Show Notes
Transcript
[00:01] Rob Walling: This is Startups for the Rest of Us: Episode 10.
[00:04] [music]
[00:13] Rob: Welcome to Startups For the Rest of Us, the podcast that helps developers be awesome at launching software products, whether you have built your first product or are just thinking about. I’m Mike.
[00:23] Mike Taber: And I’m Mike.
[00:24] Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s new this week, Mike?
[00:30] Mike: Not much. I went through…Remember last week we were talking about the Mercurial stuff that I was looking through, and I had some questions in my mind about how I was going to be able to manage projects between one machine and another. And I think I actually came to the conclusion that I was making it out to be a lot harder than it actually was, because the obvious solution, I think, was to just simply say, “Well, I can create a third repository that I push my changes from my laptop to, and I push my changes from my desktop to, and then I basically just use that as a point where I pull the changes back. And if I throw a third machine into it, then I basically just push all my changes to that same repository and pull it using the other two machines.” So I think I was just making it out to be harder than it actually was.
[01:17] Rob: That’s a good solution. Did you find that online or did you just kind of hack it together yourself?
[01:21] Mike: No, I just…I don’t know. I think I was going to bed one night and I just said, “Hey, I am an idiot!” [laughs]
[01:27] Rob: Yeah, that often happens. I tend to get really good ideas as I’m going to bed or doing dishes, or in the shower. Those are the places where your mind kinda wonders.
[01:37] Mike: I didn’t need to know that. [laughs]
[01:38] Rob: Yeah, sorry. Apology.
[01:42] Mike: What about you?
[01:43] Rob: Not much new this week. I’m just chugging along with some AdWords campaigns. Nothing really exciting to announce this week.
[01:49] Mike: OK.
[01:50] [music]
[01:53] Mike: So I think we talked about this a little bit before, putting together our agenda. And we’re going to talk today about the top 10 differences between Business-to-Business and Business-to-Consumer products. So why don’t you tell our listeners a little bit about what the difference is between B2B and B2C?
[02:11] Rob: Yeah. So the way Mike and I are defining B2B and B2C, obviously you can easily say, “Well, a B2B product is anything that sells to a business, and a B2C is any kind of software product that sells to a consumer.” Software product or website, to be clear.
[02:28] But as we’ve thought through these top 10 differences, we’ve realized that B2B actually is more of mid-sized to enterprise corporations. So it’s mid-sized to large companies. And B2C often, obviously it’s consumers, and it often extends into the small business arena.
[02:48] And the reason is there are some shared characteristics of consumers and small businesses, mainly being price sensitive and a couple other things we will discuss later in the episode. So that’s how we’re going to define it. That’s our working definition as we get into these top 10 differences.
[03:06] Mike: And part of the reason we are discussing these top 10 differences is it is important to know what sort of things you are dealing with when you are talking to your customers and when you are building advertising campaigns and marketing campaigns, and you are trying to figure out where to advertise, or how you should deal with your customers, or how you should even price some of your products. So it’s important to just be aware of what those differences are.
[03:30] And we’re not advocating that B2B products are better or B2C products are better. We’re essentially just trying to highlight what those differences between the two are so that when you go out and you try to build your own products or are pitching them to people, that you have a good understanding of what the essential differences are between them and how you should go about doing it.
[03:51] Rob: So the first difference we’re going to cover today is that B2B customers tend to buy based on a need, while B2C customers tend to buy based on emotion. And this is pretty obvious when you think about it, the fact that a consumer buys pretty much without anyone else’s approval, and they buy it without input from other people. They don’t really have accountability when they buy something.
[04:15] And small businesses can be the synonym situation. You have a sole proprietor is thinking, “Oh, I need to organize my invoicing or organize my accounting.” This person can make an impulse purchase. Whereas a B2B situation tends to have multiple people involved, and thus it’s tough to make an emotional decision unless you get a bunch of people onboard with it, which, just more often than not doesn’t happen. If you have accountability from above, people looking over your shoulder as to what you’re buying, which often happens in a B2B situation, you are not going to tend to make an emotional decision. You are going to tend to evaluate something and buy it based on more of a real need.
[04:55] Mike: And the important pieces about that is just the implication of buying by committee versus an individual buying something. When you are buying by committee, the process just takes longer. And that’s kind of the bottom line is that you have to be aware that the impulse buy for the individual, they could just decide on a whim, “Hey, I’m going to buy this,” and they buy it. And nobody is going to get fired over the fact that they bought a candy bar at the grocery store while they were just standing in line because they felt like it.
