28 January 2014

MSc Marketing/MSc Management:

Marketing Contexts

Lecture: 30th January 2014

Business-to-Business (B2B)

Marketing: Part 1

Dr Gary Harden

28 January 2014

‘Warm-up’ exercise/ice breaker

Imagine you are working for a major blue chip company. Your job is to organise the purchase (or leasing) of a fleet of company cars for senior managers and sales staff.

� Describe the stages in the process that you would go through in making the purchase?

� What particular issues will be important to you in making the purchase?

� What qualities or characteristics would you be looking for in your preferred supplier?

Take a few minutes to consider your answers to the questions above and then compare your views with your immediate neighbour(s).

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Overview of lecture

� Developing an appreciation of the significance of B2B for consumer markets

� Understanding the key characteristics of B2B markets and how these differ from consumer markets

� Aspects of the B2B decision making process

� Building the case for studying B2B marketing

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Approaching B2B marketing

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Defining B2B marketing

B2B marketing is “…the management process responsible for the facilitation of exchange between producers of goods and services and their organisational customers”.

Brassington and Pettitt (2005)

“Business-to-business marketing is where one business markets products or services to another business for use in that business or to sell onto other businesses for their own use.” Wright (2004)

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B2B relationships: Nintendo Wii

Maker of AC adaptor

Small parts manufacturer based in Osaka

Maker of wireless LAN and parts for controllers

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B2B in action: UPS Logistics

YouTube - UPS: We ♥ Logistics Commercial

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Consumer vs B2B markets

• Consumer markets

- purchases by individuals for personal consumption

• B2B markets

- products purchased by organisations either for resale or use in production (and includes consumables)

• industrial market

• reseller market

• government market

• public sector market

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Supply/demand chain: cars

Suppliers of materials(e.g. steel makers)

Purchasers of inputs used in making parts

(e.g. engine makers)

Purchasers of inputs used in making cars

(e.g. Ford, Toshiba)

Car dealerships(e.g. franchises or

independent showrooms)

End users of cars(e.g. organisational customers

or consumers)

B2B marketing

B2B marketing

B2B marketing

B2B (businesses)and B2C marketing (individuals/ families)

Typical flow of good between organisations

Upstream suppliers

Direct suppliers

Car manufacturers

Car distributors

Car customers

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Revisiting Porter’s value chain1

Support Activities

Primary Activities

Firm infrastructure

Human resource management

Technology development

Procurement

Inboundlogistics

Operations Outboundlogistics

Marketing& sales

Service

MA

RGIN

MA

RG

IN

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Revisiting Porter’s value chain2

� The value chain offers a bird’s eye view of the organisation and what it does. Competitive advantage arises out of the way it uses inputs and transforms them into outputs that customers are willing to pay for (i.e. value activities)

� A firm’s value chain is connected to a larger value system

An organisation can secure competitive advantage by:-

� Inventing new or better ways to do things

� Combining activities in new or better ways

� Managing the linkages in its own value chain

� Managing the linkages in the value system

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Why study B2B marketing?

� B2B importance is recognised by key business thinkers and practitioners (e.g. Kotler, Martha Rogers)

� A detailed understanding of the demand/supply chains for all products helps to ensure their efficient function

� B2C has borrowed a lot from B2B

� The majority of business students go on to work in companies whose primary customers are other

organisations (Ellis, 2011)

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Example of a typical B2B job

B2B Sales Executive/Account Manager (OTE £45K Uncapped)

Our client is a Microsoft Gold and Cisco certified partner specialising in supporting IT networks for businesses. An opportunity has now arisen for a B2B Sales Executive/Account Manager to head up their small, office-based account management team. This position offers a challenging role and a genuinely unique opportunity to be a key member of a small team.

As a B2B Sales Executive/Account Manager, your duties will include:

- Providing proactive management of existing customer accounts- Building and maintaining strong working relationships with existing clients- Identifying and closing opportunities for 'value added' services- Issuing quotations/supporting documentation to existing customer accounts- Providing solutions that meet client needs through IT recommendations

You must have B2B sales experience and demonstrable knowledge of Microsoft applications as well as HP, Dell and Cisco products. You will also need to have excellent communication skills and plenty of self-motivation.

28 January 2014

Significance of B2B markets

Significance of B2B markets

Key B2B activities are carried out

‘behind the scenes’ of most B2C experiences

Upstream inter-organisational

trading supports almost every

end-user market

Purchasing power of private and public

sector organisations can be huge

B2B exchanges have a greater impact on

people’s livesthan B2C trading

B2B activities make a major contribution

to most national economies

B2C marketers are learning from B2B marketing practices

Source: Ellis (2011)

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Management paradoxes in B2B

� Seeking opportunities but facing limitations

� Influencing others yet being influenced

� Controlling but never being fully in control Managerial

ambiguity

Managerial certainty

Håkansson and Ford (2002)

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Characteristics of B2B markets

● Fewer buyers- there are fewer businesses than individuals (3m vs. 60m UK)

● Larger buyers- customers in public sector typically account for one third of public spending or 5-8% of GDP

- Accenture (Anderson Consulting) rebranded at a cost of $175m in advertising expenditure alone

