The False Dichotomy of B2C and B2B

Ray Wang wrote a summary of CRM Evolution that I found particularly interesting, and one point in particular resonated with me because it aligns to something I have been talking about at Get Satisfaction for a while now… B2B and B2C distinctions are dead.

The segmentation of business (B2B) and consumer (B2C) behaviors is a false dichotomy to begin from, what really matters is the customer lifecycle and renew-ability of the relationship. Is a purchase cycle highly deliberative in nature, does the post transaction phase focus on repetition of purchase or a shift to services and add-ons, how does the retail experience inform purchases, and much more.

Cars and diapers… that’s what I keep thinking about.

A car is one of the major purchases a consumer will make and represents the pinnacle of brand-to-customer lifecycle in the b2c space. It involves peer review, needs assessment, technical evaluation, financing, service agreements… all like B2B as we know it today. Once the transaction is complete the relationship shifts to one of services between the dealer and the customer involving maintenance and accessories and the lifecycle repeats with a lower entry bar at each interaction.

Diapers are a situational purchase that is effectively commodity driven, in spite of diaper manufacturers touting specific feature benefits the fact is that buyers view diapers as fungible. As a result companies are now shifting to marketing the relationship they have with a customer around the journey of newborn to potty training. The entire point of the marketing strategy is to ensure that you reach for Pampers every time you are in the aisle for the 3+ years you will be buying diapers and that is because you trust the brand more than competitive offerings, and interacting with your customer community, wherever it is, is essential for sustaining the customer relationship.

B2B purchases also span the highly deliberative capital expenditure to the fungible commodity and the buying impulses for each map precisely to each end of the spectrum in the consumer space, yet because the person making the purchase has a business card and pays for it with company funds we call it B2B. It doesn’t make sense.

The marketing and sales tactics for B2B and B2C may be different but the point is that thanks to the Internet the differences are now outweighed by the similarities. For software companies the reality could not be more stark, in order to survive and prosper in future years the need to create multiple channels to market that address how SMB buyers are behaving is critical and that means delivering through an e-commerce channel, adopting marketing techniques that are common in the B2C space (ratings/reviews, SEO, promotions), deliver information products, and adopting pricing/packaging strategies that scale from the very small to the very large without becoming overwhelmed time/cost of sales on the very large end of the spectrum.

B2C and B2B is dead.

More on this topic (What's this?) Read more on Ray at Wikinvest

Is Freemium Compatible with Enterprise Software?

Sure it is… despite the gnashing of teeth that regularly flares up when the discussion of freemium is engaged in.

Freemium is not magical pixel dust, it is a way to deliver a multi-channel business model that intersects customer segments regardless of size, complexity, and revenue opportunity. It does require you to rethink your business from top to bottom, beginning with how you meter your pricing model and ending with how you use your website.

The metering discussion is critical and you have a range of implements you can take advantage of, including metering by number of users, time, type of organization, features, and specific capacity dimensions. If you are offering free to high priced enterprise license agreements the metering by feature model creates landmines that you will have to deal with, most notably the bias that will emerge in your development process which results in packaging of high value features to defend your high price points which then results in the most interesting stuff you build being available to the smallest audience in your customer base.

Pricing for growth and pricing for margin are on different ends of the spectrum and if metering features supports margin then capacity must be in support of growth, right? Wrong, pricing on pure capacity creates a different kind of problem that you have to consider, which is leaving a lot of money on the table as a result of product realities that frustrate consumption. An example is a complex signup process that frustrates casual users or a deficient getting started process that creates barriers in the initial trial process. When pricing by capacity everything your development organization does must be viewed through the lens of creating consumption, even at the expense of value.

By the way, speaking of the initial trial process… will you have one? The trial process is valuable only if you are using it to facilitate a purchase decision otherwise you are better off having a “buy now” process or at a minimum have it as an option. If someone coming into a trial product experience isn’t using it in the first 30 minutes then it’s unlikely you will get them to use it over 30 days (which by the way is optimal if for no other reason than managing your internal reporting… all trials created in one month convert in the next).

Will the free product experience initiate in the trial process or as an explicit free product signup? If I were you I would go with a single trial product that converts into a paid or free product at the end of the trial, which works only if you don’t front load the trial process with payment information. The conversion rate for trial-to-paid will be low, probably 3-6%, at which point the debate shifts to getting people into the website and as efficiently as possible into a trial experience… it’s a pure numbers game at this point, feed the funnel with x number of site visitors to get to y number of trials to z number of paid customers.

The website is where the conflict between enterprise and monthly subscription customer segments will be realized. Enterprise marketing – the traditional kind – is entirely focused on content and getting contact information from a site visitor in order to have a sales resource follow up with them. This doesn’t work well for online freemium goto market strategies because it frustrates the goal of moving site visitors from the top of the funnel (your homepage) into a trial experience.