[05:21] Whereas in a business, you can’t just arbitrarily go out and buy $30,000 worth of software and have nobody say anything about it. There’s really that committee behind there that decides or help make the decision, and because of that, the process is longer.
[05:39] And that’s a good follow-up into the second one we have, is that price points tend to be lower for B2C software products or applications. The fact is that when you’re trying to sell to individuals, individuals have much lower budgets than a business will. And again, if you look at very small businesses, like sole proprietors and small companies, they tend to act more in the capacity of a B2C purchaser because they don’t have to go through those hoops, and they are not buying software for everybody in the company. Maybe they are, but there’s only a very limited number of people.
[06:16] Whereas B2B customers will tend to be buying software for large numbers of employees or departments. And because of that, the price points tend to be much higher just because of the fact that they are buying so many more licenses.
[06:29] Rob: So the implication of this point about price points is twofold. One, since consumers are so much more price sensitive, you are obviously going to need to keep that in mind when you price your product. You are going to need to have a lower price than if you are selling to businesses. And it’s a pretty stead rule.
[06:48] So while a consumer might only pay $9 a month or $14 a month for a SaaS application, a business, you know, you see a lot of plans offered that are $99, or $149, or $199 a month — something a consumer would never think of paying.
[07:06] And the idea there is that B2B purchasers are interested and willing to spend a lot of money if it saves them time. Whereas B2C consumers just can’t even imagine dropping $150 a month. That’s like cable, plus Netflix, plus, you know, their beer money. So there’s a big difference there.
[07:24] And the other implication of this point is that the higher the price, the longer the lead time tends to be overall. So what that means is that the time someone first hears about your product until you make a sale extends out. And so with B2C products, you tend to have just a shorter sale cycle in general. And that sales cycle can be as short as a few minutes. I mean if someone sees something and makes an impulse purchase, if it’s a $9 e-book or something like that. And then as you go up the scale and you sell $300 invoicing software, $900 accounting software or something like that, then it’s going to take six weeks, eight weeks. And the top end of that are these seven figure ERP and CRM systems that are sold to these huge enterprises. And with those, the sales cycle can be nine months, 12 months, or 15 months and beyond.
[08:16] And that brings us to difference number three, which is that brand loyalty plays a big role in B2C purchase, while vendor trust plays a much greater role in B2B purchases. And what we’re talking about when we say “brand loyalty” is that consumers tend to stick with either what they already have, if you are talking about software, or maybe what their friends are into and there is more peer pressure to buy something. That’s being loyal to a brand.
[08:43] So if someone always goes to Target and they can get the same thing at Walmart for a little less money, even though they may be price conscious, they will tend to continue to go to Target because they know it.
[08:53] Whereas with B2B purchases, they tend to weigh vendor trust much more heavily. So the trust they have in the vendor, such as how the actual software works, they want to make sure it’s not going to be buggy, they are going to be more sophisticated about actually measuring results. They want to make sure that the company can support it and that they are going to stay in business.
[09:13] And a decent example of this is antivirus software. If you think about any consumer that you know who purchases antivirus software, they don’t tend to really research it. They don’t tend to really care what they are buying. Pretty much, when they are buying a new computer, whatever comes on it, that’s what they use. And after a year, if they still own that computer, they tend to just renew it. They’re not going to go out and download something new and reevaluate this whole process, because they are just kind of loyal to what is there; it’s what’s easy.
[09:40] Whereas in a B2B situation, people are going to be much more likely to go out and do some research, read white papers, look at performance tests, look at, you know, the tests of how the AV software actually compares to each other. And as a result, the B2C market of antivirus software is like two or three players tops, whereas the B2B market is 20 players or 25 players? There’s just so much more room in there. And the difference is not just price but it’s how they perform, how well the company will support them, and whether the company is convinced the B2B player, that they’re going to stay in business.
[10:17] Mike: I think that the underlying point is more or less that B2C customers are going to stick with what they know and what they’re comfortable with and familiar with, whereas a B2B is going to choose the best tool for the job.
[10:30] And if that means reevaluating their vendor after they’ve blown $250,000 on software for one year, and at the end of the year they’ve realized that this just isn’t cutting it, then they’ll go out and they’ll spend another $250,000 on some other piece of software because the original tool didn’t work. It didn’t do what they needed it to do.
[10:50] Whereas a customer, if an individual, had they spent $250,000 on something, let’s say a house for example. Most people don’t buy a house and then at the end of the year they say, “Well, you know what, I really don’t like this house I’m going to get a different one.” Individuals don’t tend to do that. I mean, I know somebody who does. But barring the few exceptions, most people just don’t do that. Whereas a business will. Because if their needs are not being met, they need to find a way to meet those needs.
