Business-to-business (B2B) meaning

The business-to-business sales model refers to companies that market their goods and services to other businesses. This involves the middle or backend of the standard consumer supply chain. A B2B company is generally a manufacturer that markets to wholesalers or wholesalers that market to retailers.

Purchase agreements for B2Bs are often high volume and require significant negotiation to settle on the sales terms. This negotiation can take time, as it typically involves various decision makers from both sides and may include discounts that are exclusive to the receiving company. This model also may involve international markets, which can further complicate the process. Examples of B2Bs include:

• Amazon Business
• Alibaba
• eWorldTrade

What are the advantages of business-to-business?

There are some benefits to operating a B2B business. The target market is smaller, which can give a business a chance to further personalize their pitch and more opportunities to develop extended relationships with purchasing companies. The high volume orders also demand extensive planning, which helps reduce the chance for errors and saves the company time and money.

What are the disadvantages?

The smaller B2B market can make it hard for new companies to break in, and every transaction requires a mountain of paperwork. The extra time needed to negotiate terms may be an issue if a contract goes sour. Changing either end of the deal can’t be done quickly, which could possibly result in lost revenue or a lack of stock.

Business-to-consumer (B2C) meaning

A business-to-consumer structure is the one most recognizable to the general population. In this structure, a business markets products to consumers. The goods and services offered are often purchased from the manufacturer or a wholesale company and then sold as individual units. The terms of the sales are set by the local market price and can be increased or decreased instantly to reflect changes in supply and demand.

The target market for this model is much broader, and B2C companies focus more on mass marketing campaigns to attract and retain their customers. These campaigns are designed to be flexible and focus on the company’s brand, allowing it to adjust to the latest trends without sacrificing brand awareness. A few well-known B2C companies are:

• Walmart
• Starbucks
• Apple

What are the advantages of business-to-consumer?

Aside from the familiarity of the model, B2C companies can have several advantages. With this model, profits can be realized quickly, and customers tend to be loyal to the brands they prefer. The wider consumer pool can also make it harder for this business model to fail, since lost customers can be easily replaced with new ones.

What are the disadvantages?

Marketing is significantly more critical for B2Cs companies and often requires expensive research and maintenance to be effective. It’s also a more competitive area of the supply chain, and there’s additional pressure to maintain customer relations because there are likely many other companies offering the same or similar products or services. The B2C model also requires interaction with the public, which can be problematic to manage effectively.

Direct-to-consumer (D2C) meaning

The third option is a direct-to-consumer, where the company cuts out the middleman. In a D2C structure, consumers receive their goods directly from the manufacturer. Businesses with this type of structure are increasing rapidly, partially spurred on by the heavy D2C presence online, and the popularity of online shopping as a response to the global pandemic.

Direct-to-consumer companies are finding inventive ways to connect directly with consumers as increasing sales projections attract more investors. In addition to traditional marketplace sales models, some D2C companies offer their goods through monthly subscriptions. These subscriptions, like the Dollar Shave Club, give consumers added convenience at affordable prices. They’re so successful that some B2C businesses have jumped on the bandwagon, creating their own branded subscription boxes.

Popular subscription D2C companies include:

• JustFab
• Blue Apron
• Julep

Well-known marketplace D2C companies include:

• Tempur-Pedic
• Kopari Beauty
• Touch of Modern

What are the advantages of direct-to-consumers?

Out of the three possible structures, selling goods and services directly to consumers may be considered the most advantageous. The D2C model takes the best of B2B and B2C and combines them into a low-cost, adaptable business that scales easily and offers real connections with consumers.

Eliminating the B2B portion of the supply chain avoids the markups required each time a product changes hands. This can help keep costs low for consumers without sacrificing quality and may result in higher profit margins for the company. This can also give the seller greater control over the brand’s message, allowing customers to get answers to their questions directly from the source instead of the risk of receiving embellished or incorrect information from a third party.

Customer complaints are easily handled and may be reduced over time. Consumers can give feedback directly to the manufacturer, giving the company the opportunity to resolve the issue and providing the information they need to improve operations. Many communication lines are established online, which can give the business multiple channels to gather customer feedback and farm useful data, such as browsing and purchasing habits.

Finally, the D2C model can leave room for brands to innovate and reshape the way they sell to consumers. Products no longer have to be in-demand by retail stores to be available to customers. Manufacturers can offer new items or services in smaller test markets to see if they generate consumer interest. The direct line to buyers can also allow the company to anticipate needs that aren’t being met and come up with products that will fill the gap.

What are the disadvantages?

Despite the potential advantages of the D2C model, there are some drawbacks to consider. The first is a more complicated supply chain. When a company handles the entire supply chain, from manufacturing to consumer sales, there can be more opportunities for mistakes to be made. These mistakes will reflect directly on the brand, as there’s no place to deflect blame when things go wrong.

Liability issues can also increase, as D2C companies must navigate things that would traditionally be outsourced or handled on different points of the supply chain. Suddenly, the manufacturer is responsible for managing PR, handling cybersecurity, coordinating with shipping partners and handling returns. These additional considerations may require extra resources to manage.

Finally, the success and growth of the D2C structure may attract entrepreneurs who piggyback on the business ideas of established D2C companies. This can create competition for the same customers in markets that were previously untapped for this model. This is likely to result in marketing pressure similar to what’s now found between B2B companies.

Despite these extra considerations, manufacturers selling direct to consumers can offer benefits to the company as well as the customer. The potential benefits can include lower prices and better product quality for the buyer and greater control and improved product development for the seller.