The conflict gets exacerbated when you realize that enterprise leads are opting into the low friction trial experience and once in that buying path the effort to shift them into the traditional enterprise path is cumbersome, mostly because of the pricing disparity. However, this fails to acknowledge that you, as a business, should not care how prospects come into your funnel and if your pricing model is appropriate for your business then prospects will naturally coagulate around the pricing plan most appropriate for them… pricing for growth.

The other dimension of the perceived channel conflict that you should consider is that it is unreasonable to think that the majority of your customers will start in free and end up in enterprise. Customers who select into one buying path are doing so because of what they want rather than what you are getting them to do… a customer who comes in via self-service trial, automatic conversion and monthly subscription renewal, and never talks with someone on your team is doing exactly what they want…. and that is not talking to you. Get over it, you can still serve them well and they will be happy, as evidenced by the fact that they renew each month.

You can help customers find the best fit for them among your product portfolio but doing so successfully at scale is as much dependent on in application marketing as it is good content on your website. Once you acquire a customer spend money designing and delivering a compelling product experience that facilitates upgrades and add-ons, rather than extensive email marketing campaigns and call centers.

Some enterprise products are not appropriate for freemium models but almost exclusively the result of high COGS and/or specific industry vertical issues (e.g. compliance). These are edge cases but you do need to be aware of them.

In summary, freemium works for enterprise software if you:

  1. Carefully consider all of the consequences of various packaging and metering models.
  2. Build your product to maximize the Hour-1 customer experience and then in support of the metering model you select.
  3. Build your website for throughput and efficiency in support of customer acquisition through the trial experience.

Link Post (weekly)

Customer Service: Getting the Basics Right

Yesterday I needed to stop at the grocery store to pick up a couple of pantry basics, and because my errand path had me away from the store I usually go to for such items I ended up in a Safeway… utterly befuddled and confused. The item I needed was not in the aisle that it would logically be stocked in.

After 5 or so minutes of scanning the aisle in the event I simply missed it, I waited… and waited… and waited in the hopes that an employee would saunter past and offer some help. No dice. So from the aisle I googled the store phone number and called, hoping to get to someone who could send someone over to offer help. After navigating the phone tree I ended up in the general customer service queue, and much to my amusement I could hear the in-store announcement system paging someone to “pick up on 201″. After another 4 or so minutes I was dumped into a voicemail box. Now I was frustrated, not only do they not have someone physically present that can help me but they don’t have anyone on the phone either… I called again, this time short circuiting the phone tree and after another couple of minutes I did get someone, who was subjected to my frustration (not that she cared anyway) and then someone hurried over to aisle 6 to help me.

And then my new in-store helper did something that went beyond the absurd… he started looking through the shelves that I had been staring at for a good 15 minutes. Finally, I said to him “hey buddy, I’m not an idiot, I have pretty much memorized what is on this shelf and what I’m looking for isn’t here”. He ran off and came back, directing me to aisle 3. Success.

I left that store thinking:

1) I hate Safeway, they suck.

2) Did that guy think I was a moron?

3) I will be hard pressed to go to that store again.

Customer experience matters and in Women’s Wear Daily (WWD is a trade publication for retail, they cover a fascinating range of subjects and increasingly are a goto source for me on how social technologies and trends are impacting the retail environment) there is an in-depth article on why customer experience matters more than ever in the face of competition from online retailers. (The WWD is subscription required, here’s an abstraction of the article.)

Customer service is just one element of customer experience, the bigger topic covers everything from what happens when you are in the parking lot to what you do when you are back at home ruminating about how you had to call the store’s switchboard to get someone to help. Bottom line, this shit matters because nothing beats the convenience of shopping online and I will usually get a better price as well… so retailers need to compete on something other than price and promotion.

No segment is insulated, I bought a car sight unseen and had it shipped across the country, the bathtub, hardware, fixtures, and tile for our new bathroom all came from online sources, when Amazon Fresh arrives I will shift grocery spend to them, and I haven’t stepped foot in a Best Buy in years.

Lastly, over the weekend there was an article about Virgin America (still growing but still losing money) and what was interesting was the comment thread. The overwhelming majority of comments highlighted the great customer service the company delivers… the total customer experience that focuses on getting more money – repeat business – from the customers they already have in addition to acquiring new customers.   This is a great close to my post, retailers need to focus on:

1) Total customer experience: From parking lot to what happens when someone asks you what you think about x, y, or z months later.

2) Use technology to deliver in store help in addition to in person help.

3) Physical aesthetics matter.

4) Empower employees to be decisive and actionable, values matter more than controls.