.

They typically have more sales because other businesses often purchase in bulk in a single transaction.

B2C companies, on the other hand, tend to make smaller sales to individual customers in a single transaction and may attain limited sales growth.

Sales Cycle

Both B2B and B2C business models must learn about their target market and create a sales strategy.

However, the sales cycle for B2C business models is typically much shorter than the sales cycle for B2B business models because B2B consumers require rigorous decision-making in making purchases.

B2C consumers typically make emotionally-driven decisions when purchasing items.

B2B calculates the cost-benefit of a product or service before making a decision, while B2C looks at the immediate want or need.

Business Administration

B2B business models are often complex and require systematic business administration. They handle various business operations that must be carried out efficiently and effectively.

B2B companies also require a good understanding of their target market, product development, and pricing strategies. They also need to have systems in place to manage customer relationships.

B2C businesses, on the other hand, often have less formal business administration because they are typically smaller and have simpler operations.

Hybrid B2B B2C Business Model

A hybrid business model uses both B2B and B2C business models. In this type of business model, the company sells its products or services to both other businesses and individual consumers.

An example of a hybrid B2B B2C business model would be a company that manufactures and sells car parts. The company sells its car parts to both other businesses (B2B) and individual consumers (B2C).

Amazon is a real-life example of a company with a hybrid B2B B2C business model.

While it is best known for its B2C capacities, Amazon has a large B2B relationship as well. Its B2B channel, Amazon Business, supports small businesses by offering business-exclusive prices and discounts on millions of items.

The main advantage of a hybrid business model is that it allows the company to reach a larger market.

The company can sell its products or services to both businesses and consumers, which gives it a greater chance of making sales and generating revenue.

The flexibility of a hybrid business model is also an advantage, as the company can adjust its focus depending on the needs of the market.

The main disadvantage of a hybrid business model is that it can be more difficult to manage.

The company has to juggle two different types of customers (businesses and consumers) with potentially different needs.

The company also has to maintain two separate marketing campaigns (one for businesses and one for consumers). This can be costly and time-consuming.

The Bottom Line

Business-to-business or B2B refers to commercial transactions between two businesses, such as a manufacturer, a wholesaler, or a retailer.

Business-to-consumer or B2C refers to selling goods or services from businesses to individuals.

There are several key differences between B2B and B2C, including end users, product pricing and presentation, and customer segmentation and distribution.

The two models also have certain pros and cons in terms of operational costs, revenue potential, sales cycles, and business administration.

A hybrid business model uses both B2B and B2C business models. This business model has the advantage of being able to reach a wider range of customers.

By using both B2B and B2C models, businesses can target both businesses and consumers, which can help to increase sales and revenue.