Chapter I Introduction to Business-to-Business Marketing OVERVIEW In this chapter, we will introduce you to business-to-business marketing, provide you with an overview of the differences and similarities between business-to- business and consumer marketing, and, finally, provide you with an approach for studying this field that is built around the concept of value for customers. Value includes both customer benefits and customer costs incurred in realizing these benefits. We close the chapter by introducing several trends currently changing the face of business-to-business marketing. These trends, which are important for you to keep in mind as you progress throughout the book, raise the question of whether we need to change our ideas about what works in business-to-business marketing. In the opening example, two transportation companies—UPS and FedEx—take their partnerships with office services companies to a new competitive level. UPS's acquisition of Mail Boxes Ete. and FedEx's acquisition of Kinko's, Inc., created new bundles of services creating differentiated value for their small business clients. In so doing, they illustrate several of the core concepts that will be examined in later chapters, Example: FedEx Kinko's versus The UPS Stores! In 2001, United Parcel Serviee (UPS) bought the company Mail Boxes Ete. This gave UPS much greater presence in urban areas, neighborhoods, and shopping districts. While much of the business UPS acquired was retail (consumers), visibility and services were also extended to small busi- nesses. Offered services went beyond shipping: the former Mail Boxes Etc, stores also gave small businesses mail drop locations and “suite” business addresses, which lent credibility to their images. The big increase in value came from offering shipping locations closer to the locations of many more small businesses since the old UPS locations were typically in industrial or commercial areas Mail Boxes Etc. was a franchise operation with over 4,000 franchised locations. In the acquisition, UPS became the owner of the central Mail Boxes franchisor operation. Shortly after the acquisition. UPS worked with a small number of franchisees (0 test some operational changes and new alternatives for rebranding the stores. The results favored renaming the chain as The UPS Store.2 Chapter 1 * Introduction to Business-to-Business Marketing In 2003, the Mail Boxes Etc, franchisees were offered the chance to sign new franchise contracts that adopted the new name and some changed operating policies, which included new pricing 20 percent below the existing Mail Boxes price schedule, The franchisees who patticipated in the test became advocates for the changes because they had seen the financial impacts to their own operations—in some cases almost double the sales, with an increase in profitability, Over 90 percent of the franchisees switched aver. Those who hetd out will operate under the old Mail Boxes Etc, name until their franchise agreements expire. A lawsuit was filed by some of the franchisees.” These franchisees principally have locations in high cost aseas and they do not believe the new pricing will allow them to remain profitable, This suit is still pending Three years after the UPS acquisition of Mail Boxes Bic., FedEx responded to this competitive move by acquiring Kinko's, Inc., Unlike UPS, FedEx acquired all 1,200 stores outright, thus FedEx had more contra! of the stores and their operations (this also cost FedEx a great deal more—FedEx paid §2.2 billion, while UPS paid only $190 million for Mail Boxes Etc.). FedEx also tested new names for the Kinko's stores. They settled on the new name FedEx Kinko's ‘The FedEx Kinko's stores are targeted toward small businesses that need office and graphies services combined with shipping, This move was considered by analysts to be a “leapfrog” competitive move, offering more service and value than UPS's earlier move with Mail Boxes Etc. Initially, UPS Stores had a sizable advantage simply in the number of locations they offered, However, even with fewer stores, FedEx Kinko's tends to offer more in the way of copying, printing, and graphics—UPS Stores have added similar services, but FedEx Kinko's hias more capability on-site. Plus, these services were Kinko’s biead-and-butter. FedEx saw Kinko's as an attractive purchase target in part because Kinko's ‘was good al what it did! By the fall of 2004, FedEx Kinko's, through FedE’x’s partnership with Microsoft, Jaunched a new service that gave it even more of a service edge.” FedEx Kinko’s launched its File, Print FedEx Kinko's (EPEK) service, in which a customer can send FedEx Kinko's a document via the Internet. FedEx Kinko's will print it. copy it. bind it, and do whatever else to it the client requests. The client can then pick up the order at any specitied FedEx Kinko's Location or have it shipped elsewhere Both companies are offering convenience to small businesses. But they offer different kinds of ‘convenience. Both will have to innovate to stay in the race, And the competition is not just between the two of them—Staples, Inc., upgraded its in-store copying/printing services.’ Staples, Inc., of course, offers office supplies, so this represents a third value bundle now in the competitive mix, and DHL acquired the ground stations of Airborne Express to get a nationwide ueeess points. LEARNING OBJECTIVES By reading this chapter, you will ® Remember the basic marketing principles ® Gain an appreciation for the main differences between consumer marketing and business- to-business marketing. Understand the marketing concept and its implications for business-to-business marketing, Understand the meaning of value. ® Gain a sense of how the value chain is structured and how it is related to the concept of a supply chain, = Gain an understanding of the implications of the value chain for business-to-business marketing. changing nature of the business environment. ® Obtain a sense ofChapter 1 * Introduction to Business-to-Business Marketing 3 INTRODUCTION Business markets present different types of challenges and opportunities than those presented by consumer markets. The concepts of relationships, value, and buyer decision making function in very different ways than would be expected in consumer markets, The example of the acquisitions of Mail Boxes Ete. and Kinko's, Inc., by UPS and FedEx, respectively, illustrates all of these and more, First, FedEx’s combination of shipping with copying and other office and graphics servi ates a different kind of Value for small businesses than does the combination of UPS and Mail Boxes Etc. Both combinations of services have the potential to create lasting relationships with their customers. In this case, the customers will engage in extended decision making that contin- tues well after the initial usage of the service, Both FedEx Kinko's and The UPS Stores must understand this and adapt their post-sale service to focus on maintaining customer satisfaction and reselling the service, Entrepreneurial marketing is a major emphasis of this text. Enreprenewrial Entrepreneurial marketing can be practiced by established companies as well ag marketing is conducting by startups. [involves innovation, xcting proactively, and controlled risk taking? "iret ina vay har In the opening vignette, both UPS and FedEx have marketed entreprencurially. nes Mnar UPS initially saw an opportunity by offering a combination of services, taking een sk: Mail Boxes Etc,, aimed ata segment of small businesses, FedEx saw a somewhat ‘erent opportunity, a different segment, and addressed it with a different offering. In both eases, the company had to interpret an existing market condition and see needs that were not tully addressed. They proactively addressed the market opportunities they thought were there, but they took risks because they did not know for certain whether their interpretations of the market were correct, What should the competitors do to deal with this new situation and create a high chance of turning it into a profitable business activity? As an organization, how should each modify its behavior to suit these new and different market opportunities? This chapter sets the stage for answering these questions. To fully appreciate the differences and similarities between business-to-business and consumer marketing we need an understanding of marketing basies and how these basics apply in business-to-business marketing. For those of you who have already taken a marketing principles course, this will be a review of what you have already learned. These basic marketing concepts presented in a business-to-business context will ensure that everyone reading this book starts with approximately the same background—a level playing field. MARKETING FUNDAMENTALS IN BUSINESS-TO-BUSINESS MARKETS To see how marketing principles apply in business-to-business markets, an understanding of what business-to-business markets are and how marketing principles apply in business markets is required. These definitions and the context in which they are presented are part of the founda tions that should be kept in mind throughout the following chapters. Business markets consist of all organizations that purchase goods and services to use in the creation of their own goods and services. Their own goods and services are then offered to their customers. Notice that this does ‘tot include transactions for resale. These are considered to be within the purview of managing transactions within channels, Generally, business markets consist of fewer but larger customers than consumer markets and are involved in purchases of significantly large value having complex economic, technical, and financial considerations.