Business-to-Business Marketing

views updated May 17 2018

Business-to-Business Marketing

Commercial transactions between businesses are covered more generally in this volume in the article called Business-to-Business. Here the intention is to characterize the marketing aspects of business-to-business relationships. The current abbreviations commonly applied to these transactions, B2B or B-to-B, are closely associated with Internet activities. But the underlying reality is very old (businesses have always sold to other businesses) and, significantly, electronic transactions between enterprises predate the emergence of the World Wide Web by many decades. Long before the Internet's dramatic appearance and continuing to this day, B-to-B commerce by electronic means operated and still operates by privately maintained electronic data interchange (EDI) channels. For this reason, B-to-B electronic commerce was nearly 15 times greater than business-to-consumer e-trade in 2003, the most recent year for which data are available. Most of the heavy B-to-B commerce began over private channels, but new and emerging business-to-business electronic transactions are coming to rely on the Internet.

MARKETING AND SALES

Marketing in the modern sense covers a vast range of activities including advertising, public relations, promotion, all types of sales, and aspects of distribution—including also specialties within this field such as market research, strategy, and planning. In those corporations predominantly engaged in selling to the consumer, marketing and sales are typically separate functions, but with sales subordinated to and managed by the more prestigious marketing function. Marketing thus represents the overall strategic, intelligence, and communications function whereas sales are detail-oriented implementations obeying and carrying out a general marketing strategy.

The chief difference between business-to-business and business-to-consumer marketing is that the roles of marketing and sales are largely reversed. A business dealing with another business relies much less on image-based forms of mass persuasion and heavily on technical and commercial communications, product demonstrations, and cultivation of relationships through industrial channels. The basic reason for this is that B-to-B sales are in their very nature much more influenced by price, by product performance, by timely and reliable deliveries, and effective and swift services—than by perceptions or emotions. Image marketing in B-to-B plays a definite but subordinated role; occasionally it uses mass media, but generally the message is channeled through magazines, journals, and newspapers (such as Barron's or the Wall Street Journal ) intended to reach decision makers in business.

Virtually all businesses selling to the ultimate consumer also sell to the "channel," namely distributors and retailers. Thus their sales have a multi-tiered aspect. In these situations the broad marketing aimed at the ultimate consumer is, of course, of great interest to the business buyer too. The retailer is much more likely to stock a heavily and effectively advertised consumer product for which the producer also provides lucrative incentives for joint advertising at the local level—than the retailer is likely to stock a brand with low recognition value. In such contexts marketing in the traditional sense also plays a major role in selling to the business customer.

CATEGORIES OF RELATIONSHIPS

B-to-B sales activities differ by the nature of the relationship. Sales categories take three major forms; most businesses belong predominantly to one type of distribution. The categories are industry specialists, institutional generalists, and channel-sales specialists.

Industry Specialists

A business may typically sell all of its products or services to participants in the same narrowly defined industry or activity. Classical examples are defense contractors who rarely sell anything except to the U.S. Department of Defense or other such entities abroad with federal government approval. Process engineering firms are likely to be concentrated in the petrochemicals industries: their job is to build refineries and chemicals plant. Such firms occasionally also build power plants for utilities, compressor stations for pipelines, etc. Major categories, like autos, produce an array of suppliers that work exclusively for the category. Golf cart producers sell principally to golf courses.

A subgrouping of the specialist category is formed by companies that sell to a narrow category within a single industry. Specialized equipment companies serving medicine or laboratory research fall into this category—selling only to certain kinds of hospitals or clinics, for example.

Institutional Generalists

At the other extreme are businesses that sell products to every kind of business and similar institutions and to virtually every element of such client operations. Examples are office supply producers, manufacturers of file cabinets, and makers of office furniture. Advertising agencies and public relations firms may be similarly in the generalist category—but many will develop special clienteles. Subsets of this "generalist" category are producers who sell to one sector in preference to others—thus, for instance, tool makers or steel producers who sell to virtually all manufacturers but very rarely to wholesalers, retailers, or financial companies.

