Is Strategy in B2B Dramatically Different than in B2C?
This subject of my 15th Playing to Win Practitioner Insights (PTW/PI) is a bit of a pet peeve for me because I often get asked: Does the Playing to Win approach to strategy apply to B2B too? (Links for the rest of the PTW/PI series can be found here.)
I get asked the question because Playing to Win was cowritten with former P&G CEO AG Lafley and uses P&G to illustrate the strategy concepts in the book. The logic behind the question is that P&G is B2C and therefore this technique applies only to B2C and one would have to use a different framework for B2B because B2B is so different.
The question is somewhat peculiar because while most casual observers think of P&G as selling to consumers, it does very little of that. In fact, technically it is almost entirely a B2B business with well over 90% of its sales to corporations, such as Walmart, Target, Carrefour, Metro, Tesco, Walgreens and Amazon. In fact, it has been working very hard in recent years to build a Direct-to-Consumer business — which would actually make it more of a B2C company. And while some may typecast me as a B2C guy, the companies with which I work are split equally between B2C companies (including P&G for purposes of this split), entirely B2B companies, and companies whose sales are nearly equally split between B2C and B2B.
If you have read my earlier Medium post, Avoiding the Pitfalls of Our Same-Different Impulse, you will probably have guessed by now that I will argue that this is a case in which the overwhelming tendency is to highlight and accentuate the differences between B2B and B2C — and that is a mistake. Indeed, while I would never argue that they are the same, I believe that B2B strategy is more like B2C strategy than not.
There are three ways that people argue to me that B2B and B2C strategy are markedly different. Each, to me, ignores the greater similarities.
In B2B Strategy, You Don’t Have to Think about the End-Consumer
The pushback that I get when I cite P&G as a B2B company is that retail is a special case because retailer does not transform the purchased input in any way but rather just serves as a channel to the consumer. This is true, but it does not negate the fact that a lot of value can be creating by thinking about the end-consumer just as you would in a B2C business.
In 1986, the primarily B2B chemical giant Dupont launched a new product in the carpet category: Stainmaster. Dupont had done enough consumer research to know that the biggest unmet carpet user need was a carpet that resisted permanent staining when accidents happened. Dupont launched Stainmaster with a big advertising campaign and Stainmaster went on to become the most well-known and valued carpet brand in America. The fascinating thing about Stainmaster carpets is that Dupont didn’t make them. It only made carpet fibers — which it sold to carpet manufacturers, who utilized them to produce carpets which they sold as Stainmaster carpets. While Dupont’s carpet business was entirely B2B, its strategy was largely indistinguishable from a B2C strategy. [In due course this changed, especially when Dupont sold the business to Koch Industries in 2003.]
Intel came to a similar understanding but only after a tough lesson. In 1993, it famously lost a court battle to stop rival chipmaker AMD from selling logic chips called ‘486’ which Intel argued was its proprietary brand name. The judge ruled against Intel and was dismissive of Intel’s position. To the judge, Intel treated the ‘486’ moniker as merely a technical specification and had done nothing to make it a brand name. So, he ruled that AMD had every right to use it. Intel learned a lesson and the next generation would not be a 586 chip: it would be a Pentium, accompanied by a large advertising campaign that told the consumer that regardless of what computer they bought, they should want to have ‘Intel Inside.’
Similarly, why do you care that a Bosch fuel injection system was installed as part of the engine in your car — and why would you be open to paying more in that case? Why do you care that your lawn mower has a Briggs & Stratton engine? The reason is that both of those B2B companies thought like B2C companies. Both invested in understanding the needs and interests of end consumers of the product into which their component was incorporated and built a consumer-recognized brand. And both extract value from their direct customer by having created pull with the consumer, just like P&G does.
Can all B2B businesses build end-consumer pull-through? No. But virtually every B2B company that takes the time to understand its customer’s customers will find strategy possibilities and nuances that they wouldn’t have seen if they focused only on their immediate customer.
In B2B Strategy, You are Selling to Businesses, not to People
The inference is that B2B strategy is different because the key skill is understanding and selling to a business not understanding and selling to a person. While it is technically true that a business pays your invoice, the difference is not nearly as great as this line of argumentation suggests. Even though the payor is a business, you are almost always selling to a specific person or identifiable group of people in that business. And they need to be understood in ways that are similar to those in B2C.
They have wants and needs just like individual consumers. They won’t buy unless you meet their individual wants and needs. I remember vividly doing work on a strategy for penetrating the small airport segment for a leading supplier of air traffic control systems to large airports. When I suggested doing some ethnographic research and developing personas for the managers of these smaller airports, the client was perplexed, thinking of the purchase as a technical question: did our system meet the published specifications or not? I convinced them to do the work and they learned that these managers had needs and wants that went beyond the spec sheets and were different than those in its traditional large airport customers. These managers felt more alone and exposed if something went wrong because they didn’t have a big technical/IT staff to support them. As a result, they cared much more about the ongoing support they felt they would experience from their provider. They knew that they would have everyone shouting at them if the system went down. If that wasn’t strongly signaled during the sales process, it wouldn’t matter a whit if the provider met everything on the spec sheets.
In my experience, deep understanding of the customer is more similar than different in B2B versus B2C and as important in B2B as in B2C. In the modern corporation, the central procurement function attempts to interpose itself between the provider and the actual user within the business. But that just raises the importance of deeply understanding both the people in the central procurement function and the actual user group. Those procurement folks are people too, not some corporate monolith.
In B2B, Only Cost Leadership Strategies Work
This argument, somewhat less frequently made, is that since you are selling to a business, you are selling against a formal specification and the only way to gain an advantage is to have a lower cost position than competitors and therefore be able to sell at the established price and earn more than competitors or to be able to undercut competitors while earning as much as them. That is certainly one approach to a winning strategy, exactly as it is in B2C.
But it most certainly is not the only way. Differentiation is equally possible — and is almost identical to differentiation in a B2C context. A firm can differentiate with a consumer in three ways: 1) lower the cost of consumers doing something they do already (e.g., a more fuel-efficient car); 2) enable consumers to do better something they already do (e.g., feel better about how they look with a pair of designer jeans); 3) enable consumers to do something that they can’t do now (e.g., find a Pez dispenser for your collection that would otherwise be unfindable).
The same three ways hold for business customers: 1) e.g., paper stock that runs faster and more reliably on the customer’s paper machines; or an online service that enables them to do legal searches with fewer resources; 2) e.g., paper stock that enables the customer to do better quality printing than previously; or a customer relationship management system that enables the customer to serve its customers better; 3) e.g., paper that enables the customer to package a product that it couldn’t effectively package previously; or a telematics system that enables the customer to know for the first time where each of its delivery trucks is in real time.
On this front, B2B and B2C aren’t just similar: they are the same.
If you are doing strategy in a B2B context, don’t be fooled into thinking the principles that you should apply are vastly different than the principles in a B2C context. Your default assumption should be that unless you can see a specific way in which B2B strategy is different, it is likely to be the same. That means you should pay attention to your customer’s customers to have the best insights on how your strategy can add value to your customer. And think about whether there is an opportunity to build brand recognition with your customer’s customers as part of your strategy. It also means recognizing that you are still selling to people even if they are working at a business. Take the time to understand the people as well as you would attempt to understand consumers in a classic B2C business. And finally, keep in mind that the entire spectrum of low cost and differentiation possibilities for winning in B2C is available in B2B businesses.