Business to Business Law and Legal Definition
"Business-to-business," as a phrase—together with abbreviations like "B-to-B" and "B2B"—arose in the 1990s in the context of the Internet to divide web-based commerce into two categories. The second category was business-to-consumer, abbreviated B-to-C or B2C. Most people associate electronic commerce with the latter, with consumer purchasing on the Internet. Amazon.com, initially a book seller, and E-bay, the auction house, are almost emblematic of e-commerce in general, although they take a business-to-consumer form. Most people do not know, however, that the overwhelming majority of commercial electronic transactions on the Web—and the money-flows that they represent—are business-to-business transactions. In fact, electronic sales predate the appearance of the Internet by decades. They were based, and to some extent continue to be based, on large computers and leased high-speed, proprietary cable connections. A typical old-fashioned electronic connection between businesses was that between a manufacturer and a distributor (or dealer) with a proprietary computer linkage used to order product and replacement parts, the credits and debits thus created leading to account adjustments or billings. With the rise and speed-improvements of the Internet, business rapidly embraced the new medium well ahead of consumers.
The expansion of the Internet had—and still to some extent retains—a heady sense of excitement. The new phrase therefore "developed legs." Needless to say, business-to-business relationships are as old as business itself but once went by such boring tags as "industrial sales" or "industry-to-industry." In current practice B-to-B has come to be applied to any and all transactions between corporations, even if the Internet does not play a significant or, indeed, any role. This seems somewhat to irk the people who first coined and deployed the phrase to designate a newly evolving phase of business communications—new because the visual interface of the Web provided additional resources for business. Formal definitions of B-to-B thus strongly underline and emphasize the electronic aspects of the interactions and the sophistication of these. But the genie is out of the bottle, and the phrase now serves a much more general purpose.
Narrowly conceived, B-to-B involves one or more of the following:
- Formal, contractual arrangements to do business over the Internet. An example of this might be an electronic relationship between a bank and several of its industrial customers in which all manner of financial transactions take place in automated form.
- Software and systems specifically designed to serve such business relationships. For full-fledged B2B, data transfer must be safe and private and such systems therefore feature WAC (for Web Authorization and Control), and have features that enable parties to exchange technical information and to conduct online negotiations.
- Electronic catalogs and displays access to which is restricted to qualifying industrial shoppers. An example of this is a supplier of sophisticated components who gives access to the catalog to established customers who, using the displays, can get very detailed technical data far transcending simple descriptions. Amazon.com, which is B-to-C, provides an analog here by allowing customers to "look inside" a book and examine some of its content and index.
- Systems that automate the actual distribution function so that the buyer can trigger shipments automatically to designated locations based on automatic inventory levels; and the automated ordering then, in turn, triggers automatic payment orders based on similarly automated price look-ups and discount calculations. And,
- Advanced computerized lead generation by Web searches based on customer profiles sometimes involving Web crawlers—software routines that "crawl" the Web and automatically collect information on site contents. Using one such technique, for example, as reported by Brian Quinton in Direct, a marketer ordered a crawling survey looking for "the presence of Secure Socket Layer (SSL) transaction security." SSL is only present when a site uses credit cards and thus sells to customers. The marketer's crawlers, therefore, were identifying potential business customers—the target of the marketer's search.
More broadly conceived, B-to-B is simply a category identifying both electronic and conventional interactions between commercial/industrial buyers and business sellers. Typical B2B news stories are apt to feature marketing techniques that mix lead generation by electronic means, direct mail, Web site and trade journal advertising, and telephone contact. Other stories deal with the growth of B-to-B as contrasted to that of "dot-coms," the latter viewed as ordinary business-to-consumer commerce. B-to-B is also used to headline or to discuss traditional industrial sales transactions and relationships. Here, for instance, is a quote from a story in Marketing headlined "B2B: Business practice": "Direct mail is at the heart of many B2B campaigns, but it should not work in isolation. With direct mail, if you do the planning, you can get your message across in a more succinct and relevant way than you can with broadcast advertising. Well-targeted direct mail is still the best route to catching these decision-makers when they are at work and very busy. The combination of direct mail with follow-up telemarketing can also drive conversion and make the campaign work harder." The article does mention Internet-based methods but is largely about ordinary industrial sales approaches.
B-TO-B DOMINATES E
The new phrase, evidently, is here to stay. The U.S. Census Bureau has adopted both B-to-B and B-to-C as terms under which it collects data. The Bureau uses the traditional meaning but highlights those portions of business taking place by electronic and other forms of commerce.
As reported by the Census Bureau for 2003, the total value of shipments, sales, or revenues for B-to-B and B-to-C were almost equal, $8,296 billion for the first, $8,352 for the second. But the electroniccomponent of this number greatly favored B-to-B. In 2003, business-to-business electronic commerce was $1,573 billion (19 percent of total B-to-B) and electronic business-to-consumer sales were $106 billion (1.3 percent of B-to-C). The dominance of B-to-B may be put another way: it represented 93.7 percent of all e-commerce transactions.
Electronically conducted business-to-business transactions broke down further as follows in 2003: direct manufacturing sales represented 53.6 percent of B-to-B e-transactions; merchant wholesale activities, which include manufacturers' branches and branch offices, represented 46.4 percent. In the B-to-C category, the much smaller electronic volume broke down into retail sales (52.8 percent) and selected services deliveries (47.2 percent). The growth rate in e-commerce between 2002 and 2003 was significantly lower for business-to-business at 10.9 percent than for business-to-consumer at 23.3 percent. Growth rates in part reflect the fact that overall B-to-B sales grew less (2.9 percent) than B-to-C (4.3 percent) and also suggest that the business sector itself, with less noise and trumpeting than the consumer sector, has long been engaged in electronic forms of distribution and is thus more mature and that the business sector is also easier to serve electronically; e-commerce, therefore, is better developed in the B-to-B category. Business migration to the Internet often takes the form of transitioning an electronic system from leased cable to the public network.
The chief reasons for B-to-B dominance of electronic sales is that industrial sales tend to be technical, contracts tend to be longer-term, and deliveries are typically routine and continuing. For these reasons arrangements are well-suited to computerization; many of these arrangements were made pre-Web in order to exploit the advantages of automation and speed available. The rise of the Internet in turn enlarged the capacity for this type of transaction. It provided a common system for exchanging visual data and a very widespread network by means of which even quite small businesses could be brought into electronic systems—as buyers, sellers, or both.
Some 70 percent of all manufacturers' electronic shipments fell into five categories. In order of importance they were transportation equipment (autos, in other words), chemicals, computers and related electronic products, food products, and petroleum and coal products. Just over 60 percent of e-sales of wholesalers, excluding manufacturers' branches, were in the categories of drugs and druggists' sundries, motor vehicle parts and supplies, and professional and commercial equipment. Manufacturers' branches were also substantially involved with drugs and druggists' sundries; other major categories were miscellaneous nondurable goods and groceries.
DOING BUSINESS B-TO-B
Ignoring for the moment the fact that all businesses tend to buy from other businesses, in the sales category most small businesses either serve consumers directly through retail operations or service businesses or they are and have always been in B-to-B. Some, of course, will have both kinds of customers.
The chief difference between these markets tends to lie in the size of the transaction and in the characteristics of the sales effort. B-to-B transactions are typically larger and therefore entail proportionally less administrative work per transaction; the sales effort, however, will tend to be more complicated and costly: business sales frequently require selling to multiple levels of a customer simultaneously, e.g., to management in order to gain recognition, to engineering departments to determine technical specifications, and then to purchasers in order to negotiate the price. Business sales can be costly in that they frequently require the preparation of written proposals. On the whole business buyers are more demanding technically, exert more pressure on price, and are almost never moved by emotions or to purchase impulsively.
Businesses can be very good customers for the small operation—indeed, sometimes, too good. Depending on the size of the small business, it may put itself in danger by having too few business customers. Many small businesses can often get more than enough business from a single corporate buyer to carry their business. This sometimes happens when a company is formed by former employees to serve that employer as outside suppliers: the owners have great advantages by knowing the customer inside and out. But yielding to this strategy exposes them to the risk of serious problems if the "big" client fails, changes its internal arrangements, or one of its influential buyers takes a dislike to the seller. For these reasons, ideally, the small business will strive to balance its income so that the "big" client is balanced by others.
The small business engaged in B-to-B will be able to enter the electronic forms of that type of commerce almost seamlessly, sometimes, because the buyer will be as interested in buying electronically as the seller may be to sell. And once such a system is established with one customer's assistance, it may be expandable to others.
SEE ALSO Business-to-Consumer
"B2B: Business practice." Marketing. 8 March 2006.
Copeland, Michael V. "Everyone's Investing in B-to-B. Business 2.0." April 2006.
Kremer, Dennis B. "Vive La Difference: Consumer vs. Business Sales." Westchester County Business Journal. 3 October 2005.
Quinton, Brian. "Live from Chicago: B-to-B Must be Innovative to Find Leads." Direct. 29 March 2006.
Stewart, Al. "What I Learned About My Dad's Business from our Survey on Technology." National Floor Trends. May 2005.
U.S. Department of Commerce. "E-Stats." 11 May 2005. Available from http://www.census.gov/eos/www/papers/2003/2003finaltext.pdf. Retrieved on 29 April 2006.