Business to Business (B2B) Business Model-How Does It Work?

What is the Business to Business (B2B) Business Model?

The Business-to-Business (B2B or B-to-B) business model is for companies that deal with other companies or businesses. In this model, transactions take places between two companies, rather than a company and consumers.

Within these two companies, one is usually a manufacturer while the other party can be a wholesaler or retailer. Similarly, the transactions can be between wholesalers and retailers as well.

As long as a company or wholesaler does not sell goods or services to a consumer, it will follow the B2B business model. The B2B business model is one of the most traditional models in the world of business.

It is considered the opposite of the Business-to-Consumer (B2C) business model, in which a company sells directly to its consumers.

The B2B business model has also found its way into the world of eCommerce businesses. Many companies have developed online platforms or marketplaces, which allow them to interact with their customers, other companies or businesses, and sell to them.

The internet has given these companies an outstanding opportunity to reach out to their customers in a better way.

Unlike the B2C business model, the B2B model involves many intermediaries. A product has to go through different companies or businesses to reach the consumer.

For the manufacturer of these products, it becomes easier to outsource the distribution of its products to wholesalers or retailers while focusing on its products better.

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How does the Business to Business (B2B) business model work?

The way the B2B business model works is straightforward. A company, usually a manufacturer, produces products that it sells to other companies or businesses.

The customer, in this business model, is not the consumer of the goods but rather an intermediary in the process. The customer may then sell the product to consumers or other customers, based on their business model.

However, for this business model to be successful, B2B companies need to carry out a significant amount of research and planning. The success of companies using this model depends on its account management department to establish relationships with their customers.

The interactions in this business model between companies and their customers are of professional nature and may need a lot of nurturing.

What are the advantages and disadvantages of the Business to Business (B2B) business model?

Like any other business model, the B2B model also comes with its benefits and disadvantages. Some of the top ones are as below.

1) Advantages

The B2B business model allows companies to more conveniently sell their products to other businesses either through traditional means or online platforms. Usually, it provides better profit opportunities as companies can sell their products in bulk, achieving a higher volume of sales. The customers also benefit from ordering mass volumes by getting discounts.

B2B companies also have higher market potential. These businesses can target a large market of companies across industries, thus, reaching more customers. Similarly, they also get the flexibility of focusing on their processes and operations while other businesses have to deal with customers and supporting them.

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B2B companies also enjoy better security from contracts with other businesses. In contrast, in business models such as B2C, security is lower. Business deals between two companies are usually much safer for both parties rather than when conducted with consumers.

2) Disadvantages

The most prominent disadvantage of the B2B business model is the introduction of several intermediaries in the process, resulting in a long supply chain. Companies using the B2B model also have to divide their profits, while customers and consumers will have to pay added margins for every intermediary added in the chain.

Similarly, while B2B companies enjoy the bulk orders from other companies or businesses, they still miss out on the opportunity to sell their products to consumers directly. It can significantly limit their profits as they get limited to the few regular businesses with which they deal. If B2B companies lose their customers, they can also lose the consumers those customers brought.

Lastly, B2B companies are common in all industries. It means the competition between B2B companies is higher. Therefore, these companies need to stand out from the competition to get noticed. That may mean decreasing their prices or cutting down costs, which are an added hassle.

Examples

The best example of B2B companies comes from the automobile industry. Companies like Ford, Honda, Toyota, etc. don’t sell directly to consumers.

They sell their products, automobiles, to car dealerships, that bring in consumers and sell those vehicles further. In the eCommerce world, companies like Amazon and Google are examples of companies that use B2B strategies.

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Conclusion

Companies that use a Business-to-Business (B2B) business model sell their products or services to other companies or businesses rather than consumers. In the process, however, they introduce several intermediaries. There are several advantages and disadvantages to this model, as discussed above.

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