Business-to-Business

Business-to-Business (B2B) exchanges take place between two or more companies. The overall size of sales revenues attributed to business-to-business transactions is much larger than that of the consumer market. Sectors that are traditionally characterized as business-to-business are institutional, such as healthcare and education, the government, and various commercial enterprises. The products represented are typically intended for use as a manufacturing intermediate, support service, or in the day-to-day business operation.

A powerful segment of commercial enterprises is represented by original equipment manufacturers (OEMs) such as General Motors, John Deere, and Hewlett Packard. Original equipment manufacturers typically make large purchases and may have developed detailed product and vendor specifications. A second commercial enterprise consists of users, who typically purchase products for use in manufacturing other products for sale. They purchase products that support the operations necessary to manufacture their products. John Deere becomes a user when it purchases lubricants for use in its production facilities. It is also a user when it purchases copy machines for use in its corporate offices. Industrial dealers or distributors constitute a third category of commercial enterprises that operate in the business-to-business environment. John Deere may use dealers and distributors who are responsible for handling materials sold directly to the end-user. It is also a consumer supplier when it sells directly online to residential customers.

[Page 201]International business-to-business transactions are defined by the nature of interaction that takes place, the participants involved, and the intended use of the product that is the focus of the trade, while being carried out across country boundaries. Companies may sell to both business-to-business and consumer markets. For example, BP sells products directly to the consumer by selling fuel and motor oil through its retail gasoline outlets. It also sells fuel and lubricants for use in industrial applications such as aviation, mining, construction, and marine operations. GE sells appliances and consumer electronics. It also sells centrifugal compressors to the gas and oil industry and locomotives to the rail industry. John Deere sells residential mowers, along with commercial mowers for lawn services, mowers for golf courses, and agricultural, forestry and construction equipment.

The business-to-consumer market and business-to-business market require very different business and marketing strategies, especially pertaining to communication and sales activities. Business-to-business transactions may be very complex, depending on the size of the business, involving groups from various functional areas, who are very knowledgeable concerning required product performance. Due to the sophistication of business-to-business purchasers, it is necessary for the sales team supporting the customer to also be knowledgeable, not only with the direct customer, but also with the final consumer industry being served.

Business-to-business interactions typically are more complex than business-to-consumer because the expenditures represent large financial outlays and mistakes may result in costly delays or product failures that negatively impact the final end-user performance. For example, the purchase of an automobile from a retail dealer is generally a business-to-consumer transaction. The purchase of the constant velocity joints, used in front-wheel drive vehicles, by the manufacturer for use in the assembly of the automobile is a business-to-business transaction.

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