[11:20] The fourth difference that we came up with is that it’s quite a bit more work to sell into a B2B customer. And it requires a lot more touches to make a sale. What I mean by touches is, how many times did the user come to your website? How many times did you contact them? Did you send them emails? Did you send them follow-up emails? Did you give them additional information? How many times did they see your marketing collateral? Did they see an advertisement one time? Five times? Ten times?
[11:47] Each of those contacts constitutes a single touch. And it generally requires more touches to make a sale to a B2B customer than it does to a consumer. And part of the reason for that is that B2C products tend to be something that are essentially the result of an impulse buy.
[12:05] And you can use the example buying a candy bar in a grocery store. In a B2B environment, most things are approved by committee. And that’s really kind of the fundamental difference that we’re getting at with this particular piece, is in a B2B situation, the business is going to take a little bit more time to evaluate what their options are and really figure out whether the product or the service that you’re offering actually meets their needs.
[12:32] And that, again, ties back to brand loyalty a little bit, but it’s really more important for a business to know that whatever solution it is that they’re buying actually meets their needs. And essentially, what that means is that it’s going to take more touches with that business in order to make that sale and close it.
[12:49] Rob: And difference number five is that B2C customers aren’t as sensitive prior to buying about response time for support requests. B2C customers expect support to suck. Whereas B2B customers have a higher standard for support. The implication here is that many large companies that deal with consumers, like large utilities and telephone companies, and wireless companies, they just suck at support.
[13:13] And so consumers tend to…not that we like dealing with crappy support…but we’re not as repelled by it as B2B customer might be. B2B customers have a very high expectation of fast support turnaround times, detailed answers, and just a higher quality of service. Because A, they’re paying more and B, they’ve become used to it over the years of the good support that’s given to B2B customers. B2B customers tend to be valued more by companies in general. So the implication here is that with B2B customers you absolutely have to have a high level of support.
[13:48] And with B2C customers you should have a high level of support. You should have very high quality support. I don’t know that there’s any real difference in the way you should approach things. But realize that with B2B customers, if you have a few hour delay, a 12 hour delay, they may get upset with that. Whereas if you email a B2C customer back in 12 hours, they may actually not even notice.
[14:12] So that’s probably the major implication out of this, is that you have a little more flexibility. We certainly wouldn’t imply that you could abuse this and slack off on your support with B2C. But realize that there’s probably a little more flexibility in there for you.
[14:25] Mike: And part of the reason or that too is that depending on the specific piece of software or service that you’re offering, in a B2C environment you tend to have a little bit more time. Whereas a business, businesses operate five days a week, generally. So if they report a problem at 8:00 a.m. on Tuesday, they expect to hear an answer hopefully by the end of the day. But if not, then by the end of the following day. Whereas if you’re talking to an individual customer, they might send in an email request that says, “Hey I need help with this,” or go to your website and submit a form.
[15:00] That’s probably not nearly as important, because are you going to be able to get them on the phone the next day at 9:00 a.m.? Chances are probably not. So that’s part of it. And as you said, I think that’s a really good point about the difference in price. Because a lot of times vendors will charge a business more than they charge a customer for the sole reason that their justification is they are offering a higher level of support for those business customers. And if you don’t actually have the support but you’re charging them more and saying that it’s because you offer better support, then you’re going to have a problem.
[15:36] The sixth major difference is that comparison shopping is common among B2B and B2C, but they’re looking for different things. While B2B looks for a reputable vendor, B2C looks primarily at price. And this is why companies buy computers from Dell and tech junkies buy computer parts and build it themselves. For the tech junkie it’s not about the total cost of ownership of a particular machine, it’s, partially for them, it’s about the dollars out of pocket.
[16:03] They don’t want to have to deal with Dell support and they’re looking at it from a price perspective. Because to a tech junkie, they can build a computer and it will be cheaper than if they were to buy it from Dell. And they’ll probably get better parts at the expense of the lower level of support, because obviously they’re going to have to do it themselves.
[16:23] Rob: And difference number seven is that B2B tends to target a smaller market while B2C tries to target as many people as possible. Realize this is partly a factor of cost. If you’re only charging $9 for your product versus $99, obviously you need to reach a much larger market in order to make the same amount of money. But beyond that, in general, consumer markets tend to be larger than businesses. There are just a heck of a lot more consumers in any given country than there are businesses.