Yet another but narrower generalist category is the producer who, by the nature of its product or services, deals exclusively with a well-defined department but one almost always present in a business or an institution. Payroll or health insurance companies are an example in that their clients are finance departments or human resources functionalities. Most large computer companies deal with information system (IT) departments even when selling stand-alone computers.

Channel Specialists

All companies that use a multi-tier distribution channel concentrate their selling effort (but not necessarily their marketing efforts) on distributors specializing in their products. The actual selling may take place at annual or seasonal meetings at which the company hosts its distributors, makes presentations, and uses two or three days to negotiate orders with the distributors. When distributors must be added or changed, the company often engages in a complex process of recruitment to line up the right candidate. In some industries, e.g., recreational boat sales, dealings are directly with the retail channel. Automotive companies deal directly with dealers through intermediate, company-owned "zone" administrations.

Other Variants

The three broad categories outlined do not present an exhaustive description. All kinds of variants and specializations exist—and, of course, within large companies different divisions may use different methods to reach their markets. Some producers also deliberately target only large, midsized, or small business clients again using the broad approaches outlined.

These categorizations illustrate the rather extensive specializations that characterize B-to-B marketing. The single-buyer company faces quite a different challenge than the company selling to virtually everyone. But the defense contractor, selling only to DOD, must, nevertheless, also cultivate relations with other political decision makers to maintain its reputation and visibility. A single client does not mean a single relationship. Many narrowly defined product or systems sales are heavily technical, with both buyers and sellers being midlevel technical people who, internally, interact with their own managements, over time, to make a project happen. In major acquisitions, like the production of a new power plant, interactions at the highest executive levels are as necessary as the bidding process that takes place at the technical level. But a company selling office supplies typically operates at a low level with clerical people or purchasing departments.

VENUES AND METHODS

B-to-B marketing and sales take all the forms used in business-to-consumer sales as well, not least catalog sales commonly used for many types of technical components as well as such standard products as office supplies and furniture. Highly differentiated sales organizations are common.

Businesses of all sizes use their own sales forces organized in many different ways: from headquarters, from branch locations, and as separate sales divisions. The use of manufacturer's representatives—independent sales organizations—is exclusive to B-to-B. The subject is covered in detail under Manufacturers' Agents. In multi-tier marketing, of course, the sales function is mediated by distributors and retailers between the producer and the consumer.

Important venues in business-to-business marketing are conventions and trade shows where a company may participate in two different forms. The company may have its display booth and show off its own equipment, and its representatives may also participate as speakers or presenters in technical sessions. Such appearances, while in content and form far removed from what is conventionally viewed as marketing, are in effect valuable means of reaching potential business customers with information of use to this clientele. Conventions are also opportunities for companies to gain visibility from attendees by hosting entertainment events, hospitality suites, and providing services like shuttles or organizing tours. Such activities, of course, build good will.

Not least, businesses engage in conventional forms of marketing by advertising. When ads appear in industry journals and technical publications, their basic purpose is to promote the company's products and services to business buyers. When a company runs ads in the mass media, however, its objective may be to reach actual and potential investors. It is engaging in what is labeled "institutional advertising": the aim is simply to make its name visible to the public.

BASIC ELEMENTS OF B-TO-B MARKETING

The most important characteristics of business-to-business marketing are 1) building relationships, 2) candid technical interactions, 3) intensive commercial negotiations, and 4) close attention to after-sale services.

Individual transactions between businesses are typically larger as measured in dollars and fewer in number than in business-to-consumer sales. The contract or sale is more difficult to get, but once a relationship is established successfully, repeat business is almost guaranteed if performance is acceptable—the seller being helped by the buyer's desire to avoid the time, effort, and occasionally the hassle required to find a new supplier. For this reason, establishing and building a good relationship with a business client is vital. Ideally it will be established at all levels of the client—with its leaders, its management, and also with the working level using the product. Unhappiness at any of these levels can jeopardize the relationship. Periodic efforts to touch base with all of these levels is an important aspect of marketing. Both marketing and sales take a direct form—face-to-face—rather than by advertising. Advertising is used as a reminder of a relationship maintained by other means.

