A B2B2C CHALLENGE.

WHEN INDUSTRIAL COMPANIES OBTAIN INNOVATION

INSIGHTS FROM CONSUMER MARKETS.

Claudio A. Saavedra, Ph.D.

Professor of Industrial Marketing
Pontificia Universidad Católica de Chile – Nordakademie Hochschule, Germany

Business-to-Business (B2B) transactions represent by far the bulk of the economy in any
country, and they constitute the largest supply and demand source for manufacturing, financing,
engineering, transportation, information technologies, equipment, construction, consultancy,
commodities and corporate human capital. To name a few. Such economic sector is further
appreciated by considering that behind every human ingenuity there are countless industrial
suppliers. Think about your house, appliances, car, work tools, banking, schooling, clothes, food,
hobbies, etc. Indeed, the industrial world is vast, technical and varied. And most innovations
happen there too1.

Unfortunately, these innovations are mostly channel driven rather than end-user driven. That is,
hard-core industrial managers spend most of their time and energy in obtaining and managing
immediate -and large- customer orders, Fig.1. “After all -they reckon- these are the customers
that tell us what they need, issue the purchase orders and pay the bills”.

Figure 1. A classical conception of the business flow along the B2B2C product supply chain. Here, suppliers systemically design themselves to
operate with the next company in the chain (the customer).

This intellectual dissociation between industrial companies and their consumer markets (the
markets where their technologies are ultimately used) is a much disservice to overall global
innovation indexes, as I will discuss below. The causes of such dissociation are many, but
frequently found among component manufacturers, is that they underrate their current or
potential contribution in the final product markets. They still think that ideation and innovation
in consumer markets “are a matter for consumer product companies” (also known as B2C) and
that their role is to comply with intermediate demands in a fast, reliable and cost-effective
manner. Others claim that immediate customers don’t like to see suppliers meddling with their
customers, least of all be told what to do next. As a consequence, consumer product companies
don’t know what industrial suppliers can do for their customers, whereas industrialists operate
way back in the supply chain to understand the consumer. Thus, whenever a B2C customer -

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someone like you and me- adopts a new product, in all likelihood obtains a diminished version of
its potential.

For instance, commercial aircraft manufacturers have been largely concerned with the needs of
their immediate customers, the airline industry. This has resulted in plane models that
accommodate more passengers per unit, consume less fuel and are less costly to maintain. Yet,
even at the onset of the 21st century, commercial aircrafts cruise at similar –or even slower–
speeds than planes 50 years ago, while other attributes such as the noise, the vibration, and
overall passenger comfort are under permanent criticism.

Perhaps a more sensible example is given by the medical imaging industry. As of today, no
imaging diagnosis technology can detect a carcinogen tumor of less than 1 mm in diameter2,
which is enough mass to contain one billion cancerous cells with metastatic potential. The
medical imaging industry is comprised of several high tech companies, and the burden of market
research and R&D is chiefly sustained by a few manufacturers at the front end of the supply
chain. Most upstream component fabricators of imaging machines are unaware that their
technologies participate in such a quest.

In this article, I would like to present the concept of the end-user driven industrial company. It
says that industrial companies should examine their end-user markets to understand the
prevailing uses, benefits, shortcomings, as well as new possible applications for their
technologies. Consumer end-users can foster unprecedented technical development that the
industrialist can later introduce to the market. This is no simple task since components usually
function in unison with several other ingredient products in ever-changing applications. The
outcome, however, can be formidable for industrialists in terms of market-driven innovations,
profitable patenting, organization pride, and company value. As a collateral, industrial or
component manufacturers may bring a fresh ‘brain force’ to stalled consumer applications. A
discussion on the types of component manufacturers that can follow this strategy, a general
protocol for implementation and a final discussion is presented below.

Which industrial/component companies can do B2B2C research?

Not all materials and components integrated into a product share the same functional
significance for end users. In many cases, B2B products and services never reach the consumer’s
hands. Examples such as ERP software, robot lines, plant infrastructure, etc., show technologies
that are bought and used solely by corporate users. Some of these technologies (e.g. office air
conditioning, cleaning services, roof paints, etc.) deliver most of their value at customer
organizations, see fig. 2, which in turn are the end-users at their own respective supply chain.

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Figure 2. Distinctive end-uses of technological categories along the B2B2C supply chain (large arrows). The image depicts a chain in which
certain chemicals, components, and sub-components reach the mass consumer within a final product, whereas other technologies (perpendicular
B2B chains) deliver most of their functional value for B2B end-users. Albeit indirectly, such value may still be relevant to the consumer market.

Even when the component is thought to have an ancillary functional, market researchers may
find valuable benefits for certain consumer applications, see fig. 3.

