Deep Dive: Learning from B2C

Retail has foresight; why not B2B?

In this edition, I share insights about the future of retail and explore how they might apply to the future of B2B. The retail insights are gleaned from an HBS Managing the Future of Work™ podcast: Season Two, Episode #19, From opt-in to check-out: How digital platforms are transforming retail. I have listened to this episode many times—not because it is 100% transferable to B2B, but because the framework it offers does not exist for B2B. I encourage you to listen, draw your own parallels, and, if you like, add comments to this episode within the newsletter.

Before I get started, a couple of notes for our community. First, I am moving the release date for each weekly edition to Tuesday. Several subscribers requested this change, as a Monday release date can get lost in the shuffle as the workweek gets started. Second, last week’s discussion thread had hundreds and hundreds of visits but only a few comments. I’m not sure why. I would like to make interactive discussion threads, and soon, live discussions, a common feature. If you have feedback or requests, please let me know. My overall goal for this newsletter is to foster conversations among curious and committed B2B innovators. I will act on your suggestions. 

How does retail describe its past and future generations?

Early in the podcast, Dan O'Connor, executive in residence, Managing Future of Work Initiative at Harvard Business School, introduces four generations that define the past and future of retail. As I listened, I noticed the key characteristics of each generation:

• G1: defined by “mom and pop” or “main street” retailers, these are small businesses that operated in one market at a time and were supported by a wholesaler-distributor network that carried both regional and national brands.

• G2: G1’s fragmentation gave way to consolidation in retail’s “Walmart” era as Walmart, Carrefour, and Tesco ushered in a modern era of trade characterized by aggregation and standardization, driving economies from manufacturing and transportation to the operation of large-scale retail stores. G2 retailers did not grow by creating demand; they took it from G1 retailers. G2 retailers mastered flywheel principles and expanded globally in the top 40 countries over a 25-year run.

• G3: The third generation of retail is about marketplaces, including eBay, Amazon, JD.com, and at least 250 additional players worldwide. These marketplaces were B2B, B2C, and C2C. Shoppers gained alternatives to buying in real-world stores. And, as G3 progressed, companies like Facebook and Google emerged as intermediaries, influencing customer decisions as they provide information about products and brands. In retail, this transition can be described as moving the first moment of truth from a physical shelf to a digital destination. (Read this Forbes article for a history of the moment of truth concept.)

• G4:  The coming fourth generation of retail is about the emergence of large-scale, multi-market platforms with up to 15 different marketplaces. Importantly, these platforms provide a space and point of connection for influencers. They may own and operate social firms, gaming sites, and search. Their most consequential outcome is not just about enabling digital commerce but about integrating data and analytics, supply chain capabilities, and delivery. Key implications include:

  • Data will orchestrate the supply chain, eliminating work practices built on planners with spreadsheets and substituting automated operations with oversight at key inflection points.

  • Data will be the source for identifying new product opportunities, replacing traditional approaches that include market research and focus groups —optimizing large-scale global brands and the rapid introduction and scaling of microbrands. Microbrands will scale beyond sales in the range of hundreds of millions of dollars to billion-dollar revenue goals.

  • Data will usher in the algorithmic economy, where “bots” can access data safely and securely without removing the data from its source and enabling forecasting and planning across the value chain and among value chain participants from manufacturers all the way through to consumers.

For B2B innovators, thinking in generations is not just about predicting the future; it is about identifying the implications of the transitions. One example offered in the podcast is Netflix. Netflix first disrupted Blockbuster by distributing DVDs through traditional mail services and eliminating penalties for later returns. Then, Netflix replaced physical distribution by reinventing physical video entertainment products as a service known as “streaming,” creating industry-wide changes around leadership, asset allocation, talent, and more. O’Connor uses a particularly thought-provoking phrase to describe the evolution of products and services created by Netflix: intergenerational rotations.

What can B2B learn from retail?

To be clear, the podcast episode described above is not about B2B. Not at all. It’s about how B2C (a.k.a. retail) has and will evolve. But there are lessons for B2B. First and foremost, the community of B2B innovators lack a generational framework for describing the past and future. A generational framework is like a roadmap— the kind that existed before Google Maps. Using a roadmap, travelers can see where they are headed in relation to where they have been. Certainly, retail’s travels from a landscape populated by mom and pops to one dominated by aggregators rhymes with distribution’s past and ongoing consolidation. But there are important differences. No single distributor has achieved the same power as Walmart, Carrefour, or Tesco in North American or global markets.