Technical interactions are ideally open and candid. The business client will always discover flaws or shortcomings in the product—and is usually also able to accommodate awkward features if all else works well. The seller is wise both to discuss difficulties openly and yet not to overstate them. Such approaches are, of course, just as beneficial in all sales but businesses tend to be more distant and engage in more "games" with ordinary off-the-street clients than with the industrial buyer who is typically much more knowledgeable and less moved by emotions. A converse of this general rule is that the business owner encountering a game-playing industrial buyer should be prepared to walk. The relationship must be two-way. The client who behaves in bureaucratic ways is a special problem for the B-to-B seller. Such behavior can sometimes be exploited and sometimes neutralized by developing better relationships with higher levels.

The very openness ideal in reaching agreement on the product itself makes commercial negotiations difficult. Business buyers tend to be hard customers generally; they will tend to know or be in a position to guess the real costs of the seller. They may also be under management pressure to push prices down. In price negotiations, therefore, games tend to be played unless a good relationship exists and the buyer is not under severe pressure. Here effective, flexible, and, if at all possible, open dealing is best. The buyer must sometimes yield—but should do so while openly stating that this particular easing of the price is for this case only, in order to accommodate the buyer this time, and not to set a precedent. Living up to this assertion later, by refusing to continue to sell at the low price, is, of course, part of keeping the deal going.

Business-to-business sales have a tendency sometimes never to close. This is wrong, that is wrong. The seller must be prepared to service the product. Too much after-sale service, amounting to extra services, can be avoided in the future by negotiating more stringent contract terms. But, under the usual circumstances, the business buyer calls only when something is really wrong. In that case swift and effective corrective action is the right response to maintain the relationship and, in effect, to sell the next contract.

B-to-B can often be the best kind of business for any kind of company, large or small. Large transactions, low cost of selling, a reliable market, and often an attractive price are inherent aspects of this type of transaction. The biggest danger of B-to-B for the small business is to become reliant on one or two clients for which it is just a small supplier. B-to-B is best practiced by the small business by cultivating several such customers, the favor or disfavor of no one of which will threaten the company's own survival.

BIBLIOGRAPHY

Ackerman, Elise. "The World of Internet Exchanges." Detroit Free Press. 26 February 2001.

"B2B: Business Practice." Marketing. 8 March 2006.

Coe, John M. The Fundamentals of Business-to-Business Sales & Marketing. McGraw-Hill, 2004.

Quinton, Brian. "Live from Chicago: B-to-B Must be Innovative to Find Leads." Direct. 29 March 2006.

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.

Vitale, Rob, and Joe Giglierano. Busines to Business Marketing: Analysis and Practice in a Dynamic Environment. South-Western College Publishing, 2001.

Darnay, ECDI

Encyclopedia of Small Business

Business-to-Business

views updated May 14 2018

Business-to-Business

"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 electronic component 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

BIBLIOGRAPHY

"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.

Darnay, ECDI

Encyclopedia of Small Business

Business-to-Business (B2B) E-Commerce

views updated May 29 2018

BUSINESS-TO-BUSINESS (B2B) E-COMMERCE

Internet-based business-to-business (B2B) e-commerce is conducted through industry-sponsored marketplaces and through private exchanges set up by large companies for their suppliers and customers. Of course, companies also sell to business customers through their own Web sites.

In the early 2000s, industry-sponsored marketplaces (ISMs) accounted for only a small percentage of B2B transactions. The main reason, according a survey of 25 ISMs published in the industry periodical B to B, is that ISMs have had problems convincing buyers and sellers to use them. For one thing, companies are reluctant to acquire customized designs through marketplaces because they don't want to reveal proprietary information on an site that is shared by competitors. These companies fear they will give away too much information about their competitive strategies simply by taking part in such a marketplace. ISMs also do not necessarily level the playing field for small companies against larger competitors. As a result, companies use such marketplaces mainly to purchase commodity goods, manage their supply chains, and conduct indirect procurement transactions not related to their core business.

