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The rise of the B2B2C business model – what it is, why it’s becoming more relevant, and what it means for marketers

The rise of the B2B2C business model – what it is, why it’s becoming more relevant, and what it means for marketers

Businesses are often categorized into one of three buckets:

  • B2C – they sell to consumers
  • B2B – they sell to other businesses
  • B2B + B2C – they sell to consumers and businesses in parallel

It makes sense to use these categories. They are easy to understand, and the differences between each are apparent.

But the reality is not always that simple:

  • There is a distinction between who you sell a product to and who uses that product. Let’s say you are a business that sells through channel partners like retailers. You’re selling to a business (the retailer), but the product’s end-user is probably a consumer. Does that make you a B2C company, a B2B company, or both?
  • A company may build products for consumers but not be able to sell directly to them. While more and more manufacturers are selling ‘direct to consumer,’ many still do not. And some may not want to, often because they don’t want to damage their relationships with the intermediaries who sell their products to consumers

That is where B2B2C comes in. As a category, it is harder to explain and understand than B2C or B2B. But it is becoming increasingly important.

Many recent successful tech start-ups (e.g., OpenTable, Instacart) are B2B2C companies. The rise of tech platforms and aggregators means that there are likely to be even more B2B2C success stories in future.

And the rise of B2B2C may go beyond the world of tech and impact the entire business world. As Marc Benioff, the CEO and Chairman of Salesforce.com, puts it: “We really see every B2B company and every B2C company becoming a B2B2C company”

So what is B2B2C, why is it growing in relevance, and what are its implications for marketers and researchers?

 

Contents

What does ‘B2B2C’ mean?

Why is the B2B2C business model becoming more relevant?

Implications of the B2B2C model for marketers

What does ‘B2B2C’ mean?

The phrase ‘B2B2C’ suggests that any ‘business that sells to a business that sells to consumers’ is B2B2C.

But it is not that simple. Many businesses that fit the above definition are not B2B2C companies. Companies whose products are white-labeled by another business before being re-sold are not B2B2C.

Additionally, businesses that sell through channel partnerships – for example, printer companies like Canon, who sell most of their units through distributors and retailers – are not seen as ‘true’ B2B2C companies. However, they share many of the characteristics of a B2B2C company and can be seen as ‘quasi-B2B2C.’

So which businesses use a ‘real’ B2B2C business model? Let’s give some examples:

  • OpenTable, an online restaurant booking system
  • Instacart, a grocery delivery service
  • Affirm, a provider of installment loans for consumers to use at the point of sale to finance a purchase
  • Increasingly, car OEMs such as Volvo

So, what defines a B2B2C business model? What makes OpenTable a B2B2C company, and Canon a quasi-B2B2C company? Why are companies whose products are white-labeled, not classified as B2B2C?

To make it easier to explain the characteristics of the B2B2C business model, we will call organizations that use a B2B2C model ‘Business A.’ We will call the company that Business A is selling to ‘Business B.’

b2b2c model

Characteristic #1. Business A and Business B both want the same customers, but Business A can’t easily access consumers. Business B holds the relationship.

Business A can make a few sales directly, but generally, they rely on intermediaries for sales. There are a few potential reasons for this:

  • Business A doesn’t have brand recognition, so few consumers would consider using their product or service without Business B’s support. In effect, Business A relies on the reputation of Business B to build consumer trust
  • The market has high barriers to entry, and the easiest way to break into it is by partnering with an intermediary like Business B. For example, Instacart could have built warehouses or stores and delivered products to consumers from them. But that would have led to high costs compared to just partnering with existing stores
  • Consumers want to minimize the number of providers they work with to make their lives easier. While they might be interested in Business A’s product or service, they don’t necessarily want a direct relationship with Business A. They would instead purchase the service through an existing provider (like Business B). For example, Affirm partners with retailers to allow consumers to pay for goods on a monthly schedule rather than all up-front. Those consumers may have been unwilling to sort consumer financing separately, but are more open to it once it is integrated into their existing customer journey

Characteristic #2. Business B recognizes that offering a broader portfolio of products and services will improve the consumer experience. It doesn’t necessarily want to develop ‘non-core’ products and services in-house but is open to purchasing them from Business A.

Business B, which owns the consumer relationship, is open to expanding its offering to grow the business as long as it is low-cost and low-risk.

