To-Us1nes S Mar Et1 NG: Michael Cant

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to- bus1nes s mar et1ng

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Michael Cant
learning outcomes
After studying this chapter, you should be able to:
• define what a business-to-business (B2B) market entails
• differentiate between the various types of 828 consumers/
buyers
• describe the difference between 828 marketing and business-
to-consumer (82C) marketing
• differentiate between the various business product
classifications
• discern the differences between the 'substance' and
'trappings' of marketing
• explain the importance of relationship-building in 828 markets
• discuss the impact of the internet on 828 marketing.
BUSINESS-TO-BUSINESS MARKETING
Introduction
We are all aware of business that takes place around us. As consumers, we
buy various products on a daily basis. In a similar way, businesses buy from
other businesses on a daily basis, but the processes and methods are different.
In this chapter, we will be focusing on a number of issues pertaining to how
B2B markets work. We will define what B2B marketing is, and thereafter we
will differentiate between B2B and B2C markets. The different B2B product
classifications will be discussed.
Furthermore, this chapter will discuss the meaning of B2B marketing,
and the characteristics or nature of B2B markets. The various types of B2B
consumers (including resellers, producers, government and institutions) will
be discussed. The essence of marketing - and distinguishing between the
'trappings' and the substance of marketing - will be looked at briefly as well.
The importance of relationship-building in B2B marketing will be explained.
Lastly, we will clarify the role of the internet in B2B marketing.
1.1 Defining 828 markets and 828 marketing

Have you ever wondered where a hairdresser sources products and equipment,
or where a dentist sources tools and machinery? Behind every purchase you
make, there are a number of B2B transactions that had to occur successfully in
order for your purchase to have occurred. These 'behind-the-scene' transactions
enable the end consumers (you and me) to acquire the products and services
they need or want. Let us take the following example: the nail technician at a
local nail salon makes the client's nails look perfect using products that were
made by a well-established cosmetic company. These products, in turn, were
made from materials that were acquired from chemical manufacturers and
equipment that was produced by hardware and electrical manufacturers. Even a
simple purchase, such as a manicure, is made possible by a web of supporting
B2B transactions that have taken place before that.
B2B markets (previously referred to as industrial markets) refer to the
marketplace where businesses purchase products and services from other
businesses. Hutt and Speh (2014:3) explain B2B markets as 'markets for
products and services, local to international, bought by businesses, government
bodies, and institutions for incorporation, consumption, use or resale'. B2B
organisations purchase products for one of three purposes, namely resale,
direct use in producing other products or use in general daily operations.
Although products and services are in the end sold to the public consumer,
marketim!to other businesses to source comoonents. eauioment. tools or other
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Marketing to a business involves the same concepts and strategies as

marketing to the consumer market, including activities such as identifying
and defining the target market, understanding the behaviours of consumers,
and developing effective marketing strategies, to name but a few. However,
there are significant structural and behavioural differences in B2B markets,
which will be discussed throughout this book. As customers and businesses
often purchase the same products and services, one cannot distinguish
between a B2B market and a B2C market based on the nature of the product
purchased. The key distinguishing factor in B2B marketing is that the customer
is an organisation or business entity rather than an individual consumer. B2B
marketing differs from consumer marketing in that it involves B2B markets,
a business transaction between a professional seller and a professional buyer,
and activities in which products or services are sold for any use other than
personal consumption. We will further explore the differences between B2B
and B2C markets in Section 1.3.
1.2 Types of 828 customers or buyers

B2B customers can be categorised into four basic types of B2B customers,
namely resellers, producers, governments and institutions, as in Figure 1.1.
B2B buyers can be non-profit organisations or businesses who aim to make a
profit.
Figure 1.1: Types of B2B customers
1.2.1 Resellers
A reseller is an individual or business that purchases products or services
produced by another business with the intention of selling these products
or services to another party for profit, instead of consuming the products or
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services themselves. Resellers do not make any substantial changes to the

physical characteristics of the products they handle and sell. Resellers are
intermediaries, such as retailers and wholesalers:
• Retailers are businesses that focus their marketing efforts on the final
consumers, with the intention of selling products or services directly to
them (Cole, nd), for example in a store, over the telephone, door-to-door
or by means of a vending machine. Shoprite, Spar and Pick n Pay are
examples of retailers in South Africa.
• A wholesaler is in an intermediary position between the producer and
the retailer in the distribution channel. Wholesalers generally buy large
quantities of products directly from distributors (Cole, nd) for resale to
retailers, other wholesalers, producers, governments and institutions. Makro
is an example of a wholesaler; other businesses or retailers can purchase
goods here in bulk for resale in their own stores.
1.2.2 Producers (commercial enterprises)

Producers acquire goods, such as raw materials and semi-finished and finished
items, from other businesses. They then utilise and transform these goods into
sellable products to make a profit. Buyers of raw materials and semi-finished
and finished items are examples of producers. Producer markets include
industries such as agriculture, fisheries, mining, transportation, forestry, etc.
For example, a furniture retailer would purchase raw material (such as timber)
from the forestry industry in order to manufacture furniture such as wooden
coffee tables or dining room tables. Similarly, extrusion companies provide raw
material such as paper and plastic which is used in the development of other
products.
1.2.3 The government

One of the biggest customers in B2B marketing is the government (national,
provincial, as well as local authorities). Government agencies purchase a wide
range of goods and services, from paper and printers to weaponry, buildings,
highway construction services, waste disposal services, as well as medical and
security services. Government agencies purchase products and services from the
private sector. These purchases are often used to accomplish social objectives
or to provide services to communities. Government agencies are accountable to
the public, which explains their relatively complex buying procedures.
Government agencies almost always make use of a tendering system
where interested suppliers submit their tender applications for a specific
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In South Africa, there are policies which encourage the empowerment

of minority groups, such as women or disadvantaged groups, which are often
targeted as beneficiaries of government purchases (also see Chapter 2 in this
regard). Ineffective tendering processes have caused the downfall of many
companies in South Africa, and therefore marketers of businesses submitting
tenders need to be familiar with government tendering processes and policies
in order to make sure they meet the requirements.
1.2.4 Institutions
Businesses with charitable, educational, community or other non-business
goals constitute institutional markets. Institutional customers or buyers include
organisations such as schools, universities, hospitals, churches, nursing homes
and non-profit organisations (for example CANSA, the SPCA or the Jacaranda
Children's Home).
Some of these organisations may use purchasing procedures similar to
those utilised by government agencies, but they often follow less standardised
procedures. Institutions differ from other businesses in that their aims and
goals are different, which means that special marketing efforts are required
to serve them. As these institutions mostly have charitable goals, keeping
costs low is especially important for them; the lower the costs, the more their
projects can benefit society. The purchasing decision in an institution is often
made by a committee, and the organisational marketer needs to be aware of the
underlying group dynamics that shape the institution's purchasing behaviour.
1.3 The differences between 828 and 82C

marketing
CASE STUDY:THE MILKY Cow
The Milky Cow* started off as a dairy farm selling mainly milk and other fresh produce to customers
at the fresh produce market held every weekend. Later,The Milky Cow started distributing bottled
milk and other dairy products, such as butter, yoghurt and cheese, to a few retail outlets in their
region, who sold the products to end consur.ners. After a few years of great business, The Milky
Cow was approached by a company wanting to purchase raw produce to use in the production of
their own product.
After a flourishmg, long-term relationship was built with this purchasing fOmpany,The Milky Cow
decided to expand their business plan to reach other clients in the 828 market. +
5
Today, The Milky Cow successfully markets and sells to both the 82C market and the 828 market.
Other companies purchase raw produce from The Milky Cow to use in the production of their own
products, such as pastries, breads, cakes and ice cream.
It is clear that the two markets which The Milky Cow have entered differ considerably from one
another. Although the basic philosophy and principles of marketing remain the same whether the
end consumer is a business or an individual, there are some fundamental differences. Marketing
milk to a consumer is quite different from marketing butter to a bread or pastry producer. The Milky
Cow would have to consider various different aspects when selling and marketing to their 828
clients and their 82C market.
* A fictitious company
Thandi is a farmer with a large tomato farm. She can decide between two possible business models:
she could sell her produce at the nearest local farmers' market, or she could partner with a retail
outlet such as Checkers.
There are important differences between the two models. At the farmers' market, Thandi would
probably only sell small amounts of produce to an ever-changing pool of customers. If she partnered
with a retail outlet, she would sell larger quantities. However, the retail outlet would require a
continuous supply at a fixed cost, as well as specific delivery intervals and locations.
In other words, Thandi must choose between a 828 or 82C model. In order to do this, she must
understand the differences between the two markets, and the advantages and disadvantages of
selling to a 828 or a 82C market.
As mentioned in Section 1.1, it is not the nature of the product or serviCe

that differentiates B2B markets from B2C markets. The key differentiating
characteristic of a B2B market is that the customer is an organisation instead
of an individual consumer. There are, however, also certain communalities
between business and consumer markets as well. In both B2B and B2C markets,
the main goal is to satisfy the customer and build lasting relationships in order
to gain a competitive advantage.
There are numerous differences between purchasing by organisations and
purchasing by consumers. Many of the differences occur because consumers
mostly purchase for personal consumption, whereas in most cases organisations
purchase to satisfy the needs of the organisation. Therefore, in B2B marketing
the exchange often occurs between a professional buyer and a professional
seller. That means each of the parties represents a firm or organisation and is
nature of distribution channels, the nature of the buying interaction, the nature
of buying influences, the type of negotiations, the use of reciprocity, the use of
leasing and primary promotion methods. For example, a single B2B transaction
where Checkers orders tomato sauce from a supplier (such as All Gold) might
involve a sizable number of bottles, while a consumer might only buy one or
two bottles of tomato sauce from a retailer.
The defining characteristics of B2B and B2C markets can be divided
into three broad differentiating categories, namely market structure, buying
behaviour and marketing practice differences. Table 1.1 provides a synthesis of
these characteristics, and each category is then discussed in the sections that
follow.
Table 1.1: The defining characteristics of B2B and B2C markets
Market structure differences

Dimension of difference 828 market characteristics 82( market characteristics
Nature of demand Derived Direct
Demand volatility or fluctuation Greater volatility Less volatility
Demand elasticity Less elastic More elastic
Reverse elasticity More common Less common
Nature of customers Greater heterogeneity Greater homogeneity
Market complexity More complex Less complex
Market size Large overall value Smaller overall value
Number of buyers per segment Few Many
Relative size of buyer and seller Often similar Seller much larger
Market concentration Often clustered Usually dispersed
Buying behaviour differences

Dimension of difference 828 market characteristics 82C market characteristics
Buying influences Many Few
Purchase cycles Often long Usually short
Transaction value Often high Usually small
Buying process complexity Often complex: multiple steps - ually s rnple: a single step •
7
Buyer and seller Often high Usually low

interdependence
Purchase professionalism Often high Usually low
Importance of relationships Often important Usually unimportant
Degree of interactivity Often high Usually low
Marketing practice differences
Dimension of difference B2B market characteristics B2C market characteristics

Selling process Systems selling Product selling
Personal selling and negotiation Used extensively Limited
Driving force Relationship-driven: concerned Product-driven: concerned with

with converting prospects into converting shoppers into buyers
customers and making transitions
Role of relationships Value of relationships is Limited

maximised
Promotional strategies Unique, customer-specific Mass market
Web integration Greater Limited
Branding Limited Extensive, sophisticated; brand

identity created by imagery and
repetition
Market research Limited Extensive
Segmentation Unsophisticated Sophisticated
Competitor awareness Lower Higher
Product complexity Greater Lesser
Channels of distribution Shorter, more direct Longer channels and more

intermediaries
These differences are aspects that one can generally expect, but they should
not be regarded as absolute truths. For example, in certain B2C markets the
negotiations are also complex, but in general they tend to be less complex than
B2B negotiations.
1.3.1 Differences in market structure

B2B markets have certain specific characteristics, as the nature of the demand
for business products poses unique challenges and opportunities for marketing
means that the demand for a business product is linked to the demand of, or
the need for, consumer goods or services. Boone and Kurtz (2015:214) explain
derived demand as the correlation between the demand for an industrial product
and consumer products, while Hutt a Speh (2014:14) explain derived demand
as demand for industrial products that is based on the ultimate demand for
consumer products.
For example, the need for sunflower seeds is derived from the demand
for sunflower cooking oil. If the demand for cooking oil is low, the demand
for sunflower seeds will be equally low. Similarly, the demand for aluminium
cans to be sold to Coca-Cola would be directly related to the demand for soft
drinks by consumers; if more consumers purchase soft drinks, the demand for
aluminium cans will increase, and vice versa. In purchasing products, such as
cooking oil or Coca-Cola, the customer is inevitably increasing the demand for
products manufactured by B2B organisations, such as sunflower seeds or cans.
A change in the demand for one product results from a chain reaction: when
consumers' demand for one product changes, the demand for all other items
involved in the production of that consumer product changes.
Volatile/fluctuating demand
Derived demand creates volatility in business market demand, which means
that there will be variations (or fluctuations) in the demand for a product or
service over time. Factors that lead to fluctuating demand include seasonality,
economic factors and pricing. For example, suppose the demand for flights to
and from Cape Town increases. This will cause the demand for a wide range
of products and services, such as aeroplanes and cabin crew, to increase as
well. An increase in consumer demand can lead to a much larger percentage
increase in the demand for plant and equipment necessary to produce the
additional output.
Joint demand
Another important aspect that affects the demand of business markets is joint
demand - when two or more items are used in combination to manufacture a
product, or when the demand for one business product is related to the demand
for another. For example, a business that manufactures hammers will require the
same amount of hammer heads as it does wooden handles; these two products
are therefore in joint demand. If the supplier of hammer heads fail to supply
the mandatory number of items and the hammer heads cannot be obtained
somewhere else, the manufacturer of hammers will stop buying handles.
9
Inelastic demand
Inelastic demand is demand that does not change. This implies that if the price
of the product were to increase or decrease, the demand for the product will not
change significantly. Because of the derived demand for B2B products, there
is less opportunity for B2B marketers to stimulate primary demand through
price cuts than there may be for marketers of consumer goods. Therefore,
the primary demand for B2B products is more price-inelastic than that of
consumer products. For example, vehicle manufacturers purchase headlights
as component parts for vehicles, and they are not likely to buy more headlights
if the price of headlights goes down.
Market concentration
Market concentration, or the degree of concentration of sellers in the market,
refers to the number of businesses that sell a particular product or related
products in a specific market. High market concentration therefore refers to
a situation where an industry or market is controlled by a small number of
leading producers who are largely, or exclusively, engaged in the industry. The
concentration of the market can be considered a significant characteristic of
the market structure, as it determines both the market power of competitors as
well as the opportunities for consumer choice. The number of businesses in the
industry as well as their relative size distribution are two variables that are of
relevance in determining the market concentration.
Market size
Due to the large amount of products and services purchased in B2B markets
at any single point in time, B2B markets are much larger than B2C markets.
B2B markets therefore have a large overall value compared to B2C markets.
The government alone makes more purchases that any other company in the
B2B market.
1.3.2 Differences in buying behaviour

The buying process differs substantially in B2C and B2B markets (also see
Chapter 2):
• In B2C markets, emotional elements play a large role in the purchase of
goods and service. In B2B markets, purchasing ecisions tend to be less
emotional and more task-oriented.
• Consumers generally look for specific attributes, such as value for money
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• Businesses tend to buy in larger quantities, expect discounts for bulk
purchases and negotiate more on the terms of delivery.
• As the value of transactions can be very high in B2B markets, sellers tend
to tailor product offerings to the needs of the buyers. Promotional messages
are therefore also tailored to the specific needs of the market.
• It can also be more difficult to satisfy B2B buyers than consumers.
• Building and maintaining long-lasting relationships are given priority in
B2B markets, as relationships are very important to the success of any B2B
organisation.
Consider the case study ofThe Milky Cow, discussed on page 5-6 of this chapter.
How would the buying behaviour of their B2B market differ from the buying
behaviour of their B2C market? In terms of their B2C market, The Milky Cow
would sell a number of bottles of milk to individual consumers if they have a
stall at the local market. On the other hand, a manufacturing business might
purchase a few hundred litres of milk to be used in the making of yoghurt and
ice cream. This manufacturer would most probably also expect to receive a
discount when buying a large quantity of milk from The Milky Cow and might
even request the milk to be distributed in cans of 10 litres instead of 20 litres,
for example.
1.3.3 Differences in marketing practices

Marketing to the B2B and B2C markets is similar in terms of the fundamental
principles of marketing. The primary marketing objective of both B2B and B2C
markets mirrors the essential principles of the marketing mix. Marketers should
ultimately satisfy the specific target market with the product or service offering,
offer goods and services at the right price and communicate and demonstrate
value. There are, however, also significant differences in marketing practices:
• B2C markets generally use demographic variables (such as age, gender,
income and race) and psychological variables (such as attitudes, preferences,
personality, etc) to segment their market. B2B marketers, on the other hand,
segment their market by looking at the product requirements (application),
usage rate, buying frequencies, buying situation and the end market served
by the customer firms. (Market segmentation and targeting are discussed
in Chapter 5.)
• B2B marketing requires a higher investment than B2C marketing, which is
directed more towards marketing activities such as research and promoting
to mass markets.
11
• Chand (2015) explains that B2C businesses pursue market share and large
sales volumes, while B2B businesses generally focus on obtaining a big
slice or share of smaller or specialised markets, which could imply more
limited sales volumes.
• B2B businesses do not have a huge number of customers; rather, they have
personal contact with a smaller number of customers and are therefore
more customer-oriented than B2C businesses. Long-term relationships are
also crucial for B2B businesses, as both parties depend on the relationship
for the ongoing success of their business. Consequently, strong trust and
loyalty is developed between buyers and sellers in B2B markets. B2C
markets, on the other hand, try to create instant loyalty in their customers.
How is this relevant to the case study of The Milky Cow (see page 5-6 of this
chapter)? The Milky Cow would most likely utilise different marketing strategies
when they market to other companies and when they sell to consumers. To
achieve market exposure and the desired shelf space in retail stores, The Milky
Cow would most likely make use of promotional strategies, such as coupons,
special offers and incentives for the retailer. They would therefore have to
manage each component of the marketing mix, namely the product, price,
distribution (place) and promotion. When marketing to manufacturers, The
Milky Cow would identify the potential users of its products, for example
bakeries or frozen yoghurt producers, and identify market segments that they
could possibly serve. A specific marketing strategy would be developed for
each segment.
1.4 Classifying B2B products and markets

B2B suppliers can also be classified according to the type of product or service
they offer. B2B products, also known as industrial or organisational products,
contribute directly or indirectly to the output of other products for resale (Boone
8: Kurtz 2016:380). B2B products can be divided into two major categories,
namely capital goods and revenue items (Sarin, 2010:31; 2016:31).
• Capital goods form part of a business's balance sheet and are generally
shown as fixed assets. Capital goods are facilities and fixed equipment used
by customers in their manufacturing processes or generally to run their
businesses, such as offices, warehouses and elevators.
• Revenue items are generally listed under the profit and loss statement on
the balance sheet of a business.
In addition, B2B products can be broadly cate orised into three catee:ories.
and parts:
• Raw and processed materials refer to those items that are used in the
manufacturing of other goods. Raw materials, such as iron, gas, oil and
maize, are not transformed by the merchant. Processed materials, on the
other hand, undergo some sort of transformation, such as sand being made
into glass. The Milky Cow, for example, provides raw materials (milk) and
processed materials (butter) to other businesses for use in the production of
their products.
• Component parts and materials (manufactured materials) represent finished
business products of one producer that become part of the final product
of another producer. For example, textiles, paper pulp and chemicals are
components that are used in the manufacturing of other products, such as
clothing. These component products are ready to be incorporated into the
finished product.
1.4.2 Foundation products

These items are used up or worn out. A portion of their original cost is therefore
assigned to the production process as a depreciation expense. Foundation
products include installations and accessory equipment:
• Speciality products required by a B2B market are usually referred to as
installations.These include, for example, major capital investments for new
factories and heavy machinery and telecommunication systems.
• Accessory equipment includes capital items or smaller items that typically
cost less than capital equipment, last for shorter periods and are bought in
larger quantities. This typically includes light equipment and tools such as
power tools and office equipment.
1.4.3 Facilitating products

These are the supplies and services that support the operations of the business,
for example operating supplies, repair and maintenance items and business
services. These products do not enter the production process and do not become
part of the finished product.
• Supplies constitute the regular expenses a business incurs in its daily
operations. Supplies are also called maintenance, repair and operations
(MRO) items:
- Examples of maintenance items include cleaning materials, soap and
lightbulbs.
13
/
- Examples of repair items include nuts and bolts or spare parts used in
repairing equipment.
- Examples of operating supplies include office supplies, paper, printer
cartridges and pens.
• Business services include the intangible products businesses buy to facilitate
their production and operating processes, such as the maintenance and
repair of machines, advisory support (eg management consulting), financial
services, leasing and rental services.
1.5 The essence of B2B marketing: Relationships

1.5.1 Trappings vs substance
In his research paper 'Trappings vs substance in industry marketing', Charles
Ames addresses claims by senior management in B2B organisations that, while
marketing appeared to underpin the success of fast-moving consumer goods
businesses, it did not appear to be working for them. Ames makes the case
that the majority of B2B markets are operations-oriented rather than market-
oriented. Ames further explains that B2B organisations have mistaken the
'trappings' of marketing for the 'substance'. He argues that the trappings in
marketing essentially refer to advertising and promotion, while the substance
in marketing is the identification of customer needs and the creation of
products and services that will satisfy these needs. He explains the substance of
marketing as a business philosophy which is driven by markets and customers
and that leads to growth by continuously finding new customers and market
opportunities.
Zimmerman and Blythe (2013:2) further explain that trappings include activities
such as:
• declarations from top management
• creating a marketing organisation focused on product management to meet
B2B needs
• new strategic or marketing planning approaches
• complete marketing information systems (MISs)
• increasing marketing expenditures for advertising, research and training.
Trappings are therefore aspects that do not address the central need that a
B2B organisation must focus on. B2B organisations should rather focus on
the substance of marketing - satisfying the underpinning needs and wants of
the customer - instead of the trappings of marketing. Building long-lasting,
valuable relationships with customers is therefore pivotal to' the success of a
all about building and maintaining long-lasting and valuable relationships.
Developing and maintaining relationships between buyer and seller organisations
are pivotal to the success of a B2B business. Building relationships is no easy
job, as relationships are never static. They involve a dynamic situation which
requires constant attention, nurturing and communication. Building quality
relationships with customers therefore takes work. Interdependence and
collaboration - and, in some cases, partnerships - are considered fundamental
to B2B marketing. Managing an array of relationships with many different
buyers and sellers necessitates certain competencies and skills, and may be
driven and influenced by a plethora of relational factors.
In essence, relationship-building involves the development of long-term
relationships with B2B customers, with the primary goal of providing value-
added services and products. Adding value involves aspects such as lower
prices, superior quality, quicker delivery and customised product features.
Providing these value-added goods and services to B2B customers means
expanding the business's external relations to include suppliers, distributors
and other organisational partners. Satisfying one big client or customer can
make a difference of millions of rands. In order to do this, there must be
excellent communication among the organisation's personnel.
The stages of relationship-building

According to Dainty (2014), there are five stages in B2B customer relationship
building, as shown in Figure 1.2. Any B2B business should aim to reach the
highest tier, namely being a strategic business advisor. In order to reach this
stage, however, one would first have to go through the first four stages. The
stages are as follows:
1. Vendor: The first stage in building B2B relationships is being a vendor, in
other words a provider of merchandise. The vendor only gets involved when
the buying organisation is ready to evaluate supplies, and the vendor's role
is over as soon as the deal is completed.
2. Preferred supplier: Once a business has become a steady and reliable supplier
of products and services to its B2B customer, it becomes a preferred supplier.
At this stage, the supplier has become a reliable source and constantly
exceeds the buying organisation's expectations. Preferred suppliers are the
first place a buying organisation will look to for the products or services
that it requires.
3. Solution provider: At this stage, the relationship between the buying
organisation and the supplier takes on a more strategic dimension - it
15
becomes deeper and more rewarding. At this level, the supplier becomes
more proactive at higher management levels, for instance by assisting
the organisation in solving problems it may have in various management
areas. This gives the supplier insight into existing business problems, and
the supplier becomes the buying organisation's solution provider. It is
important for the supplier to have strategic plans in place to ensure that it
can work together with its clients.
4. Trusted partner: The client sees the supplier as a source of strategic planning
and as a partner in dealing with challenges they face. The supplier is seen
as a part of or a shareholder of the business.
Strategic
business advisor
Trusted partner
SolUtion provide(
Figure 1.2: The five stages of building 828 customer relationships (Dainty, 2014)
5. Strategic business advisor: The highest level of relationship is when the

supplier is a strategic business advisor to the client. At this level, thsupplier
works with the client organisation's executives to explore emerging needs
and direction on a confidential basis. The supplier is part of all decision
making in the client business; as such it assesses and helps to resolve
problems faced by the client business.
1.5.3 The industrial marketing and planning approach

The industrial marketing and planning (IMP) approach sees B2B marketing as
an ongoing interaction between buyers and sellers, which implies that buyers
and sellers are dependent on each other and that the interaction in itself creates
value. The IMP approach is therefore based on ongoing relationship-building

wnemer marKets are stable or unstable and whether focus should be given
individually to the suppliers or customer. Although the IMP approach is said
to be difficult to apply to everyday management problems (because of its
nature and complexity, as described above), the insights into networks and
relationships that it brings are valuable.
1.6 The impact of the internet on 828 marketing

