IF View - Issue NV-3

Problems and Promises of B2B: Why the product won't live up to its promise

Marketing 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.

Increased access
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 question
  • whether or not they have the capacity to cost effectively service new customers
  • the impact on existing customers of serving new customers
Conflict
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?
These basic marketing channel strategy decisions are as critical in the on-line world as they are in physical world.

Anti-trust?
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 more substantial?

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 suit.

Implications

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.


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Marketing channel conflict

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