For example, restaurants recognize that allowing patrons to book online will improve the customer experience and save their front-of-house staff time. But they don’t want to be in the business of developing online booking software like OpenTable:

  • Building software solutions require big teams of experts and compliance with specific regulations. Restaurant managers don’t want to have to manage that complexity, especially when a 3rd party has taken care of it for them
  • Plausible deniability – if there’s an issue with the service, restaurants can blame their partner. For example, if the system accidentally cancels an online booking, it damages OpenTable’s brand more than the restaurant’s

Characteristic #3. Business B agrees to sell Business A’s solution(s) as part of a broader package of products and services.

Business B agrees to offer Business A’s product or service to consumers. Business A may provide something in return for the opportunity, e.g., paying up-front to access Business B’s customer base.

Critically, Business A’s product is just one part of a broader selection of products and services offered by Business B. For example:

  • Restaurants offer patrons well-cooked food in a pleasant environment. The ability to book online (e.g., using OpenTable) is just a nice add-on
  • eCommerce retailers sell and deliver goods. Consumer financing through Affirm is just an add-on

In other words, Business A’s product or service is an ‘ingredient’ that makes the value proposition more attractive to customers.

This characteristic helps explain why companies selling through the channel aren’t ‘true’ B2B2C. When a company sells through channel partners, their product is often the core thing being sold, rather than an ‘ingredient.’

Characteristic #4. Business B allows Business A to gain direct access to its consumers. Business B still owns the consumer relationship, but Business A’s brand is visible and gains recognition over time. Business A can also access customer data.

If Business A’s product were white-labeled, it would just be a B2B company, as consumers would not recognize Business A’s brand.

In a B2B2C business model, Business A’s product or service is not white-labeled. In other words, while Business B owns the relationship, Business A’s brand is visible to the consumer.

Over time, Business A’s solution gains recognition, and it may manage to ‘own’ the consumer relationship itself.

Google executed one of the most famous examples of this in its early years. Google was a consumer product but had relatively few users and limited brand recognition.

AOL had much higher brand awareness but didn’t want to be in the search business. Google and AOL agreed that Google would power all of AOL’s searches. It was a mutually beneficial arrangement:

  • How AOL benefited: As Google was the best-performing search engine, AOL’s customers got a best-in-class experience on AOL. Additionally, Google offered AOL guaranteed revenue minimums, and AOL purchased a stake in Google’s business
  • How Google benefited: It raised awareness of its brand and acquired many new customers at minimal cost (the equity/revenue given away in return). It also gained from ‘network effects’ – it had access to customer data, and as it gained more data about consumer behavior, search results became more accurate, and therefore the customer experience further improved

This characteristic is another way in which channel partnerships differ from ‘true’ B2B2C transactions. In a channel partnership, Business B would not allow Business A to access customer data directly. Business A would only be able to access customer data if its product or service was ‘smart,’ e.g., a connected device that allowed it to track customer behavior.

Why is the B2B2C business model becoming more relevant?

Generally, there are a lot of benefits to adopting a B2B2C model:

  • Access to qualified leads with no per-customer acquisition cost. For example, by partnering with restaurants, OpenTable was able to access each restaurant’s customers without paying for each
  • Reduced overhead. For example, Instacart didn’t have to spend money building warehouses or stores and could tap into grocery stores’ logistics
  • Quickly leveraging the credibility of Business B. For example, Google was able to build brand awareness and trust by partnering with AOL. The fact that AOL had selected Google as a partner told consumers that Google was reputable
  • Access to customer data. For example, OpenTable can observe how consumers behave when booking and visiting restaurants, and adapt its solution to better suit their needs
  • Control regarding branding and pricing. When Business B is just re-selling the product, Business A has less control over how its solutions are positioned and sold. For example, when a car manufacturer sells through dealers, it has to accept that the dealers will negotiate prices and up-sell accessories that could improve or worsen the customer experience

These benefits have always existed. So what has changed to make the B2B2C model more relevant?

First, the rise of online platforms and ecosystems provides tech entrepreneurs with opportunities to create B2B2C businesses that can partner with these platforms.

But it’s not just new start-ups that are going B2B2C. Traditional companies are also becoming B2B2C. As Infosys puts it: “The lines between B2B and B2C business models are blurring into a converged B2B2C model. B2B2C will become the new norm to run a business. End customer engagement is an opportunity that businesses cannot afford to ignore or entrust to intermediaries.”