Since the commercialisation of the internet in the mid-1990s, it has become
one of the most revolutionary forces to hit business in general and B2B markets
in particular. For businesses, the internet represents the single most important
technology that allows them to reduce costs, improve services, expand markets
and deal more effectively with customers. Modem-day internet communication
technologies have transformed the characteristics of marketing and the
dissemination of information to B2B markets. Predominantly, the internet
has increased the quality, quantity, exchange and verifiability of information
available to buyers and sellers on a global scale. From a B2B perspective;
the internet has become an innovative platform for immediate and continual
connectivity to customer markets worldwide, and for getting and providing
immediate and continual connectivity, and universally acceptable and flexible
information to customer markets worldwide. B2B is important to smaller
suppliers, particularly, and to customers who need immediate information
regarding prices and availability.
Although the internet has allowed businesses to communicate and
trade on a bigger scale and more quickly on a global spectrum, the internet
has allowed B2B transactions that are much greater (in terms of scale, value
and options) and more competitive. The internet could be challenging to
organisations that are not well equipped to use it, and it could be detrimental
to many organisations in terms of lost opportunities if it is not used optimally.
B2B marketers should consider utilising traditional marketing mediums as well
as engaging in internet-related advertising and marketing activities to reach
their markets. B2B organisations should also take into consideration that the
internet is continually expanding and changing. The internet has become the
first truly cost-effective, widespread global marketing medium, which means
that almost all businesses are utilising the internet to market and provide
information to potential target markets.
17
In this chapter, B2B markets were defined as markets where businesses purchase products and
services from other businesses. B2B marketing describes marketing activities where products and
services are exchanged among various businesses for purposes other than general consumption.
The main types of B2B buyers are resellers, producers, the government and institutions.
There are certain communalities between B2B and B2C markets. In both B2B and B2C markets, the
main goal is to satisfy the customer and build lasting relationships in order to gain a competitive
advantage. However, there are numerous differences between purchasing by organisations and
purchasing by consumers. Many of the differences occur because consumers mostly purchase
for personal consumption, whereas in most cases organisations purchase to satisfy the needs of
the organisation. This chapter explained the nature of B2B markets and highlighted the different
characteristics of B2B markets compared to B2C markets. It was pointed out that the market
structures of B2B and B2C markets differ, as well as the buying behaviour and marketing practices
in these markets. The various categories of B2B products, namely entering products, foundation
products and facilitating products, were also discussed in this chapter.
Marketing to a business involves the same concepts and strategies as marketing to the consumer
market, including activities such as identifying and defining the target market, understanding
the behaviours of consumers, and developing effective marketing strategies. However, there are
significant structural and behavioural differences in marketing to B2B markets. Ultimately, B2.B-
marketing differs from B2C marketing in that it involves B2B markets, a transaction between a
professional seller and a professional buyer, and activities in which products or services are sold
for any use other than personal consumption. It was argued that the 'trappings' in marketing
essentially refer to advertising and promotion, while the substance in marketing is the identification
of customer needs and the creation of products and services that will satisfy these needs. It is
essential in B2B marketing that relationships are forged and maintained, as these relationships will
carry the business over a long period of time.
Self-assessment questions
1. Explain, with a relevant and practical example, what B2B marketing entails.
2. Discuss the various types ofB2B consumers (or buyers) and give an example
of each.
3. What are the major categories into which B2B products can be classified?
4. Differentiate between the 'substance' and 'trappings' in marketing.
5. Name and explain the differentiating characteristics of B2C and B2B
markets and provide an example where applicable.
6. What are the major differences between B2B and B2C marketing? How
would these differences affect the formulation of a B2B strategy?
7 Acc11n'10 +h.,+ 'rnn .,ro.., n.,nor 'YY\t"\'Y'IH.f.,,...,.+,,ror C"oll -nn" nrn. -. .. ,.....+c +n hn+'h +'ho ll'1r
Business-to-business buying
Mercy Makhitha
Learning outcomes

• understand what B2B buying is
• explain why B2B buying is of strategic importance
• explain the stages in the buying process
• explain the types of buying decisions
• understand the setting of supplier selection criteria
• discuss trends and developments in B2B marketing.
(HAPTER 1: INTRODUaiON TO BUSINESS-TO-BUSINESS MARKETING
References
Boone, LE Et Kurtz, DL. 2015. Contemporary marketing. 2015 update. Ohio: Cengage
Learning.
Boone, LE Et Kurtz, DL. 2016. Contemporary marketing. 17th ed. Ohio: Cengage
Learning.
Chand, S. 2015. Difference between 'business markets' and 'consumer markets' -
explained! Available: http:/ /www.yourarticlelibrary.com/difference/difference-
between-business-markets-and-consumer-markets-explained/ 13458/ (Accessed
23 June 2016).
Cole, R. nd. Differences between wholesalers, distributors and retailers. Available:
http:/ I smallbusiness.chron.com/differences-between-wholesalers-distributors-
retailers-30836.html (Accessed 22 February 2016).
Dainty, I. 2014. The 5 stages of B2B customer relationships. Available: http:/ I
www.business2community.com/customer-experience/5-stages-b2b-customer-
relationships-0848666#oRIAZjVFOAksH7qz.97 (Accessed 28 June 2016).
Dainty, P Et Anderson, M. 2008. The MBA Companion.London: Palgrave MacMillan.
Ellis, N. 2011. Business to business marketing: Relationships, networks and
strategies. New York: Oxford University Press.
Hutt, MD Et Speh, TW. 2014. Business marketing management B2B. London:
Cengage Learning EMEA.
MarketingTeacher.com. nd. Business to business marketing. Available: http://www.
marketingteacher.com/business-to-business-marketing/ (Accessed 18 February
2016).
Sarin, S. 2010. Strategic brand management for B2B markets: A road map for
organisational transformation. New Delhi: Sage Response.
Sarin, S. 2016. Strategic brand management for B2B markets: A road map for
organisational transformation. 2nd ed. New Delhi: Sage Response.
Zimmerman, A Et Blythe, J. 2013. Business to business marketing management: A
global perspective. New York: Routledge.
(B2C, or business-to-consumer buying). This chapter focuses on B2B buying
and will provide details on bow businesses buy. Selling organisations need an
understanding of a buying organisation's buyer behaviour. This chapter covers
aspects of B2B buying that selling organisations need to understand in order
to sell their products effectively to buying organisations. To understand the
behaviour of the buying organisation, the selling organisation must understand
the strategic importance and roles of the buying function. Furthermore, selling
organisations must understand the buying process that buying organisations
go through. This enables the selling organisation to determine what to do in
each of the stages and how to influence the buying organisation in each ofthe
stages. This chapter therefore explains the buying process and the roles of the
buying function.
Since buying organisations select suppliers from among a group of
potential suppliers, an understandingof the supplier selection criteria used
by buying organisations is also important for selling organisations. Knowing
the criteria that buying organisations use to evaluate and select suppliers
enables potentiaL suppliers to work towards meeting these requirements. This is
therefore covered in this chapter. Lastly, the chapter l.ooks at the developments
influencing the buying role of organisations. This is also an aspect that the
selling organisation needs to be aware of so that it can adapt to developments.
2.1 What is 828 buying?

As shown in Chapter 1, one of the major differences between B2B and B2C
buying is that in B2C buying, consumers purchase goods and services for their
own personal consumption, while in B2B buying, businesses buy products
and services from other companies for business use - for production and
operational purposes. As discussed in Chapter 1, there are various types of
business customers: commercial organisations, governments and institutions
(such as hospitals and universities). CommerciaL organisati.ons consist of
industrial distributors, original equipment manufacturers (OEMs), users and
retailers. They differ in terms of product use but are similar in terms of buyer
behaviour and associated communication needs (Fill 8: Fill, 2005:9).
Retailers operate differently from industrial distributors and others since
their customers are the end consumers. Retailers purchase. goods in order to
resell. The retailer buying process is similar to that of other organisations such
as the OEMs, industrial distributors and users, except that it is not always as
compLex. Users are organisations buying goods and services for operational
purposes.
21
All types of businesses, as well as businesses of different sizes, engage in B2B

buying. Organisational buyers buy different types of products for different
purposes as well as from many different suppliers. Businesses also spend large
sums of money (sometimes billions of rands) when buying. For example, think
of a company such as South African Airways (SAA) buying an airbus, or
think about how many millions of rands were spent on buying trains for the
Gautrain project. Other examples of B2B buying include when Eskom buys
coal from mining companies to use in the production of electricity, or when a
university buys items such as computers and stationery, which it needs in order
to function and perform :ts daily operational activities.
B2B buying forms part of a business's supply chain. Figure 2.1 shows
where B2B buying takes place in the supply chain. (See Chapter 12 for more
details on the supply chain.)
r l
Suppliers of Manufacturing Retailers/
Distributors
raw materials
1 companies
I I
wholesalers
828 buying 828 buying 828 buying
Figure 2.1: Illustration of a 828 supply chain
From Figure 2.1, it can be seen that B2B transactions take place throughout the
supply chain. Suppliers of raw materials sell to manufacturers, who buy raw
materials to produce other goods. These manufacturers may also buy goods
and services such as computers and office furniture for operational use. They
also open bank accounts to conduct business transactions. After producing
goods, manufacturers might sell their goods through distributors to the trade
wholesaleFs or retailers or directly to the trade retailers and wholesalers.
Distributors and retailes or wholesalers buy to resell. However, they also
buy other goods for operational purposes, such as computers, office furniture
delivery trucks, computer systems, shelves for displaying products and so forth.
2.2 The strategic importance of 828 buying

B2B buying is of strategic importance to any organisation. This is because
the organisation relies on the products and services bought by the buying
...J >+ on+ +n TH>rf"n't"TYI i-tco n<:>ihr nnPr::ltinn<: F::wh ::l110 PVPTV lar!le or!lanisation
me ousmess customer ana tne buymg business together by buying goods and
services that match the needs of the buying business and those of the buying
organisation's customers. Customers consider quality, cost, delivery and
sufficient quantity when buying. The buyer must ensure that through sourcing,
these customer requirements are met. The buyer also has to ensure that the
buying business benefits, which means the buyer plays a boundary spanning
role in bringing the buying business and its business customers together.
B2B buying is of strategic importance to the selling organisation for
various reasons:
• Profitability: The amount of money a business spends on buying goods
and services has an impact on the profit that it will make. For example, if
a business buys goods and services at high prices, it will have to set high
prices for its customers in order to recover the buying costs. This might or
might not be feasible, and it might negatively affect the profits.
• The quality of goods and services: The quality of the goods and services that
an organisation buys from its suppliers affects the quality of the products
that it can produce. For example, an organisation such as Woolworths,
which has been positioned on quality, buys high-quality goods from its
suppliers to match its positioning. The same applies to an organisation
such as BMW, which is positioned on performance; this car manufacturer
would have to buy high-quality materials and parts in order to produce
high-quality and high-performing motor vehicles. An organisation may
find it difficult to turn a low-quality raw material into a product that is
of high quality. Therefore the ability of a buying organisation to source
high-quality products will affect its ability to supply quality products in
the market.
• Competitive advantage: As also shown in the previous point, B2B buying
can make a big contribution to a company's competitive advantage. For
example, companies that market their products as affordable, such as
Shoprite and PEP, must buy goods and services at lower prices than other
retailers in order to charge lower prices than other retailers. This is their
way of gaining a competitive advantage.
• Improved product and process designs: B2B buying can help introduce new
technology into the company's products and services. Working closely with
suppliers helps generate innovative ideas on how to continually add value
to the organisation's products and services. In order for this to happen, both
parties must commit themselves to building the relationship for mutual gain.
23
• Timely marketing and delivery of products: B2B buying acts as a liaison

between the selling business and the departments in the buying business
that require the goods purchased, such as the production and engineering
·departments. The buying organisation can source suppliers (selling
businesses) early during the product development process, which will lead to
improvements in material costs, material quality and product development
times. The buyer must make sure the buying business sources goods and
services from a credible and reliable supplier who will deliver goods on
time, as failure by the supplier to deliver goods on time means that the
organisation will also fail to make its products available to the market on
time. For example, some cellphone network companies in South African
have been accused of failing to provide accessible cellphone networks.
Although it was not clear in this case why these companies were unable to
provide services on time, one reason could be that their suppliers were not
providing goods and services to them on time.
• Balancing the inventory: Constant rising inventory costs have compelled
organisations to find a balance between having too small an inventory and
the cost of having too large an inventory. The buyer plays an important
role in ensuring that this balance is achieved.
2.2.1 Roles and responsibilities of the buyer

Personnel within the buying function (buyers) play various roles and have
different responsibilities. This involves buyers at different levels within the
department, such as the assistant buyer, buyer, manager and director. The
following are some of the major roles performed by the persounel within the
buying function:
• Doing price/cost analyses: The cost of purchasing represents the largest
share of organisational costs. The buyer therefore seeks to obtain goods
and services of the highest quality at the lowest possible cost at the right
time and at the right place. In order to do this, an ongoing analysis of price
and cost trends is carried out. This is called a price/cost analysis (or a spend
analysis).
• Doing market research: The buying function is responsible for conducting
market research to learn about suppliers, the needs of the buying organisation
and the needs of the buying organisation's customers. The buying function
estimates the future needs of the buying organisation, and these needs are
then communicated to suppliers who must deliver goods and services that
meet these needs and expectations. The buying function also determines
the needs of the buying business's customers so that the buying business
IS
compete effectively. The buying department also ensures that materials or
services sourced meet the minimum requirements for quality. If this is not
done, the end product or service will not meet the buying organisation's
expectations or will do so at a cost that is higher than acceptable.
• Developing contracts and negotiating with suppliers: This involves
developing appropriate contracts and terms satisfactory to both parties.
• Providing an uninterrupted flow of materials, supplies and services
required for the operation of the organisation: This reduces stock-outs and
prevents late deliveries of materials, components and services, which can
be extremely costly in terms of lost production, reduced profit or revenue
and reduced customer goodwill.
• Improving the organisation's competitive position: The buying function
focuses on contributing to the overall achievement of organisational
goals, strategy and objectives. To improve the competitive position of the
organisation, buying management identifies opportunities in the supply
chain that can contribute to revenue enhancement, asset management
and cost reduction. The buying department can improve the company's
competitive position by sourcing goods and services at the lowest total cost
of supply, providing access to new technologies, designing flexible delivery
arrangements, ensuring fast response times, providing access to suppliers
with high-quality products or services and providing high-quality product
design and engineering assistance.
2.2.2 The buying centre

A , buying centre is a buying team consisting of individuals from various
departments (such as finance, marketing, engineering, IT and so forth,
depending on the skills and expertise needed). These individuals are chosen
because they possess the expertise needed in the buying decision. A buying
centre is formed as and when there is a need to purchase, especially when
there are inherent risks associated with the buying of products and services.
Bringing together individuals from diverse backgrounds helps the business to
make effective and efficient buying decisions, thereby reducing buying risks.
Buying risks include the risk of financial loss due to buying the wrong product,
performance risk due to product malfunctioning and social risks that may be
incurred if the product bought does not match the image and reputation of the
buying organisation.
Individuals within a buying centre play various roles during the buying
decision (Dwyer 8: Tanner, 2002:107):
25
• The initiator starts the buying process by recognising the need. This may be
any individual within the organisation.
• The decision maker makes the final decision. In some cases, there may be
several decision makers.
• The buying agent is responsible for buying. The buying agent is usually
an individual from the purchasing function (buyer). He or she may also
be an individual from another function. For example, an IT specialist may
be responsible for purchasing IT goods, such as computer hardware and
software, on behalf of the business, instead of a buyer doing so.
• The injluencers are the individuals that affect the decision maker's final
decision. They make recommendations regarding which suppliers to buy
from and also which products are best suited for the organisation.
• The users are all the individuals who use the product. They may influence the
buying decision by providing information that will be useful in evaluating
the product after purchase.
• The gatekeepers control the information that comes to or flows from the
buying centre team or between members of the team. They sometimes
influence the decision by determining which information is communicated
to the buying centre team.
It is important for selling businesses - those selling to buyers (buying
organisations) - to understand the different roles during the buying process and
for them to identify the different individuals playing these roles. This is so that
these selling organisations can target their marketing efforts to the individuals
involved in the buying process. The marketers of selling organisations may
formulate different marketing strategies and marketing messages targeted at
each of the individuals involved in the buying process.
2.2.3 The importance of the buying function to other

organisational functions
As already shown in this section, the buying function plays a significant role within
an organisation and impacts on the overall performance of an organisation. It
also influences other functions within the organisation, such as marketing,
finance and production or engineering. It does so in the following ways:
• The constant contact of the buying function with suppliers enables it to
identify products with good market potential; in this way, the buying
function can help the marketing function to extend the product range.
Marketing also depends on the buying function for the timely availability
of stock. The marketing department cannot sell products that are not
and stationery.
• Finance relies on the buying function to cut or maintain costs of purchasing.
This is because overspending by the buying function affects the financial
position of the buying organisation.
• The production function depends on the buying function to ensure efficient
production processes and lower manufacturing costs. The buying function
also has to ensure the timeous and correct supply of raw materials to avoid
production stoppages and products of poor quality as well as to ensure
optimal utilisation of facilities.
The buying function also relies on other functions within the organisation.
For example, it relies on the marketing function to understand the needs of
organisational customers.
2.3 The 828 buying process

Buying organisations go through a lengthy buying process, with several
stages, when buying goods and services. The process may differ from one
type of organisation to another. For example, retailers may not go through
the same stages in the buying process as government and manufacturers do.
Furthermore, capital projects, such as the Gautrain project, may cost billions of
rands and may involve different stages during the buying process.
2.3.1 The general stages in the buying process

It is possible to identify basic stages that most organisations go through when
buying, as shown in Figure 2.2.
Recognising ':
1
.... Determining the
characteristics and/
.... Searching for
suppliers
jI
the need ·
• ;tj
or quantity needed
..
Performance
evaluation and
feedback to suppliers
Developing
a contractual
agreement with the
supplier
- Stage 4:
Evaluating and
selecting suppliers
....
Figure 2.2: The stages in the buying process
27
Stage 1: Recognising the need

In the first step, need recognition, buyers become aware of the need to buy
goods and services. It is only after the need has been recognised that the
organisation starts the buying process. Different people within an organisation
can recognise the need - it is not the responsibility of the buying department
alone. For example, the need may arise from the production department needing
raw materials, the marketing department needing an advertising agent or the
human resources department needing to work with a recruitment agency. The
buying department may also notice that the stock in the warehouse is low and
may decide to buy more to avoid running out of stock.
Stage 2: Determining the characteristics and/or quantity of

the products needed
To avoid buying the wrong product or the wrong quantity of products, the
buying department must determine the characteristics of the products and the
quantity needed. Determining the characteristics may involve a full description
of the product: its size, design and style, colour and so forth, if necessary. The
buying department finalises this stage with the assistance of the departments
that need the products. For example, if the marketing department wants to
contract an advertising agency, they may state what they expect from the
advertising agency (such as the ability to bring new and innovative ideas,
support services and so forth). This helps the purchasing department to source
suppliers who will meet the needs of the organisation.
Stage 3: Searching for suppliers

The search for suppliers begins as soon as the description of the product
and the quantity needed have been finalised. The purpose of this stage is to
identify potential suppliers that have the ability to supply the needed product
at the right quantity. Depending on the buying strategy of the company, many
suppliers may be contacted to supply bids, or to tender. If the company is
buying the particular product for the first time, the buying department will
identify as many suppliers as possible. If it is an existing product, the buyer
may identify a few suppliers from the suppliers listed on the organisation's
database. (Usually an organisation will have such a database. Government
departments, for example, advertise to request potential suppliers to apply to
be listed on their databases.) Some organisations allow their buyers to find
other suppliers should they not be satisfied with the existing suppliers on their
database. If there is no available supplier on the database, then the buyer will
to supply. Figure 2.3 illustrates a request for tender and Figure 2.4 shows
an invitation to bid issued by Parliament. These two advertisements show
a basic description of the services required and give details of where bid
documents can be obtained. Private businesses also advertise requesting
potential suppliers to submit their proposals for bids, as shown in
Figure 2.5. In this advertisement, the basic bid criteria are also shown. B2B
sales representatives also approach potential buying organisations to sell goods
and services to them.
Company ABC herewith requests suitably qualified persons, companies or consortia to bid for the
followtng:
Bid number Description Location of project Compulsory briefing

site session date/time and
location•
ABC 56/2015/16 The provision of Alberton, Gauteng Company ABC, 120

hosted E-recruitment Province Alberton Road,
system Alberton, Building 2000,
Room M12.
19April2016
Time 10:00 am
"The briefing session is compulsory and no bid will be considered without the signed attendance
certificate which will be handed out to prospective bidders during che site visit.
Only tenders received at the time of the closing of the tender will be considered.
Prospective bidders are advised to collect bid documents or to download them from the Company ABC
web page: www.companyabc.co.za. A non-refundable tender fee of RSOO is payable either by bank
deposit or Electronic Fund Transfer. Banking details are available on tender documents.
For more information and to obtain bid documents, please contact

Sophie Maletsa Tel: 011 504 1111 or e-mail: tenders@companyabc.co.za
Company ABC reserves the right to cancel and/or alter any bid herein advertised entirely or in part.
Figure 2.3: An example of a request for tender
29
Brd number Description Briefing session Bid dosing date

Date/time/Yenue I
I
B4/2016 Provision of Banking 07 April 2016 at 11:00 in 15 April 2016

Services for Parliament Boardroom M51 5, 5th @ 12:00
of RSA Floor, Marks Building
Bidders are hereby invited for the provision of the above-mentioned service.
Bid documentation may be colleded between 09h00 and 15h30, Monday to Friday from office no. WS5/015, 5th
Flooor, 90 Plein Street, Cape Town. Entrance is via 120 Plein Street, Parliament's Visitors Centre, Cape Town.
Bids are also available on Parliament's website at www.parliament.gov.za. Please note that this briefing
session is compulsory. Sealed and completed bids, clearly marke.d with the Bid Number, must be deposited in the
Bid Box at 120 Plain Street; Parliament's Visitors Centre, Cape Town or posted to the Secretary to Parliament, PO Box
15, Cape Town BODO by no later than the closing date and time as stipulated above. Late submissions will not be
considered.
The 90/10 Preferential Point System is applicable to this bid.
The Secretary to Parliament is under no obligation to accept the lowest or any bid.
For further enquiries regarding the services, please contact Mrs. lGordon at (021) 403-8412/8374,
fax: (021) 403-819612603 or email: tenders@parliament.gov.za.
Parliament urges everyone to please report all fraud-related activities to 0800204573.
Figure 2.4: An example of an invitation to bid issued by Parliament
PPC is a company listed on the JSE Limited.The group is one of Africa's biggest cement producers and has extensive
manufaduring operations in Southern Africa, and most recently in Rwanda. In addition to optimising the long-
term performance of the business and achieving a balanced and integrated, economic, social and environmental
performance, it is also PPC's objective to be a world-class provider of materials and solutions to the basic services
sedor, taking a strategic approach to more than doubling our business every 10 years.
Scope
The objective of this RFI is to request information from potential transport providers, for both bulk and bagged
cement, within South Africa. The information will be subjeded to a screening process in order to determine a
shortlist of candidates to participate in a RFP process. The purpose of the RFP is to engage with successful bidder(s)
for the ad hoc or contradual transportation requirements for the outbound distribution of bulk and bag cement
within RSA.
Criteria
1) Supplier has a fleet of bulk and bag vehicles (> 30 tons payload) in excess of 30 vehicles (combined) or,
2) Supplier has current capability to transport cement volumes in excess of 250 000 tons per annum (combined
bulk and bags) and,
3) Supplier meets PPC's BBBEE requirements
a. Procurement recognition Level 6 or higher
b. Black ownership or black women ownership of at least 30%
Bidders who meet the above criteria are requested to:
Send an email to Thembi.Kekana@ppc.co.za to request a link to the Contract Fleet Renewal landing page on the
PPC procurement portal. Please ensure the email subjed line refers to Contract Fleet Renewal request.
the organisation's needs and fulfil the predetermined criteria better than the
competitors. Buying organisations seek a supplier that will contribute to
achieving the strategic goals of the organisation.
Before suppliers are selected and evaluated, the buying organisation
develops a set of criteria it will use to evaluate suppliers in a fair and consistent
way. This is an ethical manner in which to evaluate and select suppliers.
Different organisations have different ways in which they select suitable
suppliers, however, the generic criteria for selecting suppliers are price, quality
and delivery (see Section 2.4 for more details). This means that suppliers are
evaluated against their ability to provide competitive prices, quality products
and timely delivery. For example, Woolworths would consider a supplier who
is able to supply products of a high enough quality to match their position in
the market.
Stage 5: Developing a contractual agreement with the

supplier
Soon after the supplier has been selected, the buying organisation prepares and
finalises the contract with the supplier. The contractual agreement stipulates
what the organisation will buy from the supplier and for how long. For example,
the South African government had a 20-year contractual agreement with Total,
a petroleum company, to supply fuel to the Kruger National Park. Both public
organisations (such as Telkom and Eskom) and private organisations have
contractual agreements with suppliers. For example, some universities in South
Africa have contractual agreements with Xerox to provide printers and to do
maintenance of the printing machines. Although an agreement may be revoked
if necessary, it ties the buying organisation to the contracted suppliers for a
period of time.
Stage 6: Evaluating the supplier's performance and giving

feedback to the supplier
To confirm the suitability of suppliers, each supplier's performance is evaluated
after the organisation has bought from that firm. The purpose of this stage is
to ensure that the supplier is keeping its promises - supplying the product at
the agreed price, of the right quality and on time. If, for example, the supplier
was selected based on price and its ability to deliver on time, the buying
organisa tion will evaluate the supplier for its ability to sell the products at the
agreed price and as per the agreed delivery time. Some buying organisations
31
have a formalised performance report where suppliers may be- requested to

better their performances.
The nature of the relationship between the buying and selling organisation
influences the performance evaluation. The ability of a supplier to satisfy the
needs of the customer organisation will determine the nature of the relationship
between them. Organisations with strong buyer-seller relationships have certain
benefits, since strong relationships lead to continuous and open communication
between the two parties. (See Chapter 12 for more on relationships.)
2.3.2 The retail buying process

Makhitha (2013) shows that retailers go through a lengthy process when buying
goods and services. The process involves the same basic stages as outlined in
Section 2.3.1, as well as some extra steps. The steps include:
1. identifying a need for a product
2. determining the characteristics and/or quantity of the product needed
3. creating a precise description of the product needed
4. estimating the demand for a particular item
5. determining the product assortment (product lines or range, and number of
products per product line)
6. deciding how much stock to keep and therefore how much to invest
7. formulating the criteria that will be used to evaluate suppliers
8. searching for potential suppliers
9. visiting and/or interacting with the suppliers to learn more about them
10. evaluating and/or selecting suppliers
11. placing trial order/s and finalising the approval of suppliers
12. negotiating trading terms with suppliers
13. developing a contractual agreement with suppliers
14. placing replenishment orders (further orders after the first trial order)
15. expediting and evaluating the supplier's and the product's performance
16. providing the suppliers with feedback about their product performance.
There are many documents that the buying function is involved with during
the buying process. Some of these documents include the following (Wong,
Arlbjorn Et Fohansen, 2005):
• a requisition form
• all relevant correspondence: clarifications and correspondence with
suppliers, notes from meetings, phone calls, correspondence with
contractors, etc
• the designation of the bid opening panel and the evaluation by the head of
• copies of any bid security received from the supplier (the originals are to
be kept in a safe place)
• the evaluation report
• any required progress reports and/or other proof of delivery of milestones
as provided for in the contract
• proof of receipt of the goods
• a receipt and inspection report
• insurance claims
• proof of payment.
Each business has a buying or supply chain policy that determines which and
how many documents are needed. The head of the buying or supply chain
department ensures that such documents are filed for future reference. The
buying policy within the organisation also determines which of the documents
should be kept and for how long.
2.4 Supplier selection criteria