Moreover, while B2B manufacturers have been forced to accommodate the power of big-box retailers when selling to contractors (or the power of billion-dollar distributors more generally), the power achieved by B2B manufacturers through differentiated products remains undiminished. Business customers want solutions, and the power of a manufactured product’s solution outweighs the value created by distribution through availability, payment terms, delivery, and after-sale support. (For a related discussion, see my earlier newsletter edition, Can new data collaborations revitalize the value chain and spark a B2B revolution?) Looking to the next retail generations, the success of Amazon Business indicates that B2B markets are likely in a parallel third generation. Amazon Business’ B2B sales are frequently estimated as placing Amazon in the upper echelon of distributors and perhaps on track to eclipse them. But Amazon Business’ value proposition for business customers is largely aligned in what were called “convenience buys” before the advent of the internet, webstores, and marketplaces.  Business customers with more complicated needs represent a huge share of every market’s total needs, and Amazon Business seems not to have morphed to offer custom product configurations, project solutions, high-volume repeat purchases, onsite vendor-managed inventory, and more. It is also hard to imagine how Amazon will gain market power through the internet of things (IoT) in the B2B space since Amazon is not the manufacturer of smart products. 

Digging deeper into retail’s G3 and G4, intermediaries like Facebook and eBay impact B2B products that are purchased and used like consumer products, but they do not have a considerable impact on high-volume, technical, or custom products. Moreover, in B2B, there is no parallel for Instagram influencers, game platforms, or automated coordination of the B2B supply chain through smart systems in an algorithmic economy. There may be early signs, and I will report on them as I see them (or as subscribers report them!), but they are not here yet. I suspect that while there are powerful similarities between G1 and G2 for B2C and B2B, the differences will become more pronounced as B2B enters its own third and fourth generations.  For example, I have heard rumors (and a few early strategy discussions) about product sales evolving to a subscription model. Still, most are variations on selling products as services and fail to incorporate a robust technology platform for revolutionary impact. To be sure, there is more to follow on that topic, and subscribers can expect many future editions on the topic of B2B evolution in a generational context.

Ideas for innovating B2B

I’ve previewed this newsletter with a few B2B strategists. All agreed that a generational framework would be a powerful tool for proactively imaging the future of B2B and harnessing the power of B2B’s ecosystem to imagine industry-wide innovations. Two dominant priorities emerged:

• Imagine a value chain reorganized by data. nThe same newsletter referenced above is relevant again. Business buyers are economic buyers. Image and occasion may rule consumer purchases, but business customers are driven by the total cost of ownership, including a large dose of acquisition costs attributable to supply chain services. While the largest business players (for example, customers, distributors, and/or manufacturers) may force a data-driven value chain, actual progress may come from industry associations acting in their capacity to commission research and establish working groups. Through these efforts, trade and professional associations may bring together senior management, procurement professionals, suppliers, distributors, customers, technology vendors, and data aggregators to imagine the future and lay down standards, metrics, and business processes.

• Invent revolutionary microproducts for businesses. Change may also come from not-yet-invented B2B products incorporating smart IoT technologies and an integrated platform for ordering, delivery, and in-use performance monitoring. These inventions may start on the fringes in non-mission-critical applications so as to introduce change without prohibitive risk to operations or financial models. By gaining a foothold, or perhaps by putting a toe in the water, these revolutionary products can combine product and supply chain benefits in a single, integrated, and “buyable” solution. The B2B innovators that suggested this approach for generational change felt that it was unreasonable to expect those incumbent players, whether manufacturers or distributors, could achieve a successful innovation on their own. Rather, a collaboration that includes disruptive minds from outside traditional B2B is the best source, perhaps pursued through a university-based innovation incubator.

Join the journey

There are more insights to be gained from the podcast episode, From opt-in to check-out: How digital platforms are transforming retail, and I will put more on the table in future newsletter editions. I encourage you to listen to the podcast and comment on my ideas put forth above. Better, go deeper and farther. Don’t be a stranger. Add your comments and, if you like, reach out directly at mark.dancer@n4bi.com.