Fundamentals of Business To Business Marketing Summary

Fundamentals of Business-to-Business Marketing , book: Author: Ross Brennan, Louise
Canning and Raymond McDowell; Edition: 2; Editor: SAGE Chapter 1-12

University of Twente - September, 2011
Chapter 1 Business-to-Business Markets and Marketing
Introduction
Lying behind every consumer purchase in a modern economy there is a network of
business-to-business transactions.
The nature of Business Markets
B2B
Customer is an organization
B2C
Customer is an individual
You cannot base your business market on the product: businesses could buy the same
products as customers and vice versa!
There are two factors which are important while analyzing the economic changes:
1. Distinction between manufacturing goods and services:
a. Belief that additional services generate value that customers desire;
2. Upcoming BRIC-countries;
Business Markets: Defining Characteristics
The company has to focus on markets, because it cannot be based on products.
B2B-marketing and B2C-marketing are being done differently based on different points:
1. Market structure;
Dimension
Nature of demand
Demand volatility
(beweeglijkheid)
Demand elasticity
Reverse elasticity
(averechts)
Nature of customers
Market fragmentation
Market complexity
Market size
# of buyer per seller
# of buyer per segment
Relative size of
buyer/seller
Geographic concentration
Business marketing
Derived (afgeleid)
Greater
Consumer marketing
Direct
Less
Less elastic
More common
More elastic
Less common
Heterogeneity
Greater
More complex
Larger overall value
Few
Few
Often similar
Homogeneity
Less
Less complex
Smaller overall value
Many
Many
Seller much larger
Often clustered
Usually dispersed
Remarks:
- Derived demand:
o Businesses only buy things to facilitate the production of goods and
services;
o The demand for something only exists so long as there is a demand for
the goods or services that it helps to produce;
The whole chain of derived demand is driven by the direct demand of

consumers;
The accelerator effect:
o Marketers must be aware of developments, both upstream and
downstream, that may affect their marketing strategy;
o The percentage change in derived demand may be much larger, or much
smaller than the percentage change of original demand;
o Especially in capital equipment industries;
o
Market concentration in business-to-business markets

The degree of demand concentration varies from market to market and it is important
to have some means of comparing markets to establish just how highly concentrated
they are:
- Concentration ratio;
o Combined market shares of the few largest firms in the market
(oligopoly group);
o Sum of market shares held by the top three, four or five firms;
o Perspective: Supplier sales and marketing strategy monopsony
power;
Other differences:
- Demand elasticity businesses have less freedom simply to stop buying things
than consumers;
- Reverse elasticity;
- More complexity, more fragmentation, more heterogeneous enormous
diversity of organizational forms found in business markets;
2. Buying behavior;
Dimension
Buying influences
Purchase cycles
Transaction value
Buying process complexity
Buyer/seller
interdependence
Purchase professionalism
Importance of relationships
Degree of interactivity
Formal, written rules
Business Marketing
Many
Often long
Often high
Often complex
Often high
Consumer Marketing
Few
Usually short
Usually small
Usually simple
Usually low
Often high
Often high
Often high
Common
Usually low
Usually low
Usually low
Uncommon
Remarks:
- Organizations tend to have more professionalized buying processes than
consumers;
- No mass marketing possible because of the complexity;
3. Marketing practice;
Dimension
Selling process
Personal selling
Use of relationships
Promotional strategies
Business Marketing
Systems selling
Used extensively
Used extensively
Limited, customer-specific
Consumer Marketing
Product selling
Limited
Limited
Mass market
Web integration
Branding
Market research
Segmentation
Competitor awareness
Product complexity
Greater
Limited
Limited
Unsophisticated
Lower
Greater
Limited
Extensive, sophisticated
Extensive
Sophisticated
Higher
Lesser
The key difference between business marketing and consumer marketing is the nature
of the customer rather than the nature of the product.
Business Customer is an organization Different need for products;
The standard approach to classifying business products is to use a classification system
that is quite separate from the usual consumer product classifications.
Classification
Installations
Accessory equipment
MRO supplies (Maintenance,
repair and operating)
Raw materials
Manufactured materials and
parts
Business services
Examples
Heavy engineering equipment
Hand tools
Office supplies, lubricants, abrasives
Crude oil, coal, metal ores
Windscreens, computer drives
Maintenance, repair, advisory
OEM Original equipment manufacturers Manufacturing businesses that buy

component parts from other firms to incorporate into a finished product that is then
sold under their own brand name to other business or to consumers.
Examples: Car manufacturers, computer manufacturers and classic OEM businesses.
Two elements in the market:
- OEM Market: By definition business customers (B2B);
- After-market: For both customers and businesses (B2C & B2B);
Another classification in which businesses and customers are not distinguished is based
on effort (money, energy and time) and risk.
Classification
Explanation
Convenience
Little effort, negligible risk (MRO)
products
Preference products Little more effort, more risk (minor items of accessory
equipment);
Shopping products
More effort, perceived risk (Accessory equipment,
manufactured materials and parts);
Specialty products
Highest risk for both risk and effort (Installations, highly
specialized business services);
Chapter 2 Buyer Behavior
Behavior associated with gaining access to necessary supply markets and products is
affected by a variety of factors:
- External Macro-environmental factors;
- Internal organizational factors;
Organizational factors affecting Purchasing Decisions
Organizations are not faceless and monolithic; rather they consist of human beings who
repeatedly make decisions and take particular courses of action regarding purchasing.
The nature of company business

Technology associated with customers business the way that a customer organizes
their own activities in order to perform transformation processes that represent the
essential components of their value-adding activities:
- Process production:
o Manufacture of high-volume products, with low cost, operational
efficiency and therefore supply continuity being central to the
organizations performance;
o Consume high volumes of necessary materials, with those that have a
standard specification being sourced via commodity markets;
- Unit production:
o Design & supply of products that are tailored to specific customer
requirements;
o Major capital investment projects;
- Mass production:
o Design & supply of high-volume, standard products;
o Production efficiency, low cost base;
o High degree of inflexibility;
o Supply continuity;
Business strategy
In addition to thinking about a customers operational technology, vendors could also
consider the customers business strategy as this can give some indication of the way in
which the customer will deal with supply markets:
- Organizations competitive domain;
- Positioning themselves against competitors;
Strategies:
1. Product leadership = technical and creative abilities, using own experience and
learning capability;
2. Cost leadership = providing reliable products with minimal inconvenience to
consumers and at competitive prices;
Purchasing orientation
A companys approach to acquiring resources and capabilities from external supply
markets, its purchasing orientation, is guided by the expected contribution of
purchasing to that organizations performance.
Purchasing orientation
Buying
Procurement
Explanation
Principal purpose is to achieve reductions
in the monetary value spent by a company
on bought-in good and services;
Getting the best deal;
Maximizing power over suppliers
Powerful negotiation;
Lowest purchase price/target price;
Short-term focus;
Optimizing the purchase resource;
Increase productivity;
TCO (total costs of ownership) true cost
of obtaining a product from a given
supplier;
Target costing selling your own product
Supply Management
to a target group;
Dealing beyond immediate suppliers and
customers in the knowledge that their own
performance is linked to the activities of
other companies in the same value chain;
Segmenting purchase categories

