30 July 2019
It's all called marketing, but selling Coke isn't the same as winning a contract to supply trains
While the majority of marketing is about the sale of branded goods to consumers (so-called b2c or business to consumer) in contrast there are many firms that sell the majority or all of their products or services to other businesses. This category of marketing is referred to as business to business marketing (or b2b). There is a third category business-to-government (b2g) which is actually much the same as b2b but has some specific features that make it worthy of a separate category.
Here are some examples of business to business firms and their products and services;
- An engineering firm designs and fabricates steel structural components that are used in building construction (office blocks, supermarkets, apartment buildings) or in engineering construction (for example bridges or mineral processing plants). The completed steel structures are bought by building and engineering businesses.
- An electronic component supplier designs and manufactures microprocessor chips (for example Intel). These are bought by computer motherboard manufacturers (for example MSI) who fit them to their product and in turn these motherboards are sold to PC manufacturers (for example Dell).
- An architectural firm specialising in commercial buildings sells their design services to building developers and building owners.
- An airplane manufacturer (for example BOEING) sells a Jumbo Jet to an airline (for example QANTAS).
Products and solution selling
Business to business firms (industrial marketers) sometimes sell products where the specification of the product may have been designed to meet the needs of the market but its specification is essentially fixed prior to sale (for example Intel’s microprocessor), semi-customisable (like a jumbo jet where the engine power, cockpit avionics, interior layout and exterior paintwork can be customised to suit the customer’s specification), and completely customisable (also referred to as “bespoke“). The later category referring to a product that has been designed from scratch according to the customer’s specification or needs.
This introduces the concept of solution selling, where the essential requirement of the business-to-business firm is to sell their solution to the customer’s problem.
Solution selling is particularly interesting because before the seller can propose their solution they must first understand the customer’s requirement and then design a solution, cost it, and finally present it to the customer for their consideration. Where the buyer approaches a number of firms and asks them to compete for the business, the sales process becomes quite complex with each solution provider providing a unique solution and at various prices.
A large proportion of business-to-business selling doesn’t involve a product at all but the sale of a service (for example engineering, architecture, law, accounting these are known as “professional services”). Other examples of services are building services where the final product is a built structure but the services being provided are construction expertise, project management, procurement and building supervision.
The key features of business to business marketing (sometimes referred to as Industrial Marketing) are:
Seller and buyer are both businesses
As the name clearly indicates, the first key feature in B2b is that both parties involved in the transaction are businesses.
It’s important to note that “businesses” don’t sell or buy as such (a business is a purely artificial legal entity);
...people actually make the buying and selling decisions but importantly they are typically not transacting with their own money which provides them with a level of detachment altering their emotional position. However, they are still people and their thoughts, feelings, and attitudes affect the process.
It’s commonplace in business to make a statement like (for example) “we do business with Telstra” a company with some 30,000 employees. In reality, most suppliers probably only transact with a handful of key employees at Telstra. A point that becomes very apparent when you are trying to sell to them for the first time (try calling their main number and ask “can I please speak to the person in charge of buying fibre optic cable?“)
Whereas a consumer purchase is mostly relatively simple (a decision is sometimes made on the spur of the moment), business to business sales tend to be complex often taking months and (for example, Defence Department procuring a warship) even years to make a decision. The buying organisation often writes a detailed specification for the product or service and approaches multiple vendors (business to business suppliers) and requests a proposal (known as an RFP). The buying organisation will carefully evaluate each vendor’s proposal before selecting the successful supplier.
The value of the transaction (price for the product or service) tends to be large; sometimes millions of dollars. In business there are still minor purchases (buying office stationary for example) but for simplicity we will confine our discussion here to big ticket items.
Multiple people involved
There are often multiple people involved on both sides of the transaction. On the selling side there is usually a team of people involved in selling and delivering the product or service. On the buying side there can be multiple people involved in the decision making process who are usually well-versed with market pricing and specifications. Also, due to constant monitoring of the market, these buyers would have an excellent knowledge of the products and/or available solutions. In most cases the purchases are specification-driven.
