There are several instances of companies, including Voltas, HPCL, Aegis Logistics, Crompton Greaves and Shilpi Cable Technologies that have steadily increased their consumer businesses. Banks are turning more towards consumer lending to counter slowdown in corporate earnings growth.
So, what is prompting companies in traditional B2B space to go for a B2C model? With economy under stress and earnings under pressure, companies are prompted to chase high-margin business opportunities, which are usually in the retail consumption business. Thanks to the information asymmetry, retail consumers typically do not have the same bargaining power as corporates in business deals.
Increased exposure to consumer retail business also helps enhancing valuations on the Street. Little wonder, companies from consumption-driven sectors such as FMCG, pharmaceuticals, automobiles typically trade at higher valuations. Crompton Greaves managed to unlock value for its investors after listing its demerged consumer electrical products division.
So, does it mean that B2B business models would fall out of favour? Unlikely. When the macro economic situation improves, companies refocus on increasing revenue base through (lower margin) B2B business. Besides, growing a B2C business is fraught with challenges of retaining individual customers and continuous investment in brands. Tamba Hali Authentic JerseyShare This