Chapter01

Business Business Market Market

ManagementManagement

33rdrd edition edition

Guiding Principles Guiding Principles

Chapter 1

Copyright © 2009 Pearson Education Publishing as Prentice Hall

Business Market Management, 3rd edition Chapter 1-2

Section I: Section I: Introduction and Introduction and

OverviewOverview



Chapter 1: Guiding PrinciplesChapter 1: Guiding PrinciplesOverviewOverview

I. Values as the Cornerstone of Business Market

Management

II. Managing Business Market Processes

III. Doing Business Across Borders

IV. Working Relationships and Business Networks

V. Summary



Guiding PrinciplesCraftingCraftingMarketMarket

StrategyStrategy

UnderstandingUnderstandingFirms as Firms as

CustomersCustomers

Marketing Marketing SensingSensing

ManagingManagingMarketMarket

OfferingsOfferings

NewNewOfferingOffering

RealizationRealization

Business Business ChannelChannel


GainingGainingNewNew

BusinessBusiness

SustainingSustainingResellerReseller

PartnershipsPartnerships

ManagingManagingCustomersCustomers

Regard Value as the Cornerstone

Accentuate Working Relationships & Business Networks

Focus on Business Market Processes

Stress Doing Business Across Borders

UnderstandingUnderstanding ValueValue

CreatingCreatingValueValue

DeliveringDeliveringValueValue

Business Market ProcessesBusiness Market Processes



Basic ConceptsBasic Concepts

Business Market Management Business Market Management is the process of understanding, creating, and delivering value.

Business Markets Business Markets are firms, institutions, or governments that acquire goods and services. Focuses on functionality or performance.



Guiding Principles of Business Guiding Principles of Business Market ManagementMarket Management

Regard valuevalue as the cornerstonecornerstone

Focus on business market management

processesprocesses

Stress working acrossacross bordersborders

Accentuate workingworking relationshipsrelationships and

businessbusiness networksnetworks



I. Value as the Cornerstone I. Value as the Cornerstone of Business Market of Business Market



What is Value in Business What is Value in Business Markets?Markets?

1. Monetary

2. Economic, technical, service, and social

net benefit

3. The exchange for price paid




Fundamental Value EquationFundamental Value Equation

(Valuef – Price

f ) >> (Value

a – Price

a )

OfferingsOfferingsff

OfferingsOfferingsaa


ValueValue Value can only be estimated.estimated. Value changes when:

Same functionality or performance provided Same functionality or performance provided while its cost changes to customerwhile its cost changes to customer

Functionality or performance changes while Functionality or performance changes while cost remains the samecost remains the same

Customer Incentive to PurchaseCustomer Incentive to Purchase is the difference between value and price.



Assessing ValueAssessing Value

Supplier firms create and deliver valuecreate and deliver value to targeted

market segments and customer characteristics

Business market management strives to both

understand and capitalizeunderstand and capitalize on customer and market

segment variationsvariations



Value AnalysisValue Analysis

Conducted by a cross-functional team with the customer firm

Team assesses market offering’s attributes in term of:Functionality or performanceFunctionality or performanceTotal cost of specific performance or Total cost of specific performance or

functionalityfunctionalityIdentification of lower-cost alternativesIdentification of lower-cost alternatives



II. Managing Business II. Managing Business Market ProcessesMarket Processes



Managing Business Market Managing Business Market ProcessesProcesses

Business Process:Business Process: a collection of

activities that take one or more kinds of

input and creates an output that is of value

to the customer



Processes Defined by AllaireProcesses Defined by Allaire

Management

Processes

How the CEO runs the companyHow management interacts with employeesHow decisions get madeHow communication takes place

Business

Processes

Focus is on reengineering effortsLarge, crosscutting collections of activities (product design, order fulfillment, customer service)

Work

Processes

Basic building blocks of business processesHow the work actually gets done



Shareholder ValueShareholder Value

Shareholder Value:Shareholder Value:

when the economic economic returnsreturns generated from realizing its business strategy exceed the cost of exceed the cost of capitalcapital employed

Value Drivers:Value Drivers:Sales growth rates

Operating profit margins

Income tax rate

Working capital investment

Fixed capital investment

Cost of capital

Forecast period



Shareholder ValueShareholder Value

Translating

customer valuecustomer value into shareholder valueshareholder value

critically depends on business’s ability to

claim an equitable return on the

value it delivers to customers.



Core Business ProcessesCore Business ProcessesProduct

Development Management

(PDM)

Understanding customer requirements and preferencesAnticipating how they will change Constructing solutions that customers are willing to pay for

Supply Chain Management

(SCM)

Incorporates acquisition of all physical and informational inputsEfficiently and effectively transforms processes into customer solutions

Customer Relationship Management

(CRM)

Addresses all aspects of • Identifying customersIdentifying customers• Creating customer knowledgeCreating customer knowledge• Building customer relationshipsBuilding customer relationships• Shaping customer perceptions about the organization Shaping customer perceptions about the organization

and its productsand its products



Contributions to MarketingContributions to Marketing

Making core business processes more

market-driven can result in:

Accelerated and enhanced cash flow Accelerated and enhanced cash flow

Reduced time to marketReduced time to market

Earlier adoption from targeted customersEarlier adoption from targeted customers



Market-Driven ProcessesMarket-Driven ProcessesBusiness Processes

Market-Driven Business Processes

PDMPDM PDMPDM

Design a technically superior product Create solution that enables

customer to experience maximum value and benefit

SCMSCM SCMSCM

Best inputs at cheapest priceDesign, manage, and integrate firm’s

supply chain with suppliers and customers

CRMCRM CRMCRM

Customer relationship is a means to sell, deliver, and service a product

Customer relationship is an opportunity to learn about customers’

needs and wants and how best to create, satisfy, and sustain them



Why Business Marketing Why Business Marketing ManagementManagement??

Marketing work processes should take

place withinwithin business market processes

Business market processes cutcut acrossacross

functionalfunctional areasareas

Depends upon seamlessseamless

cross-functional cooperationcooperation



Business Market ProcessesBusiness Market ProcessesUnderstanding ValueUnderstanding Value

Marketing Sensing:Marketing Sensing: process of generating

knowledge about the marketplace that

individuals in the firm use to inform and

guide their decision making



Business Market ProcessesBusiness Market ProcessesUnderstanding ValueUnderstanding Value

Marketing Marketing SensingSensing

Generating knowledge about the marketplace that individuals in the firm use to inform and guide their decision making

Understanding Understanding Firms as Firms as

CustomersCustomers

Learning how companies rely on a network of suppliers to add value to their offering, integrate purchasing activities with those of other functional areas and outside firms, and make purchase decisions

Crafting Crafting Market Market

StrategyStrategy

Studying how to exploit a firm’s resources to achieve short-term and long-term marketplace success, deciding upon a course of action, and flexibly updating it as learning occurs during implementation



Business Market ProcessesBusiness Market ProcessesCreating ValueCreating Value

Managing Managing Market Market

OfferingsOfferings

Putting products services, programs, and systems together in ways that create great value for targeted market segments and customer firms

New New Offering Offering

RealizationRealization

Developing new core products or services, augmenting them to construct market offerings, and bringing them to market. Realization is all the activities used to transform ideas into a market offering that it commercializes

Business Business Channel Channel


Designing a set of marketing and distribution arrangements that create superior customer value for targeted market segments and customers, and executing those arrangements either directly through supplier firm sales forces and logistics system or indirectly through resellers and third-party service providers



Business Market ProcessesBusiness Market ProcessesDelivering ValueDelivering Value

Gaining New Gaining New BusinessBusiness

Differentiating business opportunities, prospecting for new business, assessing the fit with supplier offerings and priorities, gaining the initial order, and fulfilling it to the customer’s complete satisfaction

