Optimizing B-to-B-to-C Performance: From Channel 1.0 to Channel 2.0

Aug 06, 2009 11:35am
Posted by: Frank Capek

How do we keep up with changing consumer expectations when we only have limited direct contact with the ultimate consumers of our products?

How do we align agents, brokers, retailers, or franchisees in order to deliver a consistent brand experience that drives growth?

How do we overcome complex, legacy distribution channels in order to reinvent the customer experience in a way that allows us to stay competitive?

How do we balance attention or investment in channel “customers” versus end-consumers?

How do we collaborate across an increasing array of diverse distribution network participants in a way that helps us accelerate growth?

The majority of companies we’ve worked with operate in some form of intermediated business model that fits a Business-to-Business-to-Consumer (B-to-B-to-C) structure.  This includes:

  • Product companies that sell through retailers, distributors, or sales reps
  • Financial services companies that sell through agents, brokers, or financial planners
  • Technology companies that sell to and through integrators
  • Food products companies that sell to restaurants and food service companies
  • Franchise operations that maintain and manage a network of franchisees

It also includes many companies that haven’t traditionally thought of themselves as operating in this model, but would benefit from doing so, including:

  • Pharmaceuticals or medical devices that focus on providers as well as patients
  • Placement agencies that manage employer, as well as candidate relationships

Although the B-to-B-to-C structure is an efficient way to go to market, there are a common and predictable set of challenges that not only make it difficult for the model to work effectively but to change as market and competitive conditions shift.  As downstream consumer expectations change and competitive alternatives arise, upstream product companies often find themselves locked in to a set of channel relationships that are difficult to influence.   Most of the B-to-B-to-C companies we’ve worked with experience a lot of angst and conflict about how to integrate:  1) what they do for their channel, 2) what they try to encourage the channel to do for the downstream consumer, and 3) what they do for the downstream consumer themselves (often very uncomfortably by-passing their channel.

This angst is now being amplified by a dramatic shift in the way business is done.  In most industries, the emerging model for the market is a much more open and collaborative network rather than a closed and controlled firm-centric model.   This shift has been well documented by my colleague Don Tapscott in his bestselling book Wikinomics.  Don is the head of nGenera Insights (a Customer Innovations partner).

The traditional concept of channel management is a product of the older closed, controlled, and firm-centric market model.  We call this “Channel 1.0.”    The basic capabilities associated with Channel 1.0 include carefully selecting, cultivating, collaborating with, and deliberately managing the lifecycle and performance of channel relationships.

In the more open, collaborative network model for business, these capabilities are still critical but they must be exercised in a fundamentally different way.   In this new world, there are two problems with the traditional Channel 1.0 concept of “channel management:”

  1. The first problem is the “channel” part. In a network view of the world, a channel is an outdated, linear way of viewing the market.  It locks you into thinking that you move your products and services forward through the channel to reach end-consumers.  This doesn’t work in the presence of media-savvy and networked consumers.  These next-generation consumers can easily find better deals with more agile providers and, in the process, are more likely to either by-pass intermediaries all together or deal with newer intermediaries (e.g. Amazon, etc…) that consolidate products and services in a way that makes it easier for them to get what they want.
  2. The second problem is the “management” part. In a more agile, networked view of the world, channel participants are more difficult to manage or control.  They tend to either have or believe they have more alternatives.  They also have to deal with a rapidly changing set of consumer demands that change what it takes for them to be successful.  If I’m an insurance agent, retailer, distributor, etc… struggling to keep up with changing consumer demands, preferences, and alternatives, I’ll challenge anything that product providers do that gets in the way of my responding to and serving my customers.

This leads me to Channel 2.0, which for the lack of a better description can be called Collaborative Ecosystem Management. In a more networked business environment the fundamental shifts include moving…

From: To:

Linear, feed-forward value delivery system

Complex, shifting network of participants

Static and known list of channel relationships

Evolving and emerging channel participants

Product and service fulfillment model

Demand creators and accelerators

Inflexible channel structures and systems

Adaptive collaboration processes and technology

In my next two posts, I’ll share some of what we’ve learned in helping companies improve performance by establishing the foundational performance capabilities associated with Channel 1.0 and building on those foundational capabilities in order to move to a more agile, next generation Channel 2.0 model.

Addendum... here are the next two posts:

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