Character of business marketing
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Character of Business Marketing. Classifying Commercial Enterprises. NAICS = North American Industrial Classification System Replaces SIC (Standard Industrial Classification) codes Common for NAFTA countries NAICS hierarchical structure: XXIndustry sector XXX Industry subsector

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Character of business marketing

Character of Business Marketing


Classifying commercial enterprises

Classifying Commercial Enterprises

  • NAICS= North American Industrial Classification System

  • Replaces SIC (Standard Industrial Classification) codes

  • Common for NAFTA countries

  • NAICS hierarchical structure:

    XXIndustry sector

    XXX Industry subsector

    XXXXIndustry group

    XXXXXIndustry

    XXXXXXU.S., Canadian, or Mexican national specific

    http://www.naics.com/cgi-bin/search.pl

(continued)


Naics codes

NAICS Codes

Divides economy into 20 major industry sectors (at two-digit level):

11 Agriculture, Forestry, Fishing,54 Professional, Scientific, and Technical

and Hunting services

21 Mining 55 Management of Companies and Enterprises

22 Utilities 56 Administrative and Support, Waste

23 Construction Management, and Remediation Services

31–33 Manufacturing 61 Education Services

42 Wholesale Trade 62 Health Care and Social Assistance

44–45 Retail Trade71 Art, Entertainment, and Recreation

48–49 Transportation 72 Accommodation and Food Services

51 Information 81 Other services (except Public Administration)

52 Finance and Insurance 92 Public Administration

53 Real Estate, Renting,

and Leasing

(continued)


Supply chain management

Supply Chain Management

  • Technique for linking manufacturer’s operation with those of all its strategic suppliers, key intermediaries, and customers.


Supply chain characteristics

Supply Chain Characteristics

  • Supply chains

    • Are multi-tiered

    • Are customer driven

    • Exist externally AND internally

      • Require a cross-functional effort

    • And their management are ongoing journeys – not destinations

    • Require good procurement activities

  • Source: Roberts, Julie S. (2003) “The Buzz About Supply Chain,” Inside Supply Management, (July), 24-28.


Supply chain example

Supply Chain Example

Source: Roberts, Julie S. (2003) “The Buzz About Supply Chain,” Inside Supply Management, (July), 24-28.


Procurement purchasing goals

Procurement (Purchasing) Goals

  • Uninterrupted Flow of Materials

  • Manage Inventory

  • Improve Quality

  • Develop & Maintain Supplier Relationships

  • Achieve Lowest Total Cost

  • Reduce Administrative Costs

  • Advance Firm’s Competitive Position


Evaluating potential vendors

Evaluating Potential Vendors

Basic Considerations

  • Performance Considerations

  • Plant Visits

  • Geographic Locations

  • Capacity


Performance considerations

Performance Considerations

Must predict supplier’s total ability to fulfill the contract as it relates to:

  • price

  • delivery

  • quality

  • service


Plant visits

Plant Visits

  • Be sure to visit the supplier’s plant if possible

  • Try to gain insight into the:

    • type of facility

    • personnel

    • housekeeping

    • procedures

  • Serves as indication of vendor’s ability to provide necessary pre- and post-sale service


Geographic location

Geographic Location

  • Long distance shipments increase the chance of

    • accidents

    • strikes

    • acts of God

  • Geographic disadvantages can be overcome with

    • special transportation arrangements

    • inventory make-and-hold service


Capacity

Capacity

Must consider several items

  • Physical plant and facilities

  • Supplier’s technical skills

  • Supplier’s managerial skills


Vendor rating systems

Vendor Rating Systems

  • The Categorical Plan

  • The Weighted-Point Plan

  • The Cost-Ratio Plan


The categorical plan

The Categorical Plan

  • Buyers keep notes on supplier dealings as events occur

  • Buyers compare notes (usually at monthly buyer meetings)

  • Suppliers are categorized as being in the good, neutral, or unsatisfactory category

  • Highly subjective, but easy to use & understand

  • Disadvantage is it’s subjectivity:

    relies on memory, personal judgment, and the experience/ability of the buyers.


Categorical method example

Categorical Method Example

VendorCostQualitySpeedTotal

AGood(+)Unsatisf(-)Neutral(0) 0

BNeutral(0)Good(+)Good(+) ++

CNeutral(0)Unsatisf(-)Neutral(0) -


The weighted point plan

The Weighted Point Plan

  • Assign weights (importance) to quality, price, and service (or other relevant criteria)

  • Should fit buying organization’s needs

  • Sellers are rated on each factor

  • Simple, but effective plan that can be modified to suit specific conditions

  • Somewhat more objective than the categorical plan


Weighted point plan example quality

Weighted Point Plan Example:Quality


Weighted point plan example price

Weighted Point Plan Example:Price


Weighted point plan example service

Weighted Point Plan Example:Service


Weighted point plan example composite total

Weighted Point Plan Example:Composite Total


The cost ratio plan

The Cost-Ratio Plan

  • All activities regarding a supplier’s performance are valued in terms of dollars

  • Total cost of buying is determined including:

    • letters, telephone calls, visits, etc

  • Total (real) cost varies from vendor to vendor based on vendors’ skills & dependability

  • Future vendors selected on basis of lowest total cost incurred


Cost ratio plan process

Cost Ratio Plan Process

  • Initial costs associated with Quality, Delivery, and Service are determined

  • Each cost is then converted to a ratio

  • Ratio expresses cost as a percentage of the total value of the purchase

  • Sum the three individual cost rates to obtain overall cost ratio

  • Apply overall ratio to quoted unit price


Abbreviated example cost ratio plan

Abbreviated Example:Cost-Ratio Plan


Governments institutions

Governments & Institutions

  • Compliance Programs

    • Must maintain affirmative action programs for minorities, women & disabled

  • Set-Aside Programs

    • % of contracts offered only to small or minority-owned businesses

  • Other aspects of non-profit buying will be addressing in Pricing


Two types of contracts

Two Types of Contracts

  • Fixed-price contracts

    • A price is agreed to before contract is awarded and payment is made at conclusion of work.

