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B2B markets: theoretical framework

Account Management


During the last decades it became obvious that the internet and cutting edge information
technologies have changed sufficiently our daily lives in all its facets. Worldwide two
billion people are connected to the internet. Not only our daily life is highly affected by
the internet, taking for example shopping or paying bills, communicating with our friends
or especially booking holidays (Tjoa and Werthner, 2004), but the internet also has a high
impact on the way companies run their businesses. This topic is getting even more
important over the last years. “Almost $8 trillion exchange hands each year through
e-commerce. In some developed markets about two-thirds of all businesses have a web
presence of some kind and one-third of small and medium-sized companies extensively
use web technologies” [Pelissie du Rausas et al., (2011), p.v]. Considering these facts
the following question arises, why e-commerce is getting so important for industrial
companies and what are the benefits of the use of e-commerce.
In this part of the paper, the complex B2B issues, such as characteristics of B2B
markets, supply process and buying behaviour, will be conceptualised and briefly
presented. After that the relationship marketing in B2B markets will be described.
These will build a broad theoretical background for the discussion and analysis of
B2B e-commerce opportunities. Furthermore, a review of a current situation in
B2B e-commerce market will be given.


1. Characteristics of B2B markets: B2B vs. B2C
Traditionally, two generic types of markets may be distinguished: consumer
markets and business markets, whereas the latter include industrial markets or B2B,
business-to-government (B2G) and non-profit organisation markets. In general terms
B2B can be defined as firm’s interaction with other firms, comprising suppliers,
distributors, agencies and customers (Vagro and Lusch, 2011). B2B markets are
networked organisations operating in a complex environment (Kotler et al., 2009). The
management target of the companies is to understand the business buying processes and
to build profitable relationships with business consumers by creating additional value
(Kotler and Armstrong, 2010). More concretely, B2B markets are about buying goods
and services in order to use them in development, creation and delivery of own products
and services or to resell to others (Kotler and Armstrong, 2010).
Though, business-to-consumer (B2C) markets in business literature and at
universities are predominantly discussed and analysed, there is a number of
characteristics and special features that differ B2B from B2C. That makes it critical to
examine B2B separately. And indeed, the early textbooks published on B2B appeared
already in the early 1930s (Vagro and Lusch, 2011). In 1934 the textbook Industrial
Marketing written by Frederick (1934) was published by Prentice Hall in New York.
After that for about 20 years there was a dormant period for this topic and later in
1957 the first course on industrial marketing was introduced at Harvard Business
School (Vagro and Lusch, 2011). And recently in the article published in Journal of
Business-to-Business Marketing, Reid and Plank (2000) have pronounced that B2B had
come of age (Vagro and Lusch, 2011).
The knowledge and understanding of B2B can be really important from different
perspectives. Taking for example the ranking of ‘Fortune 500’, the number of consumer
(B2C) and industrial companies (B2B) presented in this list is almost equal. In German
The role of e-commerce in B2B markets of goods and services 45
speaking countries especially industrial companies play an important role for the whole
economy of the region (Fauska, 2012). And finally, the market volume of B2B is much
higher than the one of consumer markets (Kotler and Armstrong, 2010).
Hence, before analysing B2B e-commerce it is important to understand the main
characteristics of business markets. They can be summarised in three blocks:
• market structure and demand
• nature of buying customers
• decision process.


2. Market structure and demand

Business markets contain fewer but larger buyers
Business buyer demand is derived from final consumer demand
Demand in many business markets is more inelastic
Demand in business markets fluctuates more and more quickly
Nature of buying unit
Business purchases involve more buyers
Business buying involves more professional purchasing effort
Types of decision and decision process
Business buyers usually face more complex buying decisions
The business buying process is more formalised
Buyers and sellers work closely together, building close long-term relationships
Source: Kotler and Armstrong (2010)
In comparison to consumer goods markets, business buying process in B2B markets is
very complex. It involves large sums of money, technical and economic considerations of
all stakeholders, including their own interests, at different levels of organisation. In B2B
markets buyers and sellers are more interdependent and work closely together during all
the stages of buying process. Moreover, the buying process could create additional value
for the partners (Kotler and Armstrong, 2010). According to these features the main
differences to B2C, which should be taken into account while analysing B2B, are the
following (Fauska, 2012):
• business customers will purchase just the products they really need and which can
increase the value of their own products
• the relationship is more complex and long-term-oriented
• marketing communication is professional and deep
• purchasing processes are multistage
• procurement manager buys goods not just for the company, but also in order to
present himself, his promotion or bonus can depend on his decision and negotiation
skills.


3. Procurement process in B2B markets
Procurement process as part of SCM can be described as the way firms purchase goods or
services they need to produce their own products, which will be sold to end-customers.
As illustrated in Figure 1, business buying process consists of several complex steps that
involve not only sellers, buyers and intermediaries, but also different organisational
levels and departments in a series of connected and interdependent transactions. That is
obvious, that during each phase of the purchasing process the transactional costs occur.
The first four steps concentrate on decision where to buy and what to pay for a product.
The next steps involve carrying out the purchase formalities. At the end the analysis of
the process may be done. This process is described for a one-to-one relationship between
buyers and sellers. In B2B market there are many of such relationships and sets of
connected processes. The set of firms, which are linked through a series of transactions.

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