What is a B2B Business Model?
Let’s start with what B2B business models are. It is a conceptual structure that supports a company and explains how it is functioning, and making a profit. Every company has a business model irrespective of its size and turnover.
Mostly, business models consist of a few basic things, such as the design and details of the products or services, followed by methods of selling and finding the target audience for the same and concluding with how the consumers will pay and the company will benefit out of the same.
In this blog, we will primarily focus on Business-to-business or B2B business models and how it works. We will cover almost everything related to them. To know, please keep scrolling down.
- What is a B2B Business Model?
- Types of B2B Businesses
- B2B Models that Can Help in Connecting with Your Trading Partners
- Advantages of B2B Business Models
- B2B Ecommerce
With the rise of technology, B2B models have become extremely common and we often come across phrases like B2B services and B2B sales. It mainly refers to transactions or business activities between two companies. It involves one company selling products or providing services to another company. In simpler language, a company is another company’s consumer. The model is significantly different from Business-to-customers or B2C models. If you own a company that sells products or services to another business, then it has a B2B model.
Types of B2B Businesses
Like every other business types, a B2B business can also be classified into a few categories. Each company is supported by B2B providers or suppliers as well as partners. Various types of B2B business models work in several sectors such as payroll and tax, research and development, webpage designing and SEO services, call centers, human resource and recruitment, marketing and advertising, etc. As you can see, it has a wide range of coverage.
With the help of the internet, a B2B business can easily approach other companies out there. They can explain their products/services and the benefits of using them through online platforms. In most of these models, both the parties have negotiating power to some extent.
So here are a few types of B2B models.
This is a type of model that refers to a particular business type where the customers have equal value even after the sale has taken place. This particular approach is applied to keep the existing customers in hand to do profitable business from them again in the future. Here customers are the main priority and they have a significant influence on the business operations as well as the brands that engage with them.
The best example to cite this is Amazon and Flipkart. Both the leading eCommerce giants follow a customer-centric approach towards retaining their loyal customers. It takes years of reliable service and value offered to every customer which has gained such a level of engagement.
Buyer Centric Model
This model is mainly used among the big corporate companies as they have a higher rate of purchases. Here the buyer sets a portal where the sellers and providers quote their ways. The sellers approach the buyer with different quotations and various bribing words to make them understand the benefits they are eligible for providing. Then in the final stage, it is the buyer’s call to choose the most suited company regarding its specifications and budget.
The best example that can be cited for this type of business is Walmart. Walmart has its business all across the globe and influences a lot of suppliers based on the locations. Thus Walmart has to set up standards of supplies and the suppliers abide by it. Generally, bidding is placed among suppliers of the local region and the highest bidder gets to supply for the organization.
Intermediary Centric Model
This is one of the popular B2B model, which provides a common platform for both the sellers and buyers to interact and transact with one another. This common platform is formed by the intermediaries. In return, the intermediaries get their fair share as commission from the parties that are involved. Many times the buyers miss out the relevant products that are available in the digital market. A third marketplace is not only a great additional platform but also it helps in driving out many important businesses.
For instance, eBay and OLX bring you a platform where you can connect over with potential buyers for your product or service. You agree to the terms of the commission that these third-party vendors would charge. For every transaction made or sale happened, the intermediate earns a certain sum of money.
Now let’s focus on some real-world examples so that you get a clear idea about B2B businesses.
B2B Models that Can Help in Connecting with Your Trading Partners
The direct connection B2B model
This model outlines the process in which your business is connected directly to all your trading partners for transferring electronic documents amongst them. The IT organization connected with your business is considered to be responsible for all sorts of business-related tasks like translation, tracking of all documents, assisting technical support, and mapping. Once the community grows under this model, the immediate priority goes onto continual monitoring of communications and managing trade partner calls to resolve their issues quickly.
Network B2B model
The inception of this model came into the picture when the direct model resulted in multiple complexities. Thereby, the companies decided to execute exclusively via a B2B Service Provider, which was known to be a Value-Added Network (VAN), before the invention of the internet. Under this model, a single connection was established to the Service Provider who used protocols like AS2, SFTP, FTPS, FTP over VPN, RosettaNet. Similarly, the trading partners connected with the Service Provider by choosing the respective connectivity protocol that was most desirable as per the company’s requirements
Hybrid B2B model
The conjoined combination including the direct and network models gave birth to this particular model. In a motive to save on the Service Provider transaction fees, businesses will get in touch directly with their trading partners with whom they have the maximum volume of transactions through the medium of internet. Doing this, the business is constantly benefitted from the Service Provider for the cause of trading with a huge number of lower-volume trading partners.
Managed B2B model
This model is a platform where the company outsources its entire B2B process requirements to an outside service provider and benefits by lowering the resource needs. This also cuts down the additional costs and complications of the process. The model works on a system that lets the Service Provider receive the business documents through a direct medium of your ERP system. It is then responsible for activities like mapping, translation, data center operations, technical support, and document tracking. The Service Provider will deliver the ready documents to your trading partners directly or through the network.
So this was again another kind of subdivision when it comes to B2B businesses.
Advantages of B2B Business Models
Now let us explain the benefits of this type of business. There are lots of advantages when it comes to these kinds of B2B businesses.
Here are some of them. Please take a look.
B2B businesses witness more stability. Unlike B2C models, where customers can easily jump from one provider to another, business predictability is much better in B2B models. The relationship between two business houses (buyer and seller) evolve with time. B2B companies can easily plan their revenue budgets accurately. Collaboration in the distribution channels have to lead to higher customer loyalty and that is a plus point for businesses in this field. Business relying on other business for products and services are not fickle like the customers we get to witness in B2C models. Both the parties have mutual understanding and the buyer relies on the seller for consistency in product or service quality, dependability, value, etc.
Moreover, the selling cycle is shorter as well.
Overall, B2B business models help in reducing overall expenses as well. This can be primarily attributable to advanced supply-chain management, lower chances of errors and undue expenditure.
Another pro feature of this model is that it depends on factual data for streamlining the entire process. The calculation of sales is much easier this way.
From the buyer’s point of view, they can get their products at a cheaper rate through online auctions. It is easier for them as they get so many estimates without even having to leave the office. There are so many types of B2B business models, which are highly beneficial.
However, it is true that despite all the above-mentioned advantages, there are some cons such as smaller customer pool, etc. But with the right plan, you can even overcome the same.
Now when we have mentioned the benefits of the B2B business model, let us provide some further information on B2B for e-commerce.
B2B E-commerce, which has witnessed a sturdy growth graph over the past few years, has the potential to provide optimum efficiency, which is very much required for a business to flourish. The buyer can get highly benefited from the improved quality of services as well as top-notch customer services.
Secondly, with B2B for e-commerce, there is better brand awareness. Its job is to spread the word about your business and it does the same with smart planning and execution. Your target audience would have a detailed idea about your company and its goals, products, and services, long term plan, etc.
It is needless to say that companies are highly benefiting from Ecommerce Revenue models as it is driving their sales volume. Entrepreneurs can enjoy meatier profits with this one.
Organizations can also evaluate their marketing campaigns, ROE, product mix, customer sales effectiveness, and inventory turns through this.
Buyers can enjoy the customer-centric experience through B2B e-commerce and thus, the demand for the same never goes down.
A company’s sales team will gain traction from the launch of an e-commerce platform as it will increase its visibility to customer orders, history, etc.
It should also be noted that this facilitates business with multi-site capability.
We hope that now you know about the type of B2B models and the advantages. To know more about the same, kindly follow this blog section as we come up with new topics every once in a while.