Commercial transactions between businesses are covered more generally in this volume in the article called Business-to-Business. Here the intention is to characterize the marketing aspects of business-to-business relationships. The current abbreviations commonly applied to these transactions, B2B or B-to-B, are closely associated with Internet activities. But the underlying reality is very old (businesses have always sold to other businesses) and, significantly, electronic transactions between enterprises predate the emergence of the World Wide Web by many decades. Long before the Internet’s dramatic appearance and continuing to this day, B-to-B commerce by electronic means operated and still operates by privately maintained electronic data interchange (EDI) channels.
For this reason, B-to-B electronic commerce was nearly 15 times greater than business-to-consumer e-trade in 2003, the most recent year for which data are available.
Most of the heavy B-to-B commerce began over private channels, but new and emerging business-to-business electronic transactions are coming to rely on the Internet.
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Marketing And Sales
Marketing in the modern sense covers a vast range of activities including advertising, public relations, promotion, all types of sales, and aspects of distribution— including also specialties within this field such as market research, strategy, and planning. In those corporations predominantly engaged in selling to the consumer, marketing and sales are typically separate functions, but with sales subordinated to and managed by the more prestigious marketing function. Marketing thus represents the overall strategic, intelligence, and communications function whereas sales are detail-oriented implementations obeying and carrying out a general marketing strategy.
The chief difference between business-to-business and business-to-consumer marketing is that the roles of marketing and sales are largely reversed. A business dealing with another business relies much less on image-based forms of mass persuasion and heavily on technical and commercial communications, product demonstrations, and cultivation of relationships through industrial channels. The basic reason for this is that B-to-B sales are in their very nature much more influenced by price, by product performance, by timely and reliable deliveries, and effective and swift services—than by perceptions or emotions. Image marketing in B-to-B plays a definite but subordinated role; occasionally it uses mass media, but generally the message is channeled through magazines, journals, and newspapers (such as Barron’s or the Wall Street Journal)intendedto reach decision makers in business.
Virtually all businesses selling to the ultimate consumer also sell to the “channel,” namely distributors and retailers. Thus their sales have a multi-tiered aspect. In these situations the broad marketing aimed at the ultimate consumer is, of course, of great interest to the business buyer too. The retailer is much more likely to stock a heavily and effectively advertised consumer product for which the producer also provides lucrative incentives for joint advertising at the local level—than the retailer is likely to stock a brand with low recognition value. In such contexts marketing in the traditional sense also plays a major role in selling to the business customer.
Categories Of Relationships
B-to-B sales activities differ by the nature of the relationship. Sales categories take three major forms; most businesses belong predominantly to one type of distribution.
The categories are industry specialists, institutional generalists, and channel-sales specialists.
Industry Specialists A business may typically sell all of its products or services to participants in the same narrowly defined industry or activity. Classical examples are defense contractors who rarely sell anything except to the U.S. Department of Defense or other such entities abroad with federal government approval. Process engineering firms are likely to be concentrated in the petrochemicals industries: their job is to build refineries and chemicals plant. Such firms occasionally also build power plants for utilities, compressor stations for pipelines, etc.
Major categories, like autos, produce an array of suppliers that work exclusively for the category. Golf cart producers sell principally to golf courses.
A subgrouping of the specialist category is formed by companies that sell to a narrow category within a single industry. Specialized equipment companies serving medicine or laboratory research fall into this category—selling only to certain kinds of hospitals or clinics, for example.
Institutional Generalists At the other extreme are businesses that sell products to every kind of business and similar institutions and to virtually every element of such client operations. Examples are office supply producers, manufacturers of file cabinets, and makers of office furniture. Advertising agencies and public relations firms may be similarly in the generalist category—but many will develop special clienteles. Subsets of this “generalist” category are producers who sell to one sector in preference to others—thus, for instance, tool makers or steel producers who sell to virtually all manufacturers but very rarely to wholesalers, retailers, or financial companies.
Yet another but narrower generalist category is the producer who, by the nature of its product or services, deals exclusively with a well-defined department but one almost always present in a business or an institution.
Payroll or health insurance companies are an example in that their clients are finance departments or human resources functionalities. Most large computer companies deal with information system (IT) departments even when selling stand-alone computers.
Channel Specialists All companies that use a multi-tier distribution channel concentrate their selling effort (but not necessarily their marketing efforts) on distributors specializing in their products. The actual selling may take place at annual or seasonal meetings at which the company hosts its distributors, makes presentations, and uses two or three days to negotiate orders with the distributors. When distributors must be added or changed, the company often engages in a complex process of recruitment to line up the right candidate. In some industries, e.g., recreational boat sales, dealings are directly with the retail channel. Automotive companies deal directly with dealers through intermediate, company-owned “zone” administrations.
Other Variants The three broad categories outlined do not present an exhaustive description. All kinds of variants and specializations exist—and, of course, within large companies different divisions may use different methods to reach their markets. Some producers also deliberately target only large, midsized, or small business clients again using the broad approaches outlined.
