Have you ever thought how a big company, say Coca-Cola, provides new computer sets for its thousands of employees? They would never ask an office manager to go to a computer shop to buy in bulk, but these transactions are important for the success of their business.
Welcome to the world of business-to-business or B2B marketing.
Have you ever thought how a big company, say Coca-Cola, provides new computer sets for its thousands of employees? They would never ask an office manager to go to a computer shop to buy in bulk, but these transactions are important for the success of their business.
So what is B2B marketing?
B2B describes business transactions between businesses, say, between a retailer and a wholesaler, or a wholesaler and a manufacturer. This can be contrasted with business-to-consumer (B2C) businesses, which basically involves commerce transactions between a business and a consumer or end user.
The overall volume of B2B transactions is substantially higher compared with the volume of B2C transactions. The main reason is that in a typical supply chain, there are many B2B transactions involving raw materials and sub components, and just one B2C transaction, specifically the sale of the finished product to the consumer or end customer.
B2B marketing is thus about attaining the needs of other businesses, although ultimately the demand for these products and services made by these businesses are likely to be driven by their consumers in their homes.
B2B marketing up close
Is B2B marketing really different from B2C marketing? A fair question. After all, B2B marketers share many concerns with their B2C counterparts. Both groups deal with product distribution, branding, development, and promotion. In addition, the line between B2C and B2B marketing often blurs. For instance, Dell Computers successfully markets to both audiences.
But yes, real differences exist between B2B and B2C marketing. Here are ten main factors that make B2B markets special as well as so different to consumer markets.
1. B2B markets usually have a decision-making unit that is more complex
In many households, even the most complex decisions (such as moving to a new house or where the children will study in college) are confined to the entire family unit, but items such as food, clothes, or cigarettes are usually decided by just one person. In B2B markets, the decision making unit (DMU) in is highly complex—or at least the DMU has the potential to be so.
Buying low-risk and low-value products (say, the ubiquitous paper clip) may very well be the duty and responsibility of the office junior. However, buying a new plant or office that is important to a business may very well involve a large management team that will make the decision over a certain time period. The DMU at any point is often ephemeral—specialists come in and leave to make their various contributions and, of course, at some point people leave the organization or shift jobs far more frequently than they modify family unit.
This dynamism and complexity has several implications for B2B markets. The target audiences for the B2B communications are regarded as amorphous, made up of groups or teams of constantly changing individuals that have different interests and motivations. Buyers would want a good financial deal. Production managers prefer high throughput. Health and safety executives want prefer low risk. These are just their functional, simple, needs. Each individual who is party to the DMU will likewise bring their psychological and cultural baggage to the group’s decision and this will create interesting variations to the selection of suppliers and products.
B2B purchases can be divided into four categories based on their financial value as well as the level of business risk that is associated with the purchase.
- Low-risk, low-value acquisitions are considered least distinct from consumer purchases. These often involve just one, usually junior person. There is little business or financial risk involved in case the decision is wrong, meaning the thought that goes into the decision is relatively little.
- Low-risk, high-value purchases such as raw materials usually involve a combination of technical and purchasing personnel, and usually very senior people like board members. This complexity is needed to ensure that price can be brought down without affecting quality. Purchasing personnel are usually key decision makers of a company on a transaction-by-transaction basis, aided by the more technical employees, who in turn would review suppliers periodically.
- Low-value, high-risk acquisitions like office insurance would similarly need a combination of specialists and purchasers. As the “risk” is more in the product rather than the price itself, and as each business transaction is likely to be unique, an expert (or even probably an in-house legal expert) would probably be the key decision maker.
- High-value, high-risk acquisitions are considered the most distinct from all consumer purchases, with a huge number of senior decision makers assessing a wide range of purchase criteria. For plant equipment for example, expect a CFO, CEO, R&D Director, Production Director, Head of Legal Department, Purchasing Director, and some upper-management department heads to be part of the decision-making process.
For the B2B marketer, what does this mean?
Faced with a knowledgeable and multifaceted buyer, it is important that the B2B marketer shows a high level of expertise in its interactions with the intended audience. This means not just product knowledge, but even the technical and other matters that the buyer will get throughout the life of the acqusition.
The marketer should also show patience and diligence when it comes to negotiating with the decision making unit and allaying the fears of production, finance, technical, as well as other decision-makers.
