b2b-vs-b2c

B2B Vs. B2C Business Models In Nutshell

B2B, which stands for business-to-business, is a process for selling products or services to other businesses. On the other hand, a B2C sells directly to its consumers.

Introducing the difference between B2B and B2C

While this might seem a trivial distinction instead, that is a fundamental shift in how your business will look like.

From internal processes to product development, sales, distribution, and marketing.

Depending on whether your business is a B2B or B2C might change the physiognomy of your business. Let’s then consider the primary differences in B2B vs. B2C by looking at three key aspects:

  • target customers
  • distribution strategy
  • complex vs. simple sales
  • product development

RelatedWhat Is A B2B2C Business Model? B2B2C Business Model In A Nutshell

B2B vs. B2C: target customers

The first primary difference between B2B and B2C is based on who’s your target customer.

In B2B, you’ll sell directly to another business. While in B2C, you’ll sell directly to consumers.

Keeping this simple distinction in mind is extremely important because you will also need to understand the different purchasing intents of each of those segments.

For instance, if you sell software as a service, and you sell it to another business, the reasons why those businesses, which are your customers are buying from you, are entirely different from the reasons why consumers might buy from you.

This will also fundamentally change your distribution strategy and the way you think about your product.

B2B vs. B2C: distribution strategy

marketing-vs-sales
The more you move from consumers to enterprise clients, the more you’ll need a sales force able to manage complex sales. As a rule of thumb, a more expensive product, in B2B or Enterprise, will require an organizational structure around sales. An inexpensive product to be offered to consumers will leverage marketing.

In marketing vs. sales, I dissected how to identify what marketing mix your organization needs.

This distinction can help you also understand what type of distribution strategy is better suited for a B2B rather than a B2C.

Indeed, in the former case, your final customer will be more sophisticated and usually will also require a different kind of support, and assistance, besides needing your service or product in bulk.

This will allow you to sell a product at higher prices and, in some circumstances, at higher margins.

You might also need a complex salesforce to tailor the offering to the specific business clients’ needs.

This means you will thrive with a highly diversified and tailored product that requires more support and assistance from dedicated accounts that follow the client.

Yet it is essential not to confuse simple and complex sales based on how high is the price of the final product.

Another critical element to understanding B2B vs. B2C is the type of transaction involved.

B2B vs. B2C: complex vs. simple sales

business-development
Business development comprises a set of strategies and actions to grow a business via a mixture of sales, marketing, and distribution. While marketing usually relies on automation to reach a wider audience, and sales typically leverage a one-to-one approach. The business development’s role is that of generating distribution.

Prada is an Italian luxury brand that sells high-priced products.

As a luxury brand, it sells mostly directly to consumers via its retail stores. However, its products are quite expensive and not affordable for anyone.

This might make you think the sale is complex, yet it’s not – I argue.

Even though Prada spends massive resources (45.8% of its revenues) on selling costs compared to adverting and communication costs.

prada-sales-expenses

Source: Prada 2017 Annual Report

My argument is that those selling costs incurred are more as a marketing expense.

When a salesperson deals with a customer to sell her a high-priced bag worth a few thousand dollars, that is still a sale to a consumer (even though a wealthy one).

In this scenario, Prada engages in simple, high-end sales rather than complex sales. Instead, a company like Salesforce primarily runs a SaaS business model that sells to other businesses.

Its primary selling strategy will be based on hiring skilled salespeople to support business clients throughout the process.

For instance, in 2017, Salesforce spent over $3.9 billion in sales and marketing, a good chunk through a direct sales force, which is comprised of:

  • Telephone sales personnel based in Salesforce regional hubs.
  • And field sales personnel based in territories close to the customers.

Sales representatives support the telephone sales and field sales personnel to bring leads across a qualification and closing process.

A complex sale might imply multiple touchpoints, and a sales force able to identify the key contact points to close the deal is a critical resource for B2B business success.

B2B vs. B2C: product development

As B2C sales processes take a completely different turn.

They also imply a different product development schedule. Indeed, in a B2C sale, you can sell the same standardized product or service to most of your customers.

Even though B2C has changed in the era of tech giants like the FAANG, some fundamental truths still differentiate it from B2B product development.

Think, for instance, about how Netflix has changed the way people consume content by offering a personalized and customized list of content to consume.

This also applies to Spotify in the music industry.

In this scenario, most of the resources for those organizations will be spent in two areas: technology and original content.

Those two resources are meant to shape the way the service is provided.

With original content, those B2C companies are pretty competitive. And with a significant investment in technologies, they can deliver a customized experience to millions of people across the world.

Regarding product and service development, Netflix ad Shopify are thinking in terms of “what content millions of consumers around the world would love?”

Welcome to the era of B2All

In an article entitled “The End of B2B and B2C Sales: Why It’s Now B2All” Colleen Francis points out:

Selling used to fall into one of two groups: B2B (business-to-business) and B2C (business-to-consumer). Each had its own set of rules. Selling to businesses took place in a fact-driven, risk-averse environment. Selling to consumers was a much more impulsive, emotionally driven exercise.

Today, B2C is having a major influence on B2B. And vice versa. It’s creating the democratization of the marketplace, or as I like to call it, B2All (business-to-all). Everyone is equal in this new way of selling, whether you’re a business or a customer.

