The Customer is King. Except when you want to compete with them. Huh?!

Recently, I’ve seen two successful and apparently well-run B2B organisations, execute this apparently suicidal strategy and start competing with their intermediaries. I thought I needed to examine some of the possible reasons why.

For readability I have assumed YOU (the reader) are a B2B leader considering competing with your customer.

Let’s begin

Its a given. Without customers you haven’t got a business. In a free-market, customers can buy from you or your competitor. That being the case, logic would suggest actions that undermine the buyer/seller relationship should be avoided.

But ‘avoided at-all-costs’? What possible reasons can there be to risk losing customers?

Control

The concept of ‘Vertical Integration’ may appeal. Perhaps there is a need to eliminate a bottle-neck to growing the business, i.e. eliminate over-pricing or other uncompetitive actions/inaction that the intermediary employs.

Or is it the concept of ‘Disintermediation’, getting closer to the end-customer – improving profitability through better control, not handing a % to intermediary.

Finally, perhaps you consider you can do a better job than your customer/supplier?

Risks & Returns

You have to do at least as good a job, at servicing the end-customer, as your intermediary did. Otherwise, why would the end-customer move from the intermediary to you – who maybe an apparent unknown?

Risk: 

Cashflow - surviving the period when you are exposed to the intermediary’s wrath and loss of business (your current customer) at your new-entrance as a competitor WHILE AT THE SAME TIME gaining a foothold in the market with the end-customer.

Brand reputation – confusion: 

If you have an established brand with the end-customer, how will your new market entrance be perceived? After all, its all about emotional connection to your brand.

Returns: 

Perhaps a strategy to ‘insulate’ the business from the cycles of the current sector is the intention. Achieved perhaps by diversifying into new markets/sectors where perhaps the margins are thought attractive or the competition considered weak (but is the grass actually greener?).

Conclusion/Summary

The cynic in me thinks that sometimes it's because the leadership are ‘sold’ a story of high margins or perhaps the leadership have run out of ideas and need to be seen to be doing something – anything.

Why not buy an existing organisation in the market the business wants to enter? This way the business buys the knowledge and customers, while avoiding the start-up costs and protects the brand. Thoughts?

What do you think? Am I missing something? Can you see another reason or understand why a sound B2B would risk such an action?

Adrian Zacher #zaksleep

Related: https://trustedadvisor.com/articles/competing-with-your-customers-where-strategy-goes-wrong"Stop competing with your customers – serve them". [accessed 20 Sept 2016]