2. B2B purchasers are more “rational”
Consumers, in truth, are often less well-informed and less accountable to other people and are far more susceptible to indulgences, recklessness, and whims compared with B2B purchasers for a company or work force. Consumers thus have this tendency to make buying decisions that a rational observer (a B2B buyer that needs to make a profit every month) would think as ludicrous. Consumers would generally not ask if the product they are interested in has a return on investment. Consumers buy what they want, not what they need.
For the B2B marketer, what does this mean?
To some regard, the fact that B2B buyers are relatively rational is making our job as marketers a bit easier—we just need to design and manufacture outstanding products, sell them at a good price, and deliver them on time. Or is it?
Not quite. Because of the accountability that controls most B2B buyers, security and trust are key issues. No B2B purchaser would prefer risking his or her reputation or livelihood purchasing an unreliable service and product. This makes emotional concerns such as security and trust absolutely critical. This also in turn gives crucial emphasis on reputation, brand, case studies, as well as other factors that convey consistency and reliability over the life of the service or product being purchased.
3. In B2B markets, buying units are limited
Almost all B2B markets show a customer distribution that basically confirms the Pareto Principle or the so-called 80:20 rule. A small number of consumers dominate the sales ledger. We are not talking thousands or millions of customers. It is not surprising, even in the biggest B2B companies, to have just a hundred or even fewer consumers that actually make a difference to sales.
There is a matter of scale as well. In consumer markets, a single person has reasonable limits in buying and using any product or service. Of course, there are heavy consumers of end user products and services but the difference is a matter of small degree if you compare it with the scale of differences in B2B markets. Small numbers of consumers of widely different sizes, as well as the presence of a few major accounts, is another major special feature of B2B markets and this means a completely different take on marketing you need for such consumer markets.
For the B2B marketer, what does this mean?
Because only a few numbers of consumers dominate the lives of B2B businesses, database management is thus essential in B2B marketing. Customer relationship management systems at present allow databases to be updated with personal details of key members of the DMU along with every transactional and contact record.
It is also important that the B2B marketer must be adept at major account management including the proactivity, manpower, and responsiveness that the work entails. Key accounts do not only require the product or service delivered to them when and in the numbers they need it; businesses also routinely need services including swift problem resolution as well as technical advice. Indeed, key B2B accounts are slowly moving beyond buying and selling effective services and products and good prices; they now require or demand partnership. They are looking for B2B companies that can hold stock on their behalf, calculate product efficiency as well as added value, provide technical consultancy, and give long-term on-site support.
The limited number of purchasing units in B2B markets, and especially the concentration of expenditure amongst a small number of those buying units, presents an opportunity as well as an expectation that the biggest purchasers are given dedicated value-added services that will amply reflect their importance to the supplier. If B2B companies do not satisfy this expectation, rest assured others will.
4. Behavioral and needs-based segments in B2B markets are fewer
B2B markets regularly have fewer behavioral or needs-based segments compared with consumer markets. One reason is that there is smaller target audience existing in B2B markets. In a B2C market with lots of thousands of potential consumers, it is thus practical and economical to categorize the market into 10 or even 12 distinguishable segments, even though several of the market segments are only differentiated by small nuances of need or behavior. This is simply not the scenario when the target audience only has a few hundred business buyers.
The main reason for the fewer segments, however, is because the audience’s needs or behavior vary less compared with a consumer audience (that is less rational).
It is also noticeable that the needs-based and behavioral segments that emerge in B2B markets are quite similar across different industries. In a typical B2B market, needs-based segments often resemble the following:
- A brand and quality-focused segment, which prefers the best possible service or product and is ready to pay for it. Companies in this marketing segment often operate in high margins, are usually medium-sized or large, and regard the service or product as of high strategic importance.
- A price-focused segment, which does not seek any “extras” and has a transactional outlook when it comes to doing business. Companies are usually small, working to low market margins, and regard the service or product as of low strategic importance.
- A partnership-focused segment, generally consisting of key accounts, which looks for reliability and trust and regards the B2B supplier as a strategic partner. Such companies are usually large, operate on substantially high margins, and view the service or product as strategically important.
- A service-focused market segment, which has high requirements when it comes to product quality and range, as well as of aftersales, delivery, among others. These companies generally work in time-critical sectors and can be large, medium, or small. They are often buying products or services in relatively high volumes.