Business-to-business (B2B) e-commerce is significantly different from business-to-consumer (B2C) e-commerce. While B2C merchants sell on a first-come, first-served basis, most B2B commerce is done through negotiated contracts that allow the seller to anticipate and plan for how much the buyer will purchase. In some cases B2B is not so much a matter of generating revenue as it is a matter of making connections with business partners.

B2B E-COMMERCE QUANTIFIED

A March 2001 study by the Gartner Group reported that $433 billion was spent worldwide on B2B e-commerce in 2000, reflecting a 189 percent increase over the $145 billion spent online in 1999. The study noted that online B2B marketplaces accounted for only a small percentage of B2B Internet commerce in 2000. Looking ahead, Gartner predicted that B2B e-commerce would reach $919 billion in 2001 and $1.9 trillion in 2002, estimates that took into account the general economic downturn that was taking place.

A U.S. Census Bureau survey of U.S. manufacturers found that, for all of 1999, the most frequently used electronic networks for accepting orders were electronic data interchange (EDI), which more than half of the manufacturers used, and the Internet, which about one-third of the manufactures used to accept orders. However, the value of EDI-based orders accounted for 67 percent of electronic sales in 1999, while the value of Internet-based orders only accounted for 5 percent. The findings reflect the fact that manufacturers have been conducting business electronically using EDI systems for several years.

In terms of procurement, the same survey, conducted in June 2000, revealed that the Internet was used most frequently to make electronic purchases. Still, the value of EDI-based purchases accounted for 65 percent of electronic purchases, and the Internet only 14 percent. Overall, e-commerce activity accounted for 12 percent of all sales among U.S. manufacturers in 1999.

B2B is far and away the largest sector of e-commerce. Comparing B2B with B2C e-commerce, the U.S. Department of Commerce reported that B2B online sales accounted for 90 percent of all online transactions during 1999. Still, the study noted that less than one percent of all U.S. transactions in 1999 were conducted over the Internet. It attributed the high percentage of B2B e-commerce sales to the longstanding use of proprietary networks, such as EDI, in the B2B sector. The manufacturing industry was the leader in e-commerce, with $485 billion or 12 percent of its total shipments resulting from electronic sales. Merchant wholesalers were second, with $134 billion in electronic sales, or 5 percent of their total sales. Drugs and pharmaceuticals accounted for 75 percent of all e-commerce merchant wholesale deals.

B2B e-commerce requires a significant investment in infrastructure. ActivMedia Research predicted in May 2001 that sales of B2B software would reach $10 billion by 2004, as B2B Web sites invested heavily in marketing, infrastructure, and e-procurement. The research firm also noted that the percentage of B2B Web sites that had been in business for less than a year grew from 32 percent in 2000 to 38 percent in the first part of 2001, a finding that suggested that more new initiatives were being launched despite the relatively austere conditions facing many Internet businesses. Separately, an April 2001 study by Jupiter Media Metrix predicted that spending on infrastructure technology for private B2B trading networks would grow from $230 million in 2000 to $37 billion in 2005. Through 2003 the study projected that spending on private networks would grow 300 percent a year, compared to 95 percent a year for public networks.

B2B E-COMMERCE IN EARLY ADOPTER STAGE

Although companies have been doing business electronically for many years using proprietary EDI systems, B2B commerce over the Internet remained in the early adopter stage at the start of the 2000s. The notion of an early adopter comes from a popular marketing theory which holds that buyers of a new product enter the market in several stages, starting with the early adopters who set the trends and ending with so-called laggards who purchase only after the vast majority has already bought. If B2B is still attracting mainly the early crowd, it suggests great potential for growth, as do the figures from the Census Bureau and private firms. However, another part of the theory suggests there is a gap, sometimes called a chasm, that must be bridged between the early adopters and the early majority buyers; many products are believed to fail after doing well among early buyers but failing to catch on in the wider market. Whether B2B Internet commerce crosses the chasm remains to be seen.

