B-to-C Companies Are Extending Their Reach

SAN MATEO (07/27/2000) - The days are numbered for companies that strictly do business-to-consumer commerce as these organizations begin to adopt practices from their business-to-business counterparts.

Order-fulfillment partnering, establishing extranets and marketplaces, and offering Web-based services are among the many ways b-to-c companies are expanding their business models to emulate b-to-b organizations. The motivation for a change in business approach is improving both customer service and the bottom line.

"It's a natural evolution that they will borrow from each other," says Nathaniel Palmer, an analyst at Delphi Consulting, in Boston.

In fact, b-to-c firms are expected to experience an upsurge in sales, pointing to the benefits of this new hybrid approach to b-to-c commerce. According to a recent report from market research firm Giga Information Group Inc., in Cambridge, Mass., b-to-c sales in the United States will increase from US$25 billion in 1999 to $152 billion in 2002 and $233 billion in 2004. Internet sales for b-to-c will be heavily populated by multichannel or "click-and-mortar" stores by 2002, accounting for two-thirds of spending via the Internet, or approximately $92 billion in sales, according to Giga.

Priceline.com is just one of many dot-com pioneers that, in the last six months, have begun b-to-b initiatives, Palmer says. In May, Priceline.com announced that it is joining forces with American Express to develop a b-to-b portal service for small-business customers. The duo's first effort in this area will be an offering of long-distance telephone service to small businesses, which will allow them to name the service and the price that they want to pay for it. A Priceline.com spokesman says there will be more b-to-b offerings to come.

A key impetus for b-to-c business model changes such as Priceline.com's was Christmas 1999. At that time, shortcomings in having a strictly b-to-c approach to order fulfillment began to appear, Palmer says. B-to-c players often failed to plan how long it would take to pack, ship, and deliver orders on time.

Missed deliveries highlighted the weakness in relying on third-party partners for distribution. "In the b-to-c world, you could only make that mistake once," Palmer says. In response, b-to-c businesses have begun to re-think their logistics strategies.

"They're buying their own infrastructures and forging relations with suppliers, mirroring behavior in the b-to-b realm," Palmer says.

In the case of 1-800-Flowers, in late 1997 the company debuted BloomLink, a Web-based extranet of participating florists that handles order fulfillment.

Local florists use BloomLink to access flower orders from customers. At the time of BloomLink's launch, b-to-c, b-to-b, and e-commerce activities were just beginning to emerge and there were no precedents, says Norman Dee, director of network services at 1-800-Flowers, based in Westbury, N.Y. The flower and gift delivery business was breaking new ground. "We have the scar tissue to show for it," Dee says.

Florists must become part of 1-800-Flowers' partner BloomNet association to access flower orders via BloomLink. The company then uses BloomLink to forward orders to its BloomNet participants as well as to its nonfloral gift suppliers, such as Finlay Jewelers, the Seattle Baking Co., Everlasting Gardens, Fredericksburg Farms, and Mrs. Fields Cookies.

The BloomLink site provides its fulfillment partners with real-time order status information as well as inventory information. Data is exchanged via interconnected Oracle-based, back-end systems operated by 1-800-Flowers and by business partners, Dee says. Business partners that deliver goods through major carriers, such as FedEx or UPS, provide order tracking numbers through BloomLink. This helps 1-800-Flowers offer accountability for a crucial part of its business. "Our challenge has been that we don't own our distribution," Dee says. BloomLink also provides Web services to 1-800-Flowers' business partners such as home-page setup, e-mail, chat, online training, and wholesale purchasing capabilities.

Its first b-to-b step was intended to automate the delivery process as well as ensure timely order fulfillment and accountability, and the effort has paid off for 1-800-Flowers, according to Dee. The company has achieved economies of scale using BloomLink and the BloomNet program. For BloomNet participants, the efficiencies of BloomLink give them "another percentage point they can take on the transaction," Dee says.

Beyond the financial benefits, crossing the divide between b-to-c and b-to-b also drives companies to expand their view of the "value chain" within the industry or industries they serve -- from the makers of raw materials to manufacturers, distributors, retailers, and ultimately the consumer, says Ken Gaebler, COO and co-founder of Beautyjungle.com, in Chicago, a start-up that is embracing both consumer and b-to-b business models in serving the beauty supply industry. To favor a strictly b-to-c view would mean missing a very important part of the process, Gaebler says.

Beautyjungle.com planned from the start to have a two-pronged attack: selling directly to online consumers and providing others, in some cases competitors, with the technology to start their own b-to-c dot-com sites, Gaebler says. For the b-to-b half of the equation, in August Beautyjungle.com will be launching a b-to-b electronic marketplace, BeautyWall.com, in conjunction with the Chain Drug Marketing Association (CDMA). The goal is to bring together independent drug stores and manufacturers such as Revlon and Proctor & Gamble, Gaebler says.

"There's an awful lot of commonality," Gaebler says about the two realms. But many b-to-c companies suffer from a narrow view of the world that has been too focused on just ramping up sales, he says. Many dot-coms have suffered for it, and gone are the days in which b-to-c companies offer free shipping and support business plans that call for "spending $100 to make a $10 sale," Gaebler says.

What b-to-c companies have learned over the past year is that it's very difficult to make it as a stand-alone entity, Gaebler says.

"They are part of an elaborate environment," Gaebler says. "I don't think a pure b-to-c company can compete today against a b-to-c/b-to-b hybrid."

B-to-c companies making the b-to-b push

These former consumer-focused e-commerce sites have pursued new opportunities in b-to-b channels.www.priceline.com: Priceline.com partnered with American Express to develop a b-to-b portal service for small-business customers.www.1800flowers.com: 1-800-Flowers launched BloomLink, a Web-based extranet of florists that helps them manage fulfillment partners.www.beautyjungle.com: Beautyjungle.com took a two-pronged approach to serving both consumers and the beauty supply industry.

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