All organizations buy a range of products. These vary in their importance to the
company, so the purchasing orientation adopted is likely to vary too:
- Risk;
- Complexity;
Look at page 36 for the table!
Market implications of a customers purchasing orientation
Knowing the purchasing orientation of customers and the way in which supplier
products might be categorized by them can help business market managers decide
which customers to target and how to formulate solutions for the supply needs of those
customers.
Purchasing process
Decision-making:
1. Need/problem recognition:
a. Need to solve specific supply problems (under-capacity);
b. Improvement of its operational performance or pursue new market
opportunities;
2. Determining product specification:
a. Functional: what is it required to do;
b. Technical: Physical properties;
c. Process: How to produce;
d. Performance: Expectations of the use;
3. Supplier and product search:
a. Finding a product that will match the buying firms specification;
b. Satisfying the companys supply requirements;
4. Evaluation of proposal and selection of suppliers:
a. Risk & complexity;
b. Compatibility of a suppliers proposal against the buying companys
product specification;
5. Selection of order routine:
a. Responsible for negotiating and agreeing processes for order delivery
and payment;
6. Performance feedback and evaluation:
a. Evaluation sheets;
b. More informal;
Variations in the Purchase process
A key cause of variation in the process is the degree of risk associated with the purchase
decision. Risk is an inherent feature of exchange in business markets, where managers
have to deal with uncertainty and possible negative consequences surrounding
purchase and supply decisions.
There are three variations in the process:
1. New-task buying:
a. Decision is completely different from previous experiences;

b. Judgmental buying approach highest degree of uncertainty;
c. Strategic buying approach strategically important to the business
customer;
d. Guidelines:
i. Building a strong position;
ii. Monitoring the changing needs of the customer and being able to
support the company in such new-purchase situations;
2. Modified re-buy:
a. Repetition of purchases;
b. Normally based on dissatisfaction with the existing supplier;
c. Simple modified re-buy familiarity, limited information need;
d. Complex modified re-buy Little uncertainty, large choice of possible
suppliers,
e. Guidelines:
i. Reducing or eliminating perceived benefits;
ii. Understanding and satisfying the customers purchase
requirement;
3. Straight re-buy:
a. Satisfying a recurring need;
b. Casual re-buy: low-value, low-importance, little effort;
c. Routine, low-priority re-buy: repetitive purchase, periodically
considering alternative supply sources;
d. Guidelines:
i. Regular contact with suppliers;
ii. Reduction of buyers effort;
iii. Use of TCO reducing costs?
Buying teams
A few purchase decisions are made by individual managers.
DMU Decision Making Unit:
- Initiators: requesting the item;
- Deciders: making the actual decision;
- Buyers: purchasing managers;
- Influencers: contributing to the formulation of product and supply
specifications, and recommending which vendors to consider;
- Users: initiating the purchase as well as using the product;
- Gatekeepers: controlling the type and flow of information;
Which department has which roles?
Purchasing
Operations
Engineering
Finance
R&D
Marketing
Gatekeeper
User
User
Influencer
Buyer
Influencer
The effect of risk on buying teams

The use of buying teams is determined by the degree of risk attached to the purchase
decision. The risk that managers may perceive in relation to purchase decisions takes a
variety of forms:
- Financial issues;
- Performance issues;
- Social risk;
Business Buying and the Individual Manager
Personal factors
As human beings, we have different personalities and learned experiences and we are
not necessarily wholly rational or objective in our decisions. The business marketer
needs to understand what makes managers tick to try to influence the behavior of key
players in the buying company.
The purchasing professional
Purchasing managers have to be familiar with a firms specific needs and must be able to
use negotiating techniques and pricing methods so that purchase costs can be
minimized.
The effect of information technology on Purchase behavior
Securing supplies incurs significant cost to the buying company, in relation to not only
the price paid for those supplies but also the time spent by employees and management
in handling the buying process.
Communicating with external markets
Electronic marketplaces are essentially online markets where companies are able to
exchange information, do business and collaborate with each other.
Electronic marketplaces can be grouped according to their main stakeholders and
operators:
- Independent third parties accessed by buyers and suppliers in a particular
industry or sector;
- Industry consortiums limited number of companies either combine their
supply capabilities in order to deal with a large customer base and make the
sales process more efficient;
- Horizontal marketplace Used by buyers for items that do no contribute
directly to the companys own products;
- Vertical marketplace In order to buy and sell items that contribute directly to
a product chain;
Auctions
Any auction is based on the common principle that it represents a form of exchange in
which competitive bidding drives a sale or purchase:
- English auction;
- Dutch auction;
- Reverse auction;
Catalogue purchasing
The catalogue idea is pretty straightforward, whether it is a printed or electronic
version. It involves an organization that is effectively acting as an intermediary collating
a wide range of items within a particular product category from a range of suppliers.
Internal coordination of buying activities
Challenge:
- Range of products;
- Different functional areas that have some purchasing authority;
- Geographical dispersion;
Inter- and intra-firm coordination
For companies whose purchasing orientation centers around supply management, the
ability to minimize waste and costs along its supply chain is critical alignment of
administrative and operation activities;
Chapter 3 Inter-firm relationships and networks
Inadequacies of traditional approaches to Business Marketing
Traditional approaches to B2B-marketing tend to make several assumptions:
- Marketer and customer operate separately and at odds with each other;
o Conflicting interests in exchange;
o Lowest price for customers, but best price for supplier;
- Marketer is active while the customer is relatively passive;
- Marketing process typically involves the study of the buying behavior of
business customers;
In the B2B-context the traditional approach is lacking relevance to the way in which
business markets actually work.
Matching the Uncertainties and abilities of both parties
Success in business markets comes from the recognition that the customer and
marketer together create value in exchange by each providing solutions to the others
problem. Success also involves cultivating the ability to reduce uncertainties:
- Customers face uncertainties:
o Need uncertainties difficulties of knowing exactly what or how much
to buy;
o Market uncertainties Degree of choice a buyer perceives in the supply
base and the difficulty in knowing which supply choices to make;
o Transaction uncertainty Degree of exposure that the buyer is faced
with once a transaction has been agreed;
- Supplier abilities can reduce customer uncertainties:
o Problem-solving abilities meeting the customer need, transferring the
solution;
o Transfer ability reducing transaction uncertainty;
- Suppliers face uncertainties:
o Capacity uncertainty;
o Application uncertainty;
o Transaction uncertainty;
- Customers abilities can reduce supplier uncertainties:
o Demand abilities;
o Transfer ability;
Relationship Theories and Variables
Relationships between organizations are complex phenomena. However, there is a
range of variables than can characterize a relationship:
- Exchange risk and its management;
o Perception of risk is a function of the possible negative outcomes and the
probability of those outcomes arising.
o Outcomes: late delivery, poor quality, inadequate level of service, etc.
o The parties in the relationship exchange may not necessarily react in the
same way to the same level of uncertainty;
o The perennial difficulty for a company (principal) that is forced to retain
an agent to work on its behalf is that there are unknowns and
unknowables:
Hidden characteristics;
Hidden actions;
Hidden intentions;
o Contract is the basis for the management of the exchange risk because it
is through a contract that risk is distributed between the parties;
o Where greater formality is sought in a relationship then several
questions need to be borne in mind when it comes to drafting a contract:
Who control the contract?
What is the product?
What is the nature of the operating procedures?
Allocating exchange costs:
o All transaction incur costs:
Administrative costs;
Opportunity costs;
Initiation costs;
Control costs;
Transaction costs:
Uncertainty;
Asset specificity;
Frequency of the transaction;
Dealing with relative power dependence:
o Dependence is inevitable as a consequence of exchange;
o Switching costs;
o Exercise of power;
Social dimensions of relationships:
o The central role of business relationships is to manage economic
exchange seeking to control it;
o However, after all, relationships have a social dimension!
Trust;
Commitment;
Business marketing: an interaction perspective:
o Dynamic processes of interaction over time action & reaction;
It involves the manager working with other companies, but also
against them, through them and in spite of them;
Interaction process:
o Several types:
Product/service reason for exchange in the first place,
relationship builds around this central element;
Financial amount of money involved in the exchange;
Informational not always products or money, often a large
amount of informational contact;
Social exchange maintaining a relationship between economic
transactions and seems particularly important in reducing the
uncertainties between parties that arise from cultural and
geographical exchange;
o Relationships:
Interactions episodes over time create a relationship with a
history;
Contact pattern;
Institutionalization you dont have to think about every step to
take (because you already know your customer);
o Participants:
Without the parties there is no relationship;
Two organizations + the individuals from those organizations;
IMP interaction model posits that the organizational factors

include physical characteristics of the firms in term of:
Size;
Structure;
Technological resource base;
Organizational strategy;
Experience of the firms;
Personalities;
Experience;
Motivations of the individuals;
Environment:
Market structure;
Dynamism;
Position in the manufacturing channel;
Social system;
Atmosphere:
Time brings the degree of stability;
Business Marketing as Network Analysis and Management