Figure 3. Even after several product integrations, element X’s functionality or a specific attribute may have a key incidence in the final product
performance. All this regardless of the fact that element X may render its benefits in a “black-box in black-box” chain configuration (see image)
or in a more interconnected grid of technology dependence.

Such ‘indirect’ technologies (products or services that never reaches the hand of the consumer)
may have revolutionary consequences too. The steam driven engine (First Industrial Revolution)
was first conceived to pump water from mine wells3, yet soon enough its benefits went beyond
the imaginable. When steam power was applied to consumer applications such as transportation,
agriculture, and manufacturing, humanity got physically closer, faster, wealthier and stronger. In
less than 50 years, commerce went from a Medieval form of market to the current idea of

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variety, quantity, convenience and low cost. It could be well said that the Industrial Revolution
caused a Consumer Revolution which accounts for many business models currently in vogue.
The case also illustrates that a component innovation (the steam piston) conceived for one
industrial application (oil wells) becomes an operational disruptor (steam power) which can be
exported to other industrial applications. Which in turn change the world.

Component producers, admittedly, have an easier job. The component has a more direct
consumer innovation potential because of its physical proximity to the final product. Yet, beware
that physical proximity is not same as functional proximity. Examples of non-component
influencers with functional proximity to the final product are production equipment, engineering
software, and operational design. These B2B technologies are not integrated into the final
product, but they certainly have the potential to be present during the user experience. Also, a
new component or a new component feature can give rise to a whole new market application,
niche, segment or even industry. Known cases include impermeable resins (e.g. Gore-Tex),
microprocessors, bicycle breaks, camera optics, digital memory (e.g. Flash Memory), carbon
fiber based-materials (e.g. Kevlar, composites), food sweeteners, etc. Transistorized radio
receivers, for instance, became the most popular electronic device in history, which in turn had
crucial sociologic ramifications such as more continuous media consumption habits4.

In some contexts (e.g. product modular architecture), a component is integrated at distinct or

divergent downstream supply chains, suggesting opportunities for further specialization of
functionalities or attributes, see figure 4. This remarkable complexity in the chain provides a
dynamic market scenario: a component that is easily substituted in a cost-sensitive channel may
become critical in another one. And so on.

Figure 4. Technical products (e.g. film capacitors) can have multiple applications for different purposes along the supply chain. Some of these
applications merge in a single consumer product following successive integrations. Familiarity with this phenomenon may help back-chain
industrialists in examining performance gaps at the end-user tier of the chain. Specialization, improved products, and new development venues
may follow suit.

Whatever the case, industrial strategists should ultimately consider that the potential relative
consumer relevance of their technology is application dependent and a movable target. The

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relative consumer relevance of a B2B technology can be understood as its contribution to the
final product/service value.

A basic guideline for industrial companies to understand and deliver consumer value.

Whether directly or indirectly, consumer markets are the final and real users of many industrial
products and services. The level of consumer market knowledge among industrial practitioners is
varied, although as a general rule, this knowledge is poor. Many component manufacturers
simply don’t know how, when, by whom or where their technologies are being ultimately used.
With surprising frequency, component manufacturers don’t know why their technology is being
used. In other cases, the component manufacturer is aware of the uses but is unconscious as to
which additional applications could benefit from his/her technology.

The present guideline aims at helping industrial and component companies in identifying and
characterizing downstream supply chain parties, a task that should be put into action by a
multidisciplinary researcher team. Industrialists should refrain from outsourcing this strategic
endeavor, and they should avoid relying on indirect market knowledge (e.g. from chain
intermediaries). This activity should be considered a permanent research program with direct
involvement of the business unit chief.

A general procedure for the exploration, understanding, and ideation of the supply chain is
depicted in Fig. 5. Following the traditional project management commitments (mission, leader,
team, goals, charts, training, budget, etc.), the first resolution is to define which product or
product family will be examined. For those companies located closer to the end-user, the task
may be simpler. Those farthest away from the end-user will encounter resellers and integrators of
different kinds along the chain. Chances are that the researcher team will be familiar with more
immediate intermediaries, whom in turn will help opening doors at other downstream companies.

Figure 5. General research procedure for industrial companies to examine the downstream supply chain.

By all means, this is a higher up initiative for any company, since its consequences might very
well shape the future of the corporation. In fact, progressive corporate governments will soon

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appreciate that permanently following end-user trends is a key strategic activity. The expertise
and implementation of this ‘derived innovation program’ can be undertaken by business
development staff and the Industrial Marketing and R&D departments.

Corporate politics and trust are additional issues that the industrial innovator must address during
the research program. Some insecure intermediaries may become suspicious toward a
manufacturer who wants to examine their customers. Industrial distributors, for instance, are
particularly sensitive in presenting their volume customers. Sometimes rightly so. Yet,
progressive companies down the supply chain will understand that any innovation rising from
this research program may be beneficial for all parties. As a matter of fact, visiting the most
progressive intermediaries down the supply chain should result in a richer experience to analyze.

