Business-to-business (B2B) commerce describes transactions involving businesses as both the buyer and seller. While it may not get the same attention as business-to-consumer (B2C) commerce, B2B commerce is massive. In 2019, the B2B e-commerce market was valued at $12.2 trillion, over six times greater than its B2C counterpart.
Because B2B commerce involves high order values and bulk purchases, it is much more nuanced than a regular consumer shopping experience. In this guide, you'll learn all there is to know about B2B commerce, how it works, how it differs from B2C, and how digital sales channels are shaping its future.
B2B Commerce Basics
What is B2B commerce
It is a transactional process where a business sells goods to another business.
How B2B commerce works
B2B transactions occur in the supply chain as businesses buy components and materials to build their own product or sell as finished goods. Companies also purchase items for internal consumption (paper, printers, coffee, etc.) The common parties involved in the B2B supply chain include:
How a product moves between these parties depends on the type of distribution channel. Let’s examine a product’s journey following a two-level distribution channel consisting of all four parties:
1. Products are created or sourced
B2B commerce starts with the manufacturers that use raw materials to produce physical goods at scale.
2. Manufacturer chooses distribution channel
After creating goods, manufacturers must decide how to approach selling them. They can opt for direct distribution to directly communicate with the end customer, finalize the sale, and deliver the products. Or they can partner with an intermediary like a distributor to handle some of those tasks.
3. Products move through the supply chain
Distributors find retailers and wholesalers interested in the manufacturer's products and finalize transactions. Wholesalers sell the goods in bulk to retailers and other businesses. On the other hand, retailers resell the goods directly to individual consumers.
Advancements in e-commerce technology are shrinking distribution channels. There is less need for intermediaries as e-commerce makes products readily accessible for a large audience. Manufacturers can list products directly on their own site or third-party marketplace instead of relying on a distributor.
B2C vs. B2B Commerce
Given the growth of e-commerce, it is a common belief that today’s B2B buyers now want a B2C-like experience. That belief, however, is misguided. While B2B buyers certainly want many of the features present in B2C, they still want the attention to detail and customization offered through traditional methods.
No matter how much B2B e-commerce grows, requests for quotes, purchase orders, and negotiated pricing aren’t leaving. B2B commerce is thus more complex as sellers need to satisfy both ends of the spectrum.
Despite the steady adoption of many B2C-inspired features, B2C and B2B commerce are still fundamentally different at their core. Here are the most significant differences:
The first difference between B2C and B2B commerce is the products themselves. Products in B2B are more complex. For B2B, advanced product attributes are more than just a nice feature; they are essential.
Unlike most B2C items, a one-size-fits-all approach doesn’t work for B2B customers. That is because B2B buyers have unique needs that require products with many variants or custom configurations.
Some B2B products aren’t sold to an end-consumer but instead used as components to make another product. B2B buyers need more extensive product details for these items, such as the item’s specifications, alternate parts, service manuals, accessories, and warranty information.
Such information must be available, especially when customized and bundled options are available. With all that information, B2B product pages are much more detailed than B2C.
Intent and decision making
In B2C commerce, customers are in the market for products that can be classified as “wants” and “needs.” Wants may not serve some essential purpose but are sought after for the consumer to fulfill some form of psychological desire. The consumer usually won’t purchase these products until there is an emotional compulsion to do so.
On the other hand, B2B buyers are more rational in their decision-making process and only buy products that serve some form of need. Decision-makers are held accountable for and can face the consequences of a poor choice of products. Thus, impulse buying in B2B does not exist.
Overall, the buying process in B2B is more complex and requires a systematic approach. It can take a business several weeks from researching to issuing a purchase order, especially as it involves over half a dozen decision-makers.
The person responsible for making the final purchase decision is often not the end-user of the product. In this sense, parties in the B2B buying process can split between “users” and "choosers.” Sellers have to know how to appeal to both groups, further complicating the sales process.