(Ellis, 2011)

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Characteristics of B2B markets

● Closer relationships

- buyers and sellers are normally highly reliant upon

each other and promiscuity is frowned on

● Use of legally binding contracts

● Professional purchasing

- buyers are often trained and tend to be experts in their field

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Characteristics of B2B markets

● Derived demand

- suppliers in B2B markets must wait for demand to

trickle back through the stages in the supply chain

● Relatively inelastic demand

- overall demand in business markets is not heavily influenced by supplier price fluctuations. However, these may impact intra-market demand

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Characteristics of B2B markets

● Multiple buying influences- although the ‘buyer’ ultimately makes the purchase, there may be many other factors that determine choice:-

• Customer specification

• Product/service quality

• Legal requirements

• Consumer preference

• Decision making unit (DMU)

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The ‘DMU’(Decision Making Unit)

● Users (staff or managers)

● Influencers (designers or

technicians)

● Deciders (ultimate decision maker)

● Approvers (authorisers)

● Buyers (purchasing function)

● Gatekeepers (ad hoc impeders or

facilitators)

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Characteristics of the B2B DMU

� Complex structure

� Many people involved

� Long time to make decisions

� Buying for the organisation

� Mainly rational reasons for purchase

� High value goods/services being purchased

� Seller might know DMU members over long period

� DMU members can change

� End-user probably not the decision makerWright (2004)

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Contextualising the B2B DMU

ENVIRONMENTALLevels of demandEconomic prospectsInterest ratesThe pace of technological changePolitical and legal structuresCompetitive structures

ORGANISATIONALObjectivesPoliciesStructuresSystems & degree of centralisationProcesses and proceduresManagerial attitudes to riskFinancial l resourcePrevious experiences

BUYING CENTRERoles in DMUGroup processesInterpersonalinteractions

INDIVIDUALPersonal objectivesJob positionAttitude to riskPrevious experiencesTechnical knowledgeMotivation

BUYINGDECISION

Adapted from Webster and Wind (1972)

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B2B buying behaviour

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Classifying B2B purchases

Components

Plant and equipment

Products and services

Materials

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Types of B2B buying situation

• New task- organisation buys product/service for the first time. This may entail the development of a detailed technical specification and evaluation of a range of potential suppliers

• Modified rebuy- organisation makes repeat purchase but requires changes to the original specification. This may require a degree of negotiation

• Straight rebuy- repeat purchase is made with no alteration to the original specification. This would normally be handled by a junior buyer

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B2B decision making process

Recognition of a problem/need

Determination of specification and quantity of item needed

Search for and qualification of potential suppliers

Acquisition and analysis of tender proposals

Evaluation of proposals and selection of supplier(s)

Placing of the order

Performance feedback and evaluation

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Comparing consumer and B2B buyer behaviour

BUSINESS

� Commercial profit

� ‘Expert’ purchasers

� Few

� High value purchases

� Concentrated (?)

� Negotiated

CONSUMER

� Personal pleasure

� ‘Amateur’ purchasers

� Many

� Small value purchases

� Scattered

� Impulse

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Overview of the B2B marketing mix

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How to approach B2B marketing

� What do business customers value?

� How do executives rank supplier capabilities?

See Anderson, J.C., and Narus, J. A. (1998) “Business marketing: understand what customers value”, Harvard Business Review, Nov-Dec., pp. 53-64.

28 January 2014

What business customers value

1. Core product quality

2. Low prices

3. Technological capability

4. Delivery performance

5. Rapid introduction of new products

6. Product support/service

7. Accommodating volume changes

8. Enhanced product features

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B2B marketing mix

� Product/service - unique features, product trials,

after sales service, problem solving, quality, availability of spares, operator training…

� Price - value for money, discounting, negotiated

prices…

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B2B marketing mix

� Promotion - personal selling (‘soft’ sell), well

trained/empathetic salespeople, exhibitions, quality printed material to build confidence and reputation…

� Place (Distribution) - rapid and/or reliable delivery,

specialist transport, high calibre agents/distributors, close relationships… (more of which in the next lecture!)

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Summary of main points

� B2B marketing is defined as exchange activities between organisations

� The concepts of supply chain, demand chain and value chain are inter-related in B2B marketing

� The B2B DMU is complex and dynamic

� B2B decisions are influenced by a huge number of macro, micro and individual factors

� Despite clear differences there are many similarities between B2B and B2C markets

� Relationships are important in B2B (more about this in the next lecture...)

28 January 2014

References

� Anderson, J.C. and Narus, J. A. (1998) “Business marketing: understand what customers value”, Harvard Business Review, Nov-Dec., pp. 53-64.

� Brassington, F. and Pettitt, S. (2005) Principles of Marketing, Pearson Education: Harlow.

� Ellis, N. (2011) Business-to-Business Marketing: Relationships, Networks & Strategies, Oxford University Press: Oxford

� Håkansson, H. and Ford, G. (2002) “How should companies interact?”, Journal of Business Research, Vol. 55, No. 2, pp. 133-139.

� Wright, R. (2004) Business-to-Business Marketing: a Step by Step Guide, Pearson Education: Harlow.