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4.5 Customer Model

In this section, we discuss the two types of Customer Model pillar of PECCS and give guidance on how to differentiate between private companies that fall into these two classes.

 

Motivation

Companies may distribute and sell their goods and services to end users and/or other businesses. At certain times, the characteristics of a product or service might underpin such distribution preferences, while at other times it may arise from a specific business strategy. Irrespective of such differences, a company’s type of customer affects its business strategy (Liu et al., 2018), marketing activity (Iankova et al., 2019), customer engagement (Zolkiewski et al., 2017), and loyalty (Wirtz and Lihotzky, 2003).

Consequently, a private company’s customer type has strong implications for its valuation, profits, and performance (Dotzel and Shankar, 2019). Thus, the customer model pillar of PECCS aims to capture the different characteristics of the customer base.

 

Customer Model Classification

Broadly private companies can be divided into serving two types of customers: Business Focused (i.e., B2B or business to business) and Consumer Focused (i.e., B2C or business to consumer). To be more precise, the below guidelines are laid out to make sure every private company can be captured in only one of the classes unambiguously. 

  1. Business Focused: There is no consensus on how to define a B2B company clearly in the literature (Gummesson and Polese, 2009). We have chosen a very straightforward definition: any company with sales of more than 50% percent to other businesses is considered as following a Business Focused customer model. Further, the below specific subclasses of customer models are included within the Business Focused class:

    1. Bundled Business to Business to Consumer (B2B2C): While B2B2C models share similarities with both B2B and B2C models, the below approach is adopted in classifying B2B2C models as B2B. Assume there is a focal business that produces the goods or services for the consumer and there is an intermediary business. The intermediary business (the middle B in B2B2C) that bundles the products/services of the focal business along with other products and services, is classified as a subclass of Business Focused.

    2. Business to Business to Consumer (B2B2C) without Owning Relationship: A focal business, the first B in B2B2C is classified as Business Focused, when the focal business does not own the relationship with a consumer. However, if the focal business owns the relationship, such a business is included under Consumer focused (specifically Direct to Consumer).

    3. Business to Government: Government orders for goods and services share more similarities with businesses than individual consumers, who can be capricious and make sentimental purchase decisions. Thus, the B2G model is included as a subclass of Business Focused.

    4. Conventional Business to Business: Typical B2B models where a business sells the majority of its products or services to another business entity.

 

  1. Consumer Focused: Following a similar logic, any company with sales of more than 50% to consumers, is classified as following a Consumer Focused customer model. Specifically, the below subclasses are included under this class:

    1. Crowdsourced and Consumer to Business (C2B): In business models such as kickstarters, a customer pays a price for a product or service, well in advance before delivery. Here a consumer is showing greater loyalty and also taking some risk in supporting the production of the goods or service in exchange for early or privileged access to it.

    2. Direct to Consumer (D2C): Evolving customer models in which companies sell directly to customers without making use of any intermediary. Sales are usually achieved through outlet stores, online stores, and even third-party retail shops. Manufacturing, promoting, selling, and even shipping is performed by one business in such models.

    3. Intermediary Marketplace in Business to Business to Consumer (B2B2C): When companies make use of another intermediary business that provides marketplace services, then such models have more in common with the B2C class of customer models. This includes digital marketplaces such as App stores, companies that sell through unrelated brick-and-mortar outlets, and similar models.

    4. Conventional Business to Consumer (B2C): All remaining business to consumer models in which a private company sells its products or services to an individual consumer. In such a classification, if a company sells through intermediaries such as retailers, online marketplaces, wholesalers, etc., who help in aiding the distribution of the goods and services to the consumer, the sales are still accounted as being done to the individual consumer. That is, the intermediaries are not denoted as businesses, thus shifting many of the classifications toward the B2B customer model.

 

A summary of the two classes of customer model is provided in Table 5.

CM Subclass Code

CM Class Name

CM Subclass Name

Description

CM01001

Business Focused

Bundled Business-to-Business-to-Consumer (B2B2C)

B2B2C models where the intermediary business offers equally or more attractive offerings in a bundle. 

CM01002

Business Focused

Business-to-Business-to-Consumer (B2B2C) without Owning Relationship

B2B2C models where the focal business does not own the relationship with the customer.

CM01003

Business Focused

Business-to-Government

Majority revenue is generated by selling to national, state, regional, or local government entities.

CM01004

Business Focused

Conventional Business to Business (B2B)

Majority revenue is generated by selling to other businesses.

CM02001

Consumer Focused

Conventional Business-to-Consumer (B2C)

i) Majority revenue is generated by selling to individuals (i.e., retail clients) ii) Sales through intermediaries such as retailers, online marketplaces, wholesalers, etc., who help in aiding the distribution of the goods and services, are still ascribed as sales to consumers 

CM02002

Consumer Focused

Crowdsourced and Consumer-to-Business (C2B)

Majority revenue is earned through crowd sourcing campaigns or in C2B model. Crowd sourcing campaigns involve consumers signing up early for access to a product or service even before production starts. In the C2B model, businesses profit from consumers' willingness to name their own price or contribute data or marketing to the company, while consumers profit from flexibility, direct payment, or free or reduced-price products and services.

CM02003

Consumer Focused

Direct-to-Consumer (D2C)

Majority revenue is earned by directly marketing the product to the consumer through a self-owned network of salesforce, digital assets, and physical stores

CM02004

Consumer Focused

Intermediary Marketplace in Business-to-Business-to-Consumer (B2B2C)

Majority revenue is earned as a market place or retailer where different sellers market their wares to consumers

Table 5: Customer Model Subclasses

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