TO BE B-to-B virtually
The challenges of business-to-business CRM online NO EXAMINATION of the state of one-to-one online would be complete without consideration of the business-to-business world. E-commerce “destination” sites from companies such as Sun Microsystems, Cisco Systems, Sigma-Aldrich and GE Plastics set the pace for all others – both business-to-business and business-to-consumer alike.
The new class of vertical industry exchanges and portals, featuring such diverse players as Ariba, VerticalNet, e-Steel and even the still-under-development virtual “self-help” cooperatives like those of Ford/GM/Daimler-Chrysler or Sears/ Carrefour, are betting they can enable entire industries to standardize electronic price discovery, order fulfillment and logistics. B-to-B marketers have always practiced aspects of one-to-one that the mass marketing world of B-to-C had to forgo. B-to-B is an entirely different breed with its own set of customer relationship management rules and requirements.
THE TIP OF THE ICEBERG B-to-C may get the press, but the real Goliath of the Internet is B-to-B. No matter the source of the estimate, expected and current B-to-B e-commerce is measured in trillions of dollars whereas B-to-C garners merely billions. Looking out to 2004, Forrester Research, for example, pegs consumer e-commerce at $184 billion compared with a B-to-B forecast of $2.7 trillion. Gartner is even more bullish on the future of B-to-B e-commerce, placing the figure at $7.3 trillion by 2004. On sales alone, B-to-B e-commerce dwarfs B-to-C.
But even these massive measures represent only a fraction of the real impact of online B-to-B. The actual transaction – the sale and purchase of a good – is just the tip of the information-sharing iceberg of an effective B-to-B customer relationship. The real functionality and underlying relationships go far beyond the ability to recognize returning customers, store preferences or offer multiple billing or delivery options.
So many organizations have awakened to the B-to-B phenomenon and are now touting themselves as online “B-to-B” enterprises. Certainly that can grab the attention of shareholders or investors. But the fact is, closer scrutiny of the business model is required. A true B-to-B company is just that: a business whose principal focus is sales to large business customers and not consumers. Simply throwing up a B-to-B shingle does not turn a company or division into a B-to-B entity.
At a true B-to-B enterprise, a Web site or extranet is more often than not an extension of an existing relationship. The customer typically is a well-known and frequent buyer and already has access to customized electronic “catalogs” from the vendor – be they Internet or EDI-driven. In turn, these catalogs are increasingly interwoven into vast enterprise resource planning (ERP) and supply chain management (SCM) systems at both the buyer and the seller. This is to say nothing of the collaborative research, development and engineering efforts between partners and close customers – the entire set of core activities that were the actual genesis of the Internet. While all of this requires many electronic handoffs, large volumes justify the integration efforts. All told, B-to-B e-commerce relationships are, in most cases, highly customized and interrelated.
E-commerce has its origins in the B-to-B arena, the inevitable byproduct of close cooperation between customers and suppliers on a massive, yet customized, scale. The claims of Al Gore aside, the Internet’s B-to-B genesis came in the early 1970s as major contractors, such as Boeing and Lockheed, signed on as beta users and co-developers of DARPANET, the fledgling network of their largest customer, the U.S. Department of Defense.
Technologies, data protocols (e.g., EDI), transmission speeds and related business processes have continuously evolved since then, so much so that leading economists now are almost giddily predicting that technological efficiency has altered the global economy for keeps. Information between buyers and sellers now flows so freely, and companies manage their production and demand so skillfully, that the world is becoming virtually recession-proof. As evolved as all of this already is, entire industries are now forming “business exchanges” designed to streamline costs and improve information flow to a still greater degree. Whether these initiatives succeed – and whether economists’ predictions prove right or wrong – remains to be seen. But the fact is, B-to-B today represents a far greater degree of interconnectivity than ever before imagined.
This is not to say that B-to-B cannot benefit from an increased deployment of the one-to-one principles: IDIC – identifying and differentiating your customers, and then interacting with them in customized communications.