[16:53] So the implication of this is, as a rule, if you’re going after a B2C market, you’re going to tend to have to have a lower price, you’re going to have a larger market. So you’re going to have to have low costs to acquire your customers and you’re going to have to deal in volume, because you’re going to have lower margins than if you have B2B customers where you can charge more money. You do need to offer higher support, but you’re going to have a smaller market, and you’re going to be able to be a little more intimate with that market. You can make fewer sales, so you can have a higher cost of customer acquisition.
[17:25] And I should clarify. When I say profit margin, I don’t necessarily mean it as a percentage. A profit margin can be either an absolute dollar amount, like I make $10 per unit sold, or I make 50% profit per unit sold.
[17:40] So in summary, it’s not that B2B is better or worse than B2C, just that B2B tends to have a smaller market size, a higher cost of customer acquisition, and a higher product price than B2C.
[17:55] Mike: Difference number eight is that B2B websites tend to have a bit more of a polished and intellectual feel to them, while B2C sites tend to have a more personal connection. And a certain type of attitude is more or less encouraged for those sites.
[18:10] For example, if you go to a website that sells T-shirts, they’re going to have a certain type of attitude that is associated with their website. Maybe they have funny logos, or maybe they’re a little bit off-color, or tell some off-color jokes. Just something along those lines.
[18:24] You’re not going to find those things if you have a B2B website. And part of the reason for that is that they’re trying to maintain a professional image. And even though this T-shirt website may be a business that you’re going to, they obviously want to appeal to their customers. And because of that, they have to pitch their products to the audience in a slightly different way.
[18:47] So they’re trying to appeal to emotions, they’re trying to appeal to personality. Whereas with a business, they’re trying to pitch to your pain points. They’re trying to figure out what it is that you are having a problem with and let you know exactly how their software can help you to resolve those pain points.
[19:06] Rob: This is one of the reasons that I despise the medium-to-large business market. I shouldn’t say I despise it. But one of the reasons that I never want to sell into it and I’ve never wanted to is that you go to these websites for large software systems, and they’re just…they’re generic. And they’re just so stale. And the language is horrible. It’s this terrible marketing-speak that is so flat and flaccid. And just, it’s like, “Ugh.”
[19:36] And that’s the kind of stuff that I would hate to write, and I would hate to read it all the time. I think you might be able to market to that space and have a bit more of an edgier feel to your prose, but I’m not sure. I’ve never tried it. I don’t know if it works.
[19:50] I don’t know if people in those markets are too stuffy to deal with it. And if they showed their manager or their VP of Acquisitions and they said, “All right, we’re going to buy this thing and look at this website,” if the guy would flip out, because they’re too conservative and don’t want to go out on a limb, essentially, and buy from a company who has just some writing that’s more human.
[20:07] Whereas absolutely in consumer websites, as you said, and definitely in small business websites, you really are able to appeal to the human side, and you are going to be so much better off just writing like a blog, writing like we speak, and have much better luck in those markets.
[20:24] Mike: Well I think part of that is a result of the fact that when you’re looking at these larger product offerings that are being sold B2B, they tend to have those much higher price points that essentially require that the company have sales reps. And those sales reps are out on the road or they are banging on the phones all day trying to talk to people and convince them to buy the software.
[20:49] And as you said, because there has to be that committee on the other side…because if you are talking about a piece of software that’s $50,000, there’s not going to be just one person who says, “Hey, let’s buy this,” and they will cut you a check. That’s just not going to happen.
[21:03] They’re going to have several people involved. There’s going to have to be a bunch of people who look at the website and download the software and check it out. And if any of them look at your website, if it’s telling off-color jokes or things along those lines that have a humanized personality to them that is off-putting to a group of people, it makes it difficult to make those sales.
[21:25] The other part of that is they are trying to get media outlets to publish their press releases and things like that. If you look at press releases, they are all pretty vanilla. I mean there’s just very little personality to the vast majority of press releases that are out there.
[21:40] And there are some people who can get away with putting out a press release that is different or varies from what the norm is, but not too many are able to do that and actually pull it off. And as I said, I think that it’s partially because those larger companies are selling at higher price points, and they really can’t afford to be losing sales for things that, quite frankly, are kind of trivial. I mean if it’s the difference between putting up something of a stale website and putting up a website with a personality that is going to get less sales or is going to turn away a couple of sales out of every thousand, that’s a big deal to them. So they just can’t afford to take those chances.
[22:17] Rob: Cool. And difference number nine is that single response follow-ups, such as just sending someone a single email after they download software, they tend to be appropriate and the norm for B2C purchases. But with B2B, that’s not generally how it’s done.
