Business-to-business (B2B) and the business-to-consumer (B2C) marketing

Business-to-Business Marketing

1. Introduction

In order to identify, analyse and evaluate the major differences along the supply chain between the business-to-business (B2B) and the business-to-consumer (B2C) marketing in the manufacture and retailing of fast-moving-consumer-goods, it is important to define the different terms.

According to Wright, the supply chain can be defined as ‘the entire network of suppliers, factories, warehouses, distribution centres and retailers that participate in the process from raw materials to finished products.’()

The fast-moving-consumer-goods (FMCG) can be defined as ‘the retail goods with a short shelf life either as a result of high consumer demand or because the product deteriorates rapidly.’ () For instance, meat, fruit and vegetable, dairy products are perishable FMCG and alcohol, toiletries and cleaning products are FMCG with high turnover rates.

B2B marketing is according to Wright (2004) ‘where one business markets products or services to another business for use in that business or to sell on to other businesses for their own use.’ B2C marketing is ‘where one business markets products and services either to another business, i.e. a wholesaler or a retailer to sell on to the end consumer, or to the end consumer direct.’ (Wright 2004)

This report focuses on the FMCG market and provides an overview of the main differences in B2B and B2C regarding the market, the decision making process and the marketing mix.

2. The market

2.1. An overview

The FMCG is a low-margins business. It is extremely competitive. According to the firm Invensis ‘the smaller companies tend to specialise in production of category products. A few global giants produce many brands but those brands fall into self contained categories as well.’ () Thus the market is not one market but a collection of markets with many different types of products processes and requirements.

2.2. The competition

In B2B, the different participants are the raw material suppliers, service suppliers, the producers or manufacturers, intermediaries or resellers, retailers, government and not-for-profit. The competition comes mainly from few players as ‘the products must match a particular solution sought’ (Wright 2004). With technology and the internet, the competition is more and more international. It focuses on functional benefits offered and after sales services as functionality and reliability are crucial for an organisation.

In B2C, the main participants are the retailers, the wholesalers and the end consumers. In the FMCG, there has been increasing market concentration in recent decades. There is a reference to the ‘big four’, Tesco, Asda, Sainsbury’s and Safeway. The competition is global and focuses on brand and prices as these factors have more impact on consumers. ()

2.3. The nature of the demand

The demand of B2B products in the FMCG market is influenced by the demand from the end consumers. Morris (2001) says that ‘the demand for industrial goods is ultimately derived from the demand for consumer goods.’

In B2B, the demand is fluctuating. An increase or decrease in the consumer demand will have impact on the demand for manufacturing operations. There are also fewer customers. ’Not buying for a reason or other can have an immediate and disastrous effect’ (Wright 2004). In B2C, a fall in sales can take time and can be compensated by finding new customers as they are millions.

The B2B demand is relatively inelastic. An increase or decrease in the price of the product or service will not significantly alter the demand for the product in the short run. In B2C, however, the demand is relatively elastic. If the price decreases, consumers are motivated to buy. (Wright 2004)

2.4. The research market

In B2B, Wright states that ‘the pressure to get industrial products with the right benefits to market ahead of the competition is the main concern’ (Wright 2004). Secondary researches such as the market, the trends are more used than primary researches as organisations’ activity is based on economic and industrial trend.

In B2B, there is a focus on making the products matching the consumer demand. Secondary researches are needed but primary researches about consumers’ psychology are more important as their wants and needs are changing over the years. (Minett 2002)

2.5. The segmentation

In B2B, customers are segmented by industry and individual company needs as they are not numerous. There are two types of segmentation, the macro segmentation and the micro segmentation. Both must provide the supplier with added value to offer.

The macro segmentation uses different factors: it distinguishes ‘one sector from another, one industry from another and one ...

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2.5. The segmentation

The macro segmentation uses different factors: it distinguishes ‘one sector from another, one industry from another and one type of organisation from another’ (Wright 2004). Segmentation is by:

type of market: industrial and/or consumer markets
geographical area
type of industries: manufacturing, service or agricultural industries
public, private or not-for-profit sector
small, medium or large companies
products and services offered

The micro segmentation subdivides into smaller segments ‘based upon organisation, group and individual behaviour.’ (Wright 2004) The business behaviours that can have an impact on the buying situation are:

present, past or non-user
heavy, medium or light user
centralised or decentralised buying
single source or multiple source user
national accounts
partnering and non-partnering relationship
reciprocal relationship
one-off buyer
repeat purchase
payment record

Segmenting by group or individual behaviour can be divided in:

characteristics of purchasing situation
group buyer characteristics
individual buyer characteristics

In B2C, the market is composed of millions of consumers, it is then important to first identify their needs and wants and then segment them into profitable categories. Consumer markets can be segmented as follow:

geographical
demographic
socio-economic
behavioural
psychographic
lifestyle

3. Decision making process

As Morris (2001) says, ‘the most important point of departure between consumer and industrial marketing is buying behaviour’. The two types of buying behaviour differs in terms of who buys, why, how, when, where and what.

