What’s the future for the business middleman? Will eCommerce render wholesalers and distributors obsolete by letting manufacturers talk directly to their end users? It’s easy to think so when watching a company like Amazon grow, but some industry observers believe the future will be more complex. Rather than moving from a Business-to-business (B2B) and Business-to-consumer (B2C) world to one that’s just B2C, they see a more complex Business-to-business-to-consumer (B2B2C) reality emerging.
What is B2B?
Business-to-business (B2B) is where company A sells company B the things B needs to run its business. These “things” could be an enterprise resource planning (ERP) solution, an industrial automation-packaging robot or even packaging materials. It could also be the products that company B will use to satisfy its end users.
A classic example of B2B is the aircraft industry. Boeing, Airbus and other aerospace companies build planes that they sell to airlines. Sitting in an economy seat on an airplane, the end user is not involved in the transaction, and the aircraft maker knows very little about his or her specific wants and needs.
What is B2C?
Business-to-consumer (B2C) is used to describe the relationship between the seller and end user. This might be a car dealership and car buyer. Following the classical business model, the car manufacturer and dealer have a B2B relationship while the dealer and buyer have one that is considered B2C. And as with the aircraft industry, the manufacturer is at an arm’s length from the end user.
What is B2B2C?
Business-to-business-to-consumer (B2B2C) is combining B2B and B2C business relationships for a complete product or service transaction.
This is where things are changing, at least in the manufacturing world. The financial services sector already uses this model. It’s when an insurance company sells policies through a broker, but the end user’s primary relationship is directly back to the insurance company.
So what does this mean for manufacturers, and what, if any, are the advantages?
B2B2C for Manufacturers
The advent of eCommerce has made it easy for manufacturers to sell directly to their customers. Tesla is an example of this. There are no dealerships receiving and distributing cars; customers buy directly from the manufacturer in a B2C environment.
For many manufacturers, this would create a lot of complexity, and for consumers too. There are advantages to the wholesaler/distributor model. End-user orders are consolidated and shipping is kept relatively simple with the end user taking responsibility for the “last mile.” The downside, though, is that manufacturers don’t have access to customer, or more specifically end user, data. In this info-centric world, a lack of end user data can become a significant challenge as digital transformation changes and further defines the business ecosystem.
Setting up direct-to-consumer B2C channels enables the manufacturer to talk directly to the end user. At the same time, it puts the manufacturer in competition with their wholesalers and distributors. It also provides the consumer a more direct and personalized buying experience. This is the type of business model that is behind the shift from B2B to B2B2C.
The Benefits of B2B2C
In a B2B2C world, manufacturers talk directly with their end users while still selling through their agents or representatives. Solutions are still evolving, and it appears different industries may do things differently. One example comes from Volvo.
As an alternative to selling cars through a dealership, Volvo is experimenting with a “subscription” service. Car buyers “purchase” the vehicle online, which is actually more of a lease, but work is done entirely online, through the dealership, to receive the vehicle and have it serviced. This is an example of an Anything as a Service (XaaS) model, where the car company provides car-servicing outcomes rather than just the car itself. So what are the benefits?
Top of the benefits list is data. By talking directly with the end user, the manufacturer learns a lot more about their interests and preferences. This helps the manufacturer become more sensitive and more responsive to changing consumer tastes. It could, for instance, lead to less discounting of unpopular variants and higher margins overall.
Another benefit for manufacturers is control over the brand and pricing. In the Volvo model, there’s no haggling which, one might presume, leads again to higher margins. Plus, the dealership still gets the opportunity to up-sell additional accessories and services.
The third benefit is shorter time-to-market for new products, achieved because there’s less pipeline to fill. And the fourth benefit, perhaps the real driver behind the B2B2C shift, is increased profitability.
Making the Shift
Changing consumer behaviors not only affect manufacturing business models and strategies, they can determine how companies should compete altogether and play a role in how long a company might last in the marketplace. That said, manufacturers should consider B2B2C as both a risk and an opportunity. Yes, it entails rethinking customer relationships and restructuring, perhaps replacing entirely, the internal systems that flow information through the business. However, a manufacturer that chooses to retain the old B2B model risks falling behind more agile and responsive competitors.