THE IDIC OF B-TO-B The means of acquiring, interacting with, learning from and, yes, satisfying customers in the online B-to-B arena are growing exponentially. The channel has grown beyond mere Web sites to include full-blown, ERP- and supply chain-integrated e-commerce, along with the aforementioned burgeoning new category of industry-focused “exchanges” or “vortals” (vertical industry portals). In terms of technology, in addition to now commonplace ERP and SCM systems, today’s emerging buzzwords – including TeleWebs, XML apps, Web 3D rendering engines and wireless interfaces – are becoming standard issue.
Successful B-to-B companies make sense of it all by applying a consistently disciplined and dynamic customer focus. First, they continually identify their customers. As complicated as this is in the B-to-B marketing, the effort is critical and deserves close attention. Next, they apply reason and metrics to differentiate each customer – what can we provide to this customer and, given resource constraints, how valuable is this customer to our organization? Recognizing which customers are the most valuable is particularly critical, since in many cases the loss of even one of a group’s top customers can prove fatal. Armed with these insights, successful companies interact to determine which capabilities will further strengthen each relationship – especially with the largest and most valuable customers. These are the fundamentals that provide the foundation for what becomes a highly customized, networked B-to-B e-commerce relationship.
But B-to-B differs from B-to-C in both acute and subtle ways, in general making the IDIC tasks of B-to-B – online and otherwise – more complex and more critical. Viewed through the IDIC prism, some of the differences include:
IDENTIFY The B-to-B customer is more difficult to pinpoint than the B-to-C variety. Recognizing a specific site visitor is no more or less difficult than on a consumer site. The problem is knowing who the actual B-to-B decision-makers are. Is a B-to-B entity selling to Irene, the procurement manager; Dave, the IT boss; Inge, the department head; Connie, the CEO; or is it really working to build relationships with everyone at the company all the time? Moreover, is the relationship more personal or institutional? What if Dave moves to a new company? Will he be able to continue the relationship with his former supplier or will he be forced to join his new company’s procurement patterns? B-to-B organizations need to address the myriad needs of a more broadly defined customer. The reality is that the real decision-makers could be anywhere, and moreover, specific roles change continually.
DIFFERENTIATE Unlike B-to-C, in B-to-B there are certain individual customers the firm absolutely cannot afford to lose. Whether business- or consumer-focused, companies need to concentrate on their most valuable and growable customers. Still, take inventory of sales (or dissect whichever metric you prefer) in a typical B-to-B enterprise and it’s likely that nearly 80% of profits arise from 20% of customers. Lose a valuable customer – perhaps a frequent CD or book buyer – and the B-to-C organization is sorry. Lose a major business customer and the B-to-B organization could be out of business. For this reason, successful B-to-B firms take careful stock of their customer base to assess which customers rate the most attention. Online this means the largest or most profitable or most growable customers warrant the most functionality, content and differentiated services; other segments or customers attract resources commensurate with their value to the firm.
B-to-B online is not one-size-fits-all. Leading B-to-B firms provide multiple customized gateways that conform to the needs of specific, differentiated customers. As Greg Grotke, Internet process manager at the composites division of Owens Corning notes, “You can’t design one way of doing things and say, `Here’s our e-commerce platform – take it or leave it.'” Instead, says Grotke, “We open it up and try to offer as many options as possible.”
For example, large Owens Corning customers may interact via a customized extranet featuring negotiated pricing and/or full EDI. Intermediate customers may work through full or, more often, partial EDI. Smaller customers – and the composites division has plenty of these – are offered a more self-service Web environment. As Grotke explains, “OC Anywhere lets smaller business customers place orders, change orders, check status and basically fill up trucks online,” and yet the order goes right into the ERP system. Providing automated services to smaller companies frees up resources that can be devoted to the needs of larger customers. Finally, any customer can also access the firm via its tried-and-true call center, which also is ERP-enabled.
