B2B Commerce Trends and Challenges
It is expected that in the USA, B2B e-commerce sales will grow from 1.1T in 2020 to $1.8T in 2023[1].
One of the most prevalent issues faced by B2B companies is the ability to reach their customers directly while avoiding channel conflict. Brand manufacturers are also facing a plethora of corollary business challenges such as how to gain channel inventory transparency? How to gain channel pricing transparency? How to conduct effective demand forecasting without channel inventory transparency? How to gain data about the end-user of their product or service?
Rapid growth of digital has caused B2B companies in manufacturing, wholesale, and distribution to re-conceptualize the traditional linear model of one-to-many online sales to the alternate reality of a frictionless “many-to-many” paradigm.
This executive brief discusses the emerging business models that every business should consider as they seek to become a digital-first organization, move more sales through online channels and deliver more value to their customers.
Emerging Business Models for B2B Companies
Considering the myriad business challenges faced by B2B companies, the emergence of the marketplace business model could not be more timely. An online marketplace is a type of e-commerce site where products or services are provided by multiple third parties[2], giving businesses new ways of solving their most complex channel and digital selling challenges.
For example, a manufacturer struggling with channel complexity and seeking to eliminate channel conflict could create an online marketplace where each of their distributors is a seller on their marketplace. The sellers can manage their product catalog, inventory products, provide logistics, and perform customer care without added cost to the manufacturer. The benefit to the manufacturer is that since they are the marketplace operator, inventory and pricing data is transparent, demand forecasting becomes possible, and by leveraging the marketplace model, costs associated with inventory, logistics, and customer service are greatly reduced or eliminated. Additionally, adopting a marketplace model means that manufacturers can offer direct-to-consumer (D2C[3]) thus collecting invaluable customer data for future business decisions.
For customers, buying friction is greatly reduced as they don’t have to navigate different manufacturer and distributor sites. Customers enjoy a seamless experience from researching products and services on the manufacturers site to finding local distributors and resellers, and making purchases all in a single unified experience.
The Subscription Business Model
Companies such as Amazon and NetFlix have effectively implemented subscription models to create a recurring revenue stream that is predictable and highly valued by Wall Street. Today, Amazon’s market capitalization has reached 1.51T and NetFlix is valued at 215.4B. However, the subscription model is being leveraged by businesses of all types and sizes. The essential draw for companies to adopt a subscription model is predictable recurring revenue over time which allows companies to better manage their cost structures. In addition, it improves customer satisfaction and experience since once a customer pays for a subscription-based service, they will be incentivized to use it. Overall, customer stickiness improves dramatically. For more innovative companies looking over the horizon, providing products together with services via a subscription model yields even higher value for both the customer and the corporation. The resultant simplification in processes and considerations will eventually move companies and customers closer to the dream of “frictionless commerce.”
Product-as-a-Service
Product-as-a-service is the concept of selling the services and the outcomes a product can provide rather than the product itself. Businesses who utilize a product-as-a-service model are given variations on the type of value they can provide to the customer. For manufacturers, it provides a platform for delivering additional services to the customer as a way to boost product profitability, improve customer engagement, and launch new lines of business. In other words, the manufacturer continues to own and maintain the product while the customer can lease it for use or subscribe to a menu of services. In order to deliver on the vision of product-as-a-service, companies will require an ecosystem of suppliers and service providers to deliver at scale. Orchestration of owned products with third-party suppliers and service providers into a seamless product-as-a-service offering that delivers the outcomes customers expect can be a complex undertaking. However, by combining the best elements of the marketplace and subscriptions, businesses can cost effectively deliver products-as-a-service while also ensuring the customer experience is simple and seamless.
Example 1: Lighting
One example of an innovative company implementing product-as-a-service is Philip’s Lighting. Philips created the concept of “light-as-a-service[4]” which includes the installation, maintenance, and management of lighting throughout its lifecycle so that customers do not need to invest in new hardware up front.
Philips’ light-as-a-service model is designed to use natural resources more effectively by building in traceability, serviceability, recycling, upgrade options, and parts harvesting thus giving birth to the circular lighting business model.
