George T. Haley, Ph.D
B2B vs. B2C
B2B is comprised of marketing to businesses, governments and non-profit organizations. A business may deal with consumer markets (B2C), but all businesses participate in B2B as either a vendor or a purchaser, and frequently as both. Contrary to popular belief, the B2B market is larger than B2C. Both B2B and B2C have the same underlying philosophy – satisfying customer needs – but there are substantial differences.
1.) The basis for consumer decision-making is the psychology of the individual. In B2B, the basis is more varied. For sales to small businesses and for minor sales to larger businesses the psychology of the individual dominates. For substantial sales to larger businesses, a group of executives makes decisions, and small group psychology is the underlying basis. Thus, the vendor has to consider the potential decision-making influences of individuals they may never meet and who have varying interests. They must also account for the effects of the give and take of a group decision-making process.
2.) B2B relationships are both more complex and stronger than B2C relationships. Both vendors and purchasers maximize profits through repeat purchases, thus they generally work hard to build strong relationships.
3.) B2B sales transactions are generally larger than B2C transactions thus making shorter, more direct distribution channels possible. The larger sales transactions and more direct manufacturer to end-user sales situations produce B2B’s greater emphasis on personal selling.
4.) B2B markets are geographically more concentrated than B2C markets. Though geographic dispersion of smaller businesses exists, most industries tend to cluster in relatively small geographic regions. Thus, in the US Detroit has been synonymous with the auto industry, Silicon Valley with high-tech and Pittsburgh with the steel industry.
5.) B2B demand is also significantly different than B2C’s. B2B demand is both derived and joint. Derived demand means that businesses will not purchase if consumers are not buying; joint demand means that if a business cannot acquire a necessary component for their own product they will not need to purchase any other components. A good way to understand derived and joint demand is to consider a product – say an automobile. The dealer’s sale of the auto to its customer represents B2C. The sales of the auto to the dealer and of the various auto components to the manufacturer represent B2B. Yet, if consumers aren’t buying cars, or if the manufacturer cannot buy steel needed for making autos, there will be no manufacturer demand for any component. Service companies face the same situation.
6.) One result of derived and joint demand is relatively inelastic demand for B2B products. B2B customers will purchase only as much product as they need to satisfy their own customers. This has substantial effect on pricing strategy. Most B2B markets are relatively transparent. Competitors readily learn about each others’ pricing changes and will match competitor’s prices. Thus, cutting prices in B2B is a strategy of desperation – it will not increase demand, but merely reduce profit margins. In opaque markets, price reduction strategies have a greater likelihood of success.
Author Bio
George T. Haley (Ph. D., University of Texas at Austin) is Professor of Industrial Marketing at the University of New Haven and Director of the Center for International Industry Competitiveness (CIIC). The CIIC focuses on SME manufacturers in global environments. He researches and consults on B2B marketing, value-chain management, product/technology management, and Chinese, Latin American and Asian business. He has presented seminars in the United States, Vietnam, Finland, Thailand, India, Singapore, Mexico, Australia and New Zealand. Dr. Haley has conducted policy-analysis seminars for the NIC/CIA on MNCs in emerging economies, for the United States International Trade Commission on analysis of Chinese data, and testified twice before the US-China Economic and Security Review Commission.
Dr. Haley has over 100 articles, books, book chapters, research reports and presentations. He has published research in journals such as Harvard Business Review and Industrial Marketing Management. His book, The Chinese Tao of Business: The Logic of Successful Business Strategy was recommended by the Wall Street Journal as the only book on Asian business to buy. He also wrote New Asian Emperors: The Overseas Chinese, their Strategies and Competitive Advantages, a top-selling book on Asian business strategy worldwide and named “an important study” by the Economist. His latest books include New Asian Emperors: The Business Strategies of the Overseas Chinese, profiled in BusinessWeek, and Marketing: Planning & Strategy, 8th ed (Cengage). He is Co-Editor-in-Chief for the new, Imperial College Press Series on Multinational Investment and Business.
He is listed in Who’s Who in America and Who’s Who in the World. In 2009, the American Marketing Association’s flagship Marketing News named Dr. Haley as one of six “Marketing Academics to Watch” based on his research, teaching and impact. In 2010, AmericanMadeHeroes.com named him a Hero Advocate for his work on behalf of American manufacturers.
George T. Haley
University of New Haven
Learn how to implement Hubspot for your business!
