and Promises of B2B: Why the product won't live up to its promise
Channel Strategy Consultants
USA - EUROPE - AUSTRALIA - BRAZIL - HONG KONG
IF only business to
business and business to consumer e-commerce lived up to its hype.
In recent months, the disappearing pot of gold at the end of the virtual
rainbow has become a recurring theme in the media. On the whole, these
are the businesses that have jumped on the e-wagon before investigating
the full impact the new technology will have on their operations. The
businesses that are implementing, or as the case may be, not implementing,
e-commerce as a part of the carefully planned marketing channel strategy
can be sure that they won't make the headline today. They are, however,
likely to still be trading when others have buckled under the weight of
broken business to business (B2B) promises:
Simply, for suppliers
to get repeat business, their products must line up to their promises.
The constant hype about the world-shaking changes to be brought about
by the Internet virtually ensures that the B2B and business to consumer
(B2C) Internet models will never be products that live up to their promises.
For example, information technology commentators have hailed the development
of Internet based B2B and B2C e-commerce as revolutionary and cite impressive
benefits for buyers and sellers alike. Some commentators even suggest
suppliers abandon traditional business analysis and get on the e-commerce
bandwagon - now. Given the rate of failure among dot coms, suppliers'
e-commerce plans should be tested carefully.
Lower transaction costs
Decreased transaction costs are frequently quoted as one of the key benefits
of establishing B2B sites. However, what commentators don't make clear
is that the real benefit of reduced transaction costs depends on full
back-office integration. Thus, it's not the B2B site that drives reduced
transaction costs, rather it's the implementation of an integrated process.
In highly concentrated industries such as the automobile industry,
suppliers already know and have access to the majority of buyers in
the market. The use of a B2B site cannot magically increase market
size - the number of buyers is small and finite. So, how is increased
access possible? Conversely, in diverse industries, sellers may value
easier access to a broader range of existing buyers. Sellers should
- whether or
not they have the capacity to cost effectively service new customers
- the impact
on existing customers of serving new customers
These basic marketing
channel strategy decisions are as critical in the on-line world as they
are in physical world.
Many commentators fail to address the issue of channel conflict. Our
last issue of Our View (Edition NV-2) discussed channel conflict in
detail. In order to protect their existing businesses, suppliers need
to evaluate the impact of adding e-commerce channels to their overall
marketing channel strategy. Questions that need to be answered are:
- What conflict potential is present?
- How can the conflict be addressed?
- What is the potential for lost business?
Buyers in some industries (eg. automotive, airline maintenance) have jointly
established industry buying sites which, they claim, benefit both parties.
However, given the well-documented tactics that have forced sellers into
using group-buying sites, we must ask the question: if sellers enjoy benefits
equal to buyers, why aren't sellers flocking to these marketplaces in
droves? Is it a case of sellers fearing the unknown or is it something
Whilst most anti-trust legislation protects buyers against sellers misusing
their market power, it does not address buyers doing so. Is it reasonable
for a buying consortium to force sellers to use distribution channels
that do not provide them reasonable returns or that shift the balance
of power unreasonably in buyers' favor? The U.S. Federal Trade Commission
has already signalled its intention closely to watch B2B e-commerce industry
market places. Undoubtedly, similar bodies in other countries will follow
Suppliers considering using e-commerce should carefully test the claims
of substantial benefits. An evaluation of the reasons for e-commerce failure
is also advised. As with any marketing channel opportunity, product suppliers
should evaluate market coverage, control and cost effectiveness of e-commerce
channels and compare these factors with traditional distribution practices.
In addition, suppliers must also consider the effect of B2B on their channel
partners and the conflict that may arise from adopting new marketing channels.
Suppliers should be extremely cautious and suspicious of those encouraging
act-now, think-later marketing channel decision making.
View may be reproduced
provided IF Consulting is acknowledged.