INTERACT Higher potential volumes justify more intensive and frequent communication. There is more at stake in a B-to-B relationship, and accordingly, organizations exert greater effort applying more resources per customer. This means close interaction to determine the needs of the customer, and rapid response. Online, this interaction leads to customized online catalogs featuring negotiated pricing, value-added services such as order-tracking, and customer service centers where personnel know the products being used by the customer. Office Depot, for example, is one of the pioneers of sophisticated and highly customized online service for its customers. These services, says a spokesman for the company, “evolved from close interaction to determine customers’ needs.” The added efforts are warranted, says the spokesman, by the volume. “They may be buying pencils, but they are buying a whole lot of pencils and we want to make sure they keep buying pencils and maybe paper, printer ink or computers, too.”
Interaction creates an environment of learning and, if the seller does the job correctly, interdependence. Experience shows that unless the relationship is somehow cemented (for example, via the one-to-one techniques outlined in this report), B-to-C customers today simply visit a new e-commerce site.
Although true in B-to-B to an extent, the fact is that major relationships can be largely institutionalized, increasing “switching costs.” As such, the principal objective is to create interconnectivity. The more tasks a seller can perform or streamline for a buyer, the stronger the relationship.
Certainly, auction-oriented sites receive a great deal of press, but the fact is, they are only a small fraction of total B-to-B e-commerce volume and are primarily comprised of excess inventories and B-grade materials. The real focus of B-to-B is primary product. As Gene Moses, strategic services director for e-Steel says, “There’s a great deal more than price at stake in a B-to-B relationship. Service, quality, continuity of supply, proximity – these things count.” Accordingly, B-to-B organizations may indeed “shop” their purchases, but their options tend to be limited to a short list of potential suppliers. The trick for a B-to-B seller or an exchange is to offer a level of pricing and customization of service that will enable it to get on and stay on the list of preferred suppliers.
CUSTOMIZE B-to-B organizations utilize their knowledge of customer value and needs to create highly value-added, customized relationships. Certain products are commodity-like and others are highly customized, but in all cases, B-to-B enterprises take steps to lock in both their customers and their suppliers. Integrated SCM systems, ERP systems, automatic replenishment/just-in-time (JIT), cooperative engineering/R&D – these and other shared-relationship elements are becoming both more sophisticated and commonplace, creating close ties between buyers and sellers. Unlike online B-to-C, where only a few pioneers such as Circuit City and Ethan Allen are actually leveraging clicks with bricks, the “site” is only one aspect of the B-to-B relationship. Cisco, Sigma-Aldrich, Office Depot, Owens Corning – name any true B-to-B enterprise – all work closely with their customers and strategic partners in both the physical and virtual worlds. In general, to survive in the digital era, B-to-B relationships must become ever more akin to strategic partnerships as opposed to a series of discrete buy/sell transactions. While this also is a goal of leading B-to-C organizations, the processes are significantly more evolved in B-to-B.
Such interactions will accelerate as entire industries evolve from JIT to made-to-order (MTO). Economists say technology-enabled efficiency is delivering a period of sustained growth minus severe inflation. Add to this the nearly instantaneous nature of shared information regarding actual sales and inventories between buyers and sellers, and the severity of surpluses and deficits across supply chains is being dramatically reduced. Economists may or may not have it perfectly right, but the fact remains that most observers recognize B-to-B is poised to make the jump from JIT to MTO, wherein goods are in nearly finished state, awaiting final delivery time to be declared by the customer. Says Haht Software’s Keith Boswell, vice president of product development, “The MTO state is definitely on the horizon, and that will cut even more costs from supply chains as inventories become even more efficient.”
Exchanges and vortals may not be the principal force in this epoch, but they certainly are part of the wave. Exchanges use this trend as a backdrop for creating their services and transaction volume. As e-Steel’s Gene Moses explains, “The day is coming where you will not buy from an existing inventory, but rather, your specifications can be quickly satisfied as needed. Inputs will be substantially prepared but not completed until an order is received. From there, the precise product is made to order.”
Ultimately, B-to-B Web sites are a means of improving both relationships and efficiency. The Holy Grail is an environment of collaboration enabling precise inventory management and end-to-end “hands off” processing. Those organizations that most rapidly, effectively and closely link their operations to the needs of their customers will create a sustainable competitive advantage.