The level of complexity of the purchase decision (which increases with the value and potential business impact) necessitates the input of more people. Typically these people fall into categories:
- Technical buyers: people whose main focus is understanding the technical specifications and performance characteristics of the proposed purchase.
- End-users: these are the people who will end-up applying/operating the purchased services/equipment/item being purchased and maintaining it.
- Economic buyers: people who are concerned primarily with the financial impact of the purchase (how will we pay for it? can we afford it? is this the best use of our funds at this time? what is the financial return from the added capacity/utility of the intended purchase?)
- Procurement people: these are specialists responsible for managing the procurement process. They will be focused on ensuring the purchasing process has been run properly and that all available options have been explored and vendors have been coerced into submitting their lowest price while still meeting or exceeding the specification.
- Decision makers: usually at the top of the food chain, these people (or person) will have the final say based on the recommendations put forward to them by the above people. Some purchasing decisions require not just CEO approval but also board approval, and even external financier approval.
One person (or multiple) may exist in each category and some people may have overlapping roles. In addition, some of these roles may be provided by external advisers (brought in specifically to advise on this procurement project).
Business to business requires more personal interaction
B2b marketing relies heavily on one-to-one customer relationship building, through personal interaction, requiring sophisticated sales management and an educated, knowledgeable, trained staff whose words and actions are aligned with corporate brand objectives.
Most b2b selling is best achieved face-to-face for many reasons;
...firstly it aids in understanding the buyer’s true needs and underlying motivations (beyond the formal specification) providing valuable insight into how to shape the product or service being offered (solution selling) to achieve a competitive advantage. Secondly, it establishes trust which is important in the sale and delivery of complex products and services where often there is considerable fine tuning of the final product or service being purchased. Thirdly, it is critical for the seller to understand the decision making process and to identify the roles, personalities, internal and external allegiances of the people involved in the buying decision.
For the buyers, meeting the selling organisation’s personnel (often referred to as a vendor) provides an opportunity to evaluate their capability. However, many business-to-business transactions involve a complex interplay of people, and when people get together invariably personal relationships and politics at some level come into play.
This has seen the emergence of procurement specialists whose primary role is to ensure that the procurement process is stripped of the human factor and the decision is based purely on logic and fair play. Good luck.
Corporate brand loyalty more so than product brand loyalty
Brand loyalty is different than in consumer goods markets. Corporate brands are usually more important to b2b buyers than product brands. While practical purchase criteria drives product selection (e.g. product performance, capabilities, price), the value b2b buyers place on the corporate brand drives and completes the actual purchase decision – “can I believe in this company? can I trust them? will they deliver what they promise? Companies seek long-term relationships knowing that any experiment with a different corporate brand comes with risks which can impact on the entire business. This is not to say that buyers do not seek competitive offers from a number of different vendors but generally they approach a select pool of vendors who have a solid reputation (another way of saying a strong brand) in the product or service category. Equally (and this particularly true of SME’s) many businesses prefer to continue to deal with the same suppliers because it reduces the procurement workload; running tender processes on big ticket items is time consuming and expensive for both the buyer and seller.
This tendency to not always test the market can have complex effects; sometimes it is an opportunity to talk the customer out of a formal tender process and instead encourage them to negotiate a contract. However, more often than not the buyer relegates smaller procurement decisions to items that have less impact on their business and tend to just continue using the same supplier (assuming they are performing well enough). This becomes a major challenge if you are a supplier of products and services that consistently fall into this category. As an example, consider the multitude of buying decisions that a high volume residential construction company needs to make. Would they be bothered changing supplier for items that cost less than $500 per home? That’s the sort of sales enquiry that would result in a very short phone call.
B2b marketing taps into different buying emotions
As hinted at earlier, b2b marketing is not without emotion.
While b2b prospects are generally not highly influenced by impulse or status, they do have other business or personal motivations.
For example, the fear of making the wrong decision, the level of confidence in the proposed solution (will it work? Is this the best value for money option? Will the vendor still be in business by the time the product or service is delivered?) The level of trust established in the seller’s people is also an important consideration (and when selling professional services, the main consideration). While different to consumer marketing there exist very real emotional motivators in the b2b world. Consequently frivolous advertising claims have less credibility in b2b selling and a higher level of due-diligence takes place on the buyer’s side to ensure that the vendor has the capacity and capability to deliver. But of critical importance is the old selling maxim “sell yourself first, your company second and your product last” – which is another way of saying that the vendor’s sales team need to come across as credible.