3.1. The decision making unit (DMU)

In B2B, the DMU is complex as the organisation buys for itself. Purchase involves a number of individuals. Morris (2001) says that ‘a given buying decision might include inputs from the people in engineering, production, finance, marketing, R&D and the purchasing department.’ The layers of management involved are professionals and buy a product for rational reasons because the organisation’s economic performance (i.e. profitability) is involved. The decision makers are hardly the end user, it is then important for a seller to determine the importance of each member and who are the key decision-makers. In B2C, the structure of the DMU is less complex as it involves one or few individuals buying for themselves. The reason of purchase is mainly emotional as the buyer is generally the end user. (Wright 2004)

3.2. The buying process

In B2B, the purchase involves a degree of formalisation. ‘Purchase requisitions, invoices, and contracts are used to specify the terms of sale. These terms are frequently negotiable.’ (Morris 2001). In B2C, this degree of formalisation does not exist. People are free to choose where to buy their products. No contract exists and the price is barely negotiable.

In B2B, organisations buy high value goods in large quantities. The decision to purchase can be long, impulse purchase is impossible as the organisation’s economic performance is involved and ‘one decision can affect the very existence of an organisation’ (Wright 2004). That is why rationalism drives the purchase. Organisations also need detailed multifaceted information about the product to measure good values against the wanted benefits and compare the competing products to keep their competitive advantages and avoiding the high switching costs. In B2C, people buy straightforward if they want a product. Impulse purchases are frequent as emotion drives the purchase and products are low value. There is no economic impact except his disappointment if the buyer buys a wrong product and he can easily switch from one retailer to another.

In B2B, once sold, the product and its benefits are evaluated. If they do not fit the organisation’s expectations, it can cause the loss of the customer. ‘Not meeting standards can lead to penalties and fines, depending on the terms and conditions built into the contract.’ (Wright 2004) This loss can be disastrous according to the few numbers of buyers. In B2B, as customers are numerous, the loss of one individual is less important.

4. The marketing mix

4.1. The products

4.1.1. Its attributes

A product is a ‘package of benefits’ and is bought for its attributes (functional and symbolic) as well as the benefits that derive from these attributes.

In B2B, the functional attributes such as the product perform better are more important as the product is bought for the use of the organisation. Morris (2001) says that ‘it represents a multiplicity of physical and performance related specifications.’ Companies are also interested in the services around the product such as technical assistance, service before and after the sale etc. as they are important for their performance.

In B2C, the symbolic attributes are more important as they buy for themselves. Wright (2004) states that ‘by symbolic we mean that the purchase is a representation of some other deeper and less transparent, emotional or instinctive need’. Services in the FMCG are less important, products are consumed quickly.

4.1.2. The brand

In B2C, brand is really important as people buy for themselves and mainly for emotional reasons. Branded products are high in symbolic attributes.

In B2B, brands are associated with functional attributes such as quality, service etc. Companies buy products rationally as their performance depends on them. Brands can be bought as long as customers’ expectations are met.

4.1.3. The packaging

Packaging is an essential part of the product however it does not have the same connotations in B2B and in B2C.

In B2B, the packaging has more to do with protection in delivery, storage and usage than with providing promotional information. The cost and the ease of use are also important. This is due to the fact that firms buy a product for rational reason and for themselves in order to stay competitive. (Morris 2001)

In B2C, the packaging is particularly important, especially in the FMCG market. It has many functions such as attracting attention, enhancing the product, giving information, offering sales promotions etc (Wright 2004). The shape, the design, the colours etc are important.

4.2. Price

In B2B, the price is approached in a professional way as the buyers purchase for rational reasons. ‘They evaluate the cost/benefit trade-offs between the price and all other added benefits […] Buyers will weight the benefits by how they might successfully contribute to solving specific problem and give overall specific advantages.’ (Wright 2004) The prices are also often negotiated according to the lengths of contracts, the delivery conditions etc. If the price is changed, as customers are not numerous and thus important, they have to be consulted as they might refuse the new prices if the reasons are not valuable.

In B2C, ‘there is a continually shifting relationship between the price of a product and the added value elements such as packaging, quality, function and, most importantly, branding.’ (Wright 2004) There is rarely negotiation as the retailer has also calculated the price based on several factors (the percentage mark-down etc). The customers will pay the price they consider the best overall value by comparing the prices, the qualities of the products etc.

4.3. The channel of distribution

4.3.1. The type of distribution

B2B and B2C channels of distribution can both be direct or indirect

Direct distribution

Producer customer

In B2B, the direct distribution is mainly used because of the advantages it provides. For instance, it enables the customers and the suppliers to discuss the product or service directly, to create a long term relationship with the customers and to maintain a full control over the marketing mix. (Wright 2004) The supplier can choose between different methods such as

direct sales force
trade exhibitions
mail order, trade magazines and trade journals
the internet
other media such as TV or radio can be used but to a small extent.

In B2C, the direct distribution is not the prevalent method to sell products. Selling door-to-door, house parties, products catalogues, direct mail, the internet and TV are used however these methods only represent a small percentage as they are not the most efficient especially in the FMCG market.