Beyond relationships to the network
Relationships are the primary basis for exchange, and are thus central to business
marketing.
All relationships are connected to the wider network within which they are embedded.
This network is the arena in which the business marketer must operate. The
relationships in the network enable the company to grow and develop, but they are also
a constraint on that development and may restrict its activities.
The task for a firm is to analyze the network in order to establish its network position
and engage in relationship behavior that will enhance that position:
- Acting within existing relationships;
- Forging new relationships;
Network analysis to establish current position
The level of analysis is unnecessary to obtain some knowledge of the relative
positioning of firms in a network three elements in the ARA analysis:
1. Actors: it is people who initiate relationships;
2. Resources: used by actors, but may also be created as part of the relationship
exchange;
3. Activities: relationships start operating to achieve the purpose when activities
are undertaken that deliver that purpose;
Initiating changes towards a new network position
Stronger network parties are unlikely to welcome relationship advances from any party
that does not maintain or further enhance their existing positions.
Parties also need to be aware of the costs of attempting to forge lots of relationships.
Relationships are not free, so you need to obtain any value.
Part 2 Business-to-business Marketing analysis and Strategy
Chapter 4 Business-to-business Marketing Strategy
Strategy is one of those words that is used commonly in the business world, but which
cannot easily be defined. We used the five Ps for strategy:
- Plan: direction, guide, path;
- Pattern: consistency in behavior over time (realized strategy);
- Position: locating products in markets;
- Perspective: fundamental way of doing things;
- Ploy: reference to clever maneuvers designed to outwit competitors;
Strategy: meaning and process
There is a distinction between:
1. Business unit strategy Concerned with how an individual business competes
with its rivals, with what it does and what it could do to stay in business and to
beat the competition; Strategic marketing management & competitive strategy;
a. Long-term orientation;
b. Defining the scope of the organizations activities;
c. Matching of the organizations activities (variety of different products
and roles);
2. Corporate strategy concerned with decisions made in an organization
comprising multiple businesses;
Strategy has been understood as a process by which a business systematically appraises
its current position with respect to the immediate competitive environment and the
wider macro-environment:
- SWOT;
- Long-term goals and objectives;
- Alternatives;
The ability of a business to learn from and adapt to changing circumstances has become
a key component of strategic thinking.
The purpose of Strategy: value and value creation
Marketing is concerned with the establishment of mutually satisfying exchange
relationships in which the judgments as to what is satisfying depend upon the
perception of the parties to the exchange:
- Focus on value:
o Consumer surplus;
o Producer surplus;
- By the time it has become complex:
o Multiple interconnected exchanges;
Customer value: give-get definitions
Perceived value is the consumers overall assessment of the utility of a product based
on perceptions of what is received and what is given value represents a tradeoff of the
salient give and get components.
Customer/product value:
- The value of the sellers product to the customer;
- Benefits the customer receives minus the costs incurred;
- Trade off between quality and price;
- Distinction between customer-received value and customer-desired value;
Customer value: means-end chain definition
Common aspects of customer value:
- Linked to product use;
- Customer perception rather than an objective phenomenon;
Tradeoff between what a customer receives and what the customer gives up;
Perceived customer value for an organization

A substantial unresolved issue in the conceptualization of value is the nature of value for
an organization.
Value rests in the perceptions of key decisions-makers in the organization, which is
clearly not a solution (they are agents for stakeholders).
Organizations are abstractions and do not have desired end states. The desired end
states that they mention seem likely to appeal very differently to different stakeholders
in the organization. Customer responsiveness and quality are not desired end states at
all; they are means to an end, namely, economic success.
Customer lifetime value
Definition: the net present value of expected profits over the duration of the customer
relationship;
The concept of lifetime customer value measures value to the supplier, not value to the
customer. Clearly, lifetime customer value is an expression of supplier value, not of
customer value!
Relationship value
Three bases for the analysis of value in relationships between firms:
- The economic financial give-get nature;
- The social satisfaction of the exchange;
- The distributive;
Approaches to Strategy
- Rational planning approach:
o Big, long-term decisions;
o Strategic market planning/marketing planning;
o Competitive advantage:
Differentiation;
Cost leadership;
Differentiation focus;
Cost focus;
o Porters 5 forces model;
o SWOT;
o External and internal audit;
o Alternatives;
- Resource-based approach:
o Firms are heterogeneous;
o Resources are not perfectly mobile between firms;
o Competitive advantage;
o Potential source must be valuable, rare, inimitable and nonsubstitutable;
- Management of relationships and networks:
o Identifiable networks of heterogeneous suppliers and customers;
o Unique atmosphere;
o ARA (actors, resources, activities);
o An organizations performance is largely dependent on whom it interacts
with;
Ethics, corporate social responsibility and sustainability
Marketing ethics: the systematic study of how moral standards are applied to marketing
decisions, behaviors and institutions.
Reasons why managers need to improve ethical decision-making:
- Cost risks with unethical conducts;
- Benefits of increased profitability and intrinsically desirable organizational
order;
Four approaches to marketing ethics are generally distinguished:
1. Managerial egoism the basis for egoism is the pursuit of self-interest (not
valuable for an organization), link between shareholder value and marketing
activities;
2. Utilitarianism the best-known form of consequentialist ethical theory, refers
to ethical theories that judge whether an action is wrong or right on the basis of
the consequences of the action, valued in terms of the balance between utility
and disutility;
3. Deontological ethics duty-based approaches to ethics focus on the ethical
nature of actions, rather than on the consequences of those actions, products
code of conduct;
4. Virtue ethics Stresses the cultivation of virtuous principles and the pursuit of
a virtuous life, morality;
5. Sustainability How can firms conduct their business while doing as little
damage as possible to the natural environment?
a. Pollution prevention;
b. Product stewardship;
c. Clean technology;
d. Sustainability vision;
New technology and business market strategy
There is an overall strategic impact of new technology:
- Buying organizations are using new technology extensively in their buying
processes, and this affects the structure and processes of the buying center
business marketing strategy;
- Adoption of new technology is expected to influence the way in which interorganizational relationships are formed, develop and are managed
relationship management strategy;
- New technology has created new, online market forms business marketing
strategy;
Chapter 5 Researching Business-to-business markets
Introduction:
- Market segmentation;
- Development of specific marketing plans;
The value of marketing information
Important points of information:
- Accuracy;
- Timeliness;
- Relevance;
- Uniqueness;
The Internet makes it easier to find information characterized by this.
Hooley & Jobber:

- The use of market research information is associated with above-average
corporate performance;
- No difference between industrial and customer marketing organization;
Much attention in marketing research is paid to technical aspects, such as how to design
measurement instruments, particularly questionnaires and techniques for analyzing
data.
Market research and the nature of business markets
The characteristics of business markets introduce some differences regarding to
customer markets, important characteristics are:
- Derived demand;
- Accelerator effect;
- Concentration ratios;
Research fundamentals in business-to-business markets
Sampling and sampling frames
The fundamentals of sampling theory are the same no matter what kind of market one is
dealing with, and the statistical accuracy of estimates based on sample parameters is the
same whether they are b2b or b2c. However:
- Certain sampling techniques are used more frequently in B2B-markets;
Probability sampling every member of the target population has a known, non-zero
probability of being included in the sample:
- Simple random sampling every unit within the sampling frame has an equal
chance of being selected for the sample;
- Stratified random sampling population and sampling frame are divided up
into meaningful groups or strata and then samples are taken from each of the
strata according to their representation in the population;
- Systematic sampling alternative to simple random sampling, only when we
are sure that there is no systematic variation within the sampling frame;
- Cluster/multi-stage sampling used when there are naturally occurring units
in the population;
Non-probability sampling the units in the population do not have a know, non-zero
probability of being selected for the sample, building a representative sample:
- Convenience sample a group of respondents who are ready and available to
complete the survey;
- Snowball sampling the researcher relies on previously identified members of
the target population to identify other sample members;
- Quota sampling Divides the relevant population into subgroups, and small,
medium and large firms;
- Focus groups Often used for purposes of exploratory market research
Response rates
A sample is designed to be representative of the target population, so that results
achieved for the sample can be generalized to the whole population.
Two issues:
- What is the response rate from those who are selected for the sample?
o Take into account the expected response rate;
o Eight aspects that affect the response rate:
Survey sponsorship;
Covering letter;
Questionnaire;
Anonymity/confidentiality;
Contacts;
Postage;
Monetary incentives;
Non-monetary incentives;
Are those who respond representative of the whole sample?
Standard industrial classification