But, don’t be mislead into believing that all business-to-business transactions are always logical.
Occasionally (for example) internal power-struggles take place between individuals or departments and battles of wills and egos results in the purchasing decision being based on who has the strongest personality rather than what is right. Purchasing decisions can have political consequences; look at the current battle regarding Australia’s need to up-grade it’s submarine fleet. And occasionally, sometimes shortly after a major contract has been let, magically a new swimming pool appears in the backyard of one of the people involved in the purchasing decision.
Graft and corruption is a potential challenge in high value business to business purchase decisions particularly when it is illegal (and it usually is), however it becomes doubly interesting when dealing with countries where corruption is a way of life. Many a Western corporation (and Governments) live with the reality that in order to close a contract with a foreign entity, local officials have to be paid-off. Officially, everyone denies it happens. Unofficially everyone denies it happens. See? it gets interesting. These unofficial non-existent bribes even have a polite term to describe them - "informal tariffs."
Multiple paths to market
A high proportion of business to business selling is a direct sale i.e. the vendor (the selling organisation) interacts directly with the buying organization. For other b2b organizations, the “seller-to-end-user” relationship is not exclusive or direct. Complex channel strategies may be required as many b2b companies must also sell to distributors, dealers, independent representatives, outside consultants, specifiers (e.g. consulting engineers and architects), and supply-chain partners all of whom require specific sales attention and the development of tailored marketing strategies and the building of relationships.
Fewer customer targets
In many cases the number of organisations who are likely to buy (are in the market for) the product or service being offered by the business to business seller is comparatively small. In some cases less than a 1,000 or so firms and for highly specialised items numbering less than 50. Take for example the global market for aircraft manufacturers like BOEING, there may be only 100 or so airlines in the world who have a need or the financial capacity to purchase their aircraft. Many business to business organisations have even less actual customers (as distinct from possible customers) at any one time.
Typically, many organisations operating in the b2b space may only have a handful of customers one of which may comprise the majority of their annual sales revenue.
The fact of a limited customer base has both advantages and disadvantages. The organisations comprising the component supply chain to the Australian car industry enjoyed a relatively captive market for decades having 4 customers – Ford, Holden, Mitsubishi and Toyota. Having fine tuned their manufacturing, human resources and business processes to efficiently meet the very special needs of their few customers they faced an insurmountable task finding new customers when car manufacturing ceased in Australia.
Direct selling is the dominant promotional technique
Business to business marketers typically are less reliant on mass marketing techniques such as television, radio and press advertising where the ability to reach many hundreds of thousands of viewers is possible but not required. Such advertising would have very low return on investment for business to business marketers who only have a very small number of customer target organisations many of whom they would probably know by name (or could find out soon enough with a bit of digging around).
The implications for the promotion mix selection are that firms who sell business to business tend to rely heavily on direct selling (i.e. using people who have a sales role) and use other promotional techniques to support this function; lead generation activities through “networking” and digital marketing techniques are often used. Trade shows and exhibitions are also used to not only gain brand awareness but also to facilitate meeting potential buyers. Other important sales tools are technical data sheets and specification folders…
The increasing importance of websites in industrial selling
These are increasingly being published online and one of the most important promotional tools is website design which potential customers are using more and more to locate products and technical solutions as well as to gauge the pedigree and credibility of the firm. A sub-optimal website is now tantamount to professional suicide.
A modern trend in business to business websites is the use of purchasing portals, particularly for the management of supply contracts for minor purchases. A good example is parts and consumables. A buying organisation may identify (say) 50 small value items they frequently purchase, writing out a purchase order every time they need a handful of small items is costly. Instead, they will negotiate a 12 month contract for the 50 items specifying the annual total volume of supply anticipated. Vendors would bid for the 12 month supply contract. Vendors specialising in this space will gain a competitive advantage if they can provision an online portal via which their customers can order the contracted items.
An example of an online sales portal. - one we built for Oliver Technologies.