Take the example of car manufacturers. While the end-user of a car is a consumer, car OEMs traditionally sell their products to intermediaries like retailers or dealers. These intermediaries control and own the customer relationship (e.g., they manage after-sales), and therefore have a strong understanding of consumer needs.

While car manufacturers are still selling through intermediaries, they have adapted their approach so that they can develop a more direct relationship with customers.

Specifically, car manufacturers have developed ‘connected cars’ which allow them to track customer behavior, communicate with customers, and share this information with dealers.

For example, the car might self-diagnose an issue and notify the customer to take it to a dealer for repair.

 

“Another great example is Lamborghini. Of course, Lamborghini is actually traditionally a B2B type company. They’re selling to their dealers, and they’re making sure their dealers are successful. Some of those dealers are not even owned by Lamborghini, but now they need to be able to connect with their customer in real time, all the time. They’re also a B2C direct customer. That’s why the new Urus, their new SUV, is built entirely on Salesforce. It’s the connected Lamborghini. That’s a vision for all car companies in the future that they can directly connect with you, not just connect with their dealer. That’s the B2C and B2B transformation that we’re talking about.”

Marc Benioff Chairman and CEO, Salesforce.com

Implications of the B2B2C model for marketers

If an organization hasn’t yet implemented a B2B2C business model, it should consider doing so:

  • If the company currently sells direct to consumers, it could consider partnering with other businesses. With the right agreement, they should be able to access a vast pool of consumers cost-effectively
  • If the company currently sells to consumers through channel partners, it should consider changing the agreements it has in place. If its brand is not visible to consumers, maybe it should be. If it can’t access end-user data, it may need to find a way to change that so that it can learn what consumers want rather than relying on channel partners

If an organization has implemented a B2B2C business model, it should consider the following best practices.

Find the right balance of marketing to businesses and consumers.

Demand needs to be generated among both consumers and business intermediaries.

Some companies focus on the former, using marketing and branding to increase consumer recognition and drive a consumer ‘pull.’ Other companies concentrate on business intermediaries, using Account Managers to improve the intermediary’s chances of ‘pushing’ their solution. Others try to balance the two. The optimal ‘mix’ varies by business.

Regardless of the mix, the company needs to develop messaging that appeals to both audiences.

Focus on the customer experience.

The customer experience is critical to the success of the B2B2C model. After all, if Business A delivers a bad experience to the consumer, Business B suffers. The reverse is also true. Additionally, if Business A doesn’t treat Business B as a valued customer, it may lose access to Business B’s consumers.

Therefore, it’s no surprise that many B2B2C companies’ messaging focuses on the customer experience.

Map the entire customer journey.

In B2B and B2C research, it is critical to develop a deep understanding of how customers make purchases.

In B2B2C research, understanding the buying journey is incredibly important. And it is especially challenging because it requires mapping out several journeys:

  • How the consumer makes a purchase
  • The role of Business B in influencing the consumer
  • How Business B decides which products and services to include in its list of potential solutions, and which to recommend

Once Business A has this knowledge, it can use it to improve its relationship with Business B by sharing valuable consumer insights that might help them understand how to improve their go-to-market strategy.

 

Summary

What does 'B2B2C' mean?

Business A and Business B both want the same customers, but Business A can’t easily access consumers. Business B holds the relationship.

Business B recognizes that offering a broader portfolio of products and services will improve the consumer experience. It doesn’t necessarily want to develop ‘non-core’ products and services in-house but is open to purchasing them from Business A.

Business B agrees to sell Business A’s solution(s) as part of a broader package of products and services.

Business B allows Business A to gain direct access to its consumers. Business B still owns the consumer relationship, but Business A’s brand is visible and gains recognition over time. Business A can also access customer data.

Why is the B2B2C business model becoming more relevant?

First, the rise of online platforms and ecosystems provides tech entrepreneurs with opportunities to create B2B2C businesses that can partner with these platforms.

But it’s not just new start-ups that are going B2B2C. Traditional companies are also becoming B2B2C. The lines between B2B and B2C business models are blurring into a converged model, and end user engagement isn’t something that businesses can afford to entrust to intermediaries. We’re already seeing car OEMs taking advantage of this opportunity.

Implications of the B2B2C model for marketers

If an organization has implemented a B2B2C business model, it should consider the following best practices: find the right balance of marketing to businesses and consumers; focus on the customer experience; map the entire customer journey.

Chris Wells
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