For the B2B marketer, what does this mean?
Because B2B markets have relatively few segments, the job of the B2B marketer is a bit easier. However, skills in knowing which customers fit in which segments, and how to generally appeal to each of these marketing segments, are not quick to come by. Main challenges in establishing a needs-based or behavioral segmentation are as follows:
- Obtaining an agreement on what the segments are, and what differentiates them, generally need some investment in quantitative market research.
- Once segmentation of the market has been achieved, evaluating which firms are in which marketing segment is extremely hard to do. Needs-based and behavioral segments usually go beyond “firmographic” segments, in short there are usually no immediately manifest indicators (like country or industry sector) of the marketing segment to which a firm belongs.
- Training marketing teams, customer relationship, sales teams, and other departments must follow through with the segmentation by tweaking their approach to often intangible factors. This requires a big effort and investment vertically and horizontally within an organization.
- Given the limited size of B2B target audiences, many B2B marketers find the simplest approach is to divide the target audience according to size and split them by geography, with accounts getting the attention from the B2C supplier based on their strategic value to the latter.
5. B2B purchasers are longer-term buyers
While consumers do purchase big-priced items such as houses and cars which can be considered long-term purchases, these purchases are relatively rare for them. Long-term purchases, or purchases that are to be repeated for a long period of time, are quite common in B2B markets, where components, capital machinery, and continually used consumables are always prevalent.
In addition, the long-term services and products needed by companies are more likely to need service back-up from the B2B supplier compared with those in consumer markets. A new item of machinery, a photocopier, a computer network, or a fleet of vehicles generally require more extensive aftersales services than say, a house or a vehicle bought by a consumer. The repeat purchases (office consumables, machine parts, for instance) will also need ongoing services and expertise in terms of delivery, implementation or installation advice, among others that are less demanded by consumers.
Finally, business consumers tend to be viewed as long-term purchasers more than the consumers because there are fewer B2B customers. The benefits of keeping a B2B customer happy and satisfied are often enormous, and the effects of losing them very serious.
For the B2B marketer, what does this mean?
The longer-term focus in B2B markets emphasizes two main points for the marketer to think about: first the crucial aspect of relationship-building in B2B markets, especially with key customers; and the importance of a sales team that is technically focused.
6. B2C consumers rely more on packaging versus B2B consumers
There has been a rapid growth in the packaging of end consumer products through years, as marketers look not only to preserve and protect their products, but also to use it as a vehicle through which desires and aspirations are transmitted to the consumer. With consumers seen as less rational than B2B buyers, this technique has proved quite successful at providing perceived value to products or services.
Adding perceived value through packaging—thus making packaging an important part of the extended offer—is tad more difficult to attain in B2B markets, where the product or service is primarily judged on technical criteria, with the extended offer built around business relationships and not aspirations, dreams, or appearances.
For the B2B marketer, what does this mean?
The implications for B2B marketers are clear—packaging, like service or product, has a primarily functional role. B2B resources thus are far better directed in developing business relationships and expertise.
7. B2B products are generally more complex
Just as the DMU is often complex in B2B markets, so too are the products and services themselves.
Where the sale of a consumer product needs little expertise (perhaps more a whim by itself), the sale of a service or an industrial product usually needs a qualified expert. Where products for B2C consumers are largely standardized, industrial products often require high fine-tuning levels. Even consumer products that are relatively complex tend to be selected on fairly simple criteria. A car for instance might be selected because looks nice and it goes fast, and a speaker might be bought because it is tremendously loud.
In comparison, even simpler industrial products usually have to be integrated into bigger systems and thus, have specific requirements and require expert and intimate examination and modification. It is quite difficult to imagine a commercial website design buyer or turbine manufacturer looking at four or five products and then selecting one simply because the product looks nice. The choice of turbine for example will need a whole gamut of productivity, technical, and safety issues, while the selection of website might be dependent on its integration into a bigger B2B marketing campaign, the degree to which the site draws potential business clients via search engines, and its interactivity with users.
Buyers of end consumer products are usually not interested in the various technical details of what they are purchasing. The vast majority of automobile buyers are more interested the speed of the car rather than in how the car will reach that speed. In similar vein, the buyer of a candy is probably more interested in the idea that the candy tastes nice and stops them feeling hungry rather than in the ingredients or technology that make it so. Thus, consumer products are generally marketed in methods that are quite superficial or even vacuous.