Sustaining Sustaining Reseller Reseller

PartnershipsPartnerships

A supplier and its reseller fulfilling commitments they have made to deliver value to customer firms, strengthening this delivered value, and working progressively together to continue to fulfill changing marketplace

Managing Managing CustomersCustomers

Differentiating transactional and collaborative customers, delivering offerings that fulfill the respective requirements, and preferences of a portfolio of customers in a superior way, and getting a fair return in exchange



Business MarketingBusiness Marketing

Understanding that

advances in marketing

work processes &

marketing relationships

are needed to realize &

profit from

understanding of value.understanding of value.

MarketingMarketing

“The true meaning of

Marketing [is] knowing

what is value for thevalue for the

customercustomer.”

--Peter Drucker

(1980)



Updated: “the four Ps”Updated: “the four Ps”ProductProduct PricingPricing

Flexible market offerings that consist of naked solutionsOfferings are responsive to customer requirements and preferences

What a market offering is worth to the customer

PromotionPromotion PlacePlaceMarketing communications are focusedTailored to varying requirements for gaining and sustaining customers & resellersShape and reinforce supplier’s value

Design customer-driven distribution channelsChannel offerings build marketplace equityImplement cooperative channels arrangements that are adaptive



III. Doing Business Across III. Doing Business Across BordersBorders



Doing Business Across BordersDoing Business Across Borders

Language and Culture

Cross-Border Negotiation

Dispute Resolution

Currency Exchange and

Payment Risk



Language and CultureLanguage and Culture

Doing business across bordersacross borders does

not always mean that the language

and culture of managers will be

different, just as doing business

within the same countrywithin the same country does not

always mean that the language

and the culture will be the

same.




Determine what language to use

English regarded as the language of international

business

Alternatives to English:Use the language of one partyUse the language of one party

Use another language both parties Use another language both parties

are willing to useare willing to use

Or, rely on interpretersOr, rely on interpreters



Indian Automotive Component Indian Automotive Component ManufacturersManufacturers

India’s over 10,000 small and 500

midsize automotive component

companies Critical success factors:Critical success factors:

1. Large and growing Indian middle class

2. High demand, local raw materials, low

labour costs, high productivity and intense

competition

3. Government focus and consequent

support




Culture is an abstract and imprecise conceptBundled characteristics that uniquely define members Bundled characteristics that uniquely define members

of a particular group of a particular group

Culture comprises a: Set of assumptionsSet of assumptions

ValuesValues

BeliefsBeliefs

Socially instilled normsSocially instilled norms


“Culture is so imprecise and changeable a phenomenon that it explains less than most people realize…And within the overall mix of what influences people, behavior, culture’s role may be declining, rather than rising, squeezed between the greedy expansion of the government on one side, and globalization on the other.”

--The Economist, “Cultural Explanations”

Business Market Management, 3rd edition


Chapter 1-34



Cross-Border NegotiationCross-Border Negotiation

Considerations

Profitability of the business to be gainedProfitability of the business to be gained

Perceived benefits of the relationship Perceived benefits of the relationship

Anticipated consequences of the negotiated Anticipated consequences of the negotiated

deal on supplier’s business in other deal on supplier’s business in other

country marketscountry markets


Differences from domestic negotiation

1. Culture

2. Unfamiliar and uncomfortable settings

3. Influence of ideology

4. Greater involvement of government in business

5. Defining which country’s laws govern the business transaction

6. Instability and sudden change in foreign market

7. Dispute resolution

8. Foreign currencies


Cross-Border NegotiationCross-Border Negotiation



Cross-Border Dispute ResolutionCross-Border Dispute Resolution

Negotiate first how to resolve disputes

International commercial arbitration

Arbitration usually occurs in a third countryArbitration usually occurs in a third country