“In the future, tracking and managing a Luminaire’s entire lifecycle and ensuring we get the most value and use out of an asset over the course of its lifetime will bring both business and environmental benefits,” said Philip’s Lighting representative.
“Our circular lighting service model builds on the trends of managed services that support the emerging sharing economy which already offers easy access to rooms, music, movies, and cars. We can now ensure that our customers get the right light for their needs, light that is simple, cost-effective and meets the highest environmental principles,” he added.
By choosing circular lighting, customers can obtain future-proofed sustainable light without the normal investment costs and are able to upgrade to the latest LED lighting technology with better performance, longer life, and energy savings up to 80 per cent compared to conventional lighting.
Philips guarantees and closes the materials loop according to resource efficient and regenerative circular economy principles while delivering optimal customer experience.
Example 2: Automotive
Rapid advancements in technology and forced evolution in consumer behaviour due to COVID are pressuring the automotive sector to change course on a wholesale basis. Similar to other industries, car customers also want to be spoiled for choice and convenience. In the new world, the industry will no longer be about just car selling but creating a simple, no-hassle, and efficient car buying and ownership experience for the customer. Volvo, GM, and Ford are already offering this service on a small scale.
Leveraging a combination of a marketplace and subscription model, the car manufacturer becomes the marketplace operator and each individual dealer becomes a seller on its marketplace, resulting in a more seamless experience for the buyer.
From a customer PoV, the old car buying experience entailed visiting a dealership, negotiating with the sales representative, test driving the vehicle, selecting car accessories, receiving finance approval, obtaining auto insurance, paying for the purchase, obtaining your car, and bringing the car in for service throughout the lifetime of vehicle ownership.
In the “car-as-a-service[5]” model, customers can book a test drive from the comfort of their home. The car is driven to the home for a test drive. Customers can go online to configure car options, receive financing approval, buy insurance, receive unlimited servicing of the car including replacement parts all within a set monthly fee.
Benefits for the auto manufacturer and dealers include lower investment for expensive real estate, car dealerships, staffing, and full transparency into inventory, pricing, logistics, and customer care concerns. By applying a subscription model, the company has a predictable recurring revenue stream.
The net result of the car-as-a-service model is a positive sea change in customer experience and satisfaction. Overall benefits include convenience, flexibility, low barrier to entry, and potential application for used car distribution.
Summary
The concept of selling an outcome as a service is simple. By integrating the underlying services with products customers want, businesses can create packages that are more valuable than their individual parts, while making things simpler for the customer. However, operationalizing such business models often requires complex ecosystems of third-party suppliers and services providers. By leveraging online marketplace and subscription business models, B2B companies have great potential to metamorphosize into an offensive power against Amazon B2B before it is too late. In this COVID world with changing buyer expectations and behaviour, companies can not only survive but thrive by delivering more value to customers and reinventing themselves into agile, digitally sophisticated, and data rich pioneers in this brave new world[6].
Why Born and VTEX?
VTEX is the first and only global enterprise platform provider that offers marketplace, commerce, and order management on a single pre-integrated technology stack. Our 3,000 customers in 40 countries enjoy faster time-to-revenue and lower TCO. With an average implementation time of 109 days, VTEX delivers value 50% faster than its closest competition.
Our customers include global innovators such as Stanley Black & Decker, Motorola, L’Oréal, AB InBev, and Sony.
BORN is an award-winning global digital agency focused on creative, content, and commerce. BORN’s unique understanding of multiple platforms in market span across CRM, ERP, Commerce, and Marketplaces with highly complex integrations.
BORN’s extensive customer list includes companies such as Sotheby’s, Uniqlo, DKNY, Skull Candy, and Ethan Allen.
[1] Forrester Research (2019-01-28). Forrester Research shows US B2B eCommerce to reach 1.8T in 2023
[2] See term “Online marketplace” at Online marketplace
[3] See term D2C or direct-to-consumer at Direct-to-consumer
[4] The term “Light-as-a-service” can be found at Philips’ light-as-a-service offering
[5] The term, “Car-as-a-service” referenced can be found at Car as a Service (CaaS)
[6] Brave New World reference Brave New World
