Multichannel Strategies for Managing the Profitability of Business-to-Business Customers

Link: https://doi.org/10.1177%2F0022243718816952

U.S. business-to-business (B2B) e-commerce doubled in almost every sales sector between 2003 and 2015, with sales totaling $5.7 trillion and representing nearly half of manufacturer and wholesaler shipments by the end of the period. Information technology services and consulting firm Accenture finds that 68% of B2B customers purchase goods online and 94% perform online research before making purchases. Industry data shows e-commerce is especially dominant in standardized goods manufacturing and wholesaling, where products are available off-the-shelf and sales cycles are short.

Sellers must therefore respond to e-commerce’s growth and reconsider their strategic investments in two fundamental elements of B2B exchange—salespeople and targeted discounts. Managers must furthermore determine whether they can derive value from serving certain customers via both online and in-person channels and understand the implications of online channel activity for price promotion strategies.

This study’s authors explore the sales and profit implications of supplementing their customers’ online activity with salesperson contact and targeted price promotions by addressing three research questions:

1. How does a B2B customer’s online channel activity affect the seller’s financial outcomes?
2. Does contact with a dedicated salesperson complement online channels, and what mechanisms drive the relationship?
3. How do a customer’s online and salesperson interactions relate to customer-specific discounts and their efficacy?

The researchers examine four key constructs’ impact on customer-level sales and profit. “Online catalog search” represents customers’ acquisition of information from online sources, “online purchasing” represents placing orders, “customer-salesperson contact” is the interaction between the two entities, and “customer-specific discounts” are non-advertised price reductions.

The researchers’ conceptual model, grounded in communication theory, suggests online catalog search, online purchasing, and customer-salesperson contact each can enhance customer-level sales and net profit, in part by increasing customer-specific discounts’ efficacy. The study’s authors test the model and their resulting hypotheses using a dataset from an industrial goods provider’s customer relationship management, transaction, and activity-based costing databases.

The researchers account for self-selection in the study and later conduct two randomized experiments to explore the underlying mechanisms they identify. The researchers analyze 28,909 time-varying observations in the main dataset using a multivariate hierarchical Bayesian model to jointly explore their three endogenous variables: discounts, sales, and profits. The framework allows them to estimate the variables’ random effects jointly. Online catalog search, online purchasing, and customer-salesperson interaction are the model’s substantive covariates.

As the model predicts, increased customer-salesperson contact enhances online catalog search and purchasing’s positive effects on sales. Online catalog search and purchasing also positively affect customer-specific discounts and amplify the positive effects of customer-specific discounts on both sales and net profit. The researchers find customer-salesperson contact does not affect customer-specific discounts, but it enhances the discounts’ effect on sales.

The B2B seller featured in the study earns favorable financial outcomes when its customers use online channels for both search and purchasing. Furthermore, customer-salesperson contact complements online catalog search and purchasing, generating greater sales and net profit. So, the interaction effects on sales translate to profits, and the salesperson channel enhances revenue from online channel activity enough to overcome its cost. Perhaps counterintuitively, customer-salesperson contact does not affect the seller’s deployment of customer-specific discounts. Still, the overall pattern is consistent with the researchers’ model, in which customer activities in different channels entail communications varying in directionality, content, richness, and frequency.

Based on the study’s results, the researchers theorize that complementarity across channels enables sellers to better meet customers’ needs and reduces perceived risk.

Using two experiments to investigate the conclusion, they further find that a combination of rich, customized salesperson communication and more frequent but lean online communication fosters shared understanding between customers and sellers, contributes to an improved relationship, and expands purchasing.

Specifically, the research indicates that customers who interact with salespeople regularly while searching and purchasing online generate the most favorable financial outcomes for sellers, even when it is difficult to determine the value the salespeople add. Many companies believe salespeople are inessential for customers engaged heavily in online activities, but here, the research indicates the opposite: Sales resources allocated to online users offer the greatest bang for the organization’s buck.

Prior research has scarcely investigated B2B customers’ multichannel activities. The researchers’ findings on the complementarity between an individual customer’s activities in online and salesperson channels is therefore unique; they elucidate how customer-seller communications in multiple channels drive the deployment and efficacy of customer-specific discounts, which in turn affect sales and profits.

For managers, the researchers derive bottom-line implications regarding sellers’ deployment of salespeople and customer-specific discounts. In contrast to previous studies examining customers’ adoption—or lack thereof—of online channels, the researchers disentangle customers’ use of online catalog search from online purchasing, tracking each activity over time.