Specify arbitration institution when possibleSpecify arbitration institution when possible



Currency Exchange and Payment Currency Exchange and Payment RiskRisk

Currency for transactions

Supplier’s country currencySupplier’s country currency

Customer’s country currencyCustomer’s country currency

Third party currencyThird party currency

Letter of credit (LC)

Confirm letter of credit



IV. Working Relationships IV. Working Relationships and Business and Business

NetworksNetworks



Work TeamsWork Teams

Work Teams:Work Teams: a small number of people with complementary skills who are committed to: a common purposea common purposeset of performance goals set of performance goals an approach which they hold an approach which they hold

themselves mutually themselves mutually accountableaccountable



Work TeamsWork Teams

Teams create value in their

collective work-product that could

not be produced outside the team

setting



Working RelationshipsWorking Relationships

Transactional Transactional RelationshipsRelationships

Customer and supplier focus upon the timely exchange of basic products for highly competitive prices, and/or one end

CollaborativeCollaborative

RelationshipsRelationships

Achieved through partnering. Customer firm and supplier firm form strong and extensive socialsocial, economiceconomic, service,service, and technicaltechnical tiesties. Mutual goals: lowering total costs and/or increasing value.



Collaborative Relationship Collaborative Relationship AgreementsAgreements

Strategic Alliance:Strategic Alliance: commercial agreement

between 2 or more parties to work

together in some mutual defined ways

Gives & GetsGives & Gets

Time HorizonsTime Horizons

Pre-agreed dispute-Pre-agreed dispute-

resolution mechanismresolution mechanism



Collaborative Relationship Collaborative Relationship DevelopmentDevelopment

Exchange Episodes:Exchange Episodes: critical incidents when

parties engage in actions related to the

development of a relationship

1.1. Defining purposeDefining purpose

2.2. Setting boundariesSetting boundaries

3.3. Creating and claiming valueCreating and claiming value

4.4. Evaluating exchange outcomesEvaluating exchange outcomes



Business NetworksBusiness Networks

Business Network:Business Network: a set of two or more

connected business relationships

Alliance Network:Alliance Network: a clique

of interrelated and coordinated

business relationships



Connected Relations for Firms in a Connected Relations for Firms in a Dyadic RelationshipDyadic Relationship

Customer

Business

Unit

Other

Supplier Units

Other Units in

Focal Customer

Firm

Supplier’s

Supplier

Other

Ancillary

Firms

Third Parties

in Common

Other

Ancillary

Firms

Supplementary

Supplier

Other

CustomersCompeting

Supplier

Other Units in

Focal Supplier

Firm

Other Units in

Focal Supplier

Firm

Customer’s

Customer

Supplier

Business

Unit

Focal Relationship



Business Network CharacteristicsBusiness Network Characteristics

1. Organized around developing and

realizing an envisioned market opportunity

2. Multiplex relations where firms are: suppliers,suppliers,

customers,customers,

and competitors to one anotherand competitors to one another

3. Increasingly international in composition



Analyzing Business NetworksAnalyzing Business NetworksActorsActors Network HorizonNetwork Horizon

Actors: firms, customers, suppliers, regulatory agenciesPerform the activities and control resources

How extended actor’s view of the network isDepends on the actor’s experience and the structural network features

ActivitiesActivities Network ContextNetwork Context

Transaction, order management cycleCreate value through transforming resources

Structured in terms of the actors, activities, and resources

ResourcesResources Network IdentitiesNetwork Identities

Anything that actors explicitly valueTechnical know-how, equipment, personnel, capital

How firms see themselves in the network How they are seen by other network actorsCaptures the uniqueness of each firm in its set of relationships



V. SummaryV. Summary



SummarySummary Overview of business market management Four guiding principles of BMM:

1.1. ValueValue

2.2. Business market processesBusiness market processes

3.3. Business across bordersBusiness across borders

4.4. Working relationships and business networksWorking relationships and business networks



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