"Let’s face it, business-to-business is dead."
What made these words so stunning was that they came from the president and chief operating officer of a $2 billion operating company that runs a legendary list of profitable businesses, all of them in B2B. (That’s short for "business to business.") We had just started a conversation about innovation and his declaration came unprompted. For us it was quite a moment. It also served as a blazing confirmation of a significant realization too long in coming: In order to successfully invent relevant new products, services, or business models, all companies must first think of themselves as consumer-products companies—no matter whom they sell to.
A few years ago, we stopped responding to requests for proposal (RFPs) to bid on new projects. The reason wasn’t that we never won them. (We won more than our fair share.) It was that they were frustratingly wrong. The RFPs outlined a list of requirements in an innovation "partner," followed by a list of objectives for the project. Too often the objectives revealed that the company was searching for treasure on the wrong beach and—embarrassingly—without the internal people who could make it happen, even if they got lucky. The rules of engagement precluded us from communicating with the team, much less coaching it, so the whole process was a complete waste of time for everyone.
Ironically, the same thing is happening to our clients. The difference is that their customers are giving them a list of requirements for new products or services and those requirements show that our clients’ customers are also searching for treasure on the wrong beach with the wrong people.
For example, let’s say you make air filters that go into automobiles. Your customers are a handful of domestic and foreign car manufacturers. One sends an order to its procurement department, which in turn sends out an RFP to you and your competitors. The RFP outlines what the manufacturer believes is important: size, performance, price, etc.
Since everyone is now competing on the same specs, the final decision comes down to such things as price, capacity, and golf club memberships.
Look to the End User
Where is the ultimate consumer in this equation? Missing in action—and therein lies the opportunity.
Tired of talking to procurement? Talk to the consumer. B2B companies are beginning to realize that starting with the people who eventually end up using their products is the only proven way to identify unmet needs and create differentiated products that keep them from dealing with people in procurement.
Here’s how it would work: Instead of listening to your customer and its procurement department about what it thinks the consumers need, your team talks with those consumers directly. Using proven research processes, you identify needs that have fallen off the your customer’s radar.
For example, if you are in the air filter business, you may find that the incidence of asthma is rising astronomically and that concerned parents are willing to pay 300 percent more for a hypoallergenic filter because their kids spend so much time in the car. You then find out that the service people at Jiffy Lube are looking for ways to up-sell more premium filters. This is their strategy for margin growth. So you develop a filter, a communication plan, and a price model that consumers agree they will support (i.e., pay for).
Congratulations. You now have a meeting with the chief executive officer—not the procurement department—of your automotive customer. Because you have done your research, you can show clips of the company’s customers wishing for allergy-fighting filters. You can present the price data. You can show the CEO how her auto company will be able to demand a premium because—guess what?—these filters fit only in their luxury vehicles. Our bet is that she’ll make sure her procurement department treats you well. Who’s in the driver’s seat now?
Procurement by Rote
Why isn’t business conducted like this? Why are you forced to go through customer procurement department hoops? It’s simple. Your customers—e.g., manufacturers, retailers, health-care systems, financial service companies—often get stuck in their own cycle of competition that leaves them competing on price. They ask you for these concessions first. Worse, they have been dealing with their customers for so long that they can’t see new opportunities right in front of them.
We recently completed a study of the insurance industry and found a huge number of blind spots that could be filled with new products, services, or business models. Among other things, we found that consumers really don’t like the purchasing process, that the attitudes about insurance vary widely among boomers, Gen Y, men/women, African Americans, and Hispanics and that many widely accepted insurance terms are unrecognizable to consumers. Yet agents and insurance companies can’t see the problems. The agents and selling partners are often commissioned to contribute unwittingly to these blind areas; they focus on what is best for their pocketbooks and not for the end users. The insurance industry in many instances has literally mistaken B (the agents and other intermediaries) for C (the people who actually purchase the products).
There is a more noble cause for you here than avoiding procurement, although we know this can suffice as motivation enough. America remains unequalled when it comes to invention because of the cultural ability and desire to communicate empathically with everyone. When we do this, we naturally uncover needs that can be met with a new product, service, or business model. When a system keeps us from doing this, we literally lose the competitive edge that has made the U.S. great.
B2B might not really be dead. But if companies don’t heed this lesson, they will be.