A standard industrial classification is a systematic method of classifying economic
activity Tourism industry, banking industry, etc.
- Matter of fundamental importance to the success of a B2B marketing research
project;
- In order to be on the same level, you need a rigorous classification of industries,
sectors and subsectors;
- The principle behind any standard industrial classification system is to put every
form of economic activity into a unique numeric category;
Using market research agencies
B2B marketing managers collect, analyze and act upon marketing information all of the
time:
- Automatically internal reports, trade press, etc.;
- Non-automatically samples;
- Done-in-house;
- Outsourced;
The client agency relationship in business markets
Market research agencies are B2B professional services organizations.
Client-agency relationship in business markets:
- Have a clear understanding of the problem prior to contacting the research
supplier;
- Get closely involved;
- Check past clients of the suppliers and evaluate their prior experience and
industry familiarity;
Open lines of frank and honest communication with the research seller early in the
research process and maintain them throughout project implementation. Provide
whatever information you have which bears on the problem at hand (Peterson and
Kerin, 1980).
The positive aspects of engaging in partnerships with research agencies their better
knowledge of your business and understanding of your research requirements more
than offset any negative aspects associated with complacency. A research firm that has
developed a close relationship with a client is in a better position to know the clients
needs and preference and to provide more efficient service.
Secondary research in business markets
The importance and usefulness of secondary research
Secondary market research is used in all areas of marketing but is particularly
important in B2B markets:
Costs;
Derived markets;
Using the Internet in B2B research

Naturally, many of the sources are of potential value to the B2B marketer.
However, be careful: Internet contains also a lot of information with dubious quality.
6. Business Market Segmentation
Principles and value of segmentation
There is a great diversity in the needs and behaviors of business customers: they are all
unique Although the market is imperfectly competitive:
- Scope to differentiate;
- Standardization brings operating efficiencies for the firm;
- Value of industrial segmentation can be divided in three areas:
o Facilitating better understanding of the whole marketplace;
o Enabling better selection of market segments that best fit the companys
capabilities;
o Enabling improved management of the marketing activity;
- Strategic use of segmentation means that the marketer can choose which
customers to target, which ones to treat similarly and which ones to treat
differently, even uniquely.
Segmentation process
The process of segmentation involves an iterative classification of the market in terms of
sets of meaningful groupings, with each additional step in the iterative process defining
further subdivisions.
Segmentation bases
The process of segmentation requires the application of criteria that can support the
classification activity:
Macro economy

Micro economy
Firmographics Operating variables Purchasing Situation Personal
Firmographics
- Industry
o Surface inspection;
- Customer location
o Distance to reach the customer;
o Prospective customer concentration;
- Customer size:
o Because of the relationship with the scale of the customer organizations
needs and demands for volume;
Operating variables
- Company technology
o Inspection;
- Product and brand-use status
o Readiness to use;
o Usage rate;
- Customer capabilities
o Abilities and uncertainties of buyers and sellers;
- Customer strategic type
o
o
o
Customer representatives;
Observation;
Content analysis;
Purchasing approach
- Purchasing function organization
o Small companies dont have a special department for purchasing;
- Power structures
- Buyer-seller relationships
o Reputation;
o Lost-for-goods (look for a relationship);
o Always-a-share (no relationship);
- General purchasing policies
- Purchasing criteria
o Financial;
o Technical;
o Quality;
Situational factors
- Same product differently at a different time;
o Urgency;
Personal characteristics of buyers
- Contact;
Where to Stop? Successful segmentation
The greater the number of segmentation steps undertaken, and thus the number of
differentiating criteria that are applied, the smaller and more fragmented are the
segments produced.
When the fragmentation begins to reach the point where further separation does not
really lead to meaningful differences with respect to customer purchase behavior, then
it is likely that the process should be curtailed.
There are a series of tests that business marketers can use to establish the quality of the
segmentation process and the usefulness of the segments that are proposed:
- Measurable/distinctive;
- Accessible;
- Substantial/profitable;
- Actionable;
Also compatibility between buyer and seller is important, on the grounds that similar
approaches to risk taking, service standards and corporate style will be preferred.
Targeting
What markets to serve and how to serve them Targeting: making choices about
segments that should be pursued and devising the most appropriate strategies for
pursuing them.
Target segment selection
A company will need to consider its possible competitive position in relation to each
segment in order to determine whether it merits the companys attention.
Steps:
1. Identified segment Relative attractiveness;
2. Resource demands;
3. Management demands;
4. Organizational demands;
Targeting strategy
Three strategic approaches:
- Undifferentiated Same offer to all segments;
- Differentiated Choosing a variety of different segments and providing
offerings that are focused on meeting the needs of those targets more
specifically;
- Niche targeting Customer focus to one or a small number of segments;
Business-to-business positioning
When it comes to each individual segment there is a need to consider the position that
the market occupies in the mind of the buying company:
- The offering from a marketer occupies a space in the mind of the buyer;
- The relative position becomes the basis by which the supplier is compared to
others as well as the ideal;
o SWOT;
o Segmentation analysis;
Part III Communicating and interacting with customers
Chapter 7 Market Communication
It is important that the actions undertaken by an organization are consistent with its
core values and customer expectations so that its brands and corporate image are
enhanced.
Business brands
Meaning and relevance in business markets
The notion that brands can represent ideas and the value that might be associated with
these has gained currency in business-to-business markets with the recognition that a
powerful brand can:
- Increase an organizations scope of influence;
- Augment a companys reputation;
- Create points of difference in a firms offer in terms of tangible features;
A brand can be explained as consisting of a mixture of tangible features and intangible
associations, or alternatively functional and emotional values.
Identity, image and reputation
Brands can be understood from an internal perspective in terms of identity, and
externally in terms of image and reputation. Attributes captured within the identity of a
brand will be determined by:
- The nature of the business marketers value proposition;
- The nature of the relationship;
In contrast to identity, corporate brand image assumes an external perspective.
Internally
Identity
Brand architecture: product or company
Externally
(Corporate Brand) Image
Reputation
Organizations and customers can share brand ideas at the product or company level:
- House of brands it has series of independent brands that are managed
separately, and from an external viewpoint have no obvious links between them;
- Branded house A single brand is used to cover a range of offerings, there is an
overarching brand which dominates the sharing of ideas;
Brand communication
Market and relationship communication play key roles in the development of brands at
the product or organizational levels strategic approach towards communication,
starting with the understanding of the organizational competencies and culture
embodies in a brand.
Integrated communication strategy
Strategy:
- Planning;
- Implementing;
- Controlling;
To achieve specified objectives with each audience.
Assimilation (verwerking) of the information Companies cannot control this
assimilation process:
- Try to understand the process;
- Modify your approach;
- Promotional material:
o Setting objecives;
o Deciding on the role of each component to be used in the communication
mix;
o Determining the budget;
o Selecting specific strategies;
Guided by the organizations choice of target market and positioning strategy;
Communications objectives
Communications objectives help with deciding how the various communications tools
will be used in a marketing program what a firms wants its target audience to do with
the information transmitted via its communication tools;
Communication
objectives
Awareness
Potential customers
(Target segments)
Leads
Interest
Enquiries
Evaluation
Prospects
Trial
Purchase
New customers
Established customers
Communications mix
Communication tools
Advertising
Direct mail
Publicity
Brochures
Videos
Recorded demonstrations
Website
Trade shows
Telemarketing
Field sales visits
Inside sales calls
Transactional and
relationship sales teams
The promotional tools at the business marketers disposal are not interchangeable and
their effects at the different stages of the purchase process are not the same.
Marketers promotional mix:
- Trade advertising;
- Technical literature;
- Direct mail;
- Sales promotion;
- Trade shows;
- Personal selling;
Budgeting
Setting a communications budget in relation to sales targets is difficult, with companies
typically specifying improvements in the effectiveness of promotional activities and
using practical methods to set budgets:
- Objective and task;
- Percentage of sales;
- Competitive parity (based on the amount invested by competitors);
- All that can be afforded (based on expenditure what a business can afford);
Advertising
Advertising represents the largest share of the communications budget for a lot of
business marketers. It can serve a variety of purposes and its principal strength is that it
allows a firm to communicate with large audiences at a far lower average cost per
customer than with personal selling:
- Effectiveness to firms sales;
- Efficiency to selling
Advertising strategy
A firm must make a number of decisions that result in the articulation of its advertising
strategy:
- Setting objectives:
o Performance goals;
o Target audience;
o Realistic and expressed to be measured;
o Engaging members of a customer organization;
o Choice criteria that are important to members of that audience;
- Formulating a creative plan
o Development of the message;
o Hierarchy-of-effects model;
o Appeal to emotions;
o Information about performance and product quality;
o Symbolism and metaphors;
- Media selection
o Broadcast media: television and radio
Speed of raising awareness;
o Digital media: engine marketing, display and video advertisements
Horizontal: keywords (Google, Yahoo, Bing);
Vertical: locate more specific and focused information;
Display advertisement: graphical unit contained within a
webpage;
o Offline media: Trade publications;
- Evaluation of advertising effectiveness
Sales promotion
The use of sales promotion in business markets can be classified according to whether it
is designed to trigger a response from members of a companys sales force, channel
partners or organizational customers:
- Sales personnel To motivate staff or to support them in their selling roles;
- Incentives To hit short-term targets;
- Informational material To perform their various tasks Brochures,
catalogues, etc.;
Trade missions and trade shows/exhibitions
Trade missions and trade shows bring buyers and sellers together in one physical
location.
Trade mission: A government-sponsored promotional activity Facilitating growth of
a particular region or country.
Trade missions enable participants to acquire information fairly quickly about overseas
markets as well as knowledge about the process of exporting to those countries:
- How is business conducted overseas?
- Which services and products are available overseas?
- What about the interest of potential buyers?
- What about the commitment and resources needed to compete overseas?
- What about the features and the process of exporting?
Trade shows and exhibitions: Temporary versions of the shopping centers or retail
parks that are such a prominent feature in consumer markets.
Trade shows are:
- Temporary;
- Matching between supply markets and target audiences;
Functions performed by trade shows:
- Non-selling functions:
o Building or maintaining company image;
o Gathering competitor information;
o Product testing/evaluation;
o Maintaining company morale;
- Selling functions:
o Identification of prospects;
o Gaining access to key decision-makers in current and potential customer
companies;
o Disseminating facts about vendor products, services and personnel;
o Selling products and winning orders;
o Servicing current accounts problems via contacts made;
Why do customers visit trade shows?
- Seeing and trying new products and developments;
- Seeing new companies;
- Discussing problems;
- Comparing products;
- Making contact with companies;
Planning trade shows
The planning process normally includes the following stages:
1. Setting trade-show objectives;
2. Trade-show selection (costs, type of products, space, time, reputation of the