Supplier selection is one of the most important stages in the buying process, as
discussed in Section 2.3. Supplier selection deals with assessing the performance
of suppliers in order to select those suppliers who meet the requirements of the
buying organisation. Supplier selection determines the organisation's ability
to buy the right product, at the right place, at the right price and at the right
time. It involves evaluating suppliers so that the best supplier can be selected.
Supplier selection has a direct impact on the quality, cost, delivery reliability,
availability and lead times of products supplied by the supplier, as well as on
the technology needed to meet new market demands. The quality of products
(especially raw materials) and the price at which products are sourced affect
the quality of product output and the profitability of the organisational buyer.
For example, acquiring raw materials at high cost might lead to reduced
profitability. An inability on the part of a supplier to deliver products on time
will have a negative impact on the buying organisation, as the organisation
will not be able to deliver its own products when needed. (Also see Section 2.2
on the strategic importance of the buying function.)
Supplier selection criteria are formulated prior to the buying process.
Evaluating suppliers against predetermined selection criteria enables the
organisation to make efficient decisions. For example, Eskom has a handbook
for the receipt, handling, assessment and evaluation of tenders. The handbook
details the buying process that the company goes through and also includes
the criteria that are used to evaluate and select suppliers. The South African
33
government uses 'generic' criteria such as the gender of the business owner,
the Black Economic Empowerment (BEE) status of the business as well as the
disability status of those in the organisation.
Supplier selection criteria must be tailored to meet the needs of the
organisation. As mentioned, the three most common supplier selection criteria
are price, quality and delivery. However, there are many possible supplier
selection criteria, and organisations use diverse criteria (depending on their
buying needs, the type of products they are buying or the type of organisation)
in an attempt to source the best products and services from reliable suppliers.
According to Makhitha (2013:214), the ten most important criteria
retailers use to evaluate suppliers are:
1. product quality
2. the attractiveness and excitement value of the product
3. the product's styling and design
4. the product's distinctiveness or uniqueness
5. the supplier's willingness to co-operate with the buyer organisation
6. the product's sales potential
7. the supplier's ability to supply products based on the buyer organisation's
demands or requirements
8. supplier capacity, ie the supplier's ability to supply the needed quantity
9. delivery reliability, ie the supplier's ability to deliver on time
10. the total cost of acquiring the product.
It is important to note that the criteria listed above may differ for different
products and buyers from different sectors. For example, Yigin et al (2007:19)
listed quality performance, quality assurance systems, delivery performance
and cost analysis as the most important criteria for manufacturing buyers.
Pearson and Ellram (1995) investigated the supplier selection criteria for
large electronics businesses and found that their most important criteria are
product quality, product price, technology used and the design capabilities of
the suppliers. This shows that supplier selection criteria differ across buyers,
industry, company size and type.
Some more examples of supplier selection criteria that an organisation
may use include:
• product quality: technical level, defects, reliability, quality assurance
systems, design, product life, ease of repair, maintenance and dependability
• delivery reliability and distribution: on-time delivery, supply capacity,
warranty period, repair tum-around, product shortages, store adaptability,
transportation adaptability, flexibility, performance
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uuunneu
• co-operation and partnership: the need for supply contracts, easy
communication, past experience of selling the products, good relationship
between supplier and buyer
• financial aspects: price, financial stability, credit status, financial references,
income and earnings, assets and debts, cash flow
• technical aspects: development of new products, access to technology,
technical support
• management and organisation: reputation and position in industry,
communication system, cultural similarity, speed of development, quality
assurance, operating controls, labour relations, technical and production
capabilities
• profitability and sales: overall profitability, rate of turnover, sales potential
• assortment considerations: the existence of private brands, relations to
other products, product types, number of quality levels, number of brands,
product size, product colour and product variants
• supplier marketing: introductory marketing campaign, continual marketing,
in-store demonstrations, promotional materials such as pamphlets and
brochures, co-operative advertising
• environmental criteria: waste disposal, recycling, training on environmental
issues, environmentally friendly materials, returns handling
• legal criteria (Broad-Based Black Economic Empowerment [B-BBEE]):
status, scorecard, ownership (black, women or disabled), management
control (black, women or disabled), preferential procurement (buying
from small organisations, black-owned organisations and women-
owned organisations), employment equity, skills development, enterprise
development and socio-economic development.
A buying organisation's supplier selection criteria will influence the marketing
strategy of suppliers, which must convince organisational buyers that the
supplier possesses the capability to meet the buyer's needs. It is therefore
important for marketers in supplier organisations to understand the supplier
selection criteria used by buying organisations. For example, if marketers
learn that a potential customer looks for delivery reliability when buying, the
marketer may work on the company's delivery strategy to ensure that they are
able to supply the correct product at the right time and in sufficient_ quantities.
If the cost of the product is an important criterion for an organisational
buyer, the supplier organisation may also work on managing its costs so as
to remain competitive. For example, the airline company Kulula.com provides
minimal services to its passengers on board in order to support its low-cost
35
strategy. This strategy has an impact on the prices the company is willing to
pay to suppliers; the prices must enable the company to remain focused on its
competitive advantage, namely low costs.
2.5 Types of purchases and buying decisions

2.5.1 Categories of purchases made by the buying department
The buying function needs to understand the needs of its organisation before
it can purchase any goods or services. It must conduct a spend analysis of the
past and projected spends on different categories of goods, services and works,
and it must analyse the risks associated with securing different categories of
goods and services. It is important for an organisation to categorise purchases
of goods and services according to the difficulties of securing them, the
relative expenditure, as well as the supply situation these goods and services
will be involved in. The marketing implication is for suppliers to understand
the different product categories and to determine the marketing strategies
appropriate in each product category.
According to Van Weele (2010), there are four categories of products,
namely strategic products, leverage products, bottleneck products and routine
products. The buying behaviour of buyers buying these products has an impact
on the financial position of the company. The categories of products determine
the nature of the relationships between the buying organisation and suppliers,
based on the nature of the supply risks inherent in the purchases of the products.
Supply risks include the availability of products in the short and long term, the
number of potential suppliers available, the costs of changing suppliers, the
costs of keeping inventory, as well as the availability of substitutes. A buyer
will also go through different processes depending on the type of product
involved. It is therefore important for marketers in supplying organisations to
understand the buying behaviour of customer organisations, so that they can
prepare appropriate sales and marketing efforts targeted at buyers of specific
products.
Strategic products
Strategic products are high-tech, high-volume products, often supplied at
customer specification. There is only one source of supply, which cannot be
changed in the short term without incurring costs. These products constitute a
high share in the cost of the company's end products, for example a car engine
used in the manufacturing of a car. Due to the importance of these products to
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imposed by the buyer on the supplier. The buyer usually has more power
and dictates its demands to the supplier, who is forced to meet the buyer's
requirements. For example, in the motor industry, motor car manufacturers
dictate what engines they want and suppliers are expected to supply as per
the buyer's requirements.
2. Supplier-dominated segments: In these segments, suppliers have more power
in the relationship and usually lock customers in relationships through
carefully designed marketing strategies. For example, some retailers use the
SAP information system. This system is supplied by one company, which
means that users are tied into a relationship with the supplier since it is
costly to change from one system to another.
3. Balanced relationship segments: In this category, both parties - the buyer
and the supplier - have a mutual interest in maintaining the relationship.
Neither one dominates the relationship. Instead, they work in partnership
with each other.
Leverage products
Leverage products constitute standard products that can be obtained from
various suppliers at standard quality level. They are bought in large volumes
and represent a large share of the end product's cost price. Buyers buy these
products from a large number of suppliers and engage in aggressive supplier
search as well as tendering processes in order to arrive at a competitive price.
There are many suppliers in this product category, and the switching costs are
low, making it easier for a buyer to switch from one supplier to another. Buyers
therefore have freedom regarding whom they will select as suppliers. In this
situation, suppliers may co-operate by, for example, using price agreements to
make it difficult for buyers to switch from one supplier to another.
Bottleneck products
Bottleneck products are products of relatively limited value in terms of money,
however, their supply is vulnerable. These products can only be obtained from
one supplier. In this situation suppliers are usually in a dominant position,
which leads to high prices, long delivery times and, in some cases, bad service.
Examples of these products include natural flavourings and vitamins for the
food industry, and catalytic products for chemical industry.
37
Routine products
Routine products are products that have a small value and are supplied by
many alternative suppliers. The purchase volume is usually low. Since they
are bought routinely and can be purchased in large quantities, the costs of
handling these products are higher than the value of the products themselves.
More time and energy are spent purchasing these products, which makes
purchasing more of an administrative job. Examples of these types of products
include stationery, cleaning chemicals and maintenance supplies.
2.5.2 Types of buying decisions

Buyers within buying organisations are involved in different types of buying
decisions. There are three main types of buying decisions: complex, modified
and straight buying decisions.
Complex buying decisions

The complex buying decision takes place when an organisation is buying new
products it has never bought before, or costly products. Buyers go through
a lengthy buying process to reduce the risks, including financial risks,
performance risks and social risks. An organisation that buys the wrong product
may suffer financial losses, especially when the product cannot be replaced
with the correct product. For example, some organisations develop products to
customer specifications. Should this product not perform as expected, it cannot
be returned to be sold to other customers, since it was developed for that
particular buying organisation and not for others. The buying organisation
might have to spend more to get the right product. Furthermore, an organisation
may suffer performance risks if the product purchased does not perform as
expected.
Due to the nature of the complex buying decision, more people from
various departments may be involved in decision making, for example
engineers (who would assist with product specifications), the marketing
department (which would articulate customer needs), the finance department
(which would advise on the financial implications of buying the product) and
the purchasing department (which would ensure that the right product, as
specified, is purchased).
The marketers of the selling organisation could play an important role
to help reduce perceived risks. This can be achieved by conveying information
regarding the product - such as how it can benefit the buying organisations -
as well as the performance of the product. Marketers can use existing customers
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..., ......
and knowledge gained over time in buying a specific product or products; hence
the modified buying decision. A company involved in a complex decision when
buying a new product for the first time may be involved in a modified buying
decision when buying the product again, as the buying department now knows
what to expect and has knowledge of the performance of the supplier in selling
the product. For example, the Gautrain railway lines were built in the early
2000s. Should the company want to expand routes to other areas, the buying
process will likely involve less effort than the first time, due to the knowledge
and experience gained by the company during the original construction.
In addition to knowledge and experience gained, organisations may go
through a modified rebuy when there is a new supplier in the market offering
something different to existing suppliers - the organisation may then go
through a buying process to compare existing suppliers with the new one.
Furthermore, changes in the market, such as changes in economic conditions,
technological developments and so forth, may force buying organisations to re-
evaluate their suppliers. This may lead to buying personnel going through fewer
stages in the buying process compared to complex buying decisions, where buyers
go through a lengthy buying process. For example, in early 2009, Woolworths
modified its merchandise mix to attract middle-class consumers who were more
driven by price than quality. This involved adding new grocery items and may
very well have led the company to change or add suppliers.
Straight buying decisions

The straight buying decision is a decision that involves placing orders as and when
products are needed. This happens when products are bought quite frequently and
the organisation therefore needs replacement stock on a regular basis. Products such
as office stationery fall in this category. A buyer will place orders for replacement
products as and when they are needed. The ability of suppliers to provide products
on time is important. Products such as computer equipment may also fall in this
category. Organisations would need to buy computer equipment from time to time
as replacement products or for new staff members. In this case it may not be
necessary for the organisation to shop around and compare products; rather, the
buyer would place orders with existing suppliers.
2.6 Centralisation and decentralisation of buying

Centralisation and decentralisation of the buying function are major issues
w.ithin large organisations. As an organisation grows, the centralisation or
39
decentralisation of the buying function comes under scrutiny. This aspect refers
to how and from where the organisation's spending is managed and controlled.
Organisations have to determine whether it will be efficient to buy centrally or
to decentralise.
• Centralisation refers to a situation where the spending decisions are made
within an organisation-whether at head office or branch level. Centralisation
leads to specialisation, as buying specialists for selected products develop
comprehensive knowledge of supply and demand conditions, vendor
options, supplier cost factors and other information relevant to the supply
environment (Hutt 8: Speh, 2004:72). The centralisation of buying units or
divisions places more emphasis on strategic considerations such as long-
term supply availability and the development of a healthy supplier complex
environment.
• When the buying function is decentralised, separate business units are
given authority for buying. Instead of buying being done at head office,
buying may take place at different places where the need for buying exists.
This may also involve buying at branch level instead of relying on head
office to purchase goods and services on their behalf. Decentralisation
emphasises more tactical concerns such as short-term cost efficiency and
profit considerations. For example, a company such as SAB, which has
seven depots spread throughout the country, may decentralise its buying
functions so that buying takes place at the level of the depot instead of at
head office.
There are several factors that influence the centralisation or decentralisation of
the buying function. Organisations with multiple plant locations can achieve
cost savings by pooling common requirements. For example, SABMiller has a
centralised buying function headquartered in Zug, Switzerland. SABMiller's
buying function sources an extensive range of materials and services, including
brewing materials, packaging, capital equipment, marketing materials and
business services, and operates four regional offices: Johannesburg (South
Africa), Miami (USA), Baar (Switzerland) and Melbourne (Australia). The nature
of the supply environment can also determine whether buying is centralised.
It may be useful to centralise the buying function if the supply environment is
dominated by a few large suppliers and it may be better to decentralise if the
supply environment is dominated by many small businesses.
Marketers in supplier organisations must determine the selling and
marketing strategies best suited to the centralisation or decentralisation of the
customer organisation's buying function. They must understand that there are
different priorities for central buyers and local buyers. Local (decentralised)
with a centralised buying division, the company also purchases umque lOcal
products in South Africa for its local operations.
2.7 Developments and trends in organisational

buying
Many changes have taken place in South Africa that have affected B2B
buying, for example the growth of the middle class - especially the black
middle class - and globalisation. The increasing middle class has led to an
increased demand for goods and services, which has caused businesses to
increase their production capacity. According to the UCT Unilever Institute of
Strategic Marketing, annual spending by the South African black middle class
has skyrocketed to over R400 billion. According to this study, 95% of South
Africa's black middle class owned mobile phones in 2013, compared to only
64% in 2004 (Business Tech, 2013). There are more motor vehicles currently,
in 2016, in South Africa than there were two decades ago. For example, the
total vehicle sales in the country averaged 39 575.28 from 1994 until 2016,
reaching an all-time high of 65 689 in August 2006 and a record low of 18 482
in September 1994 (Trading Economics, 2016). There are also more residential
properties and more shopping centres in the country than ever before. All
of this affects B2B buying. B2B buying has been on the increase and it will
continue to increase as long as there is an increased demand for goods and
services by consumers. This points to the importance of being aware of issues
such as ethics and the legal and regulatory environment.
2.7.1 Ethics in buying

Ethical conduct is one of the major issues in B2B buying. In South Africa,
several ethical issues that affect B2B buying have surfaced, such as price fixing,
bribery and corruption. South African organisations are governed by the King
Code of Governance Principles, which states that companies must behave in an
ethical manner when purchasing. Buying personnel are governed by the ethical
policies of their employers. For example, SAB has a code of conduct for buying
personnel and suppliers which guides buyers and suppliers on how to conduct
business in an ethical manner. Ethical buying encompasses various things and
may include how organisations respond to social and environmental issues.
It also includes.how they treat their suppliers, especially small businesses and
businesses in less developed countries that may easily be exploited by large
buying organisations.
41
2.7.2 The legal and regulatory environment

The legal and regulatory environment in South Africa has changed tremendously
since the 1990s. For example, the South African government stipulates that
South African companies - especially retailers - must source products and
services locally as well as internationally, in order to support local businesses.
Retailers such as Mr Price, the Foschini Group, Woolworths and Edcon support
local suppliers by sourcing products produced locally. Manufacturers also have
to comply with these regulations by sourcing products from local suppliers,
and especially small businesses.
Another important regulatory trend is that South African businesses are
required by law to source products particularly from B-BBEE companies. The
B-BBEE Act, 53 of 2003, requires that businesses source goods and services
from companies owned by black people, by women and by people with
disabilities. As mentioned previously, the government and its agencies also use
these B-BBEE regulations as criteria for evaluating potential suppliers.
2.7.3 Technological developments

Development and advancements in technology have affected the buying
behaviour of organisations. Traditionally, buyers would place orders by fax
or telephone. Today, however, orders are being placed electronically using
various order processing systems, such as the electronic data interchange (EDI).
Technological advances also mean that both buying and selling organisations
are able to communicate and share information with their buying organisation
customers more conveniently than before. It also enhances relationships
between buying organisations and their suppliers.
There are also large enterprise resourcing systems (ERPs), such as SAP and
Oracle, that support complex organisations with multiple activities in different
locations. These systems enable organisations to share information with
business customers and suppliers. For example, suppliers may have catalogue
management systems where products are available online to any user who has
access, authority and the budget to purchase goods and services.
2.7.4 Globalisation
Globalisation has provided many new opportunities for buyers to source
products and suppliers. Buyers are no longer limited by location and distance;
they can now buy from any supplier anywhere in the world. For example,
China is an emerging economy that has succeeded in drawing customers from
all over the world due to its ability to supply products of good quality at
to comply wnn 1ega1 reqmremem:s mat state mat mey musL a1so suun.:e guuus
locally.
This chapter discussed B2B buying. B2B buying involves buying done by businesses, as opposed to
consumer buying. Companies buy goods and services for resale or for operational purposes, and
these spends often involve large amounts of money. It is therefore important to understand how
businesses select suppliers and the processes they go through when buying.This information is very
important for marketers in supplier organisations, as they have to formulate appropriate marketing
and sales strategies when targeting buyer organisations.
This chapter described the six basic steps of the buying process, namely recognising the need,
describing the product needed, searching for suppliers, evaluating and selecting a supplier,
signing a contract with the supplier and evaluating the supplier's performance. It was shown that
businesses buy products of different categories and make different types of buying decisions (such
as complex, modified or straight buying decisions), all of which influence the process the business
will go through to purchase.
This chapter explained how the buying function is of strategic importance for the organisation
in terms of aspects such as profitability, competitive advantage and so forth. Centralisation
and decentralisation were discussed, including the benefits that each option could bring for an
organisation. The process of setting supplier selection criteria was discussed, and examples were
given of important criteria, such as product price, product quality, reliability, delivery capability,
flexibility and so forth.
Finally, the chapter discussed some trends and developments that organisations must be aware of
in B2B buying, such as the effect of globalisation and technological developments. The importance
of ethics and the legal and regulatory environment in South Africa, for example B-BBEE regulations,
were also emphasised.
1. Explain the strategic importance of B2B buying.
2. Discuss the B2B buying process by referring to a company or product of
your choice. Make sure you discuss each step in the process, indicating how
the company of your choice would apply this step.
3. Search for information on Eskom's buying process. Does Eskom follow steps
similar to the ones discussed in this chapter? If there are any differences,
explain them. Remember to motivate your answers.
4. Identify a company or product of your choice and explain the supplier
selection criteria used by the company. Motivate your answers.
43
5. How does company positioning impact the supplier selection criteria a

company uses to evaluate suppliers? Motivate your answers by making use
of practical examples.
6. What recent developments and trends are there that affect B2B buying?
Motivate your answers with practical examples.
References
Business Tech. 2013. The rise of the black middle class in SA. Available: http:/ I
businesstech.co.za/news/general/36895/the-rise-of-the-black-middle-class-in-
sa/ (Accessed 6 September 2016).
Dwyer, FR a Tanner, JF. 2002. Business marketing: Connecting strategy, relationships
and learning. 2nd ed. New York: McGraw-Hill.
Fill, C a Fill, KE. 2005. Business-to-business marketing: Relationships, systems
and communications. London: Prentice Hall Financial Times.
Hutt, MD a Speh, TW. 2004. Business marketing management: B2B. 8th ed. Mason,
Ohio: Thomson South-Western.
Makhitha, KM. 2013. An investigation into the buyer behaviour of craft retailers in
South Africa. Unpublished PhD thesis, Pretoria, University of Pretoria.
Pearson, JN a Ellram, LM. 1995. 'Supplier selection and evaluation in small versus
large electronic firms'. Journal of Small Business Management October: 55-65.
Sunday Times (Business Times). 2016, 10 April.
Trading Economics. 2016. South Africa total vehicle sales. Available: http://www.
tradingeconomics.corn/south-africa/total-vehicle-sales (Accessed 6 September
2016).
Van Weele, AJ. 2010. Purchasing and supply chain management. 5th ed. Hampshire:
Cengage learning.
Wong, CY, Arlbjorn, FS a Fohansen, F. 2005. 'Supply chain management practices
in toy supply chains'. Supply Chain Management: An International Journal 10:
367-378.
Yigin, IH, Taskin, H, Cedimoglu, IH a Topal, B. 2007. 'Supplier selection: An expert
system approach'. Production Planning and Control18(1) January: 16-24.
Chapte. r
Concepts and context of

1 .
bus1ness strategy
Cindy Erdis
Learning outcomes
• define what is meant by a strategy
• discuss the steps of the strategic planning process
• explain the importance of successful strategy implementation
• discuss how strategy is evaluated and controlled.
Introduction
How does a business decide how it is going to compete in the marketplace or
what it is going to do to get new customers, or even keep existing customers? All
businesses need a reference point for decision making, and this can be provided
by a strategy. In order to meet the challenges brought on by growing domestic
and global competition, B2B organisations are increasingly recognising the
vital role of developing and implementing successful business strategies.
This chapter therefore highlights the importance of a business marketing
strategy, as well as the steps of the strategic planning process. Strategy
implementation, evaluation and control will also be examined in this
chapter.
3.1 Defining strategy and strategic management

The word 'strategy' derives from the Greek word for strategy, which, when
translated, means 'the art of a general' (Cant, 2011 :4-5) - the Greek term
literally means 'the art and science of leading military forces on a battle
front'. Today, the term 'strategy' is used in business contexts to indicate how
businesses plan to attain their objectives. Most businesses have various ways
of acting (options) to achieve their objectives. A strategy is the specific option
selected to attain a given objective. A strategy is thus management's action
plan for running the business and conducting operations.
Strategic management describes the entire decision-making process
that supports the formulation and implementation of strategy. All possible
inputs are gathered and evaluated and finally used to make the best strategic
decisions. Strategic management therefore describes management's main task,
namely determining the direction in which the business should move with
due consideration for environmental influences (ie internal strengths and
weaknesses and external threats and opportunities).
In the past, strategic management tended to be informal - sometimes
no more than an idea at the back of an entrepreneur's mind, something that
was decided and acted on informally, often from top to bottom. This type of
strategic planning still occurs and will probably continue to occur for as long
as there are opportunities for entrepreneurs to start their own businesses. In
most large organisations today, however, strategic planning is a much more
formalised process. In such conditions, purposeful strategic thinking, creativity,
organisation, co-ordination and communication are essential to ensure co-
operation and solidarity in the organisation.
46
,.
CHAPTER 3: CONCEPTS AND CONTEXT OF BUSINESS STRATEGY
3.1.1 levels of strategy

Three major levels of strategy dominate most large organisations, namely
corporate strategy, business-level strategy and functional strategy. These levels
are illustrated in Figure 3.1 and discussed in the sections that follow.
Corporate strategy
Business-level strategy
Functional strategy
Figure 3.1: The hierarchy of strategy
Corporate strategy
A corporate strategy identifies the area of business that the organisation will
compete in, as well as the resources that the organisation will use to compete
in that particular area of business. For example, the Bidvest Group Limited is
a large B2B company working in services, trading and distribution in South
Africa. One of Bidvest's overall corporate strategies, for example, is mastery
of the distribution channel in order to maintain decision channels and reach
common customers.
Corporate strategy defines the markets in which a company competes,
preferably in a manner that uses resources to convert distinctive competencies
into competitive advantages. Competitive advantages can be defined as the
ability to deliver superior value to the market for a protracted period of time,
Competitive advantages for an organisation could include, for example,
superior product benefits, low-cost operations, global experience or even legal
advantages.
At the corporate strategy level, important questions for management to
answer include:
• What are our core competencies?
• What line of business are we in?
47
• What line of business should we be in?

• How should we allocate our resources to this line of business?
Business-level strategy
Business-level strategy establishes the most appropriate way for an organisation
to compete in a specific industry and the best strategy for each strategic
business unit (SBU) in an organisation to contribute to the achievement of
overall corporate objectives. An SBU can be defined as a 'division (ega branch)
in a large business that is concerned with one or more products with a common
market base and where the management of the division takes full responsibility
for the formulation and implementation of the division's strategy' (Cant,
2011:11-12). For example, within the Bidvest Group, the following divisions
or SBUs can be found:
• Bidvest Industrial:
- Bidvest Automotive
- Bidvest Commercial Products
- Bidvest Electrical
- Bidvest Financial Services
- Bidvest Freight
- Bidvest Office 8: Print
- Bidvest Services
• Bidvest Namibia:
- Bidvest Namibia Commercial
- Bidvest Namibia Fisheries
• Bidvest Properties
A business must meet the following requirements before it can be called an
SBU.
• It must have a unique business mission.
• It must have a clearly definable group of competitors.
• It must be able to implement integrated planning relatively independently
of other SBUs.
• It must be able to operate its resources.
• It must be large enough to justify senior management's attention, but small
enough to serve as a focal point of careful resource allocation.
• It must be responsible for its own profitability.
In short, an SBU should lo<?k and act like an independent business. To remain
competitive, companies must provide their SBUs with capital, capable managers,
corporate research and development, centralised marketing (where applicable)
and other resources from the corporate organisation. Corporate resources and
synergies help SBUs to establish a competitive advantage.
48
..
CHAPTER 3: CoNCEPTS AND CONTEXT OF BUSINESS STRATEGY
Functional strategy
Functional strategy focuses on how resources allocated to the various functional
areas can be used most effectively to achieve the business-level strategy. For
example, the primary focus of marketing strategy at the functional level is
to allocate and co-ordinate marketing resources and activities to achieve the
organisation's objectives within a specific time period.
3.1.2 Strategic marketing and marketing management

Strategic marketing can be viewed as a continuous process that takes place
mainly at the level of top management. It is important to note that due to
the nature of strategic marketing, many differences exist between strategic
marketing and marketing management, including the timeframe in which the
decision making occurs and the nature of the job. The differences between
marketing management and strategic marketing are summarised in Table 3.1.
Table 3.1: Differences between strategic marketing and marketing management
Point of difference Strategic marketing Mark ng management

Timeframe Long-range: Decisions have long-term Short-term: Decisions have
implications. relevance within a
given financial year.
Orientation Inductive and intuitive Deductive and analytical
Decision-making Primarily bottom-up Mainly top-down
process
Relationship with The environment is considered as The environment is considered
environment ever-changing and dynamic. as constant with occasional
disturbances.
Opportunity Ongoing searches for new Ad hoc searches for new
sensitivity opportunities opportunities
Organisational Synergy is achieved between different The interests of the decentralised
behaviour components of the organisation, both unit are pursued.
horizontally and vertically.
Nature of job The job requires a high degree of The job requires maturity,
creativity and originality. experience and control
orientation.
Leadership style A proactive perspective is required. . A reactive perspective is
required.
Mission The mission deals with what the The mission deals with running a
organisation has to emphasise. delineated business.
---
49
3.2 The strategic planning process

In order for a selected strategy to be implemented successfully, it is vital for
management to follow a clear process of strategy implementation. Organisations
should follow a process to plan, co-ordinate and monitor links between strategy
and operations. The steps in the strategic planning process are illustrated in
Figure 3.2 and discussed in the subsequent sections.
Step 1 : Step 2: Step 3: Step 4: Step 5:

Developing Setting Selecting Implementing Monito1 ing and
the co1 porate obJectives a st1ategy the stategy evaluating the
1111551011 s trategy
Figure 3.2: Steps in the strategic planning process (adapted from Hough et a/,
2011:23; Jooste eta/, 2012:170)
3.2.1 Step 1: Developing the corporate mission

For a B2B organisation to be successful in the competitive marketplace, it
is essential that there is a clear link between the overall corporate mission,
objectives and strategies. A corporate mission statement is a definition of
what the company is and does - it describes the nature of the organisation's
activities. A mission statement enables an organisation to answer the following
questions:
• Who are our customers?
• What are our customers' needs?
• How can we as the organisation help to satisfy these needs?
• What environmental factors need to be taken into consideration?
For example, Barloworld, a leading South African B2B organisation, aims to
create a shared value that makes a positive difference for all their stakeholders
through building world-class businesses generating superior shareholder
returns and delivering sustainable societal outcome .
50
3.2.2 Step 2: Setting objectives

Once the corporate mission has been established, objectives need to be set. The
managerial task of setting objectives involves converting the corporate mission
statement into specific performance targets, in other words, the results and
outcomes that management wants to achieve. When setting objectives, it is
important to remember that it should be specific and measurable, so as to track
the company's performance and progress towards achieving the objectives.
Two main types of objectives can be established, namely those that focus
on financial performance and those that focus on overall strategic performance.
A few examples of each are provided in Table 3.2.
Table 3.2: Examples of financial and strategic objectives (adapted from Hough eta/,
2011 :34)
Financial objectives Strategic objectives

Improving on profit margins from previous years Obtaining a specified percentage of market share
Increasing annual dividend payouts to Achieving lower costs throughout the organisation
shareholders
Increasing annual after-tax profitability Achieving innovation leadership
Ensuring sufficient cash flow within the Strengthening brand name and position I
'
organisation
An example of a financial objective set by Barloworld is to double revenue

and achieve targeted growth in total shareholder returns over five years to the
year 2020.
3.2.3 Step 3: Selecting a strategy

Once the corporate mission and
objectives have been determined,
the strategy to achieve these must be
selected. The selection of the correct
competitive strategy depends on the
industry, the competitor analysis and the
specific capabilities of the organisation.
Five competitive strategies that can
be considered, are illustrated in
Figure 3.3 and discussed in the sections
that follow. Figure 3.3: Five types of competitive
strategies
51
BusiNESS-TO-BUSINESS MARKETING
Differentiation
Various differentiation methods can be used to distinguish essentially identical
products so that they will be regarded as and accepted as separate products by
the target market When differentiation succeeds, the organisation has created
a sustainable competitive advantage for itself. By differentiating its product or
service, the enterprise has created value that may, for example, be reflected in a
higher selling price for the product or service.To do this, the organisation should
be able to demonstrate the superiority of its product to the products of others
in the industry, and should be able to justify the price dif ference. For example,
a B2B organisation could charge a higher price for providing the computer
servers and systems for large organisations that require high-performance
systems (which will, in turn, ensure that these organisations' services will meet
their customers' needs). The aim of the differentiation strategy is to generate
brand or customer loyalty.
The low-cost strategy

An organisation that successfully adopts a low-cost strategy can quote
lower prices than its competitors, and thus creates a sustainable competitive
advantage for its product or service.
Cost savings can be achieved in various areas, but it is important to
establish a low-cost culture in the enterprise. Staff will then constantly be
careful to conserve resources and to keep costs low. It is not easy to establish
a low-cost structure, because staff members have to be convinced that cost
savings are to their benefit. Forced savings merely create conflict and seldom
work.
Lower prices than those of competitors are not the only advantage of a
low-cost strategy. Higher profit and the availability of funds to expand the
market share, utilise new opportunities and develop new products are the spin-
offs of the prevention of squandering. For example, the success of the PEP
stores is based on the principle of low prices, low cost and value for money.
The focus strategy

The focus strategy is employed to create a sustainable competitive advantage
when a company decides to occupy only one specific niche in the market
with a limited product range. The objective is to monopolise the specific niche
in the market. This happens if the organisation's resources and abilities are
insufficient to tackle a full-scale battle in the mass market. An example of
a geographically based focus strategy is the development of the Pick n Pay
retail group. Raymond Ackerman started this group with four supermarkets, in
Cape Town only, in the 1960s. Over the following years, the Pick n Pay group
52
, CHAPtER 3: CONCEPTS AND CONTEXT OF BUSINESS STRATEGY
was able to expand rapidly in the other provinces of South Africa where other
retailers had not even established themselves yet. A focus strategy can succeed
only if a profitable target market is selected, if consumers are totally satisfied
with the market offering, and if management are involved in and enthusiastic
about being successful.
The pre-emptive move

A pre-emptive move provides a sustainable competitive advantage to the
company which is the first to offer a new skill or asset. This is called a first-
mover advantage. For example, from the beginning of the current century,
first-movers in the field of telecommunications (such as MTN and Vodacom)
have reaped the benefits of creating a sustainable competitive advantage. From
a B2B perspective, these companies were also able to provide other, newer
telecommunication organisations with network services where necessary,
thanks to their extensive network coverage in South Africa.
Synergy
Synergy is another competitive decision. However, it is an important force in
the attainment of a sustainable competitive advantage. The principle of synergy
is that the whole becomes greater than the sum of the parts. Different SBUs
sharing corporate personnel, research and development, financial resources,
operation techniques or distribution channels may create synergy for the
organisation involved.
3.2.4 Step 4: Implementing the strategy

Marketing strategy implementation refers to the 'how-to' aspects of marketing.
Marketing strategy formulation deals with defining objectives and allocating
resources, while marketing strategy implementation deals with organisational
issues and developing specific marketing programmes.
It is important for managers to recognise the constraints that prevent a
chosen strategy from being successfully implemented in an organisation. The
main barriers to effective strategy implementation include:
• international partnerships struggling to maintain service-quality levels if
there is a change in strategy
• false assumptions concerning an organisation's marketing implementation
capabilities
• organisational resistance to new strategies
• incorrect perspectives on the part of management that cause inaccurate
views of the external environment
• resistance to change
53
• political behaviour
• design characteristics that favour old strategies
• existing information flows, measurement systems and time horizons.
Managers must make the best possible use of existing structures, systems and
human resources in the organisation in order to implement the marketing
strategy successfully. Figure 3.4 illustrates various aspects that are important
for successful strategy implementation.
Top management
commitment and
organisational participation
Organisational structure
Systems and controls
Resource allocation process
Organisational culture
Internal marketing
Figure 3.4: Important aspects for strategy implementation
Top management commitment and organisational

participation
It is important that managers involved in strategy implementation are also
involved in strategy formulation, as this enables managers to understand
the strategy and to be committed to its successful implementation. The Chief
Executive Officer (CEO) plays a vital role in shaping the implementation of a
strategy in an organisation. In the case of the Bidvest Group, for example, the
organisation was started by CEO Brian Joffe in 1988 when he bought the food
company Chipkins. The organisation has since grown into an empire employing
more than 117 000 people on six continents. Leadership in an organisation plays
a critical role in determining the success or failure.of strategic implementation.
54
,.
*'
If an effective organisational structure is not in place, the proposed marketing
strategy cannot be executed. The organisational structure determines the chain
of command and internal communication channels in an organisation.
Systems and controls

Systems and controls must be in place to ensure that work processes and
information and communication flow take place. Systems refer to the formal
and informal devices intended to inform and control marketing decision making
and implementation. Strategic control systems monitor the main elements of
marketing strategy and its objectives. Various systems must be used on a trial
basis to obtain feedback on the benefits and problems experienced.
The resource allocation process

Once an organisational structure and systems and controls are in place,
resources must be allocated in order to implement the proposed strategy. Care
should be taken by management that these resources are allocated effectively.
Organisational culture
Organisational culture is a particular way of doing things in an organisation.
Although corporate or organisational culture is intangible, it is real and present
in every organisation. It involves three elements, namely:
1. shared values that are widely accepted by everyone working in the
organisation - Barloworld Equipment's management, for example, follows
a philosophy of being 'hard on targets, soft on people', which is based on
communication and teamwork
2. norms of behaviour, which encourage behaviour that is consistent with the
shared values of the organisation
3. the consistent use of visible symbols and symbolic activities, which
maintains the organisational culture.
It is essential for management to understand the organisational culture in
which they operate. Strategies must be selected that are compatible with a
particular organisational culture. It is also important that management obtain
consensus in an organisation, as this will facilitate the implementation of the
selected strategy.
Internal marketing
Internal marketing involves the activitieof the organisation aimed at
motivating, training and rewarding its employees. The role of internal
55
marketing in the implementation of a strategy is of crucial importance. If

internal marketing is effective and all employees understand the reasoning
behind the strategy, then the external marketing strategy will be implemented
more effectively. It is therefore important to co-ordinate internal and external
marketing plans. A challenge to managers during strategy implementation is
to understand how motivation affects performance, both that of the individual
and the organisation as a whole.
3.2.5 Step 5: Monitoring and evaluating the strategy

The following case study illustrates why monitoring and evaluation of the
strategy implemented are so important.
CAs£ Sruov: ABC PACKAGING CoRPORAnoN

ABC Packaging Corporation became aware that, in the fast-growing market of producers of high-
tech electronic equipment, there was a variety of packaging needs that were not being met by
other suppliers. ABC therefore developed a new strategy to target this market, by designing unique
Styrofoam 'inserts' to protect electronic equipment during t.ransport. ABC assigned order getters to
develop new accounts and recruited agents to develop distant markets. The whole marketing mix
was well received, and the corporation's skimming price led to good profits.
Over time, however, competition increased, as other suppliers entered the market. The marketing
managers at ABC routinely analysed information stored in their marketing information system
(MIS). One day, to their surprise, this information revealed that their once-successful strategy was
slipping. Personal selling expense as a percentage of sales had doubled, as it took longer to find
and sell new accounts. Moreover, it was costly to design special products for the many customers
who purchased only small quantities. Profit margins were falling too because of increased price
competition.
In contrast, the analysis showed that sales of ordinary cardboard boxes for agricultural products
were very profitable. ABC therefore developed a new plan to build the corporation's share of the
less glamorous, but more profitable, cardboard box business.
(Source: Cant, 20 7 7:142)
This case study illustrates that a good manager should always know which
products' sales are highest and why, which products are profitable, what
is selling where, and how much the marketing process is costing. In order
to improve the 'bottom line', managers need to know what is happening.
Traditional accounting reports, however, are too general to be much help to
the marketing manager. As ABC Packaging Corporation discovered, a company
may be showing a profit while in reality 80% of its business comes from only
20% of its products (or customers), with the other 80% of the products or
56
customers being unprofitable. However, without special analyses, managers

would not know if this situation was occurring.
Monitoring and evaluation of the marketing strategy can be done with
the aim to:
• find new opportunities
• keep performance in line with management's expectations
• solve specific problems that exist.
The five steps in the evaluation and control process (also see Figure 3.5 on
page 58) are the following:
1. Conducting the strategic marketing audit: In the strategic marketing audit,
the organisation's marketing objectives, strategy and performance are
examined. It is a useful way to start a strategic marketing evaluation and
control programme in order to identify problems in the marketing activities.
2. Setting performance standards: This is done by selecting appropriate
performance criteria and measures. Two common methods used to set
performance criteria or measures are benchmarking and the balanced-
scorecard technique, as shown in Table 3.3.
Table 3.3: Benchmarking and the balanced scorecard as methods to set performance
criteria (adapted from Cant, 2011:13 7;Jooste eta/, 2012:450-451)
Technique Desaiptlon
Benchmarking Benchmarking is the art of finding out how and why some
organisations are able to perform tasks much better than other
organisations and translating that knowledge into performance
standards for an organisation to meet.
The seven steps of the benchmarking process are the following:
1 . Determine which functions to benchmark.
2. Identify the key performance variables to measure.
3. Identify the 'best-in-class' organisations.
4. Measure the performance of the 'best-in-class' organisations.
5. Measure the organisation's own performance.
6. Specify programmes and actions to close the gap.
7. Implement and monitor the results.
Balanced scorecard The balanced scorecard is used to help select performance measures
that are linked to strategy.
The four perspectives of a balanced scorecard are:
1. the financial perspective
2. the customer perspective I
I
3. the internal business perspective
4. the learning and growth perspective
57
3. Obtaining and analysing data: In this step, a system is developed that

provides usable and timely feedback on actual performance.
4. Evaluating the feedback data: In this step, marketing management is able
to determine how actual results compare with planned results. This allows
them to explain the performance gap.
5. Taking the necessary corrective action: These actions depend on the
situation, and might include lowering performance standards if they are
deemed too difficult to achieve, or raising performance standards if the
objectives were easily met by the organisation.
Step 1: Conducting
the strategic
marketing audit
Step 2:
Step 5: Taking "'. Setting
/
the necessary performance
corrective action Steps in the standards
evaluation and
control process
Step 4: Step 3:
Evaluating the Obtaining and
feedback data analysing data
Figure 3.5: Steps in the strategy evaluation and control process
This chapter introduced the concept of strategy, as well as how important a clear strategy is to the
overall success of an organisation. Strategic management describes the entire decision-making
process that supports the formulation and implementation of strategy. Three levels of strategy can
be found in organisations, namely corporate strategy, business-level strategy and functional strategy.
This chapter also discussed in detail the five steps of the strategic planning process, namely
developing the corporate mission, setting objectives, selecting a strategy, implementing the strategy
and monitoring the strategy. The importance of successful strategy implementation, as well as the
evaluation of a strategy that has been implemented, was explained.
58
2. Name and discuss the various levels of strategy in an organisation. Illustrate
your answer with the aid of your own practical examples.
3. Highlight the steps in the strategic planning process with the aid of
applicable practical examples.
4. Explain why it is important to monitor and evaluate a strategy once it has
been implemented.
5. Discuss the steps in the process of evaluating and controlling strategy.
Illustrate your answer with the aid of your own practical examples.
References
Cant, MC. 2011. Only study guide for PRET04D: Strategic retail marketing. Pretoria:
Unisa.
Hough, J, Thompson, AA, Strickland, AJ Et Gamble, JE. 2011. Crafting and executing
strategy: creating sustainable high performance in South Africa - text, readings
and cases. 2nd ed. Berkshire: McGraw-Hill.
Jooste, CJ, St:rydom, JW, Berndt, A Et DuPlessis, PJ (eds). 2012. Applied strategic
marketing. 4th ed. Cape Town: Pearson.
59
Chapter
Marketing research and

competitive analysis
Jan Wiid
learning outcomes
• explain the need for marketing research
• highlight the differences between B2B and Business-to-
consumer (B2C) marketing research
• explain a marketing information system (MIS)
• discuss the marketing research process
• explain the steps in the marketing research process
• discuss questionnaire design
• identify sources for competitor analysis in a B2B setting
• explain the management and organisation of a marketing
research unit.
a strategy, operational issues and the day-to-day running of the enterprise. The
information that is needed includes, for example, information about potential
target markets and the way in which businesses and consumers in target
markets will react to various specific marketing strategies, competitors and
the uncontrollable environmental factors that affect the marketing strategy.
A lack of the necessary MISs forces marketing management to make intuitive
or haphazard decisions. The latter increases the risks associated with decision
making and is unacceptable, especially in view of the present fluctuation in
economic conditions, and the strong influence of competitors.
Marketing management can use various sources to obtain the information
it needs for decision making. These sources include the results of marketing
research. The marketing manager combines her or his own experience in the
field of marketing with information obtained from marketing research and
other information sources within the organisation (such as financial reports) to
guide her or him in making decisions in conjunction with other departmental
managers, such as the production manager, the financial manager and the
purchasing manager.
The marketing manager therefore needs to have a thorough knowledge
of marketing research to equip her or him to collect information for making
objective marketing decisions. If you have to decide whether to conduct
research in a practical situation, you will use this basic knowledge.
4.1 The importance of marketing information

The management tasks of an enterprise are generally identified as planning,
organising, leading and control. The primary activity that differentiates
management from other employees in the enterprise is decision making.
This does not imply that nonmanagerial staff do not make decisions; rather,
it points to the fact that management decisions are of strategic importance
and can influence the success of the enterprise in the long term. In order
for management to plan and make decisions about organisational strategy,
operational issues and the day-to-day running of an enterprise, sufficient and
relevant information is required. This includes, for example, information about:
• potential target markets
• the way in which businesses and consumers in target markets will react to
various specific marketing strategies
• competitors
• uncontrollable environmental factors that affect the marketing strategy.
61
If the necessary MIS is not in place, marketing management is forced to make

intuitive ' or haphazard decisions. The latter, particularly, increases the risk
associated with decision making and is unacceptable, especially in view of
the present fluctuation in economic conditions and the strong influence of
competitors.
Marketing management in a developed (first-world) community should
be directed at the future. It must expect environmental changes, predict the
direction and impact of these changes and plan accordingly. To execute these
tasks, marketing management needs information about all possible internal
and external environmental factors that can influence the enterprise's
marketing affairs and results. Some of the changes in the internal and external
environments that are putting pressure on the need for marketing information
include:
• sociocultural changes (such as increasing urbanisation), which affect
demand and consumption patterns
• technological progress, such as the increasing use of the internet, social
media and mobile technology
• increasing consumer pressure
• competitive activities
• changes which contribute to the increasing complexity of marketing
decisions, such as shorter product life cycles, expansions into new markets
and the management of multiple distribution channels.
Marketing management can use various sources to obtain the information
it needs for decision making. These sources include the results of marketing
research. The marketing manager combines her or his own experience in the
field of marketing with information obtained from marketing research and
other information sources within the organisation (such as financial reports) to
guide her or him in making decisions in conjunction with other departmental
managers, such as the production manager, the financial manager and the
purchasing manager. The marketing manager therefore needs to have a thorough
knowledge of marketing research to equip her or him to collect information for
making objective marketing decisions.
4.2 Defining marketing research

With industrial development came mass production and modem transport
systems. The result of this was a growing gap between the suppliers of goods
and services and the different types of consumers, with their diverse demands.
w we same mmg. 1ne generauy acceptea aermmon or marketmg research
is that of the American Marketing Association (AMA) (approved in October
2004): '[t]he systematic collection, analysis and interpretation of information
about all marketing problems by means of recognised scientific methods to
provide information that marketing management can use in the decision-
making process' (AMA, 2016; Pride a Ferrell, 2010:130).
Marketing research is the function that links the consumer, customer and
public to the marketer through information. This information is used to:
• identity and define marketing opportunities and problems
• generate, refine and evaluate marketing actions
• monitor marketing performance
• improve understanding of marketing as a process.
Marketing research specifies the information required to address these issues,
designs the method for collecting information, manages and implements the
data collection process, analyses the results and communicates the findings and
their implications. (It is important to note that information and data are not the
same. Data refers to all available statistics, opinions, facts and predictions, while
information is that data component that is relevant to the decision in question.)
4.2.1 The key roles of marketing research

With so much pressure on the need for marketing information, it is important from
the outset to understand what marketing research can deliver to the marketing
system. There are different types of marketing research, with different purposes:
• Descriptive research depicts the current situation. The focus is on providing
the company with historical and current data about the consumer, the
industry, the environment and the impact on or relevance of this data to
the company in question.
• Diagnostic research diagnoses the effects of a certain event in a given
situation. This could be the cause or effect of introducing a new strategy.
It could also be something as small as how a slight price change will effect
a product's sales.
• Predictive research is used to predict or forecast the outcomes of new
strategies that are being developed. The focus is on looking towards the
future and identifYing new opportunities to be taken advantage of.
4.3 The marketing research process

Marketing management is not always able to make meaningful and accurate
decisions using available data. Marketing research is used to collect and process
63
data, which is then presented in a usable and relevant way for the purposes of
making decisions. The key characteristic of formal marketing research is that it is a
systematic process of collecting, analysing and interpreting information. Therefore,
the marketing research process is an orderly and systematic procedure, involving
a logical sequence of steps, that provides reliable information for decision making.
4.3.1 Preliminary and formal marketing research

Although there is no set procedure for the marketing research process, any
research project should consist of two parts: a preliminary research investigation
and a formal marketing investigation.
Preliminary marketing research is undertaken to establish whether there
is a need for research and what type of research is required, as well as to
ascertain the feasibility and value of conducting a formal research project.
Preliminary marketing research therefore covers the first steps of the process
(see Figure 4.1). After the preliminary marketing research, the researcher needs
to assess whether formal research is required or not. Figure 4.1 shows the
distinction between preliminary and formal marketing research investigation.
Marketing planning and information system (input into the process)
Step 1: Identify and define the marketing problem.

Step 2: Determine the research objectives.
1
Step 3: Develop a research design.
Step 4: Conduct the secondary research.
No further research is
conducted-compile a
research report.
Step 5: Select the primary research method.

Step 6: Design the data collection tool.
Step 7: Design the sample frame.
Step 8: Gather the data.
Step 9: Prepare and process the data.
Step 10: Analyse the data.
Step 11: Interpret the results and compile the research report.._--- -----'
are performed:
1. The nature and extent of the marketing problem or opportunity are defined.
2. Hypotheses are developed (depending on the nature of the problem at
hand).
3. A comprehensive research problem is formulated.
4. Research objectives are set.
5. The research design is determined and a research proposal is prepared.
6. The secondary data is collected.
Before performing these steps, a situational analysis, or internal and external
marketing environment analysis, is carried out. This creates a picture of the
internal and external situation surrounding the problem or opportunity. The
situational analysis gathers information about:
• the enterprise's marketing objectives and strategies: the product, distribution,
price and marketing communications strategy
• the enterprise's resources: more specifically, its weaknesses and strengths
• the market: specific information about the B2B consumers, the market
structure and competitors
• the general situation in the external environment: economic conditions,
sociocultural factors, technological developments, government action and
so forth.
For the purposes of the situational analysis, all secondary data is first
researched. In practice, what often happens is that an organisation unnecessarily
undertakes an expensive and time-consuming formal marketing investigation,
when secondary sources that contain the information required to solve the
problem or take advantage of the opportunity already exist. The purpose of the
preliminary marketing investigation is precisely to research these secondary
sources of information.
After completing the preliminary marketing investigation, marketing
management may be able to solve the problem using the secondary information
collected during the analysis of the internal and external marketing environment.
In this case, no further marketing research needs be undertaken.
Formal marketing research

If the organisation's problem cannot be solved through preliminary marketing
research, a formal marketing investigation must be conducted. It is often
advisable to anticipate the probable findings and recommendations of the
formal marketing investigation.
65
Before undertaking the formal marketing investigation, marketing management

must decide whether the formal investigation is justified and whether they
have the means to act accordingly. For example, does the enterprise have the
necessary internal resources, such as finances and production capacity? If the
enterprise does not, marketing management may decide not to proceed with
the formal marketing investigation. Marketing management may also face
strong opposition to a particular plan of action and may decide that a formal
marketing investigation cannot be justified economically.
If marketing management does decide to proceed with a formal marketing
investigation, the following steps must be taken:
1. The method of primary data collection is selected.
2. The questionnaire is designed.
3. The sample frame is designed.
4. The investigation is conducted (ie the data is gathered).
5. The data is processed.
6. The data is analysed.
7. The results are interpreted and the research report is compiled.
4.3.2 Steps in the marketing research process

The steps in the marketing research process, as depicted in Figure 4.1 on
page 64, are discussed briefly in the following sections in order to provide an
overview of the process. The word 'process' implies that the successive steps or
phases should not be seen in isolation, but as an integrated and interdependent
whole.
Step 1: Identifying and defining the marketing problem

When marketing management is confronted with a problem or opportunity for
the first time, it is certainly not clearly defined. For example, there is often just
a vague feeling that 'something is wrong'. Marketing management does not
know precisely what the problem is, or what the opportunity entails, or what
they have to decide.
A problem indicates that something is wrong and needs attention. A
problem can be the result of an ineffective marketing strategy, a change in
situational factors, or a combination of the two (Kinnear a Taylor, .1996:88).
The most common problems that confront decision makers can be divided into
two categories:
1. Problems of choice occur where a choice must be made between two
alternatives, for example whether a specific product should be withdrawn
from the product line or not.
comams potential advantages tor the enterprise and. which, it id.entitled. and
utilised, could be profitable for the enterprise. While problems are characterised
by unrealised objectives, no formal method exists for identifying opportunities.
In practice, decision makers can become very adept at dealing with
problems or opportunities by:
• reading up-to-date specialist literature such as books, journals and
newspapers
• observing conditions in the enterprise
• holding goal-oriented discussions with qualified industrial executives
• holding brainstorming sessions with management, industrial executives
and other stakeholders involved
• attending business gatherings such as seminars, congresses and meetings.
Before undertaking a marketing research investigation, marketing management
must communicate the nature of the (at this stage, vague) problem or
opportunity to the researcher. The researcher begins by investigating the actual
market situation and, using a situational analysis, formulating a hypothesis (a
tentative solution to the marketing problem or a plan of action for utilising
the opportunity). Hypotheses restrict the extent of the marketing research
investigation and determine the research project's direction. They also help
the researcher to formulate objectives for the formal marketing investigation
(which will be done in Step 2) and give an indication ofthe type of information
that must be collected.
After investigating the actual situation and demarcating the marketing
problem or opportunity, the problem is reformulated as a clearly defined
research problem or opportunity. This step elucidates the nature and extent of
the research problem so that the objectives of the research can be stated and
explained (in Step 2). A clearly defined research problem is at the core of the
marketing research process. The marketing researcher would do well to keep
the following saying in mind: 'A problem well defined is a problem half solved:
Step 2: Determining the research objectives

The research objectives indicate broadly what the research hopes to accomplish.
They inform what the researcher wants to attain through the study. In practice,
the research objectives will correspond to a large degree with the information
required to solve the problem or utilise the opportunity. Research objectives are
divided into primary or main objectives (aims) and secondary or sub-objectives:
• The primary objective is an overall statement of the thrust of the study and
gives an indication of what the study is expected to achieve. It should state
67
the what, where and why. It is also a statement of the main associations and
relationships that the researcher seeks to discover (explore) and describe
associations and relationships, as well as identify causes (explain).
• Secondary objectives are the specific aspects of the topic that the researcher
wants to investigate within the main framework of the research project.
Step 3: Developing the research design

Research design obviously implies research planning. It provides an outline or
blueprint for how the marketing research investigation will be conducted and
is the framework that directs the marketing research efforts. The purpose of
the research design is to plan and structure the marketing research project in
order to increase the ultimate validity of the research results and findings. In
this step, the data required and the procedures for collecting, processing and
analysing it are specified. The researcher must therefore establish the type of
data needed, where to find it, what collection methods and techniques to use,
the target market and how the collected data will be analysed.
The research design is determined by the approach to the research, which
can be either qualitative, quantitative or mixed methods:
• Qualitative research is about exploring issues, and understanding underlying
reasons and motivations. The aim is to explain a current situation. The
research describes the situation in terms of a particular group, and the
findings can therefore not be generalised. Qualitative research is more
exploratory in nature.
• Quantitative research aims to establish relationships between variables in
the population or a representative sample of the population by means of
statistical, mathematical or computational techniques. (See Step 7 on page 76
for an explanation of the terms 'sample' and 'population'.) Quantitative
research is more conclusive in nature.
• Mixed-methods research includes the use of more than one method of
collection, analysis, interpretation and reporting of data. It is a combination
of the qualitative and quantitative approach.
Research designs can be classified, according to the fundamental objective of
the research, into exploratory and conclusive research designs:
• An exploratory study is aimed at acquiring insight and developing
understanding rather than collecting accurate replicable data, therefore,
this type of study often involves conducting in-depth interviews, case
analyses, focus groups and literature searches. This type of research is not
governed by but gives rise to hypotheses.
- lJescnprwe researcn IS usea to aescnoe runcuons or cnaranensucs auu
to identify patterns or trends in a situation. Descriptive research consists
of case studies, cross-sectional studies, longitudinal and retrospective
studies.
Causal research is used to show causality between variables or
occurrences. Causal research can be conducted by means of laboratory
or field experiments.
Step 4: Conducting the secondary research

During this step, the researcher begins to physically collect data. Secondary
data is historical data that has already been gathered, either by the enterprise
or by outsiders, for a purpose other than the study currently in question.
Secondary data can be obtained from internal sources (for example company
records) and/or external sources (for example libraries, chambers of commerce
and industry, government bodies, marketing research enterprises and business
sector associations). Secondary research is sometimes called desk research.
Secondary data searches on the internet give access to thousands
of different databases (many of which relate to business) and are fast and
relatively cheap. Some of the sources that can be used to collect secondary data
electronically include websites, subject directories, search engines, newsgroups/
mailing lists (listservs) and virtual reference libraries.
For example, a lot of readily available information about competing firms
can be revealed through the following sources of secondary research:
• By studying the advertisements of competitors, a researcher can learn
more about the competitors' products, prices, promotional programmes
and budget. Aspects to note include the frequency of advertisements, the
publications they appear in, special offers, product features and benefits
highlighted. What image does the competitor portray in the advertisements?
• Sales brochures contain a wealth of information. For example, studying
brochures can help a researcher establish how a competitor positions itself
as well as its products, and what features and benefits are used to sell
the products. Comparing current brochures to previous ones can indicate
strategy changes.
• Newspaper and magazine articles might reveal information on what
the competitor is planning for the future, its product plans and future
innovations.
• Annual reports contain financial information such as sales volumes,
revenue increases, market share, etc.
• Trade associations publish industry statistics and developments.
69
• Online databases (both of the researcher's finn and of the competitor) can
reveal valuable information.
The researcher must analyse the secondary data in terms of purpose, relevance,
accuracy, consistency, reliability, credibility, methodology and appropriateness.
Then, depending on the research problem and objectives, the researcher must
decide whether to undertake a formal marketing research investigation. No
further marketing research is necessary if at this point it is clear how to solve
the problem or make use of the opportunity. If the problem or opportunity
remains unsolved after collecting the secondary data, a formal marketing
research investigation must be undertaken, provided it is economically and
practically feasible.
Step 5: Selecting the primary data collection method

During the formal marketing research investigation, primary data (data that
is specifically intended to solve the problem or make use of the opportunity)
is collected. Primary data is data that has not been collected previously and
which must be filtered by original research. Primary data can be obtained
from internal sources (such as the staff) and/or external sources (for example
consumers, customers, retailers, wholesalers and competitors). Each primary
data collection method uses different techniques and tools, for example the
telephone, mail, fax or internet. Primary data can be quantitative or qualitative:
• Data that is measured in numbers is quantitative data. It can be statistically
or mathematically analysed. Quantitative primary data can be collected by
means of observation, experimentation or surveys (communication).
• Qualitative data is non-numerical data, with which statistical or mathematical
analysis is not possible. Qualitative data is collected by means of in-depth
or personal interviews, projective techniques and focus groups.
To illustrate the difference, we can use the following example of a sales
representative of a manufacturer that sells glue to the automotive industry
asking B2B clients questions about the company's service quality:
• Let us say the sales representative asks clients this question: 'Can you
comment on the service that you receive from the glue manufacturer?'
The respondents in this case will discuss the service they receive. It is
therefore qualitative research, as there are no numbers involved. The sales
representative (researcher) conducted exploratory research, as she or he
explored what clients think about service quality.
• Alternatively, suppose the sales representative asks clients this question:
'Ono;r lf' of 1 to a; _ whf'rf' 1 i.o; f'xtrf'mf'lv noor nrl t; io; PxrPllPnt how rln
1 = extremely poor; = excellent
I, I2 - I3 I4 - -=r;- I
This research is quantitative, as the respondents use numbers that can be
statistically and mathematically analysed to describe the service. The sales
representative (researcher) conducted descriptive research.
There is no one standard method of carrying out a piece of research. The
researcher's ability to select the best data collection method develops with
experience. Finding a research method for a given problem is not like solving a
problem in algebra; it is more like a chocolate cake recipe - there is no one best
recipe, and many different recipes can lead to satisfactory results. However,
the method selected is certainly influenced by the research objectives, the type
of research to be undertaken and the availability of time, funds, staff and
facilities. Every data collection method has advantages and disadvantages, and
the marketing researcher must select the one that produces satisfactory, usable
and reliable data as cheaply and as quickly as possible.
Step 6: Designing the data collection tool

For each of the data collection methods (observational, experimental and
survey), an instrument can be designed for collecting the primary data. The
two most important research instruments for this are the following:
• The questionnaire is the most common instrument for collecting primary
data. Its purpose is to collect specific qualitative and quantitative data
accurately and reliably. Formally defined, a questionnaire is described as
a set of questions designed to generate the data necessary to accomplish a
research project's objectives.
• Mechanical or electronic equipment is another data collection method, and
it includes instruments such as galvanometers, tachistoscopes, cameras,
electronic meters and mechanical meters. These instruments vary from
simple counters that measure, for example, the number of people passing
through a rotating gate, to refined reaction-measuring instruments that
assess, for example, emotional reactions to a particular advertisement.
The questionnaire is a key instrument for data collection, and the rest of
this section will therefore focus on questionnaire design and use. A properly
constructed questionnaire permits the collection of standardised, uniform data.
A badly designed questionnaire can ruin any research project, irrespective
of how good the sampling, interviewer training and application of statistical
techniques are. In designing a questionnaire, consideration must be given to
71
questionnaire design principles, the information needed, the types of questions

to use, how the questionnaire will be administered, the content of the questions,
the phrasing of the questions, the sequence of the questions, the physical
characteristics of the questionnaire and the layout.
The information needed

The first aspect to consider in questionnaire design is what precisely needs
to be measured to satisfy the research objectives and to solve the original
marketing problem. The researcher can therefore refer to the research objectives
(see Step 2) and the research design (see Step 3) when determining what type
of questions to include in the questionnaire and what content to include in the
questions. It is also important to know who the respondents are going to be.
The type of questionnaire and method of administration

After specifying the basic information needed, the researcher must determine
how to collect the data. The type of questionnaire used will depend on the
primary data required and the data collection method used. There are four
main methods for administering a questionnaire, each of which necessitates a
different type of questionnaire:
1. Through the mail: Postal questionnaires require a well-designed form
with clear instructions and a covering letter, since they are the only
communication between the interviewer and the respondent.
2. By telephone: Telephone questionnaires must be constructed so that they
can be administered easily and quickly.
3. Through a face-to-face interview: Personal interviews, particularly in-depth
ones, do not usually involve a structured questionnaire.
4. Over the internet.
Question content
(This section is based on Churchill, 1999:336-342; Wright Et Crimp, 2000:152-
155.) Question content refers to the general nature of the question and the
information it will provide; it does not refer to the phrasing and format of the
question. Individual questions are formulated after deciding on the type of
information needed and the collection method. When determining the content
of each question, the researcher must answer the following questions:
• Is the question necessary?
• Are several questions needed instead of only one?
• Do the respondents have the information that is needed?
• DoPs thf" nuPstion fall within the resnondents' field of exnerience?

quantitative research might call for question structures that differ from those
used in qualitative research. The types of question structures that researchers
should keep in mind when designing a questionnaire are the following:
• Structured questions with structured responses (closed questions) contain
specific mutually exclusive response categories from which respondents
choose a category that best suits their views. Dichotomous questions, or
multiple-choice questions, may be used. An example here would be to give
the respondent a few alternatives to select from, for example low prices,
good quality, good location, excellent service, and so on.
Examples of structured questions with structured responses (closed questions):

1. On a scale of 1 to 5, where 1 = extremely poor and 5 = excellent, how do you rate the delivery
service received from supplier A?
1 = extremely poor; 5 = excellent
11 12 13 14 Is I
2. Who is currently supplying you with glue?
Pattex
Melton
Pratley
3M
• Structured questions with unstructured responses {open-ended questions)

encourage respondents to compile and express their own responses freely,
which is made possible by the absence of a fixed response category. This
type of question is used particularly to obtain reasons for specific attitudes
or views respondents may have.
Examples of structured questions with unstructured responses (open-ended questions):

1. Can you comment on the delivery service that you receive from supplier A?
2. From whom do you buy your glue?
73
Question phrasing
The phrasing of questions is important, as certain formulations can result in
respondents refusing to answer the questions or answering them incorrectly,
often because they have not understood the question. The following guidelines
can be used by researchers when formulating questions:
• Use simple words that are familiar to everybody.
• Avoid ambiguous words and questions.
• Avoid leading questions that indicate the answer, for example: 'This is a
reliable car, isn't it?'
• Avoid presumptive questions and assumptions.
• Avoid generalisation; pose the question in specific terms.
• Avoid two-fold questions, for example: 'What do you think about the price
and the packaging of the product?'
• Avoid questions that respondents might find unreasonable. If it is necessary
to include questions that might seem this way, first explain the question.
Question sequence
After deciding which questions to include in the questionnaire and how they
are to be phrased, the researcher must plan the sequence of questions. The
question sequence in a questionnaire affects the refusal rate and the quality of
the response obtained, particularly when sensitive matters are dealt with. The
following guidelines can be used when planning the question sequence:
• Begin the interview with non-threatening, interesting questions that are
easy to answer. Such questions are essential to establish rapport and to put
respondents at ease.
• Ask sensitive questions last. In this way, little information will be lost if
respondents refuse to continue the interview after being asked sensitive
questions.
• Classify the questions according to topics. Arranging the questions logically
helps respondents understand the relationship between the different
questions.
• Use introductory statements when changing from one topic to another to
inform respondents what the following set of questions involves.
• Maintain a chronological order in questions on topics where this is relevant,
for instance questions on career, marriage, previous behaviour patterns and
events.
• Vary the length, response format and type of questions. A long list of items
with the same response choices can become boring and exhausting.
• Use the filter method, which is a handy technique for arranging questions.
are in themselves not very significant, but when combined can influence
the effectiveness of a questionnaire. Two main considerations govern the
questionnaire format, namely:
1. keeping the cost of producing the final questionnaire, which includes the
time spent on the technical presentation and the printing, as low as possible
2. making the questionnaire as attractive and convenient as possible, so that
the respondent can complete it easily.
The following must be taken into account when doing the layout and technical
design of a questionnaire:
• The items must be adequately spaced so that the respondent does not
overlook any items.
• The questionnaire must include a realistic number of items (with enough
questions to obtain the required valid information for decision making).
• Normal font types and sizes can be used, provided they are legible. Large,
more prominent fonts are preferable for instructions to the interviewer and
the respondents.
• In the case of a paper questionnaire, the paper must be durable enough to
withstand considerable handling. Paper of different colours can be used
to attract the attention of respondents and make the questionnaire more
attractive. This also creates the impression that an effort was made for
the respondents' sake. For example, a yellow page can be used for the
instructions, a white page for the structured questions, a pink page for the
unstructured questions and a blue page for the biographical data.
• The questionnaire must look professional and must be reasonably easy to
complete. The layout must be consistent.
• The questions must be numbered to facilitate data processing.
• Clear instructions must be provided on how to answer the questions. For
example, indicate whether the correct answer must be circled or marked
with a cross.
• The pages of the questionnaire must be bound in such a way that they are
easy to read and handle.
• The questionnaire is usually concluded by thanking the respondents for
their co-operation and assistance.
Re-examining the questionnaire

The first draft of a questionnaire is seldom correct and complete. After
completing the initial questionnaire, the researcher must re-examine each
question and pay specific attention to the question content, phrasing, the
75
required response and the logical sequence of the questions. The researcher
must make sure that the questions are not confusing, ambiguous or leading,
and that the physical layout of the questionnaire allows sufficient space for the
answers. During this phase, the compiler must ensure that the questionnaire
complies with the principles of question and questionnaire design.
Pre-testing the questionnaire

Once the design of the questionnaire has been completed, it is essential to test and
refine the draft questionnaire. During this step, the revised draft questionnaire
is tested on a small sample of people representing the investigation group. The
researcher may conduct personal interviews with the sample group to test the
questionnaire and individual questions.
Step 7: Designing the sample frame

The aim of any survey is to obtain information about certain characteristics of
the population as a whole. During the design of the sample frame, the researcher
identifies the individuals (or respondents) participating in the research. The
following are important terms to understand in this process (the examples used
to illustrate the terms are based on a South African manufacturer that sells
putty to glass and glazier firms and that would like to research the delivery
service rendered to these firms):
• Population: The aggregate of all the units of analysis forms the population.
For example, all glass and glazier firms in the country forms of the
population.
• Target population: The population units of the analysis, as determined by
the problem that is investigated, are the target population. For example, if
a problem is experienced in Gauteng, then the target population will be all
the glass and glazier firms located in Gauteng. If it is a national problem,
the target population and population would be the same.
• Sample: A selection of the elements of the population is known as a sample
and the particular survey is called a sample survey. A number of elements is
selected from the population for the study or investigation. In our example,
a sample could consist of all glass and glazier firms in a specific area of a
community, or every tenth glass and glazier firm on a list of all glass and
glazier firms in a community.
• Census survey: If every element of the population is studied or investigated,
the survey is called a census survey.
• Sample units: The items studied in a specific survey are called the units of
the analysis or sample units, and must be clearly defined beforehand. In our
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0.a.uL.&."-.&. .l.&..&..&.&.&.J &"-f,..I.Jt."-..I.,..U 'f'f..Lt...L..I. t...l...l.'- o-1'-'U.t...L..L '-IJ.U.JJ a.J.J.U
Glazing Association (SAGGA). Firms not registered with SAGGA will then
be excluded from the study.
• Sample elements: Elements are the individuals from whom the necessary
information is required. In the example the sample elements would be the
managers of the glass and glazier firms. To identify the sample elements,
the researcher must answer the following question: 'Who do I want to
speak to?'
If the survey population is too large for a comprehensive survey, a scientific
sample must be taken. Naturally the requirement is that the sample must be
as representative of the population as possible. The basic aspects that must
be considered during this step are population definition (which includes a
definition of the sample frame and the sample units), the sampling method and
the sample size.
Sampling can be divided into two major categories: probability and non-
probability sampling:
• In probability sampling, each unit of the population has a known positive
(non-zero) probability of being selected as a unit ofthe sample. Probability
sampling techniques include simple random sampling, systematic sampling,
stratified sampling and cluster sampling.
• In non-probability sampling, on the other hand, the probability that a
specific unit of the population will be selected is unknown and cannot
be determined. Non-probability sampling is based on the judgement of
the researcher. These methods include convenience sampling, judgemental
sampling, quota sampling and snowball sampling. Non-probability
sampling methods take less time, and they are more convenient and cheaper
than probability sampling methods to implement in practice. This has led to
non-probability methods being preferred, especially in marketing research
and opinion surveys, in which speed is of the essence.
The basic difference in the application of the two methods is that in the case
of non-probability sampling methods, no indication can be given of possible
bias or error margins of estimates of population characteristics, whereas in the
case of probability sampling methods, the sample error of a given sample size
can be estimated statistically if the sample design meets certain requirements.
This does not mean that non-probability sampling methods cannot yield good
results. The problem in the case of non-probability sampling is, however,
that the researcher is unable to give any indication of the reliability of the
results that are obtained. Non-probability sampling methods do not allow for
77
generalisation outside the group of sample units and can only be evaluated
subjectively.
Step 8: Gathering the data

In this step, the research design (research plan) for collecting the data is
physically implemented. This involves investigation, or fieldwork, which
entails the actual collecting of the primary data from the sample elements. The
investigation is often the most expensive aspect of the research process and there
is a considerable chance that mistakes will be made. Interviewers (fieldworkers)
must be selected, trained and supervised with care. The investigation must
be planned thoroughly, and dear instructions and appropriate methods of
motivation must be used to ensure maximum co-operation and honesty on the
part of both fieldworkers and respondents.
Survey errors
As the reliability of the gathered data contributes greatly to the scientific
accountability of a research project, the researcher must be thoroughly aware
of any survey errors and the distortions these may cause in the data. Two basic
types of errors occur in marketing research studies: sampling and non-sampling
errors. Sampling errors occur when the characteristics, traits, behaviours and
qualities of the estimated sample deviate from the population. Errors made
by fieldworkers are classified as non-sampling errors. These errors occur, for
example, as a result of (Churchill, Brown Et Suter, 2009):
• a lack of conception (insight) and logic (reasoning skills) on th!t part of the
fieldworker
• arithmetical miscalculations
• the misinterpretation of results and statistics
• incorrect tabulation1 coding and reporting.
The following are some of the typical errors made by interviewers and
respondents (Malhotra Et Birks, 2007):
• Respondent selection errors occur when respondents other than those
specified in the research design are selected, for example when information
is obtained from respondents in the age category of 16-20 years instead of
26-30 years.
• Questioning errors are made when respondents are asked questions that are
not on the questionnaire.
• Recording errors occur when the answers given by a respondent are recorded
or interpreted incorrectly.
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the question or gives a misleading answer.

One can therefore assume that non-sampling errors are the most significant
errors that occur in marketing research. These are the primary causes of
total sample survey errors, while sampling errors have a minimal effect. The
probability of reducing non-sampling errors is increased if the researcher
understands their cause or origins.
Step 9: Preparing and processing the data

After the data has been collected through fieldwork, it must be prepared and
processed. Collected data must be validated, edited, coded and tabulated to
facilitate processing and analysis. For large surveys that require computer
processing, questionnaires are coded in advance for speedy data entry. The
researcher must therefore always take into account the underlying relationship
between data collection, preparation and processing.
Validation of data
Validation is a process to ensure that the gathered data is valid and accurate.
Each questionnaire is examined to decide whether it will be included in the
survey analysis or discarded. To be included, a questionnaire must result from
an interview that was carried out in a correct and consistent manner. Data
can be validated through check-backs, a review of the questionnaire and
interviewing instructions and also by an evaluation of the reputation of the
interviewers. Five specific areas are checked during the validation process,
namely fraud, screening, procedures, completeness and courtesy.
Step 10: Analysing the data

After processing, the data is analysed. The researcher's task is to study the
processed data and convert it into relevant information for decision makers.
There are various data analysis methods, from very simple to highly refined
methods such as multivariate analysis techniques. The planning of data analysis
methods takes place in the research design stage (see Step 3), when the data
requirements are considered. Many different computer programs are available
to aid data processing and analysis. Companies that specialise in this work are
also often used for this purpose.
To perform an analysis of quantitative data, the analysis objectives must
already be set. First, the content of the intended analysis and the variables
79
selected have to be decided on, and then the focus of the intended analysis
needs to be decided on. The focus can take three directions, with different aims:
1. A descriptive focus paints a summary picture of the sample or population
in terms of the variables of interest. This is associated with exploratory data
analysis that helps describe, summarise or establish relationships within the
data.
2. An estimation focus aims to use the information from the sample to estimate
an unknown variable by creating a confidence interval.
3. In the case of a hypothesis-testing focus, the aim is to statistically test
propositions about the relationship between variables or differences
between groups.
In the case of qualitative data, open-ended questions are analysed by using
content analysis. This involves listing responses and then creating general
meaning categories for the responses.
Step 11: Interpreting the results and compiling the research

report
Using a sophisticated range of tools to conduct research and generate information
is the easy part of marketing research. The difficult part is understanding the
implications of the information. In the final step of the marketing research
process, the researcher has to interpret the results and explain their significance
for decision-making purposes. The success of the marketing research process
is determined by the interpretation of the results and the conclusions drawn.
Next, the interpretation and conclusions must be communicated to
the decision maker concerned, usually in the form of a research report. The
research report must be comprehensible, relevant, clear, structured, timely and
comprehensive, so that meaningful decisions can be made about the marketing
problem or opportunity. The report must interpret and explain the results,
as opposed to simply providing a summary of the findings. In addition to a
written research report, the researcher usually also makes a verbal report. The
researcher's task is complete once the research report has been communicated
to the decision maker concerned. The decision maker now has to make and
implement decisions about the original marketing problem or opportunity.
4.3.3 Concluding comments on the marketing research process

Table 4.1 lists some of the typical questions that must be answered when
conducting marketing research.
Activity Typical questions
Formulating • What is the purpose of the study (problem solving or opportunity

the research identification)?
problem • Is more background information required?
• What information is required to make the decision?
• How will the information be used?
• Should the research be conducted?
Developing the • How much is already known about the problem?

research design • Can a hypothesis be formulated?
• What types of questions need to be asked to give the information required?
• What type of study will best address the identified research questions?
Determining • Can existing data be used beneficially?

the data • What is to be measured?
collection • How is it to be measured?
method • Are there any cultural factors that need to be taken into account when
designing the data collection method?
• Are there any legal restrictions that need to be considered?
• Can objective answers be obtained to the identified questions?
• How should respondents be questioned?
• Should questionnaires be administered personally, telephonically or through
the mail?
• If using observation, should this be done using electronic or mechanical
means?
• What specific behaviours should be observed?
• Should data collection follow a structured or unstructured approach?
• Should the purpose of the study be known or hidden from the respondents?
• Should rating scales be used in the questionnaire?
Designing the • What is the target population?

sample frame • Is the sample frame available?
and planning • Is a sample necessary?
the fieldwork • Is a probability or non-probability sample desirable?
• How large should the sample be?
• How should the sample be selected?
• Who will gather the data?
• How long will the data gathering process take?
• Is a significant amount of supervision required?
• What operational procedures need to be followed?
• What methods will be used to ensure the quality of the data collected?
Analysing and • Who will handle the editing of the data?

interpreting the • How will the data be coded?
data • Who will supervise the coding?
• Will computer or hand tabulation be used?
• What type of tabulations will be used?
• What techniques will be used to analyse the data?
-
+-I
81
Activity Typical questions
Preparing the • Who will read the report?

research report • What is the reader's level of sophistication (ability to understand the content
of the report)?
• Are managerial recommendations required?
• What will be the format of the written report?
• Is an oral presentation of the results or report required?
• How should the oral report or presentation be structured?
4.4 The difference between 82C and 828

marketing research
Marketing research is the function that links the marketer to the consumer,
irrespective of whether it is an end user or business, through information. B2C
and B2B marketing research employs the same marketing research techniques
and tools, however, the approach to research differs due to the characteristics
of the different markets.
In a B2C market, sales efforts are directed at individuals, who are the final
decision makers. The number of potential buyers might run into millions, and
only a significant portion - a sample of this market - is researched by applying
quantitative or qualitative marketing research techniques. In a B2B market,
the sales effort is directed at a business or a firm (Boundless.com, 2016). The
number of business buyers are fewer - from as little as ten to a few thousand
- and they can be spread over a number of industries that vary in size. (See
Chapter 1 for a detailed analysis of the different characteristics ofB2B and B2C
markets.)
The unique features of the B2B market have an impact on the approach
to marketing research in a number of ways (Circle Research, nd):
• Mixed-methods studies are more common in B2B research. Mixed methods
refer to the use of more than one methodology or research method. The
nature and complexity of the B2B market can require the use of more than
one method at a time. For example, the findings by secondary or desk
research can serve as the basis for conducting an in-depth interview or
focus group.
• Tele-depth interviews are more common in qualitative B2B research.
Time is a scarce commodity in the business world. For this reason, B2B
respondents often prefer in-depth telephone interviews instead of face-
to-face interviews. The researcher can still obtain information of the same
quality by doing in-depth telephone interviews.
always Ulal easy or reansnc.
• In qualitative B2B research, the sample sizes tend to be smaller.The number
of buyers in B2B markets is more limited than in B2C markets, and thus
fewer interviews are needed. In B2B marketing research a minimum of fifty
useful responses are needed to provide a reasonable degree of reliability.
• The entire decision-making unit is represented, rather than the individual.
In B2B markets, the buying decision often rests with a group rather than an
individual, and therefore the opinions and views of the group are needed.
• Respondents tend to be harder to reach. As mentioned, B2B decision makers
are busy individuals, with little time on their hands. This means they are
difficult to get hold of and often have to be persuaded to participate in
research. Gatekeepers, such as secretaries and personal assistants, sometimes
block access to B2B decision makers.
• Relationships are used as leverage in B2B research. B2B buyers often deal
with a specific person(s) within the supplier company, such as an account
manager. This contact person plays an invaluable role in convincing the
B2B buyer to participate in and support the research.
• Expert researchers are needed in B2B research. B2B markets are complicated,
and in many cases respondents are specialists in their field. Researchers
must be well informed and have the necessary knowledge about products
and industries; this will enable them to undertake effective and focused
research.
• In B2B research, the analysis often reflects the Pareto (80/20) principle.
Stakeholders in B2B markets are often limited to a few disproportionately
im po rtant customers and the views of major players can therefore easily
overshadow those of smaller players. Research in the B2B market should
reflect this aspect.
• Respondent anonymity is often waived in B2B research. Confidentiality and
anonymity are required in B2C studies. Although this also applies to B2B
research, respondents often require a follow-up on the research and thus
waive their right to anonymity.
4.5 Marketing information systems

Towards the end of the previous century, most enterprises did not have
sufficient information available to make effective decisions. This has since
changed. No longer is there a shortage of information. Today we have what
may be called an 'information explosion'. As a direct result, management often
finds that decision making is made more difficult by the volume of data, not
83
the lack of data. The enormous increase in the amount of data available to
management means that the emphasis is no longer on data collection but on
data management.
The increasing complexity of data is another reason why data management
is needed. It is becoming more difficult to differentiate between relevant and
irrelevant data because of technological progress, more sophisticated data
collecting methods and the growing number of organisations specialising in
the collecting, storing, processing and distribution of data.
The nature of ever-changing conditions means that the enterprise has to
manage its marketing information as effectively as possible, especially in large
enterprises where carefully planned marketing information is a prerequisite
for effective information management. Data needs to be available to the right
decision makers when, where and in the form required. Thus, a way has to be
found to organise the wealth of data so that it can be readily accessed for use
in decision making. The rapid growth of information technology has made this
task easier, as computers can be used to store and organise this information. It
is the task of the MIS to constantly filter, analyse and store the massive flow
of data. An MIS can therefore be defined as a set of interrelated components
that collect (or retrieve), process, store and distribute information to support
decision making and control in an organisation (Shao, 1999:44).
A well-maintained MIS allows the marketer to obtain information for use
in a wide range of decision-making situations. Generally speaking, three types
of information can be extracted (Cant et al, 2005:13):
1. Recurrent information is continuously provided to managers, for example
weekly sales figures per product or per region.
2. Monitoring information is obtained from sources relevant to the particular
company or industry, for example websites or trade publications.
3. Requested information is specific information that is requested and then
collected as part of a specific query from marketing management.
4.5.1 The value of marketing information

For an MIS to be of any use, the information must be of high quality and add
value to the decision-making process. It is therefore very important to ensure
that the information meets the following criteria (Strydom, Jooste a Cant,
2002:145):
• Relevant (meaningful): Management must be able to use the information
to make decisions about target markets, products, prices, distribution and
marketing communication. It must be suitable for solving the problem at
hand.
1 vu .. u1 .
in which the organisation is operating and the problems being experienced.

• Adequate: Sufficient qualitative and quantitative information must be
available in order to make appropriate decisions.
• Available: The information should be in a form that is easy to access when
required.
Collecting information and operating an MIS are not without costs. In addition
to the quality component, an MIS has a cost component consisting of direct costs
and opportunity costs. Direct costs refer to the costs related to the collection
and management of the information. Opportunity costs refer, for example, to
costs arising from a decision that was delayed because of a lack of information.
Figure 4.2 represents the value appraisal of marketing information for decision
making.
Benefits gained Costs associated Value of marketing

from the minus with obtaining the equals I information for
information information decision making
Figure 4.2: The value of marketing information for decision making (Cant et a/,
2006:745)
It may not always be easy to determine the value of information, but a value
appraisal must be done constantly to ensure that the MIS is operating cost-
effectively. While every effort should be made to develop and maintain the
MIS, it is important to find a balance between the quality of information in the
MIS and the cost involved in maintaining it.
4.5.2 The objectives of a marketing information system

The primary objective of an MIS is to make relevant, useful and timeous
information available to marketing management on a continuous basis and, in
so doing, reduce the risk of management making wrong decisions.
The secondary objectives of an MIS will vary according to the nature
of the organisation and the products and/or services offered. The secondary
objectives may include:
• identifYing shortcomings in product sales
• improving the sales performance of products or services in specific sales
areas or market segments that are not contributing to the achievement of
the firm's sales volume, profit and market share objectives
85
• distributing marketing activities more effectively among products or

brands, advertising campaigns, sales areas and advertising media
• identifying the need for new products and providing information about
possible development and marketing of such products
• determining prices in order for the company to remain competitive in a
changing market environment
• motivating sales staff in the field by means of the fair and just allocation
of sales areas.
4.5.3 Types of marketing information systems

The type of MIS used in an organisation will depend on the organisation's size
and the industry in which it operates. The MIS of a small establishment with
a homogeneous type of product or a low competition level will be relatively
simple compared to that of a large organisation with a diversified product
range or high-level competition.
A simple MIS consists of a routine data component and a special-purpose
component, as illustrated in Figure 4.3. Routine data can be obtained from
internal sources (such as sales, stock, debtors and creditors) and external sources
(such as population growth, competitive activities and trading association
statistics). For the special-purpose component, marketing research must be
conducted. If the establishment itself conducts the research, this is called
internal research. Research undertaken for the organisation by a marketing
research agent is referred to as external research.
Everyday data Internal environment

for routine
needs
External environment
Internal marketing
Special purpose research
data for ad hoc
requests External marketing
research
UJ\....>L \....VUlJ:..IVll\..Ul.:l.
Internal reporting subsystem t• •t Marl<otlng lntelligeOKe subsy>tem

(Internal secondary data)
•
•
Accounting reports
Production reports
1 (External data- secondary or pnmary)
•
•
Consumers
Competitors
• Sales reports • Suppliers
• Quality control reports • Distributors
• Engineering reports • Professional associations
• Goods returned reports • Government bodies
Statistical subsystem Internal and/or external marketing

(Modelling framework) research subsystem
• Statistical methods (Research process)
• Forecasting techniques Problem definition
•
•
•
Dynamic modelling
Game theory
Elasticity models
I t I : :::· :, ,
• Data processmg
.. • Data analysis
Reporting
Figure 4.4: An extensive marketing information system (adapted from Tustin et a!,
2005:69)
4.5.4 Components of a marketing information system

As Figure 4.4 shows, an extensive MIS consists of a number of components.
Each of these will be discussed in the sections that follow.
The internal reporting subsystem

The internal reporting subsystem contains information about the organisation's past
results and is used especially for identifying important opportunities and threats.
All organisations generate a large amount of information. Various types
of data are already available within the organisation in the form of sales reports,
stock records and debtors' and creditors' statements. This data remains mere
data unless there is a proper information system that can process it into useful
information for managers. Instead of using a proper MIS, management often
spends large amounts of money on information from external sources, only to
find later that the information was already available in the organisation, just
in another form.
87
In this subsystem, some of the most valuable information comes from sales
invoices, sales force information and accounting information. Only useful
information should be included and, for the system to be effective, there must
be interaction between the various functional divisions (production, marketing,
financing, purchasing, etc).
The marketing intelligence subsystem

Marketing intelligence is general information about developments in the
marketing environment of the organisation that helps managers to develop
and change marketing plans. The marketing intelligence subsystem is the
set of procedures and sources used to acquire information. Collection of this
data is usually unplanned. The sources of marketing intelligence are shown in
Table 4.2.
Table 4.2: Sources of marketing intelligence (adapted from Strydom, 2011 :85)
Source Examples
Customer or client Queries from customers, buyers or clients
Suppliers Product suppliers, advertising agencies, public relations agencies, financiers
Intermediaries Wholesalers, retailers, agents, brokers
Personnel All levels of management, engineers, buyers, sales representatives,

customer contact personnel, call centre agents
Professional Management, scientific and technical associations and meetings of like-

associations minded people, trade associations
Competitors Product launches, annual reports, websites, speeches, personnel

advertisements, consultants, advertising agencies, bankers
Other sources Consultants, print media, broadcast media, websites, research agencies,
other information and specialised organisations
----- - -
The statistical subsystem

The statistical subsystem combines various statistical data series and the
application of statistical models. Data from the databases is processed
statistically to develop certain predictions, scenarios and models that reduce
the risk associated with decision making. The data series that forms the basis
for this subsystem must be updated continuously.
UJ\....>L \....VUlJ:..IVll\..Ul.:l.
The marketing research subsystem

u u'- .>pa t.
4.6 Forecasting
Forecasting is the use of historic information to determine the direction of
future trends, for example for future sales, expenses, budgets, etc. Forecasting
techniques are either quantitative or qualitative in nature. The sections that
follow give an overview of key terms as well as quantitative and qualitative
forecasting methods from a sales perspective.
4.6.1 Main concepts of forecasting

Many different terms are used in forecasting. Four important concepts are
market potential, sales potential, sales forecast and sales quotas:
• Market potential is the total number of units of a particular product offering
that the market can consume in a specific period under ideal conditions.
The term 'ideal conditions' refers to a situation where activities such as
marketing or competition do not have an influence on the number of
products that the market will consume. (A. market is a group of customers
in a specific geographical area.)
• Sales potential reflects the maximum possible sales for a specific organisation
and is a portion of the entire industry demand. In other words, of the total
market potential, which includes all the products that can be consumed in
a market, sales potential is the share that a particular organisation will sell
to the market.
• Sales forecast is the estimated sales, expressed in units sold or monetary
value, for a specific period in the future. Formerly, sales forecasting
included sales only in a specific geographical area, but many organisations
nowadays include product lines, customer groups or specific products.
It must be remembered that sales forecasts are usually lower than sales
potential, because an organisation may not have the production capacity to
meet the demand or enough sales staff to cover all possible markets.
• Sales quotas are the objectives set per sales department, salesperson, sales
territory, product line or similar unit. In the setting of sales quotas, a
measure is put in place to gauge whether salespeople or sales departments
are achieving their objectives. Sales quotas are therefore an indispensable
tool to measure sales force performance. The payment of performance
bonuses or commission is often linked directly to sales quotas.
89
4.6.2 Qualitative forecasting techniques

Qualitative forecasting techniques are based on judgements or subjective methods,
and rely on opinions rather than using mathematical or statistical methods.
User surveys (West 1997)

In a user survey, the current users of the product or service are asked how
much they will be using within a specific time frame. There is a difference
between user surveys in a B2B market and a B2C market. In a B2B market the
information can be obtained by a salesperson, since there are far fewer users
than in a B2C market.
Jury of executive opinion

This method relies on the opinion or judgement of a group of experienced
people, for example executives, managers, buyers, etc. Either one executive
gives an opinion (usually in the case of smaller organisations) or a number of
executives are consulted. For this method to be used, the executives must be
experienced, and it can take years to develop the skills and experience required
to provide accurate estimates. Two different approaches can be used:
1. The organisation asks each of the executives to provide a forecast for
estimated sales; this data is then combined and an average is determined.
2. All the executives meet and each provides an estimate. The differences are
then discussed by the group until consensus is reached.
Sales force surveys

An easy way to get a forecast is to get the sales force to provide the data.
All the salespersons are asked how much they plan to sell or how much they
estimate they will sell in the next sales cycle, which can be anything from
three months to one year. One way to make sure that the forecast by a specific
salesperson is accurate is to look at past estimates by that person or for that
product or territory.
The Delphi technique

This technique can be used not only for forecasting, but also to predict what
may happen in a specific industry. The Delphi technique utilises a panel of
experts in a number of controlled brainstorming sessions to make informed
predictions. After the first round of brainstorming, the experts' answers are
u u'- .>pa t.
summarised. The summary is then used to lead the next session's discussions.
c.A.pcll l\.uuw1cuc u11 we vaan:u1ar wuusLry.
backgrounds or organisations, and can have different training, as long as they
have expertise in the field for which the forecast is to be done.
Market tests
In this method, the organisation launches a product in a specific preselected,
limited market to test how the market will react to the product. The data
gathered from the market test can then be extrapolated to the full market. One
of the main concerns in using market tests to gauge the potential for a new
product is that competitors can see what the organisation plans to launch and
take pre-emptive action.
4.6.3 Quantitative techniques for forecasting

Quantitative forecasting techniques are based on mathematical and statistical
methods such as time series data analysis, moving averages, exponential
smoothing, trend analysis and causal analysis.
Time series data analysis

This analysis relies on the business cycle theory, which means that data
from the specific cycles that an organisation goes through is analysed. The
information is then interpreted to determine how the business cycle influences
sales or activities. It must be noted that a time series data analysis is not a
short-term forecast method, but is focused on the long term. A time series data
analysis can be used to analyse the sales of a specific organisation or for a
whole industry. It assumes that the sales history of an organisation or industry
is an indicator of future performance, which will stay more or less constant.
With this assumption, an average is taken of the sales, which is then increased
incrementally to determine future sales.
Moving averages
This is one of the easiest and simplest methods for sales forecasting. The sales
manager takes the sales data of, for example, the last three or six years and
determines the average sales. That average is then used for the coming year's
forecast. The moving averages method of sales forecasting is easy to use and
straightforward. Sales managers have to decide on the time period they will
use, for example, two, four or six years. One must, however, be careful in cases
where there have been major changes in the business environment from one
year to the next. If, for example, an organisation operates in a volatile market,
the moving averages method might not be advisable.
91
Exponential smoothing
This method works similarly to moving averages, the only difference being that
less weight is placed on data as it gets older. What this means is that, unlike
the moving averages method, where all data is equally important, the current
year's data will have more influence than, say, data that is four years old.
Exponential smoothing is used to forecast for only one year or sales period in
the future.
Trend analyses
A number of other statistical methods of data analysis can be used to forecast
sales. A simple regression can be done to predict sales for a specific time frame
using time as an independent variable. A more sophisticated method, which is
used extensively in tourism, is the autoregressive integrated moving average
(ARIMA), which makes use of moving averages and includes information about
trends by spotting patterns in the fluctuation in data.
Causal techniques
With a causal technique, the sales manager attempts to identify factors
affecting sales and the nature of the relationship between them. The purpose
of this method is to determine the cause-effect relationship between specific
factors and sales. In using the causal technique, the sales manager has a choice
between correlation-regression analysis, econometric models and input-output
models:
• Correlation-regression analysis is used when sales can be related to
something other than time. This method uses mathematical relationships
between sales and one or more variables. In other words, the correlation
between a-ehange in one variable and the specific changes it will bring about
in another variable or other variables will be calculated. For example, if
there is a change in the organisation's promotional campaign, what change
will this bring about in sales? If it can be established that a promotional
campaign can be used to predict sales, there is a statistically significant
relationship.
• Econometric models trace economic conditions with the aim of capturing them
in the form of equations. These equations represent complex interrelationships
between the factors affecting either the total economy or specific industries
or sales of an organisation. For example, how much money consumers will
spend can be linked to interest rates or inflation. This information can then be
used to establish an interrelationship. Econometric models, however, are very
anomer mausuy s output. lhe mput-output model analysis is applicable
to specific types of industries and is very expensive to develop. With this
model, however, an organisation can get good intermediate and long-
range forecasts. Because of the technical expertise required, this type of
forecasting is mostly outsourced to specialised organisations.
4.7 Managing and organising the marketing

research function
The implementation and organisation of the marketing research function will
differ between enterprises due to the nature and organisational structure of
companies. For example, the purpose and requirements of marketing research in
a manufacturing enterprise will differ from those in a Consultancy or marketing
research enterprise. In a manufacturing company, marketing research is one of
many activities, while it is the primary activity of a marketing research company.
In a marketing research firm, marketing research is being conducted for profit
and the continued existence of the company. In a manufacturing enterprise,
the purpose of marketing research is not profit, however, it is expected that
the research will indirectly contribute to the increased profitability of the
enterprise. In addition, in a manufacturing enterprise more emphasis is placed
on the use of the marketing research findings in the day-to-day marketing
activities of the company, while in a marketing research firm this is not the
case, as the company is engaged in the marketing of products.
When it comes to organising the marketing research function, there are
several options available, ranging from a single staff member to an established
research unit with several specialists and support staff. Where marketing
research is undertaken regularly, it is desirable to formalise the marketing
research function and to integrate it not only with marketing activities but
also with the overall management of the organisation.
There are three basic options available for the implementation or creation
of a marketing research unit within the company. The marketing research
responsibility can be allocated to:
1. a formal marketing research unit with specialists; the department head shall
be responsible for conducting research and reporting research findings to
management
2. a staff member or a manager who will oversee research activities in addition
to her or his normal duties
3. an outside individual or research company whose business is marketing
research; in this case, marketing research is outsourced.
93
Marketing research in a 828 setting follows the same process and utilises the same research
tools as in a 82C setting, however, the approach is different. The differences are that marketing
research in a 828 setting follows more a mixed-methods approach, thus combining qualitative with
quantitative techniques. The respondent numbers are lower in 828 research than in 82C research,
and personal relationships play an important role in 828 research.
Qualitative techniques available to the 828 researcher include focus groups and in-depth
interviews, whereas quantitative techniques include various forms of surveys. In developing an
instrument for data collection, the researcher needs to take a number of aspects into account, such
as the information needed, the type of questionnaire to be used, the method of administration,
the question content, the response format, the question sequence and the questionnaire's physical
characteristics and layout.
The steps of the marketing research process were briefly discussed. Following on, the problem
research objectives are formulated. These objectives are the thrust or driver of the research study.
Once the objectives have been formulated, the researcher decides on a research design. This is
followed by secondary research, which focuses on researching existing sources. The steps described
up to this point are regarded as preliminary research. The formal research starts with primary
research and the design of the data collection tool. These steps are followed by the formulation of
the sample frame and the gathering, preparation, processing and analysis of data. The marketing
research process ends with the interpretation and compilation of the research report.
This chapter also addressed the MIS, which consists of four components, namely the internal
reporting subsystem, the marketing intelligence subsystem, the statistical subsystem and the
internal and/or external marketing research subsystem. The latter encapsulates the marketing
research process as discussed.
Forecasting, also addressed in this chapter, is the use of historic information to determine the
direction of future trends, for example for future sales, expenses, budgets, etc. Forecasting
techniques are either quantitative or qualitative in nature. Qualitative forecasting techniques are
based on judgements or subjective methods, and rely on opinions rather than using mathematical
or statistical methods. Qualitative techniques include user surveys, jury of executive opinion, sales
force surveys, the Delphi technique and market tests. Quantitative forecasting techniques are
based on mathematical and statistical methods such as time series data analysis, moving averages,
exponential smoothing, trend analysis and causal analysis.
In managing and organising the research function, an enterprise can establish a formal marketing
research unit with specialists who shall be responsible for conducting research and reporting research
findings to management. The organisation can also allocate marketing research responsibilities to a
staff member or a manager who will be responsible for overseeing research activities in addition to
her or his normal duties. Lastly, the research function can be outsourced.
Decorative Products (Pty) Ltd was established in 1981 as a wholly owned subsidiary of White
Corporation, a major manufacturer and supplier to the building industry. White Corporation is
associated with a major overseas company which has developed some successful consumer
products, particularly in the decorative coating field. Decorative Products was White Corporation's
first entry into the South African market.
Originally situated in Johannesburg, Decorative Products moved to new premises on the East Rand
in 1992. Until1992, the company's products were 'dry' cement-based products used as decorative
finishes on walls and swimming pools. The purpose of the move was to extend the product range
to include Griptex, a paint which at the time had the unique attributes of stretchability, flexibility
and superior finish.
At the new premises, a major investment was made in handling and mixing plant as well as
equipment for Griptex.The important raw materials were mica and resin, which were bought from
competitors.
Questions:
1. Decorative Products would like to determine the perception that building contractors have of
Griptex. Briefly outline the research process that needs to be followed.
2. Decorative Products wants to establish an MIS. Discuss the components of an MIS.
3. Decorative Products wants to learn more about their competitors. Briefly discuss the secondary
sources that they can use, and indicate the type of information that they will get about their
competitors from these sources.
4. Advise the management of Decorative Products on the options for the management and
organisation of a marketing research department.
1. Define marketing research.
2. Discuss the components of an MIS.
3. Explain the need for marketing research.
4. Distinguish between B2B and B2C marketing research.
5. Discuss the marketing research process.
6. Distinguish between quantitative and qualitative research.
7. What do you understand under the term 'validation'?
8. Discuss the possibilities for the placement of a research function within a
firm.
95
References
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Churchill, GA, Brown, TJ Et Suter, TA. 2009. Basic marketing research. 7th ed.
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Cengage Learning.
Tustin, D, Ligthelm, AA, Martins, JH Et Van Wyk, H de J (eds). 2005. Marketing
research in practice. Pretoria: Unisa Press.
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Strydom, JW, Jooste, CJ Et Cant, MC (eds). 2002. Marketing management. Cape
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West, DC. 1997. 'Managing sales forecasting'. Management Research News. 20(4):
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Chapter
Segmenting business markets,

choosinJ target makets and
posi ioning products
Danie Th eron
Learning outcomes
After studying this chapter, you should be able to understand:
• alternative market structures
• the criteria for determining the usefulness of market
segmentation
• the aim of market segmentation and targeting
• the two-tier approach to market segmentation
• the application of macro-segmentation criteria
• the application of micro-segmentation criteria
• alternative target market strategies
• the steps in perception analysis and product positioning.
Introduction·
A number of strategic questions needs to be answered by any business - be
it a new or an established business - in order to ensure its longevity. From a
marketing point of view, the following are two pertinent strategic questions:
1. Who are the customers that the organisation is aiming to serve with its
product?
2. What are the unique attributes of the product that will ensure support from
the target customers?
These questions need to be answered unambiguously for a business to be
successful over the long term. Both business practitioners and academics
agree that the success of a business depends largely on the match between the
customer group (target segment) it serves and the product it manufactures or
sells. These two strategic questions or issues also form the cornerstone of this
book.
This chapter firstly deals with identifying different market structures.
Analysing customers' general characteristics and buying behaviour provides
the marketer with a snapshot of what the market looks like. This snapshot is
called the market structure, or market preference pattern. Based on the analysis
of the market structure, the marketer should consider performing a market
segmentation exercise and selecting a target market.
This chapter discusses how to apply the criteria for determining
the usefulness of performing market segmentation and the aims of market
segmentation. Thereafter, the exercise of market segmentation is addressed by
discussing the two-tier approach, with explanations of the macro- and micro-
segmenting criteria. Target market selection is addressed next by looking at
both single-segment and multi-segment strategies. How the organisation's
product should be positioned within the target market is another important
consideration that is discussed. (Developing the organisation's 'total market
offering', or marketing mix, will be covered in the subsequent chapters.)
5.1 Market preference patterns

The concept of market segmentation is rooted in the observation that all markets,
including B2B markets, exhibit a unique customer preference pattern or market
structure that lies between two extreme positions. This results in a continuum,
on which three basic preference patterns (also called demand profiles) can be
identified, namely a diffused (heterogeneous) preference pattern, a clustered
preference pattern and a homogeneous preference pattern, as shown in
Figure 5.1.
98
"
CHAPTER 5: SEGMENTING BUSINESS MARKETS, CHOOSING TARGET MARKETS AND POSITIONING PRODUCTS
Each client firm has Consumers exhibit All consumers have more
a unique product a small number of or less the same product
preference. preferences. preference.
( Consumer 1 }-----{ Segment 1 J Consumer 1

( Consumer 2 }------{ Segment 2 )
Consumer 2 f-{ Segment 1 ) Consumer 1
Consumer 3 Consumer 2
Consumer 3
( Consumer 3 }-----{ Segment 3 )
Consumer 4
( consSegment 4 ) Consumer 4 Consumer 5 K Segment 1 )

( Consumer 5 }---{ Segment 5 ) Consumer 6 f{ Consumer 7

Consumer 8
Segment 2
( Consumer 6 }--{ Segment 6 ) Consumer 10
Consumer 8
(Consumer})---{ Set 7 )
( Consumer 8)----{ Segment 8 J Consumer 9 j-( Segment 3 )

Consumer 10
( Consumer 9 )--{ Segrnent9 )
( Consumer 1 o )----(Sem
! et . 0J
Figure 5.1: Customer preference patterns (or demand profiles) (based on Baker &
Hart, 2008)
It is important to remember that a marketer does not 'choose' one of these

market structures. The market structure is given, and the marketing firm has to
compete in the market given its specific dynamics.
5.1.1 The diffused preference pattern

At the one extreme, a B2B market may contain customer firms that exhibit
different product preferences, even to the point where each of them has
unique product needs. This type of market, therefore, exhibits a diffused (or
heterogeneous) preference pattern. In Figure 5.1, this preference pattern is
represented by the profile shown on the left-hand side.
99
CAsE STUDY: A. MARKET WITH A DIFFUSED PREFERENCE PAmRN
Technoform Manufacturing* supplies a wide array of industries with conveyer belt systems.
Supermarkets, mines, airports, food-packing companies and motor manufacturers are some of
their more important client groups, and there are many more. In most cases these conveyer belt
systems are tailor-made for each industry. Even within a particular segment, such as the mining
industry, product requirements vary a lot. For example, iron-ore and gold mines require large
conveyer belt systems that must be able to carry large quantities and heavy materials, while motor
vehicle manufacturers require more advanced, computerised conveyer belt systems to utilise in
their assembly plants. Due to the lack of product standardisation, and the fact that Technoform
Manufacturing has to compete with large international companies with huge customer bases, the
firm experiences severe cost pressures.
*A fictitious company
5.1.2 The homogeneous preference pattern

the other extreme is a market in which consumer firms exhibit almost identical
product preferences. This type ofB2B market reflects a homogeneous preference
pattern, consisting of a single segment to which all customer firms belong. This
market profile is shown on the right-hand side of Figure 5.1 on page 99. These
markets exist because the particular products being sold in them have a limited
variety of applications and B2B organisations buying these products compete
directly with one another for the attention of the same end customers.
5.1.3 The clustered preference pattern

The position in-between a homogeneous market and a totally splintered diffused
market is referred to as a clustered preference pattern, where no customer
firm shows an absolutely unique product preference or exhibits exactly the
same requirements as all the other customers in the B2B marketplace. This
market structure is characterised by substantial market segments, in which
each segment can be served with different products. This is the middle position
indicated in Figure 5.1 on page 99.
USE STUDY: A MARKET WITH A CLUSTERED PREFERENCE PATIERN
Gary Thompson is the owner and manager of Foods Logistics*, a company that operates as a
wholesaler in the maize industry. His firm buys raw maize products from farming co-operatives
situated in the heartland of the maize-producing region of South Africa, known as the maize
triangle. +
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CHAPTER 5: SEGMENTING BUSINESS MARKETS, CHOOSING TARGET MARKETS AND POSITIONING PRODUGS
In turn, the company sells the raw maize to a number of manufacturers operating in a variety of
quite diverse industries. Foods Logistics's main customers are manufacturers of livestock fodder,
dog food and chicken feed, maize meal, cornstarch (used as a thickening agent in foods), corn syrup
(mainly used as a sweetening agent), snacks (such as popcorn, cheese curls and tortillas), breakfast
cereal a'nd cooking oil. Obviously these customer segments differ a lot in terms of their competitive
intensity and profitability. Sooner or later, Gary Thompson will have to consider whether to start
focusing only on the most lucrative of these segments.
In the case of a B2B market exhibiting a clustered preference pattern, as shown

in the case study of Foods Logistics, the diverse (heterogeneous) customer firms
must be segmented into more homogeneous subgroups, referred to as market
segments. These segments will then be analysed individually, and one or more
of them will ultimately be chosen as (a) target segment(s), more commonly
known as the organisation's target market.
5.2 The evaluation criteria for market segmentation

Market segmentation may be defined as the clustering of heterogeneous
customer firms in the market (or industry) into more or less homogeneous
segments with a view to choosing one or more of these segments (the target
market or target segments) to serve (Kotler Et Armstrong, 2012).
Dividing the broad market with all its heterogeneous customers into more
or less homogeneous segments depends on several factors. As explained in
Section 5.1.3, if the analysis of the structure of the market (or industry) shows
a clustered preference pattern (see Figure 5.1 on page 99), it means that the
market is segmentable.
However, before the organisation endeavours to perform segmentation,
it must determine whether the exercise is worthwhile to perform given its own
particular circumstances. A number of evaluation criteria is used to determine
whether the market segmentation exercise should be performed, namely
heterogeneity, compatibility, measurability, substantiality, accessibility and
responsiveness (discussed below). Furthermore, the competitive nature of each
segment must be analysed. It is no use identifying a market segment that seems
lucrative in terms of its size and the firm's ability to serve it if there are many
strong competitors in that segment.
As mentioned above, the following five factors should be considered to
determine whether the segmentation exercise should be undertaken at all:
101
1. Heterogeneity: Does the market show a clustered preference pattern? If the

B2B market does not clearly show that potential groups of buyer firms exist
(a clustered market), and the chances are slim that a segmentation exercise
will be able to expose such segments, management may decide against
trying to segment the market. Only when a market exhibits a clear clustered
preference pattern will market segmentation be a useful exercise.
2. Compatibility: Does market segmentation fit the organisation's basic
marketing strategy? A business might decide not to perform a market
segmentation exercise if:
- it has followed an undifferentiated approach in the past (meaning it
currently has one general product aimed at all customers in the B2B market)
- management perceives a high risk attached to tailoring the organisation's
product to the whims of a particular segment of the B2B market
- the firm's resources are so limited (or committed) that it cannot respond
to new, attractive segments
- the marketer is so well entrenched in its existing target market that it
does not see the need to consider entering other segments of the market.
This perception is the undoing of many businesses, especially those that
are competing in dynamic environments.
3. Measurability: Is it possible to determine the characteristics of market
segments? The aim ofthe segmentation exercise is to identify groups ofB2B
customers (segments) whose descriptive characteristics, existing sales levels,
sales potential and profitability can be determined. Secondary information
can be used to some extent, but gathering primary data usually becomes
necessary when a finer delineation of segments is required. However,
decision makers in customer organisations are sometimes reluctant to
furnish information about their organisation to interviewers conducting
market research, which makes it difficult to determine the present and
future potential of those market segments.
4. Substantiality or longevity: Will the market segment be lucrative over
the long term? The business environment is dynamic and the needs of
B2B customers change over time. A market segment may become smaller
because customers are leaving the segment or because competitors are
preventing the marketer from gaining a sustainable presence in the market.
5. Accessibility and responsiveness: Does the marketer have the ability to
access the market segment and get the segment to respond? This criterion
is related to the previous one. Competitors in a segment may prevent the
marketer from coming up with a really unique product. The marketer must
consider the likelihood of this happening before committing its resources to
the segment. Another aspect that might prevent a marketer from entering
a market segment is not having enough human and financial resources to
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market its product successfully to the customers in the particular segment.

It often happens that a marketer has the right product aimed at the right
market, only to find that it is unable to reach these customers with its
marketing campaign. For example, consider a situation where competitors
have large sales forces that visit customers to make sales and then provide
after-sales services, while the marketer is unable to employ such a large
sales force. The result may be that not enough customers become aware of
the marketer's product.
If marketing management is able to give an affirmative answer to all these
questions, the segmentation exercise should be performed and a target market
should be selected. If the marketer is already serving one or a few segments in
the market, answering these questions will shed a bit of light on the company's
future potential.
5.3 The aim of market segmentation and

targeting
The main objective of the market segmentation exercise is to look impartially at
the potential market and categorise customer organisations in more homogeneous
market segments based on the similarities in their general characteristics and
their product-specific needs, purchasing and usage behaviour (Goya, 2011).
Being impartial implies that marketing management should distance itself from
its present product(s) and capabilities, and adopt a 'pure customer focus'. Only
once market segments have been identified objectively should the marketing
organisation ask: 'Which of these segments can we serve better than our
competitors?' or 'How should we adapt our existing product(s) or the other
marketing mix elements to be able to serve one or a few of these segments
optimally?' Merely identifying customer firms that may buy the marketer's
existing product is not the primary aim of market segmentation.
The primary aim of market segmentation is therefore to structure the
market. Merely analysing the marketing environment in broad terms is not good
enough. The purpose of the analysis must be to answer important questions
about the existence of the business. Two pertinent questions are the following:
1. What are the changes taking place in the B2B market and product category
that the business is competing in?In today's dynamic business environment,
most products and markets are in a state of flux. Think of any product
category and you will realise that it has changed a lot. For example,
communication technology has changed drastically over the last 20 years.
Think of your first cellphone. Are you still using the same brand, and did
that cellphone have the features that you can now hardly do without?
103
Another example: what effect do you think Google maps are having on the
market for dedicated GPS products? Surely it must have a damaging effect.
2. How is competition changing in the industry? Competition has generally
become much more severe. South African markets have opened up, with
overseas competitors entering local markets. Most of the trade restrictions
on imported products have been lifted and South African manufacturers are
now competing with foreign companies - some with huge market shares.
A classic example is the motor industry with a foreign presence of 85% of
total vehicle manufacturing and assembly in 2006. (You can read a very
insightful article on the dynamics in the global motor industry at http://
www.engineeringnews.co.za/article/growing-competition-in-automotive-
manufacturing-industry-2011-02-02/rep_id:4136.)
The market segmentation exercise contributes to interpreting these kinds of

changes - especially in terms of how they impact on B2B consumers' buying
and consumption patterns. Segmentation is therefore not a once-off exercise,
but is a continuous exercise. Existing target markets also change and marketing
strategies need to adapt to accommodate these changes.
5.4 The market segmentation exercise

The segmentation exercise is performed step by step, starting with the
identification of the macro-level bases (macro-segmentation criteria) that
indicate general differences between the customer firms in the potential market.
The aim is to identify macro-segments of customer firms which are fairly similar
in each segment, but which differ from those in other segments. Remember, the
aim is to identify segments that will react positively to the marketing strategy
of the business marketer. If the macro-characteristics of customers in different
segments do not differ enough to justify a separate marketing approach,
micro-segmentation criteria should be used to discriminate more between the
customers in different market segments. This approach is called the two-tier
segmentation approach.
5.4.1 Macro-segmentation criteria

The general or macro-characteristics of customers in the B2B marketplace are
the following:
• their geographic location
• their size: in terms of sales quantities, cost-to-serve, profitability and their
monetary, human and physical resources
• their organisational structure
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• the industry they participate in: for example the textile, agricultural,
chemicals or motor industry, or, from another perspective, the governmental,
institutional and commercial markets
• the end market they serve
• their strategic aims: in terms of innovativeness, product quality and market
dominance, among other things.
These factors (discussed in greater detail in the sections that follow) basically
describe the organisational customers in the marketer's potential market in
broad terms. Using only macro-segmentation criteria for selecting a target
market is acceptable when present and potential customers differ little in terms
of their specific requirements of the marketer's and its competitor's products.
In such a case competition is usually severe, because of the lack of product
differentiation between competitive products.
Geographic location
The location of B2B customers is important to smaller marketing firms that do
not enjoy a wide market coverage. In this case, close proximity of the marketer
to B2B customers is important and the potential customers are geographically
widespread.
Customer size
This factor is important, as it impacts on the scale of advantages that a marketer
could enjoy when selling more products to larger B2B customers. Sales levels
must, however, be weighed against the cost involved in serving bigger, more
demanding customers, as the cost in serving them (cost-to-serve) may be
higher than serving smaller customers. Profitability per client is therefore an
important measurement of customer size. In addition, enjoying the support of
large customers (large in terms of monetary, human and physical resources)
may safeguard marketers from demand fluctuations and competitor actions.
A B2B customer's organisational structure reflects on its geographic coverage
and its decision-making style. These two factors, in tum, determine whether
buying decisions are made centrally, divisionally or at branch level. If the
customer firm competes in different markets, it might be structured in fairly
independent business units that each makes its own buying decisions. For
expensive and important products, customer firms make buying decisions at
higher levels, or use larger buying centres to make these decisions. (See Chapter
2 for information on the centralisation and decentralisation of the buying
function, as well as the buying centre.)
105
Industry type
The industry or market in which a B2B customer participates has a particular
make-up in terms of its product requirements, competitive intensity and the
end market it serves. For example, a marketer of computer software has to
develop quite different computer programs for a customer in a manufacturing
industry (that applies the programs for product design, project scheduling
or variance control) and for a customer operating in the retail industry (that
uses the programs for stock control, credit management or point-of-purchase
transactions).
End market
The end market served by present and potential B2B customers (also known
as 'our customer's customers') will help to determine the role and importance
of the marketer's product. These customers may also be organisations, or they
may be final consumers. In the latter case, the marketer should consider the
most important demographic, psychographic and product-specific needs of
these end consumers.
Strategic priorities
The strategic priorities of B2B customers (also called 'value in use') refer to
their general product positioning aims and what they perceive the marketer's
contribution to be in achieving these aims. A firm supplying an important
product to its B2B customers should contribute to realising the strategic
priorities of these customers. Examples of B2B customers' strategic priorities
are, among other things:
• innovativeness
• price competitiveness
• superior quality
• low-cost production
• brand or market leadership
• high-performance products
• being the first-to-market
• vertical and horizontal collaboration
• market growth, expansion or penetration
• continuous new product development.
For example, if a marketer supplies high-quality machine parts to manufacturing
companies, it should look for B2B customers that expect these parts to be the
best in the market. It would be unwise of this marketer to select a B2B customer
that aims to penetrate the market with a low-priced product. Similarly, if a B2B
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customer bases its success on being the market leader in product innovation,
it would expect its important suppliers to also be on the forefront of new
developments in the products they supply. A marketer that is unable to deliver
on this demand should aim its product at other target customers or market
segments.
5.4.2 Micro-segmentation criteria

Macro-segmentation criteria are seldom enough to delineate market segments
from which a marketer could select a target market. Usually, a more in-depth
analysis of the buying behaviour of these potential B2B customers is needed
for the marketer to make an informed decision about the segment(s) to pursue.
If B2B customers are heterogeneous (different) in terms of their product-
specific needs, buying approach and usage behaviour, micro-segmentation
variables are used to further segment the macro-segments. These three areas of
customer firms' buying behaviour are described by studying:
• their buying centre dynamics
• the application or importance of the marketer's product
• their buying criteria (buying motivations)
• their usage rate and buying frequency
• their buying situation
• the product features of existing suppliers.
Buying centre dynamics

The buying centre of a B2B customer consists of all the people involved in
deciding which product to buy from the array of competitive products in the
market. Rarely is there only one person responsible for the buying decision;
often there are a number of people, each of whom contributes a particular
functional perspective to the final buying decision.
Analysing the buying centre is useful on two fronts. A customer's
buying centre provides information that is useful in the market segmentation
exercise. The buying centre is in fact not a segmentation criterion in itself,
but provides useful information on the important micro-segmentation criteria.
Different aspects of a customer's buying centre are studied, namely its size and
composition and the buying centre influences (participants), specifically their
role in the buying process and their individual demographic and psychological
profiles.
The size and composition of the buying centre varies according to the
complexity and importance of a specific buying decision, and will generally
change from one purchase to another, or even during the various stages of
the buying process. The importance of the marketer's product will be obvious
from the size of the buying centre that is considering its product. However,
107
the participants in the B2B customer's buying centre are more important.
Marketers often find that while most of their contacts are with the customer's
buying department, the buying centre participants with the greatest influence
may not be in that department. These important parties or persons are known
as 'key buying influences'. Various aspects must be considered here:
• Once these buying influences (decision makers) have been identified, their
individual roles in the buying process are determined. Five such roles have
been identified, namely initiator, influencer or gatekeeper, decider, buyer
and user. (These roles are discussed in Chapter 2.)
• Another perspective on the buying role that these participants play is their
functional contributions. The financial expert in the buying centre concerns
him- or herself with quite different aspects of the product than the factory
engineer and the quality controller.
• Another aspect that is considered in evaluating the key players in the
buying centre is their situational and psychological backgrounds - called
the 'individual forces' impacting on the buying process. Bear in mind that
individuals, not organisations, make the buying decisions, and that their
personal characteristics have a lot to do with how they think and act.
The importance of the marketer's product

As mentioned, this can be deduced from the amount of attention paid to the
product by the B2B customer's buying centre, as well as from its application in
the customer's business processes. Three classes of products (also see Chapter 1)
are identified, namely:
1. entering products: raw materials or component parts that the customer firm
uses
2. foundation products: fixed assets such as buildings and manufacturing
equipment
3. facilitating products: items which B2B customers use in their general
operations, such as office supplies and computers.
Obviously, if a marketer's product serves as an entering or foundation product,
it will be more important to a customer firm, especially if it is a component in
the firm's product or manufacturing process. However, the same product may
be used in different ways. A segment consisting of customer firms that use the
marketer's product as a component in its own product is worth more to the
marketer than a segment that uses the product for general purposes only. For
instance, electrical switches can be used in the production of small household
appliances, computers, televisions and even jumbo jets. This means that the
same or a similar product may differ in importance from one B2B customer to
the next. The product that a B2B customer manufactures or sells therefore also
108
,
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(HAPTER 5: SEGMENTING BUSINESS MARKETS, CHOOSING TARGET MARKETS AND POSinONING PRODUCTS
seiVes to indicate the role that the marketer's product plays in that customer's
business.
Buying criteria
Given the different possible applications of a marketer's product in a B2B
customer's product and the consequent importance of the marketer's product
for that B2B customer, the product requirements of B2B customers will differ
in terms of quality, product features and service requirements. These product
and seiVice requirements are known as the B2B customer's buying criteria or
buying motivations. The key buying motivations of B2B buyers include:
• security of use
• economy of use, or low price
• suitability of application
• durability or quality
• convenience of buying or using
• seiVices or support offered
• assortment width
• market reputation
• product design or high performance
• stability of supply or longevity
• relationship skills
• technological innovation
• adherence to specifications or versatility
• employee skills.
This list is not exhaustive, but represents the most important requirements
that a B2B customer might set for a particular product to be used in his or
her business. Generally it is not enough to merely know the general product
and service requirements of a customer organisation - one also needs to be
aware of the specific requirements that each individual buying centre member
expects from the product.
Usage rates and buying frequencies

An important micro-factor that can be used to distinguish between client
firms is their usage rates when it comes to the marketer's product. Client firms
are generally classified as heavy, moderate or light users. Obviously, most
marketers endeavour to penetrate and retain the heavy-user customers, but it
should also be borne in mind that light users could develop into significant
customers. Another distinguishing feature is the buying frequencies or order
sizes of customer firms. One customer firm might order large quantities, but
109
do so only once in two years (a low usage rate), whereas another might order
smaller quantities, but much more frequently (a high usage rate).
The buying situation

Another significant micro-segmentation criterion is the buying situation of a
B2B customer when it comes to the marketer's product. Three buying situations
are usually identified:
1. A new-task buyer purchases the marketer's type of product for the first time.
2. A straight rebuyer purchases the exact same product every time.
3. A modified rebuyer uses new buying criteria (buying motivations) for each
new round of purchasing.
These three buying situations follow different buying processes with different risk
profiles for both the customer firm and the marketer. A straight rebuyer tends to be
more brand loyal and is the most attractive prospect for a B2B supplier.
Existing suppliers
The final micro-segmentation criterion to consider when analysing the buying
and usage behaviour of client firms is their existing suppliers. The marketer
needs to determine why these suppliers have been chosen. Analysing the
competition products in terms of the key criteria mentioned on page 109 under
Buying criteria and evaluating feedback from salespeople about B2B customers'
responses can shed light on what different B2B customers expect from the type
of product the marketer sells.
Most B2B markets exhibit a clustered preference pattern, because of
differences in B2B customers' general characteristics, need patterns and buying
behaviour (see Figure 5.1 on page 99). As mentioned, in these heterogeneous
B2B markets, a firm may be able to distinguish separate segments ofB2B customers.
The customers in each segment will be fairly similar and will be inclined to buy
the same kind of product. This implies that if a marketer's product is accurately
differentiated to address the unique needs of B2B customers in a particular
segment, it may become a strong competitor. If this is not possible, the market
segmentation exercise becomes null and void. An undifferentiated marketing
approach would in such cases be more successful: the marketer would offer
a more 'general' product, without spending too much money and effort on
making the product unique in the eyes of a particular segment.
5.4.3 How valid is the market segmentation exercise in 828

markets?
What if the B2B market consists of only a few customer firms? What if
the marketer is already serving a lucrative segment in the market? What if
110
customers 'jump' from one segment to another, and buy products that are not
specifically focused on their requirements? Can the marketer choose a target
market by merely selecting the customers that have shown brand loyalty to the
firm in the past (after-the-fact segmentation)?
All these scenarios are possible in organisational markets, but they do
not render market segmentation an invalid exercise. The point is that those
market segments that are identified during the segmentation exercise are not
cast in stone and may also be inherently unstable. In many cases the marketer
is 'shooting at a moving target'. The main purpose for market segmentation is
that it helps to structure the market on a continuous basis. Most segmentation
exercises are not really a step by step process, but a case of 'muddling through'.
(You can read the following article, from the Harvard Business School, for
information on common pitfalls in the market segmentation exercise: https://
hbr.org/1984/05/how-to-segment-industrial-markets.)
5.5 Target market selection

Provided the marketer has identified a number of distinguishable market
segments in the B2B marketplace, of which one or a few seem to be lucrative,
the organisation is now in a position to select a target market, which is the
group of B2B customers (a segment) that would most likely buy the product
which has been specifically developed with their needs and requirements in
mind. This decision is crucial for any business, as it will determine its long-
term survival. The firm can either choose to focus on one segment only, or
serve more than one segment in the market (Ries 8: Trout, 2001). The various
single-segment strategies and multi-segment strategies are shown in Figure 5.2.
Target market strategies
I I
J Multiple segments
S
ingle segment
I I I I I I
1. Target 2. Target 3. Target 4. Focus 5. Focus 6. Apply
largest smaller a segment on many on a few market
segment. (niche) with growth segments. segments. aggregation.
segment. potential.
Figure 5.2: Target market strategies in a clustered market
111
5.5.1 Single-segment targeting strategies (focus strategies)

Figure 5.2 identifies three options if the organisation decides to focus on only
one of the segments identified:
1. Targeting the largest segment: The largest segment in a B2B market is
usually the most appealing because of its high sales volume. The larger
organisations usually pursue this segment by offering more in terms of one
or a few of the key criteria (buying motivations) that the B2B customers in
this segment demand, for instance better performance levels, good after-
sales support, higher product quality, lower prices or any of the other
criteria.
2. Targeting a smaller segment (niche marketing): The main reasons for
focusing on a small segment of the B2B market is to avoid confronting
larger, more powerful competitors and/or because the organisation is able
to supply a unique product to this segment. Because a mediocre competitive
position in a small segment is intolerable from a financial perspective, the
organisation tries to obtain a dominant position in such a segment by using
or acquiring unique strengths in the areas that are significant for these
customers. Therefore, the key to pursuing this strategy is that the market
segment has unique requirements that can only be satisfied by a unique
product.
3. Focusing on a growth segment: The aim of this option is to realise future
volume growth instead of short-term profits. Although smaller, innovative
organisations prefer this strategy, it requires strong marketing research
and research and development (RftD) capabilities to identify an emerging
market need and to develop a unique product for these B2B customers. One
of the segment evaluation criteria mentioned on page 101 in Section 5.2 is
substantiality, which should be the acid test for this target market strategy.
A marketer should be careful not to overstate the market potential of such
a growth segment.
UsE StUDY: ELECTRICAL EXPERTS-GOING FOR THE BIG BOYSI
Electrical Experts* imports transistor units (small switches in electric and electronic units) that
are used in a variety of products, from cellphones to aeroplanes. Up to now, the company has
mainly supplied small electronics manufacturers with cheap transistor units imported from
China. The cost of these units has dropped over time, while their quality and performance have
improved a lot.
The management of Electrical Experts feel that they have learnt a lot about transistor technology
and its applications and are now ready to expand their business into hi-tech business
markets. +
112
The 828 customers in these markets are much more demanding in that they expect hands-on
assistance from their suppliers, but revenue from these markets is much higher. The macro-
segmentation variable of client size comes into play (this macro-segmentation variable was
discussed in Section 5.4.1).
5.5.2 Multi-segment targeting strategies

The final three target market strategies depicted in Figure 5.2 on page Ill are
used when a firm seeks to serve multiple segments:
1. Serving many segments with multiple products: As a rule, large organisations
pursue this strategy in an effort to cover most of the entire B2B market with
fairly distinct products aimed at each market segment. The B2B market in
this situation is characterised by substantial barriers around each of its
separate segments, with few customer firms 'jumping' from one segment
to another. The products aimed at each segment have unique attributes
that are difficult to combine in one single product. Usually only the larger
competitors in the industry can pursue this option.
2. Focusing on fewer segments with different products: This strategy is a
variation of the previous one. An organisation ignores certain segments in
the market and concentrates only on a few lucrative ones - those with a
low competitive intensity, or in which the organisation has a sustainable
competitive advantage.
3. Aiming a single product at multiple segments: This strategy is known as
market aggregation. The marketer realises that the B2B market consists
of separate, distinct segments, but a marketing strategy is developed
without aiming it at a specific segment. A single multi-purpose product is
developed that will satisfy some B2B customers in a few of these market
segments. Given the rapid technological advancements the business world
is experiencing, many B2B products today, such as computer systems
and software packages, incorporate several feature_s that each addresses
different needs of customers.
Use 5TUDY:-· SPILLBY -IT·'S GETTING- COLDER·I

Spillby Refrigeration* manufactures motor units for industrial refrigerators and freezers. The
company sells these motors to refrigerator and freezer assemblers that, in turn, sell it to different
828 customer segments, such as hotels, restaurants, butcheries, cold storage companies, liquor
retailers, retailers of foodstuffs and transport companies carrying meats, fruit and vegetables. +-
113
These segments all require different types of refrigerators and freezers and, consequently, Spillby
manufactures a variety of motors.
Spillby's main competitors also manufacture motors that are used in household refrigerators and
freezers. Because these competitors enjoy scale advantages, Spillby is finding it increasingly difficult
to compete with them in terms of prices.
Spillby's management is now confronted with a difficult choice: they could also enter the household
market or they could start focusing on one or a few industrial market segments with unique product
requirements. This is obviously a very difficult decision to make.
*A fic itious company
5.6 Perception analysis and product positioning

Marketing academics and practitioners follow a customer-oriented business
philosophy that states that the organisation's target market determines its
product characteristics, and not the other way round. A product-oriented
philosophy, on the other hand, postulates that the organisation's existing
product will determine the target market. We as marketers believe that a
target market should first be chosen, and only then should a new product be
developed - or an existing product adapted - to satisfy these target customers
optimally. The first step in deciding about the characteristics of the product is
to determine its unique features, and how they compare to those of competing
products. This exercise is calledn analysis and product positioning.
Some planning experts regard the core of an organisation's strategy to
be the position it aims for with its services or products, relative to competing
products in the marketplace. All the activities performed by the organisation
are somehow related to this chosen position in the competitive environment.
Although this might be an oversimplification of the purpose of an organisation's
strategy, it stresses the importance of perception analysis and product
positioning in ensuring the organisation's profitability and long-term survival.
How B2B customers perceive an organisation's product compared to
competitors' products is analysed by means of perception analysis and presented
in the form of perception maps. The marketer must then decide whether to
change these perceptions or strengthen them by adapting the 'product package'
of the business. Decisions about how to change or strengthen these customer
perceptions are known as product positioning.
The success of a product not only depends on its real features, but
also on customers' perceptions of its benefits. Competing successfully in the
marketplace therefore means that a firm should ensure that its product has
114
(HAPTER 5: SEGMENTING BUSINESS MARKffi, CHOOSING TARGET MARKETS AND POSITIONING PRODUCTS
substantial features and that its target customers perceive these attributes
correctly. Perception analysis and product positioning is a potent weapon in
the fight against competitors.
5.6.1 The product positioning process

Step 1: Identifying the competitors in the marketplace
Perception analysis and product positioning decisions reflect how the marketer's
product relates to the competing products in the whole B2B marketplace, or
in an individual market segment. Identifying the direct competitors of the
business is, therefore, the first step in the product positioning exercise.
The competitors can be defined broadly or narrowly. For example,
a building supplier can define its competitors broadly by including in its
competitive set (or competitive arena) competitors who indirectly compete
with it (such as supermarkets). A narrow definition, on the other hand, would
include only other building suppliers. The broader the competitive set, the more
competitors will have to be analysed. A fine balance should be maintained
between having too narrow a focus and defining the market too broadly.
Step 2: Identifying important product features or benefits

The perception analysis starts by identifYing the most important features of
the marketer's and competitors' products, as seen from the B2B customer's
perspective. The aim here is to determine what product features are identified
by customers, and what significance is attached to each of them.
B2B customers usually perceive these features in terms of the 'benefits'
they buy, in other words the extent to which their needs have been satisfied
or their problems solved. Customer firms do not buy product features, but
rather the product's need-satisfYing benefits. In other words, the customer firm
evaluates the product in terms of how it is applied in the firm and not in
terms of its tangible and intangible features. This means that a customer firm
might consider a fairly diverse array of products with different physical and
intangible features, in order to satisfY a particular need or solve a particular
problem.
Collecting this information requires well-planned market research. Once
information has been collected on B2B customers' perceptions of the product
features they require, a variety of statistical techniques can be used to analyse
the information. The aim is to combine a multitude of product benefits, as
identified by these customers, into a few product benefit dimensions that are
then projected in a number of perception maps. For instance, a composite
product benefit of 'trustworthiness' may be defined if the statistical analysis
finds a high correlation between perceived benefits such as after-sales support,
115
product performance levels, market standing, product quality and labour skills.
Composite product benefits is an important concept to understand.
Step 3: Determining the perceptions of customer firms with

regard to the benefits of the marketer's product
In the previous step, the benefits that customers regard as important were
identified and composite product benefits (such as trustworthiness) were
defined. Now information is collected from customers about their perceptions
on whether the marketer's product is offering these product benefits. Perception
maps (also known as product space maps) can be drawn using these composite
product benefits on the x- andy-axes.
In Figure 5.3, a perception map is shown for a supplier of computer
systems support- a company that manages entire computer-based information
systems of client companies. The x-axis indicates the composite benefits of
trustworthiness and convenience, while they-axis reflects the composite benefits
of professionalism and permanence. Note that the values on each axis are not
direct opposites, but rather different composite benefits that customers expect
from computer system management companies. The marketer's organisation is
shown as Company A in Figure 5.3.
Step 4: Determining customers' perceptions of the product

benefits contained in competing products
Competitors' products can now be positioned on the same perception map with
the marketer's product, using the same composite benefits. For example, in
Figure 5.3, three companies (B, C and D) are identified as competitors of the
marketer's company (Company A).
Professionalism
0
Trustworthiness Convenience
Permanence
Figure 5.3: An example of customers' perception positions of various supplier firms
116
.,
(HAPTER 5: SEGMENTING BUSINESS MARKffi, CHOOSING TARGET MARKETS AND POSITIONING PRODUaS
In the perception map in Figure 5.3, the marketer (Company A) is regarded as

being strong on professionalism and trustworthiness (which is represented by
the benefits of after-sales support, product performance levels, market standing,
product quality and its labour skills). Company B, being the largest supplier, is
regarded as scoring extremely high on convenience because of its numerous
branches and its professionalism. Company C is a small supplier that ranks well
in terms of its convenience (because of its quick response time), but average on
the other dimensions. Company D is a medium-sized business which has been
in this market the longest and is regarded as very trustworthy.
On the perception map, the competitors positioned near each other are
considered to be fairly similar. Customers perceive them as dose substitutes.
The rivalry between these companies is therefore stronger compared to the
rivalry between organisations or products situated far apart.
The big advantage of a perception map is its simplicity. The relative
position of the different competitors in terms of important product benefits
can be summarised and represented in one or a few perception maps. Such a
map also provides useful insights into the gaps in the marketplace. The empty
spaces represent either market opportunities or unattractive positions. In the
latter case there may be too few B2B customers requiring a service package
with those particular benefits.
Step 5: Determining customers' most preferred combination

of service features
B2B customers' most preferred product benefits (known as ideal points) can
be determined by asking customer firms how the products in the particular
marketplace could be improved. Alternatively, customer firms could be asked
to indicate their preference for each brand on a rating scale. By analysing the
responses statistically, these ideal points can be plotted on the same perception
map. For example, in Figure 5.3 on page 116 this is depicted by the square.
Obviously, the suppliers located closest to the ideal points will be preferred by
most customer firms.
Step 6: Selecting a positioning or repositioning strategy

(product positioning)
Thus far, the perceptions of customers regarding the benefits provided by the
different suppliers in the marketplace, as well as their 'ideal products' have
been determined. This represents the present situation. The marketer must now
decide whether these perceptions should be strengthened or changed. This is
known as product positioning, and entails selecting the perception position
that the organisation plans to establish in the minds of its target customers.
117
The firm can either choose to maintain and strengthen its present position,
or reposition its product by adding additional benefits or enhancing existing
benefits.
In Figure 5.3 on page 116, the repositioning strategy that the marketer
(Company A) could consider is to maintain its perception position as a
trustworthy supplier, but to improve its level of professionalism by, among
other things, ensuring that the physical appearance of employees (dress
code) and of all correspondence (the website, marketing material and written
correspondence) are of the highest quality. This position is shown by the circle
with the dotted outlines in Figure 5.3.
In this chapter, it was shown that market segmentation aims to identify opportunities in the
marketplace in terms of the diverse needs of the customer firms in it. We showed that markets differ
in terms of these needs (preferences) of customers and that under certain circumstances market
segmentation can be performed to identify groups of customers that have similar requirements. The
market segmentation exercise that is most commonly used is the two-tier approach. Choosing a
target segment, or segments, to serve is a very important strategic decision for all enterprises, and a
number of target market options were identified in this chapter. Before a marketing organisation
can start developing a product, or adapting its existing product, to perfectly address the needs
of these target markets, it must first decide where to position its products in the chosen markets.
Perception analysis and product positioning is the technique marketers utilise to do this.
The primary purpose of market segmentation is not to look for a customer segment or segments
that would most likely buy the marketer's existing product(s); rather, a target segment should
be selected for whom the marketer could deliver a tailor-made product. This may mean that the
marketer needs to adapt its existing product or develop a new product. The aim should be to
provide a product package that will satisfy the needs of the firm's target customers better than
competitors' products can.ln order to do this, a marketer must ensure that it provides benefits to its
target customers that they perceive as very important. Perception analysis and product positioning
can help a lot in this regard.
We have now come to the point where the development of the product package is developed
that will provide the required benefits. What does this product package consist of? It is basically a
combination of the marketing instruments: the so-called marketing mix. Only after the marketing
firm has chosen its target market and decided how to position its product in this marketplace, can
it start developing its 'total product' or 'product package'. This is also called the marketing mix and
is the topic of the rest of this book.
118
2. Explain the three types of market preference patterns.
3. Explain the criteria that are used to determine whether an organisation
should perform a segmentation exercise.
4. Discuss three reasons why the market segmentation exercise is beneficial to
an organisation.
5. Briefly explain how the market segmentation exercise is performed.
6. Discuss the segmentation exercise in detail by applying the macro- and
micro-segmentation criteria (variables) to the case study of Foods Logistics
on page 100.
7. Briefly indicate under which circumstances an organisation will opt for a
single-segment target market strategy rather than a multi-segment strategy.
8., Discuss the target market strategies available to a wholesaler that buys fruit
from farmers. Explain how the firm could pursue each of the target market
strategies.
References
Baker, M a Hart, S (eds). 2008. The Marketing Book. 6th ed. Massachusetts:
Butterworth-Heinemann Waltham.
Goya, S. 2011. 'The basis of market segmentation: a critical review of literature'.
European Journal of Business and Management 3(9): 45-54.
Kotler, P a Armstrong, G. 2012. Principles of Marketing. 14th ed. Boston: Pearson
Prentice Hall.
Ries, A a Trout, J. 2001. Positioning: The Battle for Your Mind. New York: McGraw-
Hill Education.
119
Chapter
Developing and managing

businestso-businessl products
Claudette Rabie
learning outcomes
• understand the strategic importance of developing new
products
• deliver a value proposition to customers
• define products in terms of the company's core competencies,
product quality and product policies
• discuss and implement the steps in developing a new product
in B2B markets
• explain how to manage new products by means of a product
strategy, product portfolio and the product life cycle (PLC)
• discuss the Boston Consultancy Group's (BCG) growth-share
matrix in a 828 context
• discuss and implement the five stages of the PLC in relation to
828 market product offerings
• explain the six stages of new product development (NPD)
• lmriPrc;t;:mrl whv nPw nrnrl11rtc; r;:m fr il
to fit the needs of the market in order to create value for the customer. As
customer needs constantly change, the products that businesses offer are
frequently adapted and improved to keep up with the changing market. In order
to keep abreast with fluctuating demand, companies should have strategies in
place to forecast market changes, evaluate opportunities and select profitable
market segments to target. (See Chapter 5 for more on market segmentation.)
In this chapter, we will first look at the strategic importance of developing
new products and creating a value proposition for B2B customers. Examples of
B2B products were discussed in Chapter 1 of this book. In this chapter, products
will be defined in terms of the core competencies of the company, quality and
product policies. Thereafter we will look at how to manage new products by
means of a product strategy, product portfolio and the PLC. This chapter also
examines the steps involved in NPD. The reasons why new products may fail
are investigated. The chapter concludes with a brief discussion regarding the
importance of B2B service offerings.
6.1 Defining products

A product can be defined as 'a bundle of physical, service and symbolic
characteristics designed to deliver value to customers in order to satisfy their
wants and needs' (Bothma, 2013:80). A B2B (or industrial) product is defined
not only as a physical object, but also as an intricate set of financial, technical,
lawful and personal relationships between buyers and sellers.
B2B marketers should be aware of the total product offering in order to
create value for their customers. From a B2B consumer perspective, products
should comprise the following three properties:
1. Basic properties are the fundamental benefits sought by customers.
2. Enhanced properties are features such as the packaging, styling and quality
of the product offering, that enhance the basic properties.
3. Augmented properties include intangible benefits, such as after-sales
service, assistance, maintenance and repairs, warranties, training, delivery
and payment terms.
For instance, if a company purchases stainless steel sheets from a manufacturer
(such as Macsteel or Stalcor) for the production of its own brand of kitchen
appliances, the basic properties of the steel might be that it is of a high standard,
is rust- or tarnish-free, cleans easily, has a lifetime guarantee and is non-toxic.
These basic qualities are important for the manufacturing of kitchen appliances.
These basic benefits are then enhanced by the quality of the products offered
121
by Macsteel or Stalcor. The augmented properties of the stainless steel sheets

could include the warranty on the products, or the free delivery services that
Macsteel or Stalcor include when a B2B customer purchases their products.
6.2 The strategic importance of developing new

products
In general, people's knowledge of new and innovative developments is growing
on a daily basis. There is also a rise in B2B customers knowing exactly what
they want. B2C consumers want new and better products that are well designed,
work better and offer better value for money. End consumers tend to get bored
with existing products and then start looking for more options to choose from;
they seek products that will make them feel better and satisfy their emotional
needs. If a B2B organisation wants to obtain a competitive advantage in the
market, it needs to constantly develop new products and continuously add
value to its offerings. Therefore, B2B organisations should ultimately offer new
and exciting products and services to customers. In order to accomplish this,
businesses need to obtain the best product components and support services in
order to develop innovative and ground-breaking product offerings.
B2B buyers will therefore seek innovative products and services that will
enable them to produce and market better products and services that offer
their customers (likely the end consumer) better benefits and solutions and
ultimately satisfy the customers' wants and needs. For example, consider a
computer manufacturer, such as Dell or Packard Bell, that purchases processors
from Intel. Intel produces excellent and innovative technology, which it sells
to computer manufacturers to incorporate in their products. Dell can therefore
constantly offer their customers pioneer quality that will keep them interested
and satisfied with the product.
Ultimately, the strategic importance of developing and constantly
launching new and innovative product offerings in the market is to deliver
value to the B2B customer and exceed customer expectations with the value
proposition.
6.3 Delivering a value proposition

Successful B2B marketing strategies focus on identifying opportunities in which
organisations can offer superior value to their B2B customers based on their
unique proficiencies. Market-driven businesses should therefore endeavour to
match their resources, abilities and competencies with certain customer needs
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unique set of product and service offerings which it will use to compete within
its target customer segment. The customer value proposition should address
the following essential question: How do the value elements (benefits) in a
supplier's offering compare to those ofthe next-best alternative?
In order to offer value to customers, an organisation must first determine
what it is that is demanded or desired by customers (the demand side) and
whether the organisation can provide it to the customer (the supply side) at
a price that the customer is willing to pay (the cost-benefit issue). According
to Hutt and Speh, '[b]est proactive suppliers base their value proposition on
the few elements that matter most to target customers, demonstrate the value
of this superior performance, and communicate it in a way that conveys a
sophisticated understanding of customer's business priorities' (2014:60).
B2B organisations' offerings include various technical, economic,
service and social benefits that provide value to its customers. However, their
competitors also aim to do this. Customers ultimately compare the value
elements of a business with those offered by the competitor or alternative
offerings. Hutt and Speh (2014:9) point out that a company's value proposition
may include points of parity and points of difference:
• Points of parity are 'the value elements with essentially the same performance
characteristics as the next best alternative'. Points of parity are therefore
the elements or aspects that are the same as those of the competitor, for
instance the same facilities or after-sales services.
• Points of difference are 'the value elements that render the supplier's
offering either superior or inferior to the next best alternative'. A point of
difference is something that makes a business's offering different from that
of its competitor in terms of an aspect that the customer wants. A point of
difference is what sets a business apart from its competitors and makes the
customer prefer the product to competitor products.
Once a business has determined its point of parity and point of difference, it
will know where the brand value proposition is strong and where it is weak.
This will help the business to develop a solid strategy.
Aaker and McLoughlin (2010:136) state that even the most concrete value
proposition can fail if a key ingredient is missing. For example, a supplier may offer
improved products at a higher price and be unsuccessful in persuading customers
that the new and improved products justify the price increase. The solution to
delivering a value proposition involves answering the following four questions:
1. Who are the customers?
2. What is being bought and how is it consumed?
123
3. What are the alternatives available to the customers? Are there offerings
available if we do not sell to them? Are we offering them the best option?
4. What experiences do customers have when they purchase our services,
especially in cases where we are not the best option available to them?
Having determined what customers value and expressed a value proposition, the
company needs to contemplate how to deliver it. The business model takes the
value proposition and incorporates that into a specific value chain of activities
by which it plans to deliver that customer value, at a cost which provides
the organisation with a competitive advantage. In order to offer a successful
product in B2B markets, businesses need to consider their core competencies,
the quality of their product(s) as well as their product policies. These will be
discussed in the following sections.
6.3.1 Core competencies

The success of many B2B products are thanks to the core competencies that
organisations have developed. Core competencies are the set of skills, systems
and technologies a company uses to create uniquely high value for customers.
Core competencies refer to a combination of the most significant skills and
knowledge a company utilises to do something innovative and successful. For
instance, Canon has developed technologies in precision mechanics, fine optics
and micro-electronics. Canon's core competency is therefore advanced and
precision technology. Another example is Apple, with a core competency of
innovation and style, as is evident in its smartphones and tablets with retina
display and touch technology. These core competencies enable companies to
launch successful products in the market.
There are three characteristics that can be applied in order for companies
to identify their core competencies:
1. Core competencies should make a significant contribution to the benefit
that customers perceive in the company's end product.
2. Core competencies should have a breadth of application in a wide variety of
markets.
3. Core competencies should be difficult for competitors to imitate.
6.3.2 Product quality

The B2B market continually demands improved product quality, and therefore
the quality of the product offering is another important strategic priority
companies should consider. Hutt and Speh (2014:180) state that the quality
movement passes through several stages:
ousmess. Luswmers cnoose a pamcu1ar product over competing ottertngs
because they perceive it as providing superior value - the product's price,
performance and service render it the most attractive alternative.
3. In the final stage, a business's quality performance relative to that
of competitors is examined and customer perceptions of the value of
competing products are determined. Merely satisfYing customers who have
the freedom to make choices is not enough to keep them loyal.
6.3.3 Product policy

Product policy includes the set of all decisions concerning the products and
services that the business offers. By using a product policy, a business attempts
to satisfy customer needs and build a sustainable competitive advantage by
capitalising on its core competencies (as discussed in Section 6.3.1).
The product lines offered by B2B markets differ from those of B2C
businesses. It is therefore important to classify B2B products in order to draw
up the product policy for the product offered. B2B products can be classified
into the following four types of product lines:
1. Proprietary or catalogue products: These items are offered only in certain
configurations and produced in anticipation of orders. Product line
decisions concern adding, deleting or repositioning products in the line.
2. Customer-built products: These items are offered as a set of basic units,
with numerous accessories and options.
3. Customer-designed products: These items are produced to meet the needs of
specific customer groups.
4. Industrial services: These include service offerings instead of a physical
product offering. These services can include maintenance, technical
assistance or services, and management consulting.
All B2B companies are confronted with product policy decisions, whether
they offer physical products, pure service offerings or a combination of
physical products and services. Each product situation presents challenges and
opportunities for the B2B organisation, each drawing on unique capabilities.
Once a business knows and understands its core competency, it can offer
quality products and have a product policy. This will enable the business to
develop new products as and when the need arises.
6.4 Managing products

Many companies have a range of different product offerings (or product lines)
which are designed to work together to satisfy the needs and desires of a
125
wide market. Companies generally organise these product offerings in strategic

business units (SBUs), which need to be managed. An important element ofB2B
marketing is deciding which products to introduce or keep, which to promote
strongly or less vigorously and which to withdraw from the market completely.
There are numerous tools which can be used to manage product offerings.
Three of the most important strategic management tools that can aid the B2B
marketer when making decisions about product offerings and about managing
these offering are the product strategy, the product portfolio and the PLC tool.
These tools can help companies to identify opportunities in the market as well
as a need for new or improved products.
6.4.1 The product strategy

B2B organisations generally offer a range of products and/or services to their
target markets. Organisations should therefore devise and implement strategies
in order to achieve the marketing and business objectives of these various
product or service offerings.
A product strategy can be said to be the ultimate vision of the product
and of the value it will offer customers. The product strategy sets the direction
of the company's product development, production and marketing efforts. The
product strategy would consider the organisation's portfolio of products, which
comprises two elements, namely the individual products and the whole product
range (FillEt Fill, 2005:80). The product strategy is a roadmap that guides NPD,
allows B2B organisations to better understand their markets, helps companies
with core sales and promotional messages and allows companies to understand
their competitors. B2B marketers must understand that a product strategy
is flexible and dynamic. B2B companies may be required to make changes
in the product strategy because of changes in customer needs, technology,
government policies or laws, and the PLC.
Product portfolios are made up of product lines, individual product items,
product mixes and the depth of line within each product line:
• Product lines are groups of products and services that are offered to a
specific market segment. For example, apart from a variety of passenger
cars, Mercedes Benz also offers an array of trucks (line 1), vans (line 2),
buses (line 3) as well as construction vehicles (line 4) to companies who
utilise these for the transportation of their own products.
• A product item is an individual product offered by an organisation. For
example, the Arocs SLT is a product item in the truck product line of
Mercedes Benz.
• The product mix refers to all the product lines offered by an organisation.
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minibuses.
The ultimate purpose of the product strategy approach is to ensure that each
single product item in the product portfolio has a strategy to enhance the long-
term profitability of the total set of products. Having a product strategy and
managing the product portfolio is crucial.
6.4.2 The product portfolio

The first step in a portfolio analysis is to examine the positions of products in
the market by considering the attractiveness of the market and the ability of the
company to operate competitively within the market. Analysing the portfolio
of a company forces management to consider both the future of the market
(ie the growth rate) and the competitive position of the product in the market.
This allows B2B organisations to establish whether they need to improve their
product, introduce a new product or remove their product from the market.
The BCG growth-share matrix and the General Electric (GE) market
attractiveness/strength matrix are the most well-known models used for
analysing the product portfolios of a company. The key principles of these
models are that various B2B products and/or services contribute in different
ways to the success (or failure) of an organisation. A strong portfolio is one
that contains a balance of different products. For the purposes of this book, we
will discuss the BCG growth-share matrix.
The BCG growth-share matrix provides marketers with a dear
understanding of the marketing strategies to implement for each business
unit. The matrix has four quadrants, each representing different types of
products that a company may have. The product offerings are assessed on
two criteria, namely the market growth rate and the relative market share.
Growth rate will require a higher investment in the product to complete, while
the market share indicates the size of the organisation's share in the market
As shown in Figure 6.1, the four quadrants represent four types of products:
star, cash cow, dog and problem child/question mark products.
127
BCG Matrix
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Figure 6.1: The BCG growth-share matrix
Each of the four 1uadrants in the BCG growth-share matrix are explained
below:
1. Star: These products have a high market share in a rapidly growing market.
They therefore show rapidly growing sales and are the most profitable.
Although these products are highly profitable, they absorb large amounts
of cash, as it is often necessary to spend heavily on advertising and product
improvements for a product to remain a star product. These products
therefore require high levels of investment in order to maintain and increase
the market share in that growing market. If market share is lost, the product
will eventually become a dog (see number 4).
2. Cash cow: A product with a high market share in a low-growth market
is normally both profitable and a generator of cash. These products
are generally called cash cows as the profits of these products can be
'milked' on an ongoing basis: the profits they generate can be used in the
development of other, new products. These products contribute the most to
the company's profit, as they can maintain their market share in the market
(which is stable) without requiring high investments. The standard strategy
for these products would be to manage them conservatively, at the same
time guarding strongly against competitors in the market.
3. Problem child/question mark: Problem children or question marks are
products in the product portfolio that already have a position in a growing
market. However, if market share cannot be improved, they will become
dolls. Evans (2015:229) states that resources need to he annlied to win

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in the form of cash generated from cash cows, in order to be successful.

4. Dogs: These products tend to have a low market share in a low-growth
market, and they normally do not make a profit for the company. These
products are therefore considered to be in the decline phase of their life
cycle. Cultivating the product to increase its market share would require
a lot of investment and risk, as the market has a low growth rate. Once a
product has been identified as a dog in the product portfolio, it is often
discontinued or disposed of.
Although the BCG growth-share matrix was developed for consumer markets,
it can also be successfully utilised to interpret and analyse B2B product
portfolios. The only difference is that the marketing strategies might vary - for
instance, the emphasis on promotional tools used to communicate a product's
position may be different.
6.4.3 The product life cycle

Lastly, a company's product offerings can be managed by means of the PLC
tool. The PLC is a useful tool for considering the most effective strategy at a
particular point in time. The PLC strategy is generally used by businesses to
determine at what stage of the life cycle their products are, what strategies
should be implemented throughout the life cycle, and to make general decisions
regarding their products. All products, both B2C and B2B products, go through
specific stages and demonstrate certain characteristics before they finally end
or become obsolete. In B2B markets, where innovations and new product
offerings are developed at a more rapid pace and more frequently, marketers
must utilise the PLC concept and adapt strategies as products pass through the
various stages.
Traditionally, the PLC consists of four distinct stages, namely introduction,
growth, maturity and decline. In B2B markets, however, a five-stage PLC model
is used, as it has been argued that the traditional four-stage model overlooks
the importance of development activities, investments and efforts required by
businesses to bring products and services to the B2B marketplace. From a B2B
and a managerial perspective, there is substantial activity before the launch
of a new product or service. Therefore, the first stage in the PLC process, from
a B2B perspective, is the pre-launh or development stage. In light of the
importance of the pre-launch or development stage in the PLC of business
markets, the five-stage process, as illustrated in Figure 6.2, will be looked at in
more detail in the sections that follow.
129
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Figure 6.2: The product life cycle (adapted from Brennan, Canning & McDowell,
2007:268)
Stage 1: The pre-launch or development stage

The first stage of the PLC is the development or prelaunch stage. In B2B markets,
the time from product concept to in-market launch may be significant, even
when working directly with a customer that has a particular product need
in mind. In order for a business to offer successful products, a considerable
amount of time and resources is devoted to developing and testing the product
idea, testing the efficiency of various materials, and developing and testing
the prototype and sample products. These products also need to be assessed
in terms of the value that they deliver to the B2B customer. The stages in
the development of new product offerings are discussed in more detail in
Section 6.5.1.
Stage 2: The introduction or launch

Once the product offering has been successfully developed and tested, the
product will be launched into the market for the first time. At this stage of
the PLC, sales are relatively low, since the market is not aware of the new
product offering. The organisation may still spend a lot of time and money on
producing and marketing the product. While some products may be accepted
by consumers soon after the launch, others may take longer to develop a
customer base. Gaining the confidence of a B2B buyer generally takes time, as
the buyer has preconceived notions and also has a set perception of the value
she or he wants to receive. For example, in the case of a product that requires a
high degree ofleaming, and where the business expects a fairly low acceptance
Stage 3: The growth stage
Product sales and profitability will start to increase and grow once awareness
has been created and sales start picking up. When a B2B product enters a
period of higher sales and profit growth, the marketing plan will often shift
to focus on improvements in order to expand its market share. At this stage,
marketers need to establish a strong presence in the market and focus their
attention on building on the design and distribution of the products and
servicing. Increasing the efficiency of distribution methods can help improve
the availability of products, decrease prices (especially for larger operations)
and make the product offering more appealing to the market.
During the growth stage, a more aggressive promotional strategy should
be implemented. In the case of a rapid increase in competition or alternative
product offerings, the marketer must take advantage of the price benefits which
the business would gain thanks to the experience curve and economies of scale.
This would create a strong point for the marketer to regain its organisation's
strength in the market.
Stage 4: The maturity stage

When the product offering has reached the maturity stage of the PLC, an
increase in the number of market competitors and a corresponding decline in
profit growth is noticeable (Thomasnet.com, 2016). In order to compensate for
the high level of saturation that takes place at the maturity stage, the product
development strategy revolves around entering new markets, often through
exports. At this stage, marketers should focus their attention on satisfying
existing customers in order to preserve the current customer base. Increased
attention should be given to service and customer support in order to leverage
the relationships in B2B markets. Marketers should also reduce spending on
the marketing and production of the product and get ready to phase out the
product.
Stage 5: The decline stage

The last stage of the PLC is the decline stage. Once a product has reached
the decline stage, the competition for product pricing tends to escalate, while
profits and sales start to decrease. When working with B2B products, marketers
sometimes opt to discontinue a product when it has reached this level or they
introduce a replacement product that renders the previous version obsolete
(Thomasnet.com, 2016). During the decline stage, marketing and production
budgets are typically scaled down to save on costs and the company's resources
131
BusiNESS-TO-BUSINEss MARKETING
might be shifted to NPD. In B2B markets that rely on rapidly changing

technologies, products tend to decline more rapidly, with newer advances
driving existing product offerings out of the market.
6.5 Developing new products in 828 markets

In order for a business to maintain its competitive advantage, it needs to make
product development a top management priority. NPD involves the 'process
of creating products or different characteristics that offer new or additional
benefits to the customer' (Bothma, 2013:62).
For the reason that new product ventures can present a significant risk
as well as an important opportunity for a business, NPD requires systematic
thought and planning. There are two main risks involved when businesses
decide whether or not to launch new products in the market. The first is
investment risk - if a business decides to launch a new product and it fails,
the business will lose some, or all, of its investment. Secondly, opportunity risk
is the risk that businesses experience when they decide to kill a product and
thereby lose all of the revenue they would have gained had it been successful.
The newness of the product can also serve as a risk for businesses
launching new products. There are various categories of new products, such as
the following:
• New-to-the-world products: These products are very rare and ground-breaking
in that they create a completely new market These products also offer other
businesses the opportunity to create products that will enhance or support these
new products. It can be very risky to launch new-to-the-world products - the
market might ect the features of the new product, as they are unaware of its
value. For example, when the first 3D printer was introduced, it was completely
new and people had to be taught how it worked. Today, the 3D printer is
used by numerous companies in the production of prototypes to create models
(such as a new car concept or design), in the healthcare industry (eg for 3D
prosthetics) and even in the entertainment industry (to make film props).
The introduction of the 3D printer introduced various opportunities for other
businesses to streamline production processes, and to improve their current
product offerings.
• New product lines (new category entries}: These are products that are not
new to the world, however, they are new to the business in question. For
instance, when Microsoft moved into the gaming category and launched
the Xbox, it was a new product line for the company. This new product
line also created opportunities for other businesses to expand their
nrnrluct offerinlls. For examnle. when Microsoft launched its new Xhox
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of computers. This gave other companies the opportunity to develop and

create accessories for tablets, such as covers, speakers, headphones, etc.
• Product improvements: In this category, businesses attempt to make their
respective products better in one way or another.
• Repositioning: This category includes products that are repositioned for a
new use or application. In other words, a business takes its current product
and attempts to find a new use for it.
6.5.1 Steps in the new product development process

There are different stage models of the NPD process, however, we propose that
the business marketer consider six stages for the NPD process, as illustrated in
Figure 6.3.
Step 1: Step 2: Step 3:

Screening and Specifying the
Idea generation
preliminary investigation product features
I
f
Step 4: Step 5: Step 6:

Product development Launch (commercialisation)
I-+ Evaluation
Figure 6.3: The six stages in new product development
Step 1: Idea generation

The first stage of the NPD process involves identifying and selecting viable
business opportunities or ideas. New product ideas can come from various
sources, such as suppliers, customers, salespeople, marketing research and
competitors, to name but a few. Once a new product opportunity or idea has
been identified, it is selected for further development. The purpose of this stage
is to delineate a direction for the product development process.
Step 2: Screening and preliminary investigation

The second stage of the NPD process involves examining the ideas generated
during Step 1, to ultimately determine whether the company should continue
with the new product idea or stop the process at the initial stages to avoid
unnecessary risk or loss.
133
The first process would involve the screening of ideas, which comprises
the examination of all ideas to determine whether it is worth investing any
resources in them. The screening process will involve looking at factors such as:
• whether the new ideas are in line with the objectives of the company
• the new ideas' ability to serve the needs of the market
• the market potential
• the competitive advantage of the new product offerings
• the company's ability to manufacture and service the product ideas.
If the new product ideas comply with these factors, the company will move on
to a preliminary analysis to gather further information. Research is therefore
conducted in the market to obtain information about the attractiveness of the
opportunity, the cost and time required, the potential sales and other factors
which will have an impact on the decision whether to continue with the
development or not.
Step 3: Specifying the product features

Based on the initial findings from the screening and preliminary investigation,
the next stage would be to start specifying the features, such as the physical
characteristics of the product or service idea. During this stage, the company
should also begin working with suppliers, as they are more aware of the
cost parameters associated with the product (such as distribution costs or
transport arrangements), which will ultimately impact on the development and
manufacturing thereof. It can therefore be of benefit if suppliers are involved