The economic slowdown that began in 2000 was expected to dampen the development of B2B e-commerce and decelerate the migration from proprietary EDI systems to the Internet. All this came on top of the reality that corporate decision-makers were slow to adopt the benefits of B2B e-commerce, even though the technology was available. Some believe part of the problem has been that adopting B2B e-commerce could be challenging to the existing corporate culture. Additional barriers, ranging from a shortage of technology resources to competitive strategies, are discussed below.

Often a prerequisite to certain types of B2B e-commerce is compatibility between a company's computer systems and the online exchanges or marketplaces where it seeks to conduct e-commerce. A survey by Computer Sciences Corp. found that in late 2000, less than 15 percent of North American businesses' Web sites had the ability to conduct business online. Other estimates of enterprises able to transact business online ranged up to 20 percent.

There are several reasons why businesses have remained on the sidelines of e-commerce. Small and mid-size suppliers appear to be waiting to see what kind of e-commerce initiatives their larger trading partners will undertake. Suppliers are faced with a choice of building their own Web site, selling over a public exchange, or joining the private exchanges of multiple trading partners. They may feel there is not enough demand from their customers to sell online. Also, many businesses do not have the internal information technology (IT) resources to enter into e-commerce. E-commerce operations typically require significant deployment costs and integration work, much more than simply offering a hosted Web site.

Surveys have suggested that first-generation B2B e-commerce Web sites were difficult for customers to use. Problems included too many Web pages to click through, distracting and unhelpful content, difficulty signing up for online service, and difficulty researching products. Next-generation B2B Web sites are expected to be more customer-friendly. They will incorporate such elements as personalization software that will reduce the number of click-throughs required. Other features will facilitate customer self-service, letting them check such things as inventory status on potential orders and track order shipping. Next-generation sites will reflect customer service as business's top priority, with companies leveraging the Internet to better serve their customers.

A May 2001 study by Jupiter Media Metrix also noted the slow adoption among businesses of online marketplaces. Since it is expensive for suppliers to move online, there must be more of an incentive than to simply meet the few buyers already online. Suppliers were urged to research and study the top buyers, implement buyer training programs, move existing buyers online, and attract new business through the exchange. Critics have pointed out that the slow growth of online B2B marketplaces is due in part to a heavy reliance on generating transactions. As part of its study of online B2B marketplaces, Jupiter Media Metrix recommended focusing on strengthening the quality of buyer-seller relationships, with new efficiencies to follow.

The Jupiter Media Metrix study also suggested that suppliers would be in a better position to become "preferred vendors" if they offered more value-added services online, including collaborative product design and supply chain inventory. Buyers wanted suppliers to provide services that would help simplify routine contact.

In May 2001 Accenture, a large consulting firm, released a study of B2B buyers that categorized them into five types:

Traditionalists (28 percent), who were principally brand sensitive but also valued customer service and good prices
eService Seekers (23 percent), for whom customer service was the most important
Price Sensitives (21 percent), for whom value lay in the price
eSkeptics (17 percent), who valued brand above all
and eVanguard (17 percent), who were comparison buyers.

The study aimed to help sellers understand online B2B buyers and help them market to companies that were or could be potentially involved in online buying.

In April 2001 InfoWorld reported that "fizzling interest in public [B2B] exchanges, coupled with the general slowdown, is forcing e-business vendors to refocus their development energies." The IT periodical noted that B2B technology vendors were shifting their focus away from building public supplier marketplaces to integration technologies and getting suppliers' content online. While some businesses began to question the value of public B2B marketplaces, claiming they would lose their competitive advantage by participating in a public exchange, private exchanges and highly focused public exchanges were being developed. One example of a specialty public exchange was eScout.com, which worked with regional banks to help small businesses make online purchases. Trade Matrix Network was a series of private exchanges that focused on vertical industries and offered a range of services, including financial settlement, collaboration, catalog management, and fulfillment and logistics.