[22:33] If you are going to follow up with a B2B customer, you tend to really invest time, contact someone, maybe try to contact them by phone, and really try to close the sale.
[22:46] Now, personally, this is one of the reasons that the whole medium to large business thing has never appealed to me. High pressure sales and really calling people on the phone and really kind of getting into it and trying to sell a large piece of software, it doesn’t sound interesting to me personally.
[23:00] And in fact, any time that I’ve entered my info on a contact form and then I start getting hounded by salesmen, it just pisses me off. And I’ve had this happen at several kind of larger software vendors who’ve I’ve mistakenly given my information to. I should have given them a fake phone number or something.
[23:15] But this is the generally accepted practice, frankly. And I am sure the reason that it’s like this is that it generally works. And whereas I think that if you start hounding B2C customers, A, you just don’t have the bandwidth to do it. You know, you can’t hound a thousand different customers, because since you are dealing in higher volume, you kind of have to handle it with emails and some simpler touchbacks.
[23:39] Whereas with B2B stuff, if you are selling a $50,000 or $100,000 product, no one is actually going to buy until they speak to someone. And so what you are trying to do the whole time is to get an appointment with them and speak to someone over the phone or face to face.
[23:53] Mike: The important thing to keep in mind here is that, again, most of these are largely a factor of price. So if you are talking about a piece of software that is $1,000, or $5,000, or anything that price point and up, you essentially have to follow up with these B2B customers, because they are busy. They get hundreds, if not thousands, of emails every year, and they just don’t have the time to sit down and look at your software. And they are just not going to.
[24:24] So if they’ve downloaded a trial or they were interested in it at any point, you have to follow up with them and you have to be diligent about following up with them. And if you don’t, somebody else will. Unfortunately, that’s why you have to. Because if you don’t follow up with them, somebody else will follow up with them and somebody else will end up making that sale, and you’ll never get anywhere.
[24:44] On the B2C side, as Rob said, you just don’t have the bandwidth to follow up with all of them, because the price points are lower, and generally, you are relying on them to make that impulse buy and look at the software and say, “Hey, this is a low enough price point that I can justify just buying this,” and you don’t have to worry about it.
[25:02] And now on to difference number 10, which is my favorite difference, which is personal bribes or incentives work a lot better with B2C than with B2B. When you are selling B2C software, it is a lot easier to do something like a 24 hour fire sale to close the deal with people, and say, “You can buy the software now. We’ll give you 50% off.” Or, if they go to uninstall the software, you can say, “Hey, I see that you are uninstalling it. If you didn’t like it, tell you what. Why don’t we give you a 25% coupon right now and help you justify the price point on this?”
[25:37] And those sorts of tactics work really well for a B2C offering. B2B customers generally ignore that. And I’ve literally seen customers, you know, you try to push them into making a sale, especially with larger sales, you are trying to get them to close by the end of the quarter or something like that. And I’ve had customers say to me, “You know, look. I know you’re cutting me a great deal, and I’d love to buy right now, and I know that it’s going to cost me at least $50,000 more if I buy it 30 days from now, but I’m just not going to. I just can’t right now.”
[25:37] Whereas if you were to threaten an end user with the difference between $75 and, say, $40 or $50, they would bite the bullet. They would just say, “Hey, you know what? I can save $25 by doing this. That’s like 33% off the purchase price.”
[26:22] And they’ll go ahead and do it. And I understand that the dollar amounts are different, but even if the percentages were the same, I think that you are going to see that tendency a lot more with the B2C customers who are just going to say, “Hey, you know what? I’m going to take the deal and I will do it.” Whereas a B2B customer is going to really go off of what their needs are and what their business goals are.
[26:44] Rob: So to conclude, the importance of keeping in mind your market, whether it’s B2B or B2C, is that these things have a great impact on how you do your marketing, how you handle your sales, how you handle support. How you build your website, interact with customers, and conduct your advertising.
[27:04] So knowing whether you are going after medium to large businesses or that consumer and small business side can really guide your direction and it will have a major impact on how you handle all of these aspects of your business.
[27:18] [music]
[27:21] Mike: If you have a question or comment, please call it into our voicemail number: 1-888-801-9690. Or you can email it in MP3 or text format to questions@startupsfortherestofus.com. Feel free to include your name and your URL if desired. A transcript of this podcast is available on our website: www.startupsfortherestofus.com.
[27:43] If you enjoyed this podcast, please consider subscribing to us on iTunes by searching for “Startups For the Rest of Us.” Or you can also subscribe via RSS at startupsfortherestofus.com. We will see you next time.
