In 2022 there are a wide range of business models that can be adopted by a range of organizations. Many businesses choose to sell directly to the customer (i.e., the general public). This is commonly known as the B2C model of trading. In this model the product or service is sold directly to the end user. Most retail outlets adopt this business model and a key advantage of it is that there are generally a wide range of consumers who will form the target market for the goods and services. Business to business (B2B) selling is different in that the organization will sell its products and services to other firms. It is a popular model of business for companies that produce high value goods such as in the aerospace industry and some forms of manufacturing. This article considers two distinct advantages and disadvantages of the B2B model of trading.
Loyalty and stability
A key benefit of the B2B model of business is that it can encourage loyalty and therefore stability in the production of products and services. Typically, large scale projects are undertaken, such as in the case of a civil engineering company that builds structures or buildings for other organizations. When projects are completed to time and budget and the end result meets or exceeds the client expectations, it is likely that there will be future orders placed with the same company. B2B organizations often pride themselves on their reputation for delivering on large scale projects and as a result gain a loyal business base. This can lead to long term relationships forming between the organizations and the stability of having a range of long term, high value contracts.
Most modern B2B organizations that specialize in large projects (such as in the construction industry) will use a range of project management applications. These types of software will allow the business to accurately predict timescales and costs for each distinct stage of the project. The use of this sophisticated technology gives businesses a clear picture of their expenses at every stage of production. As such it can be instrumental in helping to manage the expenses of the job and reduces the likelihood of unexpected additional costs due to going over budget or timescale.
Time consuming processes
Many B2B companies undertake long term projects after agreeing on the contract. As a result, the company may not generate revenue from the project until it is completed. For long term projects this can lead to cash flow problems unless there are stipulations in the contract that payments will be received during various stages of the project. All B2B organizations must be satisfied with the contract once it is agreed on as mistakes or omissions can cause significant problems for the contractor. In some circumstances this can result in the bankruptcy of the firm.
Businesses that sell directly to the public tend to have a large target market to focus on. This is not the case with B2B organizations who typically will do business with a small range of other companies. In the early years of building a successful B2B organization, it can be exceptionally difficult to win contacts as the firm will not have built a solid reputation for itself. This means that the first few years of trading can be exceptionally difficult for a firm until it gains presence in the industry and builds a solid reputation for delivering on its contracts.