These categorizations illustrate the rather extensive specializations that characterize B-to-B marketing. The single-buyer company faces quite a different challenge than the company selling to virtually everyone. But the defense contractor, selling only to DOD, must, nevertheless, also cultivate relations with other political decision makers to maintain its reputation and visibility. A single client does not mean a single relationship. Many narrowly defined product or systems sales are heavily technical, with both buyers and sellers being midlevel technical people who, internally, interact with their own managements, over time, to make a project happen. In major acquisitions, like the production of a new power plant, interactions at the highest executive levels are as necessary as the bidding process that takes place at the technical level. But a company selling office supplies typically operates at a low level with clerical people or purchasing departments.
Venues And Methods
B-to-B marketing and sales take all the forms used in business-to-consumer sales as well, not least catalog sales commonly used for many types of technical components as well as such standard products as office supplies and furniture. Highly differentiated sales organizations are common.
Businesses of all sizes use their own sales forces organized in many different ways: from headquarters, from branch locations, and as separate sales divisions. The use of manufacturer’s representatives—independent sales organizations—is exclusive to B-to-B. The subject is covered in detail under Manufacturers’ Agents. In multi-tier marketing, of course, the sales function is mediated by distributors and retailers between the producer and the consumer.
Important venues in business-to-business marketing are conventions and trade shows where a company may participate in two different forms. The company may have its display booth and show off its own equipment, and its representatives may also participate as speakers or presenters in technical sessions. Such appearances, while in content and form far removed from what is conventionally viewed as marketing, are in effect valuable means of reaching potential business customers with information of use to this clientele. Conventions are also opportunities for companies to gain visibility from attendees by hosting entertainment events, hospitality suites, and providing services like shuttles or organizing tours. Such activities, of course, build good will.
Not least, businesses engage in conventional forms of marketing by advertising. When ads appear in industry journals and technical publications, their basic purpose is to promote the company’s products and services to business buyers. When a company runs ads in the mass media, however, its objective may be to reach actual and potential investors. It is engaging in what is labeled “institutional advertising”: the aim is simply to make its name visible to the public.
Basic Elements Of B-to-b Marketing
The most important characteristics of business-to-business marketing are 1) building relationships, 2) candid technical interactions, 3) intensive commercial negotiations, and 4) close attention to after-sale services.
Individual transactions between businesses are typically larger as measured in dollars and fewer in number than in business-to-consumer sales. The contract or sale is more difficult to get, but once a relationship is established successfully, repeat business is almost guaranteed if performance is acceptable—the seller being helped by the buyer’s desire to avoid the time, effort, and occasionally the hassle required to find a new supplier. For this reason, establishing and building a good relationship with a business client is vital. Ideally it will be established at all levels of the client—with its leaders, its management, and also with the working level using the product.
Unhappiness at any of these levels can jeopardize the relationship. Periodic efforts to touch base with all of these levels is an important aspect of marketing. Both marketing and sales take a direct form—face-to-face— rather than by advertising. Advertising is used as a reminder of a relationship maintained by other means.
Technical interactions are ideally open and candid.
The business client will always discover flaws or shortcomings in the product—and is usually also able to accommodate awkward features if all else works well.
The seller is wise both to discuss difficulties openly and yet not to overstate them. Such approaches are, of course, just as beneficial in all sales but businesses tend to be more distant and engage in more “games” with ordinary off-the-street clients than with the industrial buyer who is typically much more knowledgeable and less moved by emotions. A converse of this general rule is that the business owner encountering a game-playing industrial buyer should be prepared to walk. The relationship must be two-way. The client who behaves in bureaucratic ways is a special problem for the B-to-B seller. Such behavior can sometimes be exploited and sometimes neutralized by developing better relationships with higher levels.
The very openness ideal in reaching agreement on the product itself makes commercial negotiations difficult. Business buyers tend to be hard customers generally; they will tend to know or be in a position to guess the real costs of the seller. They may also be under management pressure to push prices down. In price negotiations, therefore, games tend to be played unless a good relationship exists and the buyer is not under severe pressure.
Here effective, flexible, and, if at all possible, open dealing is best. The buyer must sometimes yield—but should do so while openly stating that this particular easing of the price is for this case only, in order to accommodate the buyer this time, and not to set a precedent. Living up to this assertion later, by refusing to continue to sell at the low price, is, of course, part of keeping the deal going.
Business-to-business sales have a tendency sometimes never to close. This is wrong, that is wrong. The seller must be prepared to service the product. Too much aftersale service, amounting to extra services, can be avoided in the future by negotiating more stringent contract terms. But, under the usual circumstances, the business buyer calls only when something is really wrong. In that case swift and effective corrective action is the right response to maintain the relationship and, in effect, to sell the next contract.
B-to-B can often be the best kind of business for any kind of company, large or small. Large transactions, low cost of selling, a reliable market, and often an attractive price are inherent aspects of this type of transaction. The biggest danger of B-to-B for the small business is to become reliant on one or two clients for which it is just a small supplier. B-to-B is best practiced by the small business by cultivating several such customers, the favor or disfavor of no one of which will threaten the company’s own survival.