Visiting companies along the supply chain require method and preparation. I advice industrial
researchers to follow a B2B customer visit methodology (e.g. a ‘Discovery Team’5). The
researcher team will soon discover that the structure of the supply chain can be assessed channel-
wise (the channels toward the end-user) and transversally (integrator industries on their own).

Channel-wise, the research will find that primary integrators usually like innovative ideas related
to delivery, productivity, and costs; secondary integrators may be keen in quality standards,
distributors may require stocking management, low prices, and credit lines, etc. Transversal
players in the supply chain may hint the researcher about the level of industry fragmentation,
innovation, motivation, business model and so on. Consumer end-users, however, are a world to
discover.

Getting closer to the consumer tier of the supply chain will probe to be dramatically different for
the industrialist. Consumer markets are far more fragmented, dispersed and varied in terms of
product adoption. Moreover, a number of consumer applications are driven by psychological
phenomena, of which the industrial strategist knows very little. Furthermore, the already
unfamiliar final product may be sold to the consumer via an unfamiliar and complex business
operation (e.g. a supermarket chain, a generalist distributor, other retailers). Hence, intimidated
by uncertainty, some researchers may be tempted to outsource this step. Please be warned that
most consumer research agencies will be unable to obtain key technical insights, which is a most
relevant consideration.

A good framework to understand consumer markets is to partition them according to product

applications (just ‘follow the chains’), segments consumers into traditional demographic
variables, and thoughtfully examine the four steps of the consumer experience: purchasing,
installation, usage, disposal5. The industrial researcher can use now a variety of established
marketing tools conceived to find new market spaces6, lead users7, points of differentiation8,
outcome-driven innovation9, design-thinking10, etc.

The ideas produced by this research, when conceived to benefit a consumer end-user, will most
certainly need new technological cooperation between scientific and engineering fields.

Discussion
The industrial supply chain constitutes a promising world of innovation and progress for

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consumer end-users. History grants us with clear examples in which a single technical innovation
developed at the back of the supply chain transformed entire civilizations. Just consider the
impact of steam power, cryogenic oxygen or more recently, the transistor. The benefits obtained
from these technologies are deep, vast and everlasting. And more may lie in store for a great
many underserved applications.

Figure 6. An ingredient or component innovation can expand its effects using a ‘tree-shaped’ strategy in the channel grid.

As of today, such yet-to-be-innovation is unequally addressed by the players of most supply

chains. The front end of the chain, represented by consumer product companies, takes care of
‘human-scale’ needs and wants. The back of the chain, however, tend to spend their energy,
resources and time in marginal improvements to satisfy immediate customers. Such ‘supply
chain myopia’ could be regarded as a liability for world progress, since the pool of potential
ideas is incomplete. Disruptions will happen anyways, but they will show up later (consumer
products usually experience innovation disruptions because industrial disruptions made them
possible).

This article presents a calling for industrial strategists to methodically investigate their
technology’s contribution and potential at the consumer markets. While acknowledging that the
approach may seem ambitious for companies at the back of the supply chain (in particular to
those with a transactional culture), the strategic and competitive advantages of pursuing end-user
understanding will prove to be rewarding in a major scale. Three major obstacles need to be
challenged inside industrial organizations, nonetheless. The first obstacle is the intellectual
distance that separates industrialists from their ultimate user customers. Industrial company’s
systemic design is mostly immediate customer driven, which is desirable to a certain extent.
However, senior and middle management should exercise the conceptualization of the business

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beyond this realm. The second obstacle is the short-term thinking that plagues the business world
across the board, with some exemplary exceptions. Short-term corporate thinking does not go
well with abstract corporate thinking. The irony is that short-term organizations are ultimately
self-destructive and costly for everyone. Finally, the third obstacle is the widespread
phenomenon by which businesspeople fill their agendas with ‘how to do tools’ (to quote P.
Drucker11) to the extent that there isn’t any time for anything else. Least of all outside of the
office.

It is the opinion of the author, that progressive companies will advance through these challenges
in a way that the weaker competition will not. In fact, the B2B2C case may be the basis for
strategic modeling in industrial marketing, one that considers a fluent conversion between
consumer niches and technical features.

Several other desirable outcomes can be obtained from this B2B2C approach. For once, it fosters
market niche thinking with a functional (technical) perspective among industrialists. It also
brings knowledge to address oligopolistic or fragmented intermediaries and to understand the
consumer drivers that account for the demand of a given component.

At its most fundamental, the B2B2C challenge promises realistic business ideation for industrial
companies.

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