    • Provides for the greatest profit potential.

    • Poses greater risks.

  • Cost-reimbursement contracts

    • Reimbursement for allowable costs may be allowed and sometimes a number of dollars above costs as profit is allowed.


Relationship marketing

Relationship Marketing

  • All marketing activities directed toward

  • establishing, developing, and maintaining

  • successful relational exchanges

  • for the mutual benefit of all involved parties.


Partners in relational exchanges

Partners in Relational Exchanges

Goods

Suppliers

Services

Suppliers

Business

Units

Supplier

Partnerships

Competitors

Focal

Firm

Internal

Partnerships

Lateral

Partnerships

Employees

Non-Profits

Buyer

Partnerships

Government

Functional

Dept.’s

Intermediate

Customers

Ultimate

Customers


Value of rm to sellers

Value of RM to Sellers

  • Helps to ensure substantial and reliablepurchase volumes at adequate margins.

  • Helps to determine the buyer’s choice the next time around.


Value of rm to buyers

Value of RM to Buyers

  • Costs of carrying safety stocks, and those of high return rates, numerous reorders, & long lead times have steadily risen.

  • RM helps to eliminate waste and improve system economies.

    • inventory reduction

    • decreased line shutdowns

    • purchasing labor savings


Requirements for high performance relationships

REQUIREMENTS FOR HIGH PERFORMANCE RELATIONSHIPS

  • BEYOND THE FINANCIAL CONSIDERATIONS:

    • INTEGRITY

    • FAIRNESS

    • LOYALTY

    • FLEXIBILITY

    • INPUT INTO PARTNER’S STRATEGY

    • PARTNER’S INPUT INTO YOUR STRATEGY

    • COMPLIANCE WITH PROCEDURES & AGREEMENTS


Types of relationships

Types of Relationships

  • Discrete Transactions

    • have a distinct beginning, short duration, and sharp ending by performance.

  • Value-Added Exchanges

    • Focus shifts from attracting customers to keeping customers. Begin focusing more closely on understanding & fulfilling needs.

  • Relational Exchange

    • traces to previous agreements, and is longer in duration, reflecting an ongoing process.


Why is trust so important

Why is Trust So Important?

  • The parties have confidence in their relational partner’s reliability and integrity

  • Without trust, there is NO commitment

  • Without commitment, future exchanges are questionable at best

  • Without trust and commitment, negotiation costs are increased

  • Without trust and commitment, monitoring costs are increased


Synthesis and extension model of relationship management

Synthesis and Extension Model of Relationship Management

Relationship

Termination

Costs

Constraint-Based

Relationship

Knowledge

Relationship

Commitment

Relationship

Benefits

Dedication-Based

Relationship

Involvement

Trust

Shared

Values

Trust

Dimensions

Opportunistic

Behavior

Communication


Different customer motivations

Different Customer Motivations

  • Constraint-Based Relationships

    • One party believes it cannot exit the relationship due to economic, social, or psychological costs.

    • The strength of the constraints is a function of the party’s perceived dependence upon the other.


Different customer motivations1

Different Customer Motivations

  • Dedication-Based Relationships

    • Party remains in relationship because he/she is committed to the relationship and wants to remain.

    • Dedication generally arises due to dependence and/or trust.


The consequences

The Consequences

Constraint-Based

Relationship

Dedication-Based

Relationship

Acquiescence

Propensity

To Leave

Cooperation

Enhancement

Interest in

Alternatives

Identity

Advocacy


Outcomes associated with constraint based relationships

Outcomes Associated with Constraint-Based Relationships

  • Interest in Alternatives

    • lasts only as long as constraints

    • individuals in constrained relationships attempt to restore freedom to chose.

    • increased attempts to identify alternative suppliers.

    • more environmental monitoring

    • more receptive to competitors’ relationship offers.


Outcomes associated with constraint based relationships1

Outcomes Associated with Constraint-Based Relationships

  • Acquiescence

    • degree to which partner accepts or adheres to another’s specific requests or policies.

    • passive agreement to maintain the relationship.


Outcomes associated with dedication based relationships

Outcomes Associated with Dedication-Based Relationships

  • Cooperation

    • active participation for mutual benefit

  • Enhancement

    • broaden/deepen relational bonds

      • buying additional services

      • providing capital, information, labor, or other resources

      • participating in company events


Outcomes associated with dedication based relationships1

Outcomes Associated with Dedication-Based Relationships

  • Identity

    • thinks of relationship partnership as a team and considers the partner in proprietorial terms.


Outcomes associated with dedication based relationships2

Outcomes Associated with Dedication-Based Relationships

  • Advocacy

    • ultimate test of relationship

    • promote relationship partner to others

    • defend relationship partner against detractors

    • main purpose is to, of course, benefit from positive word-of-mouth.


Suggestions for making b2b relationships last

SUGGESTIONS FOR MAKING B2B RELATIONSHIPS LAST

  • On-site visits

  • Trade personnel

  • Manage total dependence with alternate suppliers

  • Continuous service

  • Develop a relational contract (????????)


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