B2B campaigns, on the other hand, look for ways to educate their target audience by giving specific factual information. For example, a corporate vehicle fleet purchaser is unlikely to buy a car for his or her employees on the basis of its sex appeal or color. Many target firms in B2B campaigns are also well-informed already on the product area, so promotional material in such campaigns may have to include product specifications.
For the B2B marketer, what does this mean?
The B2B marketer thus needs to be fully informed in all the details of the service or product being sold. This knowledge must cover not just the “technical” details of the service or product, but even the extended offer such as problem resolution, client management team, aftersales service, among others.
8. In B2B markets, personal Relationships are more important
Another important feature of B2B markets is the crucial role of the personal business relationship. A small consumer base that regularly purchases from the B2B supplier is quite easy to talk to. Technical and sales representatives go and visit the customers. People in the business transactions are usually on first-name terms. Personal trust and relationships thus develop. It is not surprising for a B2B supplier to have consumers that have been committed and loyal for many years.
The importance of cultivating personal relationships is pronounced especially in emerging markets such as Russia and China, which have little cultures of free information, historic problems with local B2B suppliers, and–in companies where the branding concept has yet to emerge– little other than trust in the sales staff to assess the provenance of the service or product they are buying.
For the B2B marketer, what does this mean?
The consequences of these business relationships for marketing therefore reflect a high funding expenditure on people (such as technical and sales support) and a relatively modest expense on various forms of promotion. Advertising budgets for B2B marketers are generally measured in thousands of dollars (or pounds or Euros) and not in millions. The B2B sales staff is a different animal to the consumer sales staff, because the former needs to focus more on listening as well as cultivating a limited number of business relationships compared with the more quantity-driven as well transactional approach that characterize consumer markets. This emphasis therefore makes it crucial to establish better business relationships with B2B clients, including face-to-face contact with company representatives and a more in-depth technical understanding of the product or service he or she is selling. Trade shows for example have become important in B2B markets.
9. B2B markets drive less innovation
Most innovation is actually driven by consumer markets. B2B firms that innovate generally do so as a reply or response to an innovation that has happened further upstream. These businesses are usually less risk averse, having to focus more on calculated moves rather than predict trending whims and irrational behavior of consumers.
This does not mean that B2B companies are poorer innovators compared with the ones in consumer markets.
For the B2B marketer, what does this mean?
B2B marketers thus have the time as well as the indicative data to carefully evaluate their options before reaching a decision. As competitors are usually in the same position, this makes getting good quality intelligence absolutely crucial. B2B marketers are thus recommended to fo detailed market research, combining this with information from upstream to build up a more complete market intelligence picture.
10. In B2B markets, sub-brands are less effective
In their drive to embrace branding strategy, a lot of B2B companies have over-compensated and in fact developed big numbers of sub-brands for various aspect of their product or service range. This type of approach may be effective in consumer markets, but in B2B markets, target audiences are relatively smaller and place more emphasis on business relationships. Most importantly, B2B buyers are usually more informed than end consumers and view multiple brands or sub-brands as generally pointless and confusing, even insulting in some cases.
For the B2B marketer, what does this mean?
The key point here for B2B marketers is to assure that the branding strategies they use are properly researched and implemented. The brand strategy research should thus encompass every consumer touch point within the business, acting as a sort of framework through which the values of the company are transmitted. More importantly, B2B marketers should realize that “less is more” is a good mantra when it comes to branding.
Conclusion: B2B buyers are simply more demanding
The final factor of B2B buyers provides a suitable conclusion: B2B buyers are simply more demanding. They have a duty and responsibility to come to the right decision when buying on behalf of their firms. They perform fewer risks and thus need quality to get it right. They have the knowledge to ascertain a bad offering or not. They are also used to getting what they really want. In addition, they are usually paying more than they would as end consumers and thus expect more in return. B2B buyers are likely to view themselves as interacting with the service or product supplied to them, not just playing the role of passive recipient.
For the B2B marketer, what does this mean?
The implications for B2B marketers are clear. It is their job to attain the target audience’s needs; they must therefore up their ante to ensure that their service, product, and intangibles actually meet and even exceed customers’ requirements.
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