What is Business to Business to Consumer (B2B2C)?

Understanding how your product reaches the end user is one of the first major hurdles you face as a founder. You might start out thinking you will sell directly to people. Then you realize that finding those people is expensive and time consuming. This is where the Business to Business to Consumer (B2B2C) model comes into play.

In a B2B2C model, your startup (the first B) sells its product or service to another business (the second B). That second business then provides your product to their own customers (the C). It sounds like a simple chain, but the dynamics are actually quite specific.

You are not just a vendor to the middle business. You are a partner that helps them provide more value to their existing audience.

In this model, the middle business acts as a channel. They have already done the hard work of acquiring a customer base. They have built the trust. They have the distribution infrastructure in place. Your job is to plug your product into their ecosystem so the end consumer can use it.

Consider a company like Instacart. They are a classic example of B2B2C. They partner with grocery stores (the middle business) to provide a service to the grocery store’s customers. The grocery store gets to offer delivery without building their own fleet. The customer gets their groceries. Instacart gets a massive user base without having to open their own retail locations.

This model is often used when a startup has a specialized piece of technology that enhances a larger platform. If you build a specific type of fintech tool, you might sell it to banks so they can offer it to their account holders. The bank is your customer, but the account holder is your user.

One of the defining features of a true B2B2C relationship is that the end consumer usually knows who you are. This is different from white labeling. In white labeling, your brand is hidden. In B2B2C, your brand often sits alongside the partner brand. This allows you to build brand equity with the consumer while using the partner for distribution.

To understand B2B2C, you have to look at how it sits between the traditional B2B and B2C approaches. Each has its own set of rules and stresses.

In a standard B2B model, your relationship ends with the business that buys your software or service. They use it internally to make their company better. You do not care about their customers in a direct way. Your goal is to solve a problem for the employees or the management of that company.

In a B2C model, you go straight to the person on the street. You spend your own money on ads, social media, and brand building. You own the relationship entirely. However, you also bear all the cost of customer acquisition, which can be massive for a new startup.

B2B2C attempts to find a middle ground. It takes the high volume of B2B and mixes it with the brand recognition of B2C.

You gain access to a large group of people very quickly. However, you give up a significant amount of control. You are at the mercy of the middle business. If they decide to change their interface or stop working with you, your access to the consumer vanishes instantly. This is a risk that direct to consumer companies do not have to face in the same way.

Founders often choose this model when the cost of acquiring a single customer is higher than the lifetime value of that customer in a direct sales environment. If it costs you fifty dollars to get one person to sign up, but they only ever spend ten dollars, your business is not sustainable.

If you can partner with a business that already has a million of those people, your cost to reach them drops significantly. You might pay the partner a commission or a flat fee, but that is often cheaper than buying ads on search engines.

Another scenario involves trust. If you are a new fintech startup, people might be hesitant to give you their banking information. But if you are integrated into the app of a major bank they have used for twenty years, that trust is transferred to you automatically. You are leveraging the credibility of the middle business to bypass the skepticism of the consumer.

This model is also useful when your product requires a certain level of infrastructure. If you are a delivery service or a logistics provider, partnering with existing retailers allows you to use their physical presence as your starting point.

One of the biggest questions in B2B2C is: who owns the data? This is an area where many startups fail to plan ahead. If a consumer uses your product through a partner, do you get to see their email address? Do you get to see their buying habits? Or does the middle business keep that information for themselves?

If you do not own the data, you are essentially a hidden utility. You cannot market to those people later. You cannot build a long term relationship with them outside of the partner’s ecosystem.

There is also the question of brand dilution. If your product is buried deep inside another company’s website, does the customer even know you exist? If they have a bad experience, do they blame you or the partner? These are variables that are often outside of your direct control.

As you think about this model, there are several things we still do not fully understand about the long term viability of B2B2C for smaller players. For instance, what happens when the middle business decides to build their own version of your product? They have all the data. They see exactly how much their customers use your tool. They have the ultimate leverage.

We also have to consider the fragility of these partnerships. If your startup relies on one or two major partners for all of its distribution, you are not really an independent company. You are a feature of another company. This makes you vulnerable during their corporate restructuring or shifts in strategy.

How do you maintain a conversational, human relationship with an end user when you are separated by a corporate contract? Can a startup truly innovate when its product roadmap must align with the slow moving goals of a much larger partner business?

These are questions you must ask yourself as you build. B2B2C is a powerful way to scale, but it requires a careful balance of power that is often tipped in favor of the largest entity in the chain. You must decide if the trade off of control for scale is worth the risk to your long term vision.