Indirect distribution

Producer intervening organisation customers

In B2B, the indirect distribution depends on the product and is more used for marketing abroad. They can be (see Appendix I)

brokers
agents
distributors
wholesalers

In B2C, the most popular method is to sell through the retail intermediaries such as department stores, supermarkets, chain stores or independent retailers as consumers want to see and be able to choose between a range of products and it is economic for producers to sell direct to millions of individual consumers. They also are able to offer product advice to the consumer, promote product etc. Another way is to use wholesalers. (Wright 2004 and Minett 2002)

4.3.2. The selection of the channels

The distribution channels in B2B and B2C have the same aim ‘mak[ing] the products available for the customers in the most effective, efficient and economical way possible.’ (Wright 2004).

In B2C, the customers visit the retail supplier. The location, the access, the number and the choice of outlets are important as well as the quality and the buying ambience. In B2B the functionality of the outlet is crucial as suppliers have to stock a large amount of products. The supplier visits the customers so factors such as location and the number of outlets are less unimportant or unimportant.

4.4. The promotion

4.4.1. The target

In B2B, the target is the DMU as it has power of decision. Their view is then important. These buying companies can be localised or widespread, however they can be easily contacted due to their number; the feedback is then easier.

In B2C, the market is composed of millions of customers segmented in large markets. The individual view is then not so important. Due to the difference of wants and needs of the markets, it is not easy to communicate with them and the feedback not easy.

4.4.2. The message

The message in B2B has to be highly rational as it is addressed to a complex DMU that buys for the profit of the organisations. It is then crucial to advertise the corporate brand as the image of the organisation has an impact on the products offered. It also has to be effective as hundred of others companies try to persuade it at the same time.

The message in B2C has to focus on the product brand as most of people are more interested in the product than in the company. It has to be highly emotional as emotion drives people’s purchases more than rationalism and thousands of other firms attempt to talk with these customers at the same time. (Hart 1998 and Wright 2004)

4.4.3. The different methods used

Above the line communications

In B2B, the main media used is the print through the newspapers (broadsheets), specialised magazines, journals and directories as well as their complementary websites because of its advantages: the accurate targeting, the figures available, the longevity etc. TV advertising, only during the specialised programmes, and outdoor advertising, only in selected places, are used as people can be targeted.

In B2C, TV and radio are mainly used because of their capacity to reach large target audience and raise mass awareness. Outdoor advertising is also a method as they can be placed everywhere. (Wright 2004)

Below the line communications

Both B2B and B2C use direct mail as it enables to target people. However, B2C also uses direct response in magazines and directories as well as telemarketing and the internet whereas B2C uses more direct response in broadcasting and the internet.

Point of purchase and merchandising are more used in B2C as the purchase is done in the retailer. It is then to encourage the customers to buy. It is less used in B2B however it is used at trade fairs and exhibitions as ’they are the only way in which some suppliers are able to meet the buyers in their industry in one place.’ (Wright 2004)

Sales promotion is more used in B2C than in B2C as the consumers buy at the retailers and it encourages the purchase. It is used in B2B to lessen the risk for the buyers and encourage them to try a product.

Personal selling is much more used in B2B as it is a means of communicating directly with the customers. The salesman has a strategic and tactical role as they convey the image of the company. In B2C, because of the millions of potential customers, it is impossible to communicate with them directly.

Publicity and public relation are much more used in B2B as it more concerns the image of the company which is very important.

Sponsorship is widely used in B2C as it can reach a vast audience. In B2B, it is used more selectively, where the customers can be targeted. (Hart 1998)

Conclusion

This report underlined the main differences between the B2B and B2C marketing in the FMCG market. Marketing might seem to be basically the same, regardless of the type of customer or what is being sold. This point is true to a certain extent as the marketing concept, mix, segmentation and the product life cycle apply equally. What differs is the design and implementation of marketing strategies and tactics to meet organisational versus consumers needs.

Appendix I

The indirect B2B channels of distribution

The intermediaries in the distribution channel might be:

Brokers who are a company or an individual that buys and sells goods generally early in the supply chain without taking title of the goods and they are paid on a commission basis

Agents who sell on commission one’s supplier products or work for many different companies and who do not take title of supplier product.

Distributors who take title to the products and then promote, sell, distribute and even offer after sales service across a defined sales area.

Wholesalers who buy products from many suppliers and break them into small amounts and sell and deliver to business users.

Reference and bibliography

Books

Haig, M. (2001) B2B: E-commerce Handbook: How to Transform your Business-to-Business Global Marketing Strategy, London: Kogan Page Limited
Hart, N. (1998) Business-to-Business Marketing Communications, London: Kogan Page Limited, 6th edition
Michel, D., Naudé P., Salle R. and Valla J-P. (2002) Business-to-Business Marketing: Strategies and Implementation, Basingstoke: Palgrave
Minett, S. (2002) B2B Marketing: A Radical Different Approach for Business-to-Business Marketers, London: Financial Times Prentice Hall
Morris, M., Pitt, L. and Honeycutt, Jr E. (2001) Business-to-Business Marketing: A Strategic Approach, Thousand Oaks, Calif: Sage Publications
Wright, R. (2004) Business-to-Business Marketing: A Step-by-Step Guide, Harlow: Financial Times Prentice Hall