The Power Of Verticalised Virtuality

Transforming your business from B2B to D2C & B2B2C through Platform Innovation

In a market characterized by anyone being able to selling anything to anybody through the emergence of digital means, OEM’s, (Consumer Goods) Manufacturer’s, Wholesalers, distributors and agents look for innovative ways to sustain.

The phenomena of the downstream tilt (DAWAT: Tilt, shifting your strategy from products to customers, 2013) describes the growing significance of downstream activities in creating value and competitive advantage. Apple is thought to generate in excess of 90% of their value with downstream activities (Sales & Marketing).

The asymmetry of costs and profits between those building, developing, enhancing & shipping an asset (upstream) and those retailing an asset (downstream) is significant. Those players that exclusively carry out upstream-activities are thus, disadvantaged vis-à-vis those firms dealing directly with the consumer. Unthankfully, for those located upstream, the technical characteristics of a given product, are not necessarily relevant in influencing the consumer. To monetise a competitive advantage requires the entity, which is carrying out the key downstream activities, to shape the consumer’s perception.  This explains the dependency on and the balance of power in favour of those retailers that aggregate demand of consumers most effectively.

It is therefore understandable that stakeholders located upstream (see the above list of traditional linear value chain players) are attempting to capture a larger share of value by engaging directly or indirectly with the consumer.

With the emergence of digital means, any upstream-player can theoretically assume complete control of creative, e-storefront, supply chain, value proposition and customer experience. The possibility to build strong, direct connections and control the relationship (and the data that comes with it) with the consumer looms large. There is a business case to monetize the opportunity to turn into a vertical retailer.

Base dilemma: Conflict or Cooperation?

The challenge for any firm is to preserve often long-standing corporate, reseller & retailer relationships, whilst growing consumer connections via direct or indirect means. Becoming a vertical retailer would effectively mean competing directly with those firms that have supported you and are responsible for the health of your business today.

Many upstream-players with vested interested in the consumer, like Consumer Goods manufacturers, have decided to partner with start-ups to study D2C e-commerce and to leverage its data and experience. Over time, the insight gathered taking a different approach and offering a different value proposition, may find its way in its core business. Depending on the resource allocation model the new model either continues to run fairly separate or is brought into the main business.

Perhaps, more importantly, is the fact that lean startup principles are being applied, meaning a minimum viable product in beta testing will allow the entity to learn. Almost always, the final product, once key assumptions like the customer, problem, solution, willingness to pay, will change before the proposition is scaled-up.

D2C is becoming a strategic growth engine for companies, that until recently have not been in direct contact with the consumer. Unilever, calls the entity responsible for these initiatives, Digital Disruption Center as it defines new ways of working for digital initiatives to shape the future.

B2B2C is a sub-form of community retail, in that you reach a group of end users, homogeneously linked to your customer, by empowering the customer to become a retailer. Some great examples are FNB, bank, SA #1 market share, tablets; Discovery, medical aid, 90% market share RSA, wearables; Tesco, #1 retail banking UK, 8m+ customers)

Both models, D2C and B2B2C, are two sides of the same coin, the consumer. The one (D2C) being direct, the other one (B2B2C) being indirect, using existing customers, as de facto proxy, to reach your target. Through these models, the B2B firm carries out downstream activities and becomes a virtual retailer. As per definition: not physically existing (in terms of brick &mortar) but empowered through digital.

The strategic rationale behind these considerations is (1) to change the way demand is created from “push” to “pull” and (2) to be able to directly and influence this very activity (lead generation).

It requires looking at your current business through a set of new lenses; a significant mind shift is necessary of how to execute D2C and B2B2C. Modest self-examination will lead to the realization that certain skills and capabilities to reach, interact with an appeal to the consumers are not readily available in-house.

Completion of a gap analysis inevitably will lead to the questions How? and Where? to access those capabilities. Whilst bringing the missing capabilities on the payroll may result in greater control, the current resource allocation process, favouring the established B2B business, may negatively impact that initiative? It takes a strong CEO and serious commitment to change from within. Alternatively, an externalized almost infinite pool of capabilities, skills & creativity may be accessed by deploying a platform at a fraction of the cost of increased overheads.

This is the moment where the Platform as an alternative to the current, linear business model comes to play. By embracing a platform, the platform owner effectively creates an often digital place for producers and consumers to meet. However, the very same platform allows the owner to also access Partners in their quest to generate network effects. Partners in this context to provide exactly the skills, capabilities and creativity as identified in the gap analysis. That piece of the puzzle does conclude the transformation from “asset builder” (linear value chain) to “network orchestrator”

Insights & Business solutions

Those B2B players wishing to become a vertical & virtual retailer and offer a disruptive proposition centered on services via a tech-enabled Platform Model have the opportunity to enhance their long-standing corporate, reseller & retailer relationships. Embracing a platform is a mutually exclusive choice to operate within a linear value chain. There is an argument for either business model and for incumbents used to the linear way of creating value, is a matter of “and” and not “or”. Meaning that both business model will need to run concurrently over a period of time. Tempting your customers to join you in fulfilling an Omni-channel proposition by means of leveraging their existing network is likely to be appreciated. Tempting your customers to jointly create a new market by complementing their existing (often product-centric) offering by a service-centric solution will highlight the cooperative mind-set.

Typically everyone wishing to connect directly with the consumer are looking for the latest in business model thinking that delivers the following: direct to consumer, diagnostic-driven, fully automated, subscription model, completely personalized. Through platform innovation, the data generated leads to insights (success science & analytics) that may be used to create a solution to address the consumer’s job to be done.

The familiarity of their past strategy and the learnings from the challenging D2C & B2B2C strategy leaves many firms standing at a crossroad. Many realize that without investing (alone or through 3rd parties) in proper fulfillment strategy, will not enable the company to fully benefit from the new channel. Cooperation with your existing partners and embracing the platform may be the answer.

For more info visit www.apcretail.com or www.platforminnovationkit.com. You can also reach us on [email protected] and +27 76810 7686