We’re living in the age of Industry 4.0: the Fourth Industrial Revolution, powered by computers and data (rather than human-operated machines and oil.) Manufacturers are no longer prepared to forego the precious customer data (not to mention margin) extracted further down the supply chain. They want it for themselves.
Manufacturers are going direct-to-consumer (D2C). They’re cutting out the middlemen and selling straight to end-customers through eCommerce platforms. It’s a far more profitable way to operate (per unit sold), but it’s a strategy fraught with challenges. Manufacturers’ core competencies lie in product, not in marketing, customer support, and customer experience. B2B2C offers an alternative path.
B2B2C lets manufacturers tap the valuable customer data generated by sales of their products without investing in D2C and all the challenges that entail. Conditions have to be just right for B2B2C to be successful for both “producer” and “intermediary.” But which party stands to gain the most? Let’s weigh up the pros and cons for each and find out.
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What is B2B2C?
B2B2C is a modern hybrid of the traditional B2B and B2C business models. With B2B2C, one business (let’s say a manufacturer) sells its products through (rather than “to”) an intermediary (let’s say a retailer), interacting directly with end-customers under its own brand. Unlike a channel partnership, the manufacturer gets to keep and use the customers and data harvested from each transaction. And the customer is fully aware that they’re transacting with the manufacturer directly.
Let’s use Grubhub as a very crude example. When you order a pizza through Grubhub, Grubhub acts as the intermediary. But you’re really dealing with the pizza place under its own brand. If you end up with pineapple on your pizza, you’re going to call up the pizza place to complain, not Grubhub. Grubhub handles the payment and takes a cut of the transaction in return for access to its network and a massive volume of customer data.
Another example is KBMax customer, Tuff Shed. Tuff Shed manufactures storage sheds, garages, and other custom structures and has a B2B2C relationship with the home improvement giant, Home Depot. Customers walking into their local Home Depot can access Tuff Shed’s visual product configurator on iPads situated within stores. They can use the Tuff Shed-branded configurator to design a custom structure and make a purchase. The data is then sent directly to Tuff Shed’s manufacturing department, which ships the product. Tuff Shed gets the data and brand exposure. Home Depot takes their cut. And the customer receives a seamless customer experience with a great shed at the end of it. Everyone’s a winner! Or are they?
B2B2C: What’s in it for the manufacturer?
The Upside for the Manufacturer
The most apparent advantage to manufacturers under the B2B2C model is instant access to a large chunk of customers they would otherwise struggle to reach. And at a pretty low cost per acquisition. Manufacturers can increase their revenue and build economies of scale by leveraging the retailer’s infrastructure and customer base.
Manufacturers can get their products in front of customers quickly and effectively without the startup costs and risk. Google and Facebook ads are expensive. And SEO is often unreliable (and expensive!). There are no guarantees that a manufacturer can draw customers to a D2C eCommerce site. And B2B2C offers a greater level of predictability.
Then there’s the precious data. With B2B2C, manufacturers can harvest the customer data that’s gobbled up by the retailer in a traditional channel partnership. They can learn about customer behavior and preferences and improve their product offerings over time. And if they decide to go D2C at a later stage, they’ll know how best to position their products and have pre-qualified leads to market to.
Finally, manufacturers can use B2B2C to build and promote their own brand and grow customer loyalty. They gain big-brand credibility by partnering with established players and greater control over how their products are priced and sold within stores.
The Downside for the Manufacturer
On the flip side, manufacturers’ margins are considerably tighter under a B2B2C than a D2C setup as they have to give away a sizable portion of their profits to retailers. They also have to hand over significant control. The retailer might place less emphasis on customer experience than they do, get embroiled in some scandal, or face financial difficulties, all of which could end up reflecting poorly on the manufacturer’s brand.
For B2B2C to work, retailers have to be prepared to market their partners’ products aggressively. If they don’t give products a proper “push,” B2B2C relationships frequently break down. Conversely, suppose the retailer does make a concerted marketing effort, and sales are still lacking. In that case, they’re often quick to show manufacturers the door, regardless of how much has been invested in IT integration and instore training (neither of which are cheap.)
Manufacturers forget how long it takes large organizations to make and enact decisions. Then there’s all the red tape – legal reviews, product testing, labeling, etc. Entrepreneurial, agile manufacturers with products ready to go can find this incredibly frustrating – they could be selling D2C.
B2B2C: What’s in it for the retailer?
The Upside for the Retailer
Retailers gain access to a new revenue source without getting their hands dirty. They can encourage more customers into stores by offering an exciting new product or service, creating a competitive advantage while increasing sales of complementary products through cross-sells.
Although B2B2C is most effective when retailers have no intention of ever selling the manufacturer’s product independently, retailers will sometimes use B2B2C as a covert market research exercise. They can trial a new product on the manufacturers’ dime and if it sells well, start manufacturing a white-label alternative themselves.
The Downside for the Retailer
The retailer has to relinquish access to its valuable customer data with only incomplete knowledge of the manufacturers’ intentions. Might they sell it to a competitor? A white label alternative eliminates this risk and generates substantially more margin.
Most importantly, the retailer’s reputation rests in the manufacturers’ hands. They have to trust that the manufacturer will provide a good quality (and above all, safe) product in the manner agreed or risk stirring up a customer assistance nightmare or a PR disaster.
B2B2C: What’s in it for the customer?
Manufacturers and retailers have plenty to gain from B2B2C. But, as we’ve seen, there’s a significant element of risk baked in. There’s a key party in all of this that we’ve ignored up to this point: the customer. There’s no doubt that B2B2C is excellent from the customer’s perspective. Not only do they benefit from greater access and a more convenient shopping experience, but they have manufacturers and retailers both working hard to add value to the overall consumer experience.