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)
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The Character of Business Marketing
B2B is an important element in the economies of industrialized nations
- 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:
The focus is business relationship between buyers & sellers
- Supply chain management (discussed in Chapter3)
- Relationship management
- Incomplete information about product performance
- Buyer or seller integrity
- Hidden costs not well reflected in price
- We will discuss SCM in chapter 3 the purchasing function
- Motives to relate
- Developing relationships
- Safeguarding relationships
What determines a successful relationship?
Buyer’s motivation to relate
Discrete exchange(spot contracts)
Transactional relationships (Spot exchanges)
highly standardized goods/services which require little description/explanation;
the products primarily bought on the basis of price
Sell Large Volumes
Sell similar amounts over time
Manage their selling and support expenses
(They want to have substantial & reliable volumes at adequate margins)
Reliable delivery without interruptions
Reliable products with low rejection and defect rates
Efficient lead times
Beyond the financial considerations, both parties want:
In order for such “high-trust” relationships to evolve, both buyers and sellers must have strong MUTUAL interests in maintaining an ongoing exchange.
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.
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.
Firms often ask their own managers to assess supplier professionalism, responsiveness, quality, technical capability, and vision.
Popular external assessments may be derived from trade associations or consulting companies.
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.
Four-stage relationship development
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: