What Are Sunk Costs in B2B?
Some investments fail to generate the outcome desired, and when that happens, investors can fall into the sunk cost trap and make a decision to hold onto that original investment despite its lack of success. Referring to funds that have already been invested, a sunk cost is a sum that cannot be recovered. This situation might unfold for various reasons, including the reluctance to admit failure, the stubbornness of adhering to one’s original vision, and perhaps the most persuasive variable – time and money spent.
The sunk cost fallacy is when a business decision is based on such a faulty premise: that staying the course, continuing down a road you’ve already started, and sticking to your original plan is justified simply due to the amount of resources invested into it. Sunk costs in B2B could become the kind of mistake that stagnates digital progress and holds up future strategic planning decisions based on those short-term committed costs. Sometimes the best decision is to know when to cut your losses, and that is not always an easy thing to do.
How to Overcome Them
DCKAP works with many distributors who have struggled with their e-commerce and with working most efficiently with all the systems they need to run their business. Rigid Hitch is a family-owned manufacturer and warehouse distributor of trailer hitches, towing accessories, trailer parts, and truck accessories. Recently, I sat down with the President of Rigid Hitch, J.R. Tapper, at the DCKAP Summit in Los Angeles, California to talk about the struggles they faced on their journey of digital transformation and the difficulty of multi-channel integration with their current system, and how they required a robust digital commerce solution to integrate with their ERP.
While discussing the decision to move away from ECC (Epicor Commerce Connect) and try something new, the concept of sunk costs was discussed as an important learning moment. J.R. offered his insight and explanation of what sunk cost is, and his real-world story of how he and the team ultimately avoided incurring more expenses due to the sunk cost fallacy as an important example.
“In business school they talk about a thing called sunk cost…that’s the theory where once you’ve spent the money you really shouldn’t be using that expense to influence future decisions.”
– J.R. Tapper, President of Rigid Hitch
Being well versed in the understanding of sunk costs helped their team to recognize when they had reached a pivotal moment to make a change. Nonetheless, it was a tough decision for the Rigid Hitch team to make even though it was one they felt was necessary, as J.R. explained.
Despite the two years of effort and their extensive initial investment, they decided that “throwing good money after bad” was not the best way to change the outcome and get them the results they were looking for. A new strategy, and a new investment, was needed. That’s where DCKAP came in, and we helped them accomplish the seamless multi-channel digital experience they hoped for.
Watch a portion of the interview here:
Elevating the B2B Customer Experience
B2B selling online is the new normal, and customer experience is one of the most important aspects to elevate, especially considering the growing trend among B2B buyers. According to a Salesforce report, 68% of B2B buyers require brands to understand their personal needs and wants before making a buying decision.
It’s no surprise in this day and age that B2B Buyers want the same personal attention, simplicity and ease they feel as a consumer purchasing from a retailer. Beyond the availability of product and price, the best competitive advantage is in the entire shopping experience, from search to shipment, and the ease in which all your systems work together efficiently and effectively to make that happen.
In the distribution industry, there are very specific variables for success versus a traditional B2C company, so while the expectation of the experience is the same, the solution is not. If you want to take your business to the next level, it’s best to lean on the experience and industry-built solutions available from experts in B2B and distribution. Reach out if you’re interested in finding out how you can avoid the detriment of sunk costs and finally achieve your digital goals.
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