Analysts highlight several key factors for private and public exchanges to survive and achieve success. For private exchanges, they include focusing on direct procurement, serving specialty markets, and offering extra services. Keys for public exchanges include focusing on specific business needs, providing economies of scale, providing scalable technology, and building a community.

CUSTOMER SERVICE

Poor customer service has a negative effect on B2B e-commerce, according to a May 2001 study by Jupiter Media Metrix. In terms of responding to e-mail inquiries, the study found that only 41 percent of B2B companies responded to customer e-mails within six hours, and only half of those responses were deemed satisfactory. Approximately 64 percent answered e-mail inquiries within 24 hours, and 29 percent said they never responded. As a result, there was a lack of confidence in e-mail as a customer service channel.

B2B Web sites also need to make it easier for potential customers to find what they want quickly. Remarkably, Jupiter Media Metrix found that only two percent of B2B Web sites had search engines. Most employed static "frequently asked questions" links, which were often cumbersome to use. The research also showed that 70 percent of Web users would not return to a site if they could not find the information they were looking for.

PUBLIC MARKETPLACES AND PRIVATE EXCHANGES

Industry sponsored marketplaces (ISMs) and consortia-led exchanges were only beginning to roll out their technologies in mid-2001 for their potential users to evaluate. Covisint, an e-marketplace backed by the major auto makers General Motors, Ford Motor Co., and DaimlerChrysler, was first announced in February 2000. As of mid-2001, the online auto marketplace still was not fully operational, illustrating the difficulties of integrating supply chains online.

The retail industry is served by several trading exchanges, including GlobalNetXchange (GNX), Worldwide Retail Exchange (WWRE), and Transora. WWRE was formed in early 2000 by a group of retailers including the Gap, Target, Walgreen, Best Buy, and Albertson's, among others. To help ensure the cooperation of companies that were competitors, the exchange set up collaborative teams with representatives from different retailers.

GNX was also formed in early 2000. Its founding companies included Sears, Roebuck & Co., Carre-four, and Oracle. While GNX's equity partners promised a purchase volume of $260 billion through the exchange, a year after GNX was founded only 5 percent of that amount had been used. In 2001 GNX was close to offering member retailers collaborative planning, forecasting, and replenishment (CPFR) services.

Transora is a consortia-led exchange serving packaged goods manufacturers and the retail industry. It began with 57 original investors, including companies such as Coca-Cola and Procter & Gamble. As of 2001 it was putting together a services package for potential users to consider. Among the components offered by Transora were online catalogs, auctions, and procurement. It also offered a collaborative planning, forecasting, and replenishment (CPFR) solution, which enabled retailers and consumer product manufacturers to share information. Transora's objective was to sign up large manufacturers, selected primarily from its group of original investors. The next step after that would be to present packaged subscription offerings to retailers. As more retailers completed their own internal integration, they would gain experience running some of their e-commerce activity through consortia-led systems.

In February 2001 Transora and GNX announced plans to form a megahub that would allow companies to collaborate with multiple trading partners through a single exchange. The site planned to operate as a transmissions application provider, translating EDI into versions of the platform-independent Extensible Markup Language (XML), thus facilitating the migration from proprietary EDI systems to Internet-based commerce and furthering collaboration among trading partners.

One exchange serving the consumer electronics industry is e2open, which was established in 2000 by IBM, Lucent Technologies, and other international computer manufacturers. The marketplace is for computer, electronics, and telecommunications companies to buy and sell goods and services. The exchange also provides the participating companies with an opportunity for collaboration on product design and supply chain visibility.

Exostar is an Internet-based marketplace that serves the aerospace and defense community. Founding companies were BAE Systems, Boeing, Lockheed Martin, Raytheon, and Rolls-Royce. The participation of major manufacturers has attracted thousands of suppliers to register with the exchange. As of mid-2001 Exostar was planning to offer a range of products and services. Its long-term goal was to provide a measure of standardization to e-commerce in the aerospace industry.