show, number and types of visitors, etc.);
3. Tactics:
a. Promotional activities to support participation;
b. The design and location of a firms stand;
c. The selection and behavior of staff on the stand;
4. Post-exhibition follow-up:
5. Post-exhibition evaluation;
Public relations
PR is used to manage the image of an organization with its stakeholders and to close the
gap between a companys desired image and the way in which it is perceived by its
various publics.
It can be used to:
- Attract and keep good employees;
- Handle issues and overcome misconceptions;
- Build goodwill;
- Build an organizations prestige and reputation;
- Promote products;
It includes tasks such as:
- Lobbying;
- Donations;
- Press releases;
- Corporate advertising;
- Seminars;
- Publications;
The digital communication tools which might be used:
- Blogs;
- Code of conduct for social media;
- Word-of-mouth;
Chapter 8 Relationship communication
Relationship communication consists of direct marketing and personal selling.
Direct marketing
Interaction between individual customers and the vendor organization, with customer
responses to communication from and transactions with the vendor being recorded and
the data used to guide the formulation, execution and control of relationship
management programs with those customers:
- Absence of face-to-face contact;
- Use of on- and offline media;
- Facility to measure responses;
- Use of a database for targets;
IT systems provide a company with the means to store and access a variety of
information relating to areas such as:
- Customers and prospects;
- Transactions;
- Promotions;
- Products;
- Industry, market or geographic regions;
Different forms of direct marketing:
- Direct marketing campaigns:
o Target audience;
o Objectives;
o Choose right media;
Direct mail:
o On- or offline;
o Personalized;
o Precise point in time;
o Goal: develop familiarity and interest in the product;
o Quality is most important;
Telemarketing:
o Performed by trained specialists;
o Inbound contact is initiated by a potential customer;
o Outbound contact is made by the vendor;
o Various roles:
Account management;
Field support (personal visits);
Prospecting (screening);
Personal selling
Personal selling involves a suppliers employees communicating directly with managers
from a customer company. Allows to:
- Determine precise requirements;
- Negotiate to adjustments;
- Interact between representatives from both organizations;
Sales responsibilities and people
- Identify and secure revenue-generating opportunities;
- Match the marketing organizations product offering with a customers supply
need;
- Augment the suppliers product;
- Representation
o Supplier;
o On behalf of the customer inside their own organization;
- Maintaining customer files and feeding back information;
- Handling the complaints;
The sales function can take a variety of forms within a marketing organization such that
a company makes use of three different characteristic types:
- Missionary salespeople Direct efforts at creating business by influencing
individuals or companies who have the authority to specify particular suppliers
when orders are issued;
- Frontline salespeople Winning orders from existing customers or to target
new ones;
- Internal salespeople Administering the order process, from initial receipt to
the eventual delivery of an order;
The relationship communication process
1. Lead generation:
a. Direct marketing;
b. Enquiries;
2. Prospecting:
a. Is the company using a similar product or is considering purchasing one
offered by the marketing organization?
b. Timescale and value/volume;
c. Who is the ultimate decision-maker?

d. Is funding for purchase approved?
3. Call preparation:
a. Set objectives Determines the content and scope of communication;
b. Product knowledge;
c. Behavioral features of the target customers Nature of purchase
situation, complexity of the solution, etc.
4. Selling:
a. Low-priority prospects/transactional customers
i. Straightforward purchases (straight or modified rebuys);
ii. Script-based selling use of a standard presentation or dialogue
to engage the customer;
iii. Needs-satisfaction selling the sales representative engages a
customer in a series of questions and answers to determine the
customers actual product needs;
b. High-priority customers
i. Scope to develop a potential relationship;
ii. A supply need that has some degree of uncertainty;
iii. Identify gatekeeper understand the purchase problem and
requirements;
iv. Rely on questioning members of the buying team in order to
uncover requirements and to determine how the supplier might
use its problem-solving abilities to configure an offering that will
match these needs;
v. Consultative selling;
vi. Strategic partner selling supplier and customer companies
combining resources and expertise to pursue opportunities that
benefit both parties;
c. Dealing with objections and closing sales
i. Focus on substantive elements seek for complete clarification;
ii. Listen what does the customer say? No interruption!
iii. Agree and counter acknowledges the customers point of view;
5. Order fulfillment
a. Effective delivery of the product offering;
b. Capabilities;
c. Contract details;
Relationship building
Provided that new clients represent viable long-term prospects for a supplier, the
emphasis for the business marketer switches to building an ongoing relationship with
and winning repeat business from that customer. Principle tasks:
- Handling the ongoing contracts;
- Overviewing;
- Determining the scope;
- Negotiating about the expansion of the suppliers share;
- Responding and seeking to resolve new sourcing problems;
- Monitoring developments;
- Negotiating new contracts;
Culture
The principles which are shared by a group of people and which shape the behavior,
perceptions and emotional responses of people within that group.
So you need to consider that the etiquette between different nationalities is different:
Hall:
o High-context culture (implicit);
o Low-context culture (explicit);
Hofstede:
o Individualism vs. collectivism;
o Lower power distance vs. high power distance;
o Femininity vs. masculinity;
o Low uncertainty avoidance vs. high uncertainty avoidance;
Gannon Descriptive metaphors for different cultures, arguing that the
metaphors provide managers with a frame of reference which can be used to
better understand the behavior of an exchange partner and to guide responses;
Culture will influence communication behavior, and in preparing for negotiations,

managers should:
- Know with whom they are dealing;
- Know what they hear;
- Know when to say what;
Coordinating relationship communication
Relationship communication is not just about finding the next customer or winning the
next order, rather for many organizations operating in business markets it is about
managing relationships with customers, and about handling ongoing exchanges
between supplier and customer companies.
Inter-firm
Three categories:
- A geographically based sales force effective when a business marketers
products are relatively simple and customers have broadly common
requirements in using the products;
- A product based sales force diverse range of products;
- A customer based sales force in some markets, suppliers might offer the same
basic product technology, but the application of that technology to solve
customer supply needs in different sectors can vary significantly expertise;
Intra-firm (vendor perspective)
Being able to access and present the necessary expertise in dealings with customers is
certainly important transactions:
- Release of resources to support marketing programs;
- Allocation of productive capacity to allow tasks to be performed;
- Provision of assistance;
These transactions between different functions have to be synchronized:
- Coordination;
- Communication;
- Strategic approach;
Relationship promoters
A key component of internal marketing is the investment by the service organization in
training and motivating employees to ensure a customer orientation throughout the
company.
The employees that interact with customer play key boundary-spanning roles:
Relationship promoters linking the customer with the suppliers company and
working to coordinate activities inside the supplier organization to support the
development of relationships with selected customers.
The relationship promoter should possess:

- Social competence;
- Knowledge;
- Portfolio of relationships;
Using these attributes helps:
- Information sharing;
- Communication;
- Finding the right managers;
- Facilitating relationships;
- Coordinating activities;
- Negotiation and conflict resolution;
Controlling relationship communication
Two principal systems associated with controlling sales force are:
- Incentive pay systems
o Rewards for achieving specific performance targets;
o Priority on realizing targets instead of the way in which it is achieved;
o Little room for negotiation in terms of the measures against which their
performance is assessed;
- Monitoring;
o Directing, evaluating and rewarding sales-related activities;
o Effective performance leads to financial objectives being realized;
o Stifle the flexibility and discretion that a salesperson would expect to
have in dealing with different types of customers and purchase
situations;
Chapter 9 Relationship portfolios and key account management
A substantial task for the business marketer is to recognize the differences between
customers and to manage the collection of relationships in ways that add value to the
business Portfolio management:
- Identify key accounts;
- Decision making about specific customers;
- Precursor to the decisions to enable day-to-day marketing decisions of the
relationship portfolio;
Principles of portfolio management
For a business marketer the relationships they forge and maintain with their customers
constitute the basis for creating value for the firm the customer is the foundation of a
business and keeps it in existence.
It all has to do with future value!
Portfolio management is the tool that enables clear decisions to be made in order to
obtain a well-balanced portfolio:
- Harvesting excess current returns;
- Ploughing into future products;
The notions of portfolio management have equal applicability to customer relationships
because:
- Constitute sources of risk and return;
- Varied in the type of risk they constitute;
- Vary in the level of return they bring;
- Vary in time horizon over which they provide that return;
Successful portfolio management requires that the marketer make the best decisions
possible with the portfolio of relationships he or she has.
Strategy
Build
Action
Build a relationship further for growth;
Investing where necessary to achieve this growth;
Maintain current levels of management effort;
Harvest the value in the relationship by taking the current
monetary value it brings;
Reduce in the immediate future the level of management
commitment to a relationship;
Maintain
Harvest
Reduce
Successful portfolio management requires an iterative process of breaking down the

customer base into a smaller number of substantially different clusters, with the
members of each cluster sharing similar characteristics.
Once a meaningful set of groups in the portfolio has been established, decisions can be
taken with respect to each element in the portfolio in order to achieve balance overall.
The relationship classification process
Dichotomy of the customer base into customers (Jackson):
- Get a share Always-a-share;
o Driven by price;
o Best deals in the market;
- Stability in dealings;
o Continuity of supply, levels of product quality or a shared market view;
o Supplier let buyer down Lost-for-good;
Analyses based on behavior (Sako):
- Arms length contracting approach;
o Working together;
o Cooperative behavior;
o Obligational contracting;
Of course, there are a lot more distinctions between different relationships.
Variables, which are useful for qualitative distinctions:
- Financial stability;
- Sales:
o Amount of sales;
o Number of units sold;
o Proportion of total sales;
- Profits:
o Net price achieved;
o Cost-to-serve;
Types of customers based on relative sales versus cost-to-serve:
Bargain basement low net price, low cost-to-serve;
Carriage trade high net price, high cost-to-serve;
Passive customer high price, low cost-to-serve;
Aggressive customer low price, high cost-to-serve;
-
Cost savings;
Relationship age;
Classification criteria: Less easily observed

- Replaceability of a customer;
- Use of critically important products or processes;
- Shared vision of the future common commonality:
o Acquaintance (Low value, low commonality);
Standard products;
No customization;
o Rival (High value, low commonality);
Not going in the same direction;
Strong potential for opportunism;
o Friend (Low value, high commonality);
Same interest;
Embryonic relationship;
o Partner (high value, high commonality);
Irreplaceability;
Calls for adaptation;
Negotiation and mutual understanding for long-term strength;
- Source of learning for the company;
- The suppliers share of customers purchases;
- Short-term advantage-taking (poor treatment, fall-guys because of low price);
Combining classification variables to produce varied clusters
The ultimate aim in undertaking a relationship portfolio anaylsis is to generate a series
of different, but internally consistent, clusters of customer relationship types.
Campbell and Cunningham (1993):
Yesterdays
customers
Sales volume
Profitability of
customer to
supplier
Use of
strategic
resources
Suppliers
share
Todays
special
customers
High
High
Tomorrows
customers
Low
Low
Todays
regular
customers
Average
Average
Old
Average
Old
New
Low
Average
High
Low
Low
Low
Ford (2002):
Sales
Profits
Source of
learning
Cash Cow
Minor relations
Todays profits
Yesterdays
profits
The Old Men
Tomorrows
profits
New technical
requirements
New
commercial
Greatest proportion of sales income

Small customers, therefore not significant
Most profitable customers currently
Profitability trends indicate that they are on the wane
They past their heyday
Currently unprofitable, but promise a substantial
profit
Forced to improve
Innovation from commercial
Advantage
taking
requirements
The fall guys
No long-term strategic import
Relationship life cycles

The life cycle concept has long been used by marketers to derive an understanding of
the appropriate marketing strategies to be used to support a marketing offering.
1. Product life cycle
a. Birth;
b. Growth;
c. Maturity;
d. Decline;
2. Relationship life cycle:
a. Pre-relationship:
i. Nothing resembling a relationship;
ii. Need for change;
b. Early stage:
i. Need to deal with substantial unknowns;
ii. Social distance;
iii. Uncertainty;
c. Development stage:
i. Commitment of time leads to manifest reductions in uncertainty
and distance;
d. Long-term stage:
i. Little distance between them socially, technologically and
culturally;
ii. More commitment;
iii. Extensive adoption;
e. Final stage:
i. Stable market over the long term;
Four phases during this cycle:
- Awareness (pre-relationship);
- Exploration (early stage);
o Attraction;
o Communication, bargaining;
o Power dependence;
o Norm development;
o Development of expectations;
- Expansion (development stage);
- Commitment (long-term stage);
Value of the relationship life-cycle concept
The value of the relationship life-cycle notion is the information that it can give to
relationship managers over time:
- Cultural distance;
- Language;
- Environment;
Key account management
One of the key applications of relationship management is to identify key accounts,
which are of critical importance to the business and which must receive special
treatment in order to maintain and develop the customer relationship Key account
management (KAM).
KAM:
- Seller-initiated type of strategic alliance;
- A key account is a customer in a business-to-business market identified by a
selling company as of strategic importance;
- KAMs role facilitator and relationship developer;
- Highly collaborative relationships:
o Sharing information;
o Joint planning;
o Joint co-ordination of responsibility and workflow;
- Different degrees in relationships:
o Spot market transactions;
o Repeated transactions;
o Long-term relationships;
o Alliances;
o Vertical integration;
- Six-stage model of key account relationship development:
o Pre-KAM (Identify);
o Early KAM (Explore opportunities);
o Mid-KAM (Develop range of contacts);
o Partnership KAM (Supplier is external resource of buyer);
o Synergistic KAM (Partners create joint value in marketplace);
o Uncoupling KAM (Dissolution of KAM);
Implementing KAM:
- Which department?
o Sales:
Supersales person or strategic relationship manager?
KAMer needs to add a new dimension to how the customer is
seen by people;
- Why KAM?
o Increase market share;
o Change strategy;
o Increase customization;
o Improve relationships;
o Marketplace pressures;
o Being more attractive for suppliers;
KAM: Benefits and risks
- Benefits
o Increased trust;
o Enhanced loyalty;
o Enhanced purchase intentions;
o Greater likelihood of recommendation;
o Commitment;
- Risks
o Few key customers;
o Some customers may get less attention;
Chapter 10 Managing Product Offerings
If the marketer wants to continue to meet customer needs then the offering must adapt
to changing needs.
Dynamic process
Core benefit
(Inside)
Physical attributes
Advice giving
Service elements
=
Product offering
Adaption space
(Outside)
Business-to-business product offerings