Customer life cycles in B2B commerce are much longer than those in B2C. In B2C, customers often make a one-off purchase from a seller, then proceed to not make another purchase for some time or never return at all.
B2B customers, however, are focused more on building long-term relationships. They want to find a reliable vendor who offers the goods they need reasonably and continue doing business with them. B2B buying involves acquiring replenishable products more often than B2C. Thus, easily reordering items is a top priority and leads to buyers sticking with the same vendors.
There are some inherent differences between the online storefronts of B2B and B2C e-commerce businesses. Businesses gear the frontend design of B2C websites to stimulate the emotions of their customers. Thus, creating a visually stunning display or unique branded experience is crucial.
On the flip side, because B2B customers are much more logical and data-driven, the frontend display needs to provide relevant and accurate information that users can access with ease.
Complex payment options
In comparison to B2B payment options, those in B2C are less complex. The majority of B2C consumers pay using a credit or debit card. Alternative payment methods like Paypal and Apple Pay are gaining popularity, but these methods tend to use the card as the end source of funds.
B2B consumers have more options, such as ACH transfers, wire transfers, lines of credit, or checks. Payments don’t necessarily occur on an e-commerce portal, as many buyers still choose to pay for goods through traditional invoices.
However, transactions occurring on e-commerce platforms still need to provide the option for purchase orders, payment on trade credit, along with order approval options. As most B2B relationships involve exclusive pricing arrangements, businesses must build B2B e-commerce platforms that handle unique pricing for each customer.
Modern B2B Procurement
B2B procurement consists of the entire process of finding and sourcing goods from a vendor. The traditional workflow has evolved with online sales channels, but the core process remains the same.
Let’s break down how this process works for today’s B2B buyers:
The B2B procurement workflow begins with the recognition of the need for a particular good. That good could supply the office, be a component for a manufactured item, or be resold to an end-consumer.
Once a need is recognized, stakeholders determine the specifics for the items and search where to obtain them. In the past, this meant reaching out to a network of suppliers or attending trade shows. But with the internet, B2B buyers can conduct significant research online before reaching out to the vendor.
When the stakeholders clarify the details, an employee creates a purchase requisition, a formal document to request the needed materials. The document helps inform the department manager or purchasing officer of the need to begin the purchasing process.
Once the purchasing department receives the requisition form, they will review the document. They consider whether the requested products are needed, if the cost is appropriate, and the proposal does not violate any existing agreements. When the purchasing department approves the requisition, they then have the authority to create a purchase order.
The purchase order indicates what the company is requesting from the supplier and includes the following:
- Product(s) being purchased
- Quantity of each product
- SKUs, model numbers, or specific brand name
- Price per unit
- Total price
- Delivery date
- Delivery location
- Billing address
- Agreed payment terms
In large companies, the procurement or purchasing department usually issues purchase orders. For smaller companies, an operations manager, finance manager, or even the business owner will.
If the company creates the purchase order without first creating a requisition form, the purchasing department will need to approve the PO before sending it to the vendor.
Upon receipt of the order, the vendor decides if they have the ability and desire to fulfill the order’s requirements. When the vendor agrees, the purchase order becomes a legally binding contract. The vendor will then prepare the order and deliver the goods to the specified location.
Receipt and inspection
When the goods arrive, the receiving staff checks the attached documents (PO number, delivery note, etc.) and acknowledges receipt of the order. They will then inspect the goods, validating the quantity and quality of the goods. The staff can reject and send back any defective items.
Invoice approval and payment
After the buyer accepts the delivered goods, the seller issues an invoice requesting payment. Before paying the invoice, the buyer (usually the accounts payable department) will confirm that the details on the invoice match those on the purchase order and that the goods have been received and accepted.
Factors impacting the procurement process
The exact nature of this process and its duration can vary depending on a variety of different factors, including:
- The cost of a product: For pricier products, stakeholders tend to be more involved, prolonging the buying process.