The article opens up a few critical points.

With the digitalization of the business world, keeping a rigid distinction between B2B and B2C has become harder.

Therefore, an organization that can tap into a few key ingredients can both access businesses and consumers. This can happen especially if the organization focuses on three aspects:

Use product development as a marketing tool

When your product has built-in features that allow it to leverage virality and network effect, a B2B can tap into consumers.

We saw that with the freemium business model.

Also, if you’ve focused on improving the product based on customers’ feedback, that will make it successful both as a B2B and B2C.

Indeed, your enterprise client might be the best suited to allow you to create an excellent product quickly.

Make your brand irresistible

If consumers hear about your product and service repeatedly, they will be the first promoters of it.

Thus even if another business might be an intermediary between you and your final consumer, it will be the same consumer suggesting the business provide your service.

Have a multichannel approach

In a digitalized world, it becomes critical to tap into several channels to connect with businesses and consumers.

Leverage a B2B2C approach

b2b2c
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

In a B2B2C approach, you can leverage the best of both worlds (B2B and B2C) by using a B2B player to reach potential customers.

Take the case of a partnership where you amplify your brand and product by leveraging a third-party platform.

You do it to amplify your distribution while keeping the focus on building your brand through the B2B player.

As an example, imagine the case of an established e-commerce brand that also leverages Amazon to amplify its reach and demand.

The e-commerce-owned platform will still be where you sell the core products.

However, you might list a portfolio of products worth to give you max amplification.

Thus making your brand known to a plethora of customers that otherwise would not be able to reach you through your e-commerce platform alone.

For instance, imagine a fashion brand selling high-priced bags and making lower-priced accessories.

You list them on Amazon to expand distribution and bring these customers back to buy bags!

In this scenario, you leverage a B2B platform (Amazon e-commerce) to reach a wider audience of consumers while making your brand known with a product (accessories) thought to enhance distribution without cannibalizing the core product.

RelatedWhat Is A B2B2C Business Model?

Connected Business Model Types And Frameworks

What’s A Business Model

fourweekmba-business-model-framework
An effective business model has to focus on two dimensions: the people dimension and the financial dimension. The people dimension will allow you to build a product or service that is 10X better than existing ones and a solid brand. The financial dimension will help you develop proper distribution channels by identifying the people that are willing to pay for your product or service and make it financially sustainable in the long run.

Business Model Innovation

business-model-innovation
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.

Level of Digitalization

stages-of-digital-transformation
Digital and tech business models can be classified according to four levels of transformation into digitally-enabled, digitally-enhanced, tech or platform business models, and business platforms/ecosystems.

Digital Business Model

digital-business-models
A digital business model might be defined as a model that leverages digital technologies to improve several aspects of an organization. From how the company acquires customers, to what product/service it provides. A digital business model is such when digital technology helps enhance its value proposition.

Tech Business Model

business-model-template
A tech business model is made of four main components: value model (value propositions, mission, vision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.

Platform Business Model

platform-business-models
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.

AI Business Model

ai-business-models

Blockchain Business Model

blockchain-business-models
A Blockchain Business Model is made of four main components: Value Model (Core Philosophy, Core Value and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Open-Core Business Model

open-core
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Cloud Business Models

cloud-business-models
Cloud business models are all built on top of cloud computing, a concept that took over around 2006 when former Google’s CEO Eric Schmit mentioned it. Most cloud-based business models can be classified as IaaS (Infrastructure as a Service), PaaS (Platform as a Service), or SaaS (Software as a Service). While those models are primarily monetized via subscriptions, they are monetized via pay-as-you-go revenue models and hybrid models (subscriptions + pay-as-you-go).

Open Source Business Model

open-source-business-model
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

freeterprise-business-model
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Marketplace Business Models

marketplace-business-models
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

B2B vs B2C Business Model

b2b-vs-b2c
B2B, which stands for business-to-business, is a process for selling products or services to other businesses. On the other hand, a B2C sells directly to its consumers.

B2B2C Business Model

b2b2c
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

D2C Business Model

direct-to-consumer
Direct-to-consumer (D2C) is a business model where companies sell their products directly to the consumer without the assistance of a third-party wholesaler or retailer. In this way, the company can cut through intermediaries and increase its margins. However, to be successful the direct-to-consumers company needs to build its own distribution, which in the short term can be more expensive. Yet in the long-term creates a competitive advantage.

C2C Business Model

C2C-business-model
The C2C business model describes a market environment where one customer purchases from another on a third-party platform that may also handle the transaction. Under the C2C model, both the seller and the buyer are considered consumers. Customer to customer (C2C) is, therefore, a business model where consumers buy and sell directly between themselves. Consumer-to-consumer has become a prevalent business model especially as the web helped disintermediate various industries.

Retail Business Model

retail-business-model
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

Wholesale Business Model

wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Crowdsourcing Business Model

crowdsourcing
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Franchising Business Model

franchained-business-model
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.

Brokerage Business Model

brokerage-business
Businesses employing the brokerage business model make money via brokerage services. This means they are involved with the facilitation, negotiation, or arbitration of a transaction between a buyer and a seller. The brokerage business model involves a business connecting buyers with sellers to collect a commission on the resultant transaction. Therefore, acting as a middleman within a transaction.

Dropshipping Business Model

dropshipping-business-model
Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.

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