The full extent of what is really possible can only become known through interaction
with the customer.
Strategic tools for managing product offerings
Life cycle tool
The classic idealized model of a product lifecycle depicts a series of stages through
which products notionally proceed during their life.
Introduction stage: May still be costing more money than it is bringing in, since
there is a series of marketing tasks to be carried out;
o Demonstrations, exhibitions, trade shows, other publicity;
Growth stage: Product offering is increasingly accepted by the market;
o Growth of sales and profit;
o More competition;
o Additional services to differentiate;
Maturity stage: Rate of sales growth slows;
o Reduction of costs;
o Focus on trade customers;
Decline stage: Profit margins will decline and the business marketer must look
for ways to extract further value;
o Drop in the level of demand means that sustaining levels of profitability
typically requires cost reductions;
Portfolio analysis
Two composite dimensions:
- Market attractiveness: Market size,
growth rate, structure of competition,
market diversity;
- Business strength: Growth rate, share in
the market, profitability;
Possible positions:
- Question marks:
o New and growing market;
o Need to establish;
- Dogs:
o Successful products;
o However candidates for deletion;
- Stars:
o Need of money to grow;
o Mostly in the growth stage;
- Cash cows:
o Greatest contribution to company profits;
The greatest value for the firm ultimately comes from having the best set of offerings
available to the best set of customers and being able to do this time after time after time.
Managing innovation in the B2B Context
Relevance of innovation management
What is new product development? All the activities involved in the process of idea
generation, technology development, manufacturing and marketing of a new product or
manufacturing process or equipment.
Key questions for the B2B-marketer:
- How the firm could be organized:
o Innovation is invariably a team game;
o Commitment to long-term growth;
o SWOT;
o Balanced portfolio of activities;
o Stability;
o Willingness to change;
o Organic organizations (decentralized);
- The role of relationships with external partners in aiding the process:
o Network;
o Type of innovation projects;
o Degree of innovativeness required;
o Formality of the mechanism for knowledge sharing;
New product offering development (From question mark to cash cow)
Unavoidable risk
- Most new product offerings fail;
- Proportion of sales revenue spent on R&D is a good indicator of the level of new
product activity;
Development process:
1. Identifying opportunities / generating ideas;
2. Screening ideas and making preliminary investigations;
3. Analyzing the business case (which ideas have the greatest business potential?);
4. Developing the concept and specifying the features;
5. Developing prototypes and developing marketing support;
6. Undertaking limited-scale trial marketing;
7. Taking the offering to commercial launch;
8. Evaluating the offering development process and drawing lessons for the next
time;
Chapter 11 Routes to market
For many organizations the only way that they can maximize market coverage is by
making use of third parties, that is, intermediaries:
- Handling some of the exchanges involved;
- Connecting suppliers with customers;
The business marketer and intermediaries with whom it might work do not operate in
isolation to reach and satisfy target customers Part of the supply chain.
Supply chain management and logistics
Critical to the success of any organization is its ability to maximize customer value
whilst minimizing the costs incurred in doing this.
Supply chain management of which involves the planning and coordination of all
activities of parties within a specific supply chain to provide the end-customer with a
product which adds value:
- Responsiveness of a supply chain:
o Monitoring;
o Adjustment to keeping the flow of product;
- Integration of all organizations:
o Use of multi-functional teams that cut across organizational boundaries;
o Sharing of sensitive information between companies;
A key factor fuelling the growing importance of supply chain management is its
contribution to an organizations competitive advantage because of its capacity to
reduce costs, improve asset utilization and reduce order cycle times.
Supply chain management performance is underpinned by the following goals:
- Waste reduction;
- Time compression;
- Flexible response;
- Unit cost reduction;
An important contributor to the achievement of these objectives is the ability of
software (ERP):
- Transmit data in real time;
- Improve supply chain processes to enhance competitive performance;
Logistics management is increasingly an important element in business marketing
strategy because of:
- Cost savings;
- Product variety;
- Improvements in information technology;
Critical to the provision of (ERP) programs and their competitive performance is the
balancing of cost against service level and the management of those elements of the
logistics system over which organization have control.
Reaching and satisfying customers: third-party involvement
A company uses its core competencies and capabilities to deliver superior customer
value and to gain maximum market coverage for its problem-solving abilities:
- Problem: few organizations have the resources simultaneously and
independently to deliver superior value to all customers in all locations.
Involvement of third parties?
Offerings
Bespoke/complex offerings
Uniform product offerings
From single to multiple router to

market
Solution
Where the risk/uncertainty associated
with a customers supply needs is high and
it involves a complex product offering, the
marketing organization may choose to
deal directly with customers:
- Complete control;
The challenge for an organization arises
when it wants to enter new markets with
which it is unfamiliar:
- Sales agent independent,
knowledge about market, aftercare, payment by commission
Where the risk/uncertainty associated
with the solution sought by a customer is
somewhat lower and involves a rather
more standard product offering, the
marketing organization will be less
inclined to want to control all exchanges
with all customers:
- Fragmented;
- Geographically dispersed;
- Contract value varies;
Company uses distributors.
Activities associated:
- Communication;
- Modification and assembly;
- Product supply;
- Service and repair;
Distributors are of NO use to companies
that supply service-based products that
require the physical presence of the
service operation in close proximity to
customers to ensure ready availability of
the service.
- Franchising;
- Licensing;
The reality is that most organizations are
likely to operate a number of alternative
channels:
- VAR Value added reseller (IT
market)
Pluralistic multi-channel system
Monolithic multi-channel system
Integrating, customizing, installing

products;
A company uses multiple routes to market
but they are organized so that each
channel has responsibility for a separate
group of products and in doing so targets
quite distinct market segments:
- Size (power);
- Core technology (reciprocating,
rotary screw or centrifugal);
In this system a company uses one
structure, consisting of direct and indirect
channels to reach customers, with each
channel member adjusting the functions
that it performs according to the segment
that it is dealing with.
Improving channel performance

- Customer expectations:
o Customers have increasingly higher expectations of the value that they
seek to derive from products purchased and the sources used to obtain
them:
Tailoring product to individual needs;
More demanding of services;
- Rethinking of value/distribution chain activities:
o Rethink product design:
Different product formats;
o Rethink the supply network:
Positioning of the stock and location;
Amount and structure of production and distribution facilities;
Outsource non-value-adding activities;
Intermediaries;
- Coordination Contribution of IT:
o Prices charged for products consist of three elements:
Product costs:
Coordinator costs Minimizing!
Routinization of tasks;
Sharing of information;
Automated (CRP, JIT)
Profit margin:
- Web-enabled technology:
o Whatever the number and functions of organizations involved in a route
to market, the fact is that to realize both the degree of flexibility and
responsiveness expected by customers, and the tightness of coordination
of activities required between firms to minimize transactions costs, the
integration of IT systems in the form of extranets is necessary;
- Coordination handling channel partners:
o A number of factors have to be taken into account to ensure the effective
management of channel operations and the relationships with other
parties in the channel system:
Selection of channel members:
Reach and satisfy target customers;
Criteria:
o Necessary resources;
o Intermediarys product range;
o Marketing capability;
o Channel partners commitment;
Support provided to channel partners:
In addition to recruiting intermediaries, a company has to
develop programs of activity to support channel
members:
o Motivating Financial incentives, territorial
exclusivity, provision of supplier resources,
working relationship approach to intermediary
dealings;
o Reviewing the intermediary
Means of controlling channel behavior:
Power to control activities of other channel members;
Contractual arrangements franchising;
Trust Patterns of behavior;
Communication in this area is very important:
Interaction;
Two-way communication;
Use of formal policies;
Influence tactics;
Dealing with channel conflict:
Differences in objectives;
Differences in desired product lines;
Multiple routes to market;
Inadequate performance;
What can channel members do to avoid and manage conflict?
Improve performance;
Training;
Partitioning markets;
Taking control;
Chapter 12 Price-setting in business-to-business markets