- The level of differentiation between products: When a product is complex, or there is much differentiation between options, the business will take longer to evaluate different options.
- Whether it is an initial purchase of a particular item: If a business needs to resupply a product from a previous purchase, they tend to stick with the current vendor. Fewer stakeholders are involved, and less time is required to complete the process.
- The product’s strategic importance: Products that significantly impact the business’s success require more research than trivial products. For example, a company that needs pens for its office may choose to bulk order the least expensive option available from their preferred supplier instead of having multiple parties search to discover their preferred pen style.
How E-Commerce is Changing B2B Procurement
E-commerce has changed the procurement workflow for B2B commerce, enabling both buyers and sellers to operate with greater efficiency. Before companies could create online catalogs for customers, B2B sellers would need to send sales reps directly to a potential customer with a physical catalog.
These catalogs were massive as they contained all products available. Helping customers find the most suitable product was cumbersome. It also limited how much control the buyer had over the entire process as they were completely reliant on salespersons and could make very little product discovery on their own.
With B2B e-commerce, customers can access a vendor’s catalog on-demand and browse as they see fit. Modern search functions and personalization engines make it easier for buyers to surface the products they need without flipping through pages.
When a customer curates the items for purchase, they can order online at their own convenience. Customers can still use purchase orders and invoices, but now they can also use an online portal as in a typical B2C transaction.
For B2B sellers, the reduced manual ordering gives sales and service staff more time to focus on customer service, building relationships, and surfacing new and relevant products to customers. Companies can utilize automated order management software like fabric OMS to avoid any mistakes.
Essential B2B E-Commerce Components
When it comes to e-commerce, B2B customers have come to expect the same autonomy that has been a staple of B2C e-commerce. B2B platforms must be flexible while providing all the features necessary for customers to manage their accounts and complete the buying process independently.
Let’s examine the essential functions customers expect from a modern B2B e-commerce website:
- Payment details: When customers can save and modify payment details, they can place orders with greater ease, including credit and debit cards, bank details, and integration to third-party processors like Paypal.
- Addresses: B2B companies often need to add or change shipping and billing locations. Updating this information manually instead of waiting for a service rep ensures that orders are processed efficiently.
- Managing users: Because many B2B companies have multiple users per account, they need to quickly add and remove users to avoid delays when performing essential tasks.
Ordering and payments
- Quick order tools: Quick order lists enable buyers who already know what they need to complete orders faster, for example, a fabric customer MSC. Their quick order tool allows customers to add multiple products to the cart at a time using the Part #.
- Reordering tools: Many B2B companies repurchase the same products frequently. Customers can quickly repurchase items with a reorder tool without finding and adding them to the cart again.
- Order history: With consolidated order history, customers can easily see details for any order, such as paid or out for delivery. The order history also eliminates the reliance on service reps to get important information.
- Managing invoices online: When B2B customers can access their outstanding invoices directly from their online account, they make payments faster, and sellers are less likely to have to chase down payments.
B2B Personalization and Pricing
B2B companies customize communications, offers, and more to match the needs and preferences of each customer. Whereas B2C, which often uses personalization to build an emotional connection, personalization in B2B improves a buyer’s job by providing access to relevant information.
Below are the areas where personalization plays a significant role in B2B commerce:
The buyer’s ability to quickly find the specific products that meet their needs is essential. B2B product catalogs tend to be larger and more complex than B2C catalogs, presenting a challenge to B2B sellers who navigate them more easily than their customers.
Giving buyers an online catalog they can use means finding a way to overcome multiple identifiers like SKUs, part numbers, UPC codes, and other data that can make finding relevant products a challenge. With personalization, B2B sellers can create a unique product display for every customer.
For example, a seller could create custom mini catalogs based on specific interests or different role types. Personalizing B2B catalogs also helps sales teams and customer service reps to assist customers more efficiently with a fine selection of products.