Private exchanges are created by companies for their suppliers. They may be set up with multiple tiers: e.g., first-tier suppliers, second-tier suppliers, etc. All first-tier suppliers might be expected to join the exchange or risk losing business. The cost of building a private trading exchange platform could cost a Fortune 500 company anywhere from $50 million to $100 million, according to AMR Research. The estimated cost would include not just a supply chain hub, but also all of the external enterprise systems that would link a very large company to its supply chain partners, its customers, and other key trading partners.

Another technology firm, Idapta, estimated that it would cost from $5 million to $125 million to build an industry-wide exchange, depending on the complexity of the products to be traded. Other expenditures to consider include integration costs, which Jupiter Media Metrix projected could cost a consortialed trading exchange from $50 million to $100 million. Forrester Research estimated that individual companies could spend between $5.4 million and $22.9 million to integrate with online exchanges.

Large companies typically look to exchanges for procurement. Sales efforts that are conducted through their own Web sites can be directed at customers or to distributors and dealers. Thus, while Ford Motor Co. participates in Covisint for procurement, it has established FordDirect.com to provide an extranet for its dealers and distributors. Boeing Company has run its online procurement and supply chain management activities through Exostar. For its customers, Boeing established MyBoeingFleet.com, which allows airplane owners and maintenance workers to purchase replacement parts online and provides them with extensive information about Boeing's products.

Typically, large companies will sell through multiple online channels. Office-supply retailer Staples, for example, operated three different portals for its business customers.

On the procurement side, some organizations are using reverse auctions to let buyers, contractors, and service providers bid down prices. Benefits include reducing the bidding process from several months to a matter of days, being able to reach a broader audience of suppliers, and enabling sellers to tailor their bids to the bidding process. In a reverse auction, the buyer requesting services or goods sets an initial price. Matching engines and marketplaces can be used to make the reverse auction known to a wider audience. Unlike a sealed bid process, a reverse auction keeps the industry posted of the prices while the bidding is in progress. This enables suppliers to submit additional bids at lower prices and tailor their bids to the bidding process. In this situation, suppliers need to know the lowest they could possibly go on a particular deal and still make money. Small companies can utilize reverse auctions to learn about the negotiation process and see a much larger array of suppliers. In some cases reverse auctions can become a reverse pricing tool that helps companies determine their own pricing as well as that of their competitors. Software company Egghead.com, for example, provides instant responses for larger-quantity product requests by using NexTag's pricing engine in its online Volume Pricing Center.

BuyUSA is a marketplace launched in 2001 by the U.S. Department of Commerce to help primarily small and mid-size U.S. businesses find international buyers and distributors for their products. The site allows businesses outside the United States to view product catalogs and obtain background information on U.S. companies. Other privately run e-marketplaces designed to facilitate international trade include GlobalSources.com and VLINX.com.

Recognizing that 28 million small U.S. businesses represent a lucrative market, Internet portals serving consumers have added B2B features. Yahoo! Small Business debuted in August 1998 and provides content, services, and commerce opportunities. In March 2000 the portal launched Yahoo! Business to Business Marketplace, which allows businesses to search for products and services across industries. In January 2001 it created three Yahoo! Industry Marketplaces for IT hardware, IT software, and electronics. AOL Time Warner went after the small business market through its subsidiary Netscape, which introduced its small business portal Netbusiness in September 2000. Microsoft's entry was bCentral, a small business portal that was launched in October 1999 and has since grown to offer a range of technologies and services.

B2B E-COMMERCE OUTLOOK

Internet-based B2B e-commerce remained in the early adopter stage as of mid-2001. Public marketplaces continue to evolve and find new ways to appeal to corporate sales directors and purchasing agents. They are adding services that would enable suppliers and buyers to collaborate more closely on product development, inventory control, and other areas. To survive and prosper they need to overcome the limited functionality associated with earlier versions and make it easier for suppliers to integrate their computer systems to work with the marketplace. As more large companies develop private exchanges for their supply chains, many suppliers will be forced to invest in their own IT infrastructure and develop the capability to conduct business online.