Pricing is both one of the most important and yet one of the most neglected aspects of
business-to-business marketing:
- Price has impact on profitability;
- Inflation/deflation;
- New low-cost manufacturing capacity;
- Reductions in international trade barriers;
- Deregulations;
- Impact of the Internet;
- Sharing pricing information;
- Training of purchasing managers;
3Cs of pricing
1. Costs: The relevant costs associated with making a product or delivering a
service determine the price floor; the benefits that the customer perceives the
product or service to deliver determine the price ceiling; while the intensity of
competition and the strategies of competitors affect the feasible pricing region
that lies between the costs floor and the customer benefits ceiling.
a. Cost-plus pricing
i. Calculating the average cost of production and then adding on a
standard profit mark-up.
ii. Ignores both competitors and customers;
iii. Based on sales volume;
2. Customers: In making pricing decisions managers are forced to make
assumptions about demand responsiveness, which is most conveniently
measured using the elasticity of demand with respect to price (demand
elasticity).
a. Normal demand quantity demanded declines continuously as the
price rises;
b. Perverse demand above a certain price the demand curve is normal
and demand declines as price increases, but below that price demand
declines as the price decreases.
i. Price as indicator of quality;
Elasticity:
o Elastic demand Increase of price reduces revenue, cut of price
increases revenue;
o Inelastic demand Increase of price increases revenue, cut of price
decreases revenue;
Urgent need;
Differentiated products;
Few competitors in the market;
Complementary goods;
High switching costs;
Shared price by different suppliers;
3. Competitors:
a. Oligopolistic market zero-sum game
i. Each competitor directly affect its rivals;
ii. Formal game Gains of one player are the losses of the other;
iii. Danger of price war. How to avoid?
1. Price leadership (acknowledged leader is closely watched
by rivals who follow its lead on price decisions);
2. Price stability
b. Perfectly competitive market firms are price-takers
c. Monopoly Firm is a price setter
Virtually all markets lie nowhere near the extremes of perfect competition or
monopoly, and most are dominated by a few substantial competitors.
Price: Strategy and Organization
Pricing wheel Pricing is not a decision that is taken once and then forgotten about.
Rather, pricing is a more or less continuous process, in which pricing decisions must be
constantly updated to take account of factors within the control of the firm, such as new
product features, and factors outside of the control of the firm, such as new competitor
pricing strategies:
- Decide strategy role
- Prioritize pricing objectives:
o Profits, survival, sales volume, sales revenue, market share, image
creation, competitive parity or advantage, barriers to entry and
perceived fairness.
o Profit targets are most important.
- Assess pricing determinants
Keeping price sufficiently low that the prospects of profitable market

entry are minimized.
Decide price strategy
Select pricing method
Implement control price
o
Price positioning
Price positioning strategy takes account of three elements:
- The price itself;
- The customer benefits
- Competitor positioning
Low price
Med price
High price
Perceived benefits of competing suppliers offerings

Low
Med
High
Chancer
Thriver
Market Ruler
Bungler
Also-ran
Thriver
No hoper
Bungler
Chancer
The pricing plan and the pricing committee

The plan:
- Overall summary;
- Overview of the current marketing situation;
- Pricing SWOT Analysis;
- Pricing strategy;
- Pricing objectives;
- Pricing programs;
- Pricing control and review;
Similarly, just as price affects and is affected by so many other elements of the
marketing mix, a wide range of different functions within the company have a legitimate
interest in pricing decisions: cross-functional activity that involves people from several
different departments.
Intra-organizational aspects of pricing
Obstacles to the development of effective pricing strategies can arise from internal
organizational factors Perspectives may conflict.
Obstacles to price-setting arise out of conflicts between departmental positions (long- or
short-term).
The role of the sales force in pricing
It is assumed that because sales persons are closest to the customer, they know what
add value to their customers.
Five factors caused salespeople to make pricing decisions that resulted in sub-optimal
profits:
- Price discounting to avoid the work or time involved in creative selling or
customer problem-solving;
- No optimal knowledge of their customer overestimation of price sensitivity
on customers;
- Salespeople are given greater price discretion which may alter competitive
behavior in the market;
- Greater price discretion may alter buyer behavior;
Using sales incentive scheme based on gross profit margin may not be sufficient
to ensure that salespeople make optimal price decisions;
Relational aspects of B2B Pricing

The pricing effects of long-term buyer-supplier relationships
- Long-term customers can be used to help attract new business (test-bed for new
product development)
- Customers may be locked in to the relationship through the creation of
switching costs;
- Long-term customers also ask more money More difficult to serve, more
demanding;
Supply chain pricing
- Changes in the environment of global business have encouraged companies to
concentrate on their core competencies;
- Outsourcing business activities;
- Building relationships;
- Pricing:
o Participants in the supply chain should collaborate to ensure that the
realized value from the sale of the end product is optimized;
o How is value distributed between the members of the supply chain?
- More collaborative approach to pricing by members of the supply chain will
increase their overall profitability;
Bid pricing
Form of bidding
English
Dutch
First-price sealed
bid
Second price
sealed bid
Internet auctions
Explanation
An ascending price auction in which the last remaining bidder
receives the good and pays the amount of their bid
A public price starts at a very high level and the price falls until
the first participant finds the price low enough to submit a bid
The highest bid is the winner (not real-time auction)
The second highest bid is the winner (not real-time auction)
Can be categorized in an English and Dutch auction. The Internet
acts as a medium to bring together buyers and sellers and to
exchange information about product specifications, terms and
conditions and price.
Bidding decisions
- Whether to proceed with a bid or to refrain from bidding shall we bid?
- Strategy:
o Bid near cost;
o Bid for reasonable profit;
o Bid high;
- Expected profitability is an important criterion in deciding on how attractive a
contract is;
- Also future contracts/relationship are very important;
- The chance of success falls sharply as the number of rivals increases:
o Proposed bid price and the expected number of rival bidders must be
taken into account when evaluating the likelihood of success in a
competitive tender;
Ethical aspects of business-to-business pricing

Pricing common ethical concerns
Pricing is an aspect of the marketing mix which ethical issues often arise unfair price.
The principal ethical issues that arise concerning B2B pricing decisions are anticompetitive pricing, price fixing, price discrimination and predatory pricing or dumping.
Solution might be explicit price-fixing arrangement BUT this is ILLEGAL!
Unethical pricing practices arise particularly in industries where competitive tendering
is in common use. Collusive tendering occurs where there is an exclusive agreement
between competitors either not to tender, or to tender in such a manner as not to be
competitive with one of the other tenderers.
Dumping is the selling of exported goods in a foreign market below the price of the same
goods in the home market.
Responding to ethical issues in pricing
- Pricing is ethical where the buyer voluntarily pays the agreed price;
- Pricing is ethical where both parties have equal information;
- Pricing is ethical where there is no exploitation of a buyers essential needs;
- Pricing is ethical where it is justified by costs;
- Pricing is ethical where everyone has equal access to goods and services
regardless of ability to pay;

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Fundamentals of Business-to-Business Marketing , book: Author: Ross Brennan, Louise

Canning and Raymond McDowell; Edition: 2; Editor: SAGE Chapter 1-12

The whole chain of derived demand is driven by the direct demand of

Market concentration in business-to-business markets

OEM Original equipment manufacturers Manufacturing businesses that buy

The nature of company business

Segmenting purchase categories

a. Decision is completely different from previous experiences;

The effect of risk on buying teams

IMP interaction model posits that the organizational factors

Business Marketing as Network Analysis and Management

Perceived customer value for an organization

Hooley & Jobber:

Standard industrial classification

Using the Internet in B2B research

Brand architecture: product or company

2. Trade-show selection (costs, type of products, space, time, reputation of the

c. Who is the ultimate decision-maker?

Culture will influence communication behavior, and in preparing for negotiations,

The relationship promoter should possess:

Successful portfolio management requires an iterative process of breaking down the

Classification criteria: Less easily observed

Greatest proportion of sales income

No long-term strategic import

Relationship life cycles

Business-to-business product offerings

Uniform product offerings

From single to multiple router to

Pluralistic multi-channel system

Monolithic multi-channel system

Integrating, customizing, installing

Improving channel performance

Chapter 12 Price-setting in business-to-business markets

Keeping price sufficiently low that the prospects of profitable market

Perceived benefits of competing suppliers offerings

The pricing plan and the pricing committee

Relational aspects of B2B Pricing

Ethical aspects of business-to-business pricing

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