Yaneek Page The best business model to turn a profit
QUESTION: I am starting a new business and need to ask your opinion on it: Which customer archetype is better for business, from a profit potential, B2B, B2C, or B2G?
– Kem
BUSINESSWISE: You have posed a good question because it is in the answer that you will discover the driving force of your business model, which should inform every strategic planning decision for your company.
Let me first clarify some key definitions to avoid confusion in language and meaning given that you used several acronyms typically used to group customer segments, but which you unusually used to reference customer archetypes:
B2B, pronounced ‘B to B’, stands for business to business and refers to the process of marketing and selling goods and/or services from one business to another business.
B2C, pronounced ‘B to C’, stands for business to consumer and refers to the process of marketing and selling goods and/or services directly to the final consumer, or end user.
B2G, pronounced ‘B to G’, stands for business to government, and refers to the process of marketing and selling goods and/or services directly to the government.
Here is a critical point I want you to take away. Customer archetypes are distinct from customer segments and buyer personae, and you will need to define all three in fleshing out your business model to determine your most lucrative opportunities and relationships.
Customer segments are more general in that they are groups of customers, whereas customer archetypes are representations or models of your ideal customers within those segments, and buyer personae provide detailed and fictional examples of individual customers within those archetypes. In marketing they are all used as important tools to understand and efficiently target those to whom you wish to sell.
I don’t have adequate information to answer your question. I would need to know details of your business idea, the problems identified and solutions you provide, or needs that you fulfil, the differentiation of your solutions, estimated costing and pricing, the extent of your resources, access to finance, networks, and connections.
However, let’s do a basic review of what typically makes each of these segments viable or unattractive and buying decision-making so you can consider (with your extensive knowledge of your business concept), which you should target and how you should prioritise.
Governments are relatively logical rather than emotional buyers of goods and services. The buying process is formalised, structured, and requires considerable time and due diligence.
Government is usually a viable customer because it is the largest procurer of goods and services and frequently undertakes massive projects and recurring initiatives, with resilient budgets. This is why government contracts are a source of wealth for many businesses such as car dealers and repairers, private security firms, IT companies, financial institutions such as bankers, investment brokers and insurance providers, pharmaceuticals and medical supplies, construction and road work companies, telecommunications, stationery, and office supplies.
While on the one hand government is seen as the most cash-rich potential customer, doing business with government is very complex, often requiring registration, fit and proper criteria, company registration& tax compliance, among others. Still, there is sometimes a lack of transparency around how lucrative contracts are awarded and to whom.
Doing business with government may be unattractive because of the formality, bureaucracy in decision making and payment processing, poor contract management, extended payment delays, the risk of political exposure, and vulnerability from changes in policy or administration.
I suggest you call or visit the website of the Ministry of Industry, Investment and Commerce to learn more about their small business procurement policy and any support or procurement commitment to the sector.
Business to business, like B2G, is usually characterised by logical rather than emotional buyers that take formal approaches to the buying process. They are attractive customers for many entrepreneurs and enterprises because of their deep pockets, the fact that they have established budgets for certain goods and services, and because the typical spend or volumes purchased are often substantially larger than any individual person.
Ultimately, entrepreneurs find it lucrative to sell larger volumes to fewer customers.
Remember, there is a significant cost to acquiring and doing business with each individual. It is for this reason that even manufacturers of food products prefer to distribute them directly to another business such as a supermarket or pharmacy rather than directly to the final consumer.
The downside is that like government, payment is rarely immediate, though delays are not usually as extensive. Another downside is the likelihood of complex supplier registration and/or bidding and payment process, which may require dedicated resources. There is also sometimes a lack of transparency surrounding the award of contracts.
With B2C, you may find that buying decisions are highly emotive rather than logical. Consumers, unlike government and businesses, may readily support informal businesses or those lacking in established structure.
B2C is often attractive because the selling process is far less complex and payments are almost always received instantly However, there is a substantial cost in executing the B2C model especially when dealing with large numbers of customers.
The other downside is that the final consumer tends to have more limited resources, smaller budgets, and may be less reliable in terms of purchase patterns such as frequency, except for certain types of contracts, for example, such as motor vehicle insurance, which is mandated by law, or monopolistic or oligopolistic providers.
Now that you understand some key features, purchasing powers, and buying behaviours of B2B, B2G and B2C, you should be able to make well-considered strategic decisions.
One love!
– Yaneek Page is the programme lead for Market Entry USA and a certified trainer in entrepreneurship.yaneek.page@gmail.com