Even businesses act like consumers now

 

Changing consumer behaviour is not only affecting B2C operations: when it comes to time-sensitive and critical purchases, businesses are increasingly behaving like consumers. They can shop around with ease, compare price with availability, and purchase either online or via call centres.

As consumer style behaviour begins to dominate, organisations need to understand the changing balance between price, quality and availability. And where better to turn than the leading retailers that have exploited individual customer insight to drive up loyalty and profitability?

From determining price elasticity to understanding the impact of product range and availability on conversion, detailed customer analytics can transform the way B2B organisations consider the business.

Consumer behaviour

The past decade has seen a fundamental transformation in the way consumers interact with businesses. From price comparison sites to showrooming, consumers are savvy and actively using online information sources to gain better value for money. 

For any organisation selling direct to consumer this trend has created new business opportunities and challenges; with the major grocery retailers leading the way in exploiting price matching, range innovation and loyalty schemes to drive profits up and extend market share.

But how many business-to-business (B2B) organisations have even considered the impact of this new consumer attitude on their day-to-day operations? For most wholesale organisations, even those that pride themselves on product availability and rapid delivery, there is a perception that price is everything: flexible pricing and big discounts are the key to success.

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But how true is this in an era where individuals routinely apply their consumer purchasing habits and skills to buying for the business? From the manufacturing maintenance manager sourcing a critical spare part to the auto body shop buying brake pads, the purchasing decision is made by an individual, not a business.

These individuals have access to a wealth of competitive information and alternative routes of supply and will make spot decisions on buying elsewhere.

So is it time to stop treating customers only as businesses and recognise the potential consumer within?

Understanding conversion

To consider the customer as a consumer, the business needs to gain detailed understanding of behaviour, drivers and barriers to conversion of individuals, not just organisations. This means not just creating top level management reports that reveal – at best – revenue and margin by customer; it means delving down to discover day to day customer activity. 

What was the impact of product availability and speed of delivery on conversion rates? Which customers only buy certain categories or products? What is their sensitivity to the availability of specific products or categories? Do they buy only on one day of the week or time of day? Just how price sensitive are customers; and how influential is discounting on sales?

Armed with this insight an organisation can begin to borrow from the success of the retailers in areas such as price management and product range.

Price management

Most wholesale organisations have created incredibly complex pricing structures that combine manufacturer discounts with client specific discounts, as well as empowering sales staff to offer their own individual incentives. The result can be product prices that vary by as much as 50% depending upon any number of variables over which the business has limited central control.

Not only does this price complexity risk eroding margin; it creates an incredibly complex business model. How can management have any real understanding of profitability by customer, by product or category with this highly variable and uncontrolled approach to pricing?#

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In contrast, consistent pricing (possibly with a small discount threshold that can be applied by the sales team) transforms control over margin. Following the retail lead, organisations may opt to actively price the business out of some product areas and use loss leaders or very low margin products to gain business in others. The key is to understand the pricing mechanisms and determine how price is truly influencing sales conversion.

Creating a simple pricing model in this way reduces complexity and improves central control. But it also supports a far more proactive approach to price management. Rather than opting for the annual pricing review, organisations can use analytics to test the impact of variable pricing on different customers or customer groups at all times and in response to changing economic conditions.

Product range

It is obvious to say that a business wants to ensure the product range meets the vast majority of customer needs. But what does that actually mean in each marketplace? In recent years, the retailers have refined their own-label product range to include distinct brands on the “Good, Better, Best” basis – offering customers different price/quality offerings of the same product.

This approach can also play well in different wholesale markets – adding an OEM option and an own brand product, for example, to the premium brand adds choice and can also attract customers at a different price point. Using sophisticated analytics, organisations can ascertain whether there are particular product types or categories that are failing to meet demand, or where a ‘best’ option would have stronger traction.

All of these factors, however, need to be considered within the overall service delivery model. Critically, how strong is the influence of pricing and/or range extensibility over availability? Can the business actually increase prices in order to add inventory and boost responsiveness? More controversially, perhaps, what happens if stock levels – and hence availability – are reduced?

With deep customer understanding combined with a willingness to test different price models and product ranges with specific customer groups, the business can transform its understanding of the balance between pricing and availability across different products and categories and by customer. This enables far more intelligent selling and supports the fluid, dynamic approach to pricing and product range that underpins the retail experience.

Conclusion

Strategic sourcing is, of course, well established in many businesses. But a vast majority of B2B purchases are still ad hoc and in person – especially those involving SMEs. With a growing propensity to check options online and shop around, organisations need to consider the impact changing consumer habits are having on business behaviour – and respond accordingly. Thinking like a retailer is an interesting discipline for any business.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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