Chapter Two
The Character of Business Marketing
Review of Chapter One
B2B is an important element in the economies of industrialized nations
B2B includes:
- Marketing to companies that buy products in order to make other products. (e.g.,
McDonald buy salts to make French Fry)
- Marketing to government agencies, including state & local governments
- Marketing to institutions such as university & hospitals
- Marketing to resellers, including retailers & industrial distributors
B2B is important:
- Most marketing majors will begin their career in B2B
- The magnitude of B2B, accounting for more than half of the economy
B2B is different from B2C:
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Learning Objectives
The focus is business relationship between buyers & sellers
• Describe the effectiveness of markets for coordinating
business transactions.
• Examine the motivations for relationships and how they
develop.
• Identify the complementary mechanisms for coordinating
business transactions.
- Supply chain management (discussed in Chapter3)
- Relationship management
• Describe the network of participants in the value chain.
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The Magic of Markets
• Markets provide a mechanism for meeting individual and
organizational needs and allocating productive resources. (e.g.,
the buyer’s circumstance determined the value of any product or service;
price coordinates the activities of the various businesses; when demand is
greater than the supply, the price goes up.)
• There are technical limits to the effectiveness of markets
- Incomplete information about product performance
- Buyer or seller integrity
- Hidden costs not well reflected in price
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Additional Means for Coordinating
• Supply Chain Management (SCM)
- We will discuss SCM in chapter 3 the purchasing function
• Relationship Management
- Motives to relate
- Developing relationships
- Safeguarding relationships
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Motivation to Relate
What determines a successful relationship?
1.
The seller has motivation to relate;
2.
The buyer has motivation to relate;
3.
If they are not equally motivated it won’t be an equal
relationship.
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Seller’s motivation to relate
High
Buyer’s
Market
Sellermaintained
relation
Joint
relationship
maintenance
Buyer’s
High motivation to
Buyer-maintained
relate
Low
relation
No
exchange
Discrete
exchange
(spot contracts)
Seller’s
market
Low
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The Types of Relationship
SELLER’S MOTIVATION TO RELATE
HIGH
TRANSACTIONAL
RELATIONSHIPS
SELLER’S
ADVANTAGE
LOW
HIGH
BUYER’S MOTIVATION
STRATEGIC
PARTNERSHIPS
TO RELATE
LOW
BUYER’S
ADVANTAGE
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The Types of Relationship
Transactional relationships (Spot exchanges)
- Both seller & buyer have no motivation to relate
- These markets are best suited to:
highly standardized goods/services which require little description/explanation;
the products primarily bought on the basis of price
Strategic partnerships
- At least one party is motivated to build and keep a
relationship
- Both buyers and sellers must have strong MUTUAL
interests in maintaining an ongoing exchange
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The Preferences of Sellers & Buyers
SELLERS
Want to:
Sell Large Volumes
Sell similar amounts
over time
Manage their selling
and support expenses
(They want to have
substantial & reliable
volumes at adequate
margins)
DEVELOP
A
COMMON
GROUND
BUYERS
Want:
Reliable delivery
without interruptions
Reliable products with
low rejection and defect
rates
Efficient lead times
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Requirements for
High Performance Relationships
Beyond the financial considerations, both parties want:
• Integrity
• Fairness
• Loyalty
• Flexibility
• Input into your partner’s strategy
• Partner’s input into your strategy
• Compliance with procedures and agreement
• Honor commitment
• Stand behind your products
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Strategic Partnerships
1. When are strategic relationships most likely to emerge?
2. What are the benefits and risks of strategic partnerships for
buyers and suppliers?
3. Why are JIT systems a prime example of a strategic
partnership?
4. What types of internal and external standards are typically
used to evaluate JIT systems?
5. What problems have attended the widespread use of JIT?
How have firms addressed these issues?
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1. When are strategic relationships most likely to emerge?
In order for such “high-trust” relationships to evolve, both
buyers and sellers must have strong MUTUAL interests in
maintaining an ongoing exchange.
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2. What are the benefits and risks for buyers and suppliers?
Benefits for buyers:
Shift some inventories up the channel;
Take advantage of supplier expertise & contacts;
Reduce purchasing/quality control costs;
Trade on the supplier’s reputation
Benefits for suppliers:
Gain large, dependable purchase volume;
Obtain revenue predictability, benefits from specialization;
Gain exposure to larger markets;
Enhance their quality/dependability reputation
Major risks for both parties:
Derive from unexpected disruptions in the delivery of goods and/or vital
communications, e.g., buyers become more vulnerable to strikes, acts of God, and
transportation disruptions because of the small inventories;
Trust is vital and fragile element which, if damaged, creates damaging conflicts;
Both parties may find themselves “shut out” from other, more attractive, alternatives.
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3. Why are JIT systems a prime example of a strategic relationship?
OEM buyers have worked with suppliers of component parts and materials to
eliminate costly inventories and frequent handling costs by establishing
just-in-time (JIT) relationship.
“JIT” requires the supplier to produce and deliver to the OEM precisely the
necessary quantities at the necessary time, with the objective that
products produced by the supplier conform to performance specification
every time.
To be successful, JIT systems require all parties to share proprietary
information relevant to production capability, scheduling, inventory sizes
and procedures and delivery equipment, routes, delivery times, and
capabilities. The firms often connect systems to share such information
electronically. Clearly, TRUST is essential.
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4. What types of internal and external standards are typically used
to evaluate JIT systems?
Internal standards:
Firms often ask their own managers to assess supplier professionalism,
responsiveness, quality, technical capability, and vision.
External standards:
Popular external assessments may be derived from trade associations or
consulting companies.
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5. What problems have attended the widespread use of JIT?
As a form of strategic partnerships, JIT has all of the problems associated
with these approaches
e.g, buyers may have underestimated the impact of small inventories in several
areas.
Buyers become MORE vulnerable to strikes, acts of God, and transportation
disruptions.
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Developing Relationships
Four-stage relationship development
1.
Awareness – Unilateral considerations of potential partners; buyers
and sellers engage in “arm-length” evaluations of potential partners
2.
Exploration – The parties probe and test each other; interaction
occurs, and tentative associations may form
3.
Expansion – Both parties are satisfied with some customization
involved. Additional benefits are sought from each other; the
ESSENCE is increasing dependence between exchange partners
4.
Commitment – Partners exchange significant resources to maintain
the relationship; marked by partners adapting and resolving disputes
internally in order to sustain the relationship
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Developing Relationships
Dissolution – Termination of an advanced relationship. The
dissolution is a counterpart to the process of relationship
development
Staying in business relationships for two broad reasons:
1.
2.
YOU WANT TO - The rewards are financial, strategic or
psychological
YOU HAVE TO - The cost to exit is too high or there are no
alternatives
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Sustaining (Safeguarding) Relationships
• Make on-site visits to your partner (House calls) – efforts to obtain
evidence of partner capabilities & commitment
• Trade personnel and offices (Trading places) – buyers & sellers may
exchange personnel to provide assurance
• Manage total dependence with an alternate supplier (Managing
dependence) – A buyer reduce its dependence on the supplier by
cultivating relationships with other exchange partners
• Make the pledge of continuous service (Supplier pledges) – Promise to
give good service and fair prices over the course of the relationship
• Develop a relational contract (Contracts) – Under a relational contract,
important current buyer/supplier roles/performance agreements re
specified while describing procedures for resolving future disagreements
• Provide ownership by bringing functions or technology within
boundaries of partner’s firm (Ownership) – Vertical integration
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