Because time is often the primary influencer of a B2B purchase, the ability to streamline the order process is critical. Personalizing order lists can help buyers place orders more efficiently by providing easy access to relevant and previously purchased products.
Sales teams require complete transparency into a customer's order history to provide a personalized experience. It can be tricky as buyers' preferences can vary, even when acquiring the same items. They could place the order through a sales rep on one occasion, then through the vendor's website on another.
Cross-selling in B2B commerce typically involves offering add-ons, accessories, or other essential components instead of simply showing complementary products. Merchandising is highly personalized so that every touchpoint involves presenting all the goods and services needed for the buyer to perform the job at hand, even if the buyer is unaware of those needs when searching.
Unlike B2C, where all customers receive a fixed price, pricing in B2B commerce is flexible and varies based on the customer, the quantity purchased, or the contract agreement.
Contract pricing is still the norm in B2B commerce. It gives buyers the best prices and sellers loyal customers. B2B companies negotiate contract pricing and terms based on each customer’s particular needs.
How often they will make orders, how large their orders are, and who will pay for shipping all play a part in the negotiated contract price. A customer who places weekly orders will see a lower cost than one who only orders once a month.
Customers who don’t enter a contract can still receive personalized pricing. Many B2B companies will offer custom quotes for one-off orders or exclusive per-unit pricing for bulk purchases.
Take advantage of services like fabric Subscriptions, where sellers can automate repeat purchases. Customers can choose a timeline for replenishment at checkout, and sellers can offer discounted pricing based on the customer’s subscription.
B2B Commerce Vs. Marketplaces (Amazon)
Given the catalog depth of major B2C marketplaces like Amazon, you may think that B2B buyers could order the goods for their business as they would for personal products. This approach can provide a degree of convenience, but there are distinct advantages to purchasing directly from a B2B vendor or a dedicated B2B marketplace.
Convenience for low consideration products is essential. But B2B buyers also need access to flexible product options and dedicated support for more nuanced purchases. When buying from a retail marketplace, you do not have access to the extensive documentation you find when buying directly from a supplier.
Support is also limited as Amazon stands between any contact between the seller and end-consumer, treating buyers as their customers, not sellers. Engaging with a B2B vendor directly through their online portal benefits both buyer and seller as they can build strong, long-lasting relationships.
Vendors can assign dedicated service reps to each customer account to provide a more personalized experience. By negotiating pricing and entering into contracts, buyers can get better prices than paying retail.
Purchasing from a B2B company also provides flexible payment options vital to many businesses’ operations. When you buy from Amazon or eBay, paying an invoice later isn't an option. You pay upfront and are unable to verify the quality and condition of the goods beforehand.
Also, businesses can’t just buy from anyone, making vendor vetting a critical part of the B2B purchase process. When companies take the time to research and find the most trustworthy suppliers instead of using unvetted third-party sellers, they can forge relationships on which the business can rely.
Build a B2B Commerce Solution
B2B commerce will continue to evolve as customers increase their expectations for a seamless buying journey. With e-commerce services like fabric, B2B companies can meet this expectation by providing everything desired in the modern buying experience.
Our full range of e-commerce capabilities includes everything from frontend web design to order and catalog management.
Storefront gives marketers the ability to create an e-commerce page without needing to know code. You can save designs as reusable components, making it easy to add consistent branding across your site. With this functionality, you can make changes to your site in a matter of minutes.
PIM gives you a centralized solution for managing your entire product catalog. Data is consistent and accurate for seamless distribution to your other backend systems. You can further enrich product data by adding any number of attributes or creating families and alternate hierarchies.
OMS creates a real-time connection between your e-commerce inventory and warehouses to ensure stock levels are accurate across sales channels. The software can process orders from any channel and supports a variety of payment methods.
A set of headless APIs exposes all our services. This distributed architecture allows you to innovate faster and improves flexibility. Not bound by a predefined experience, you can personalize every detail of the buying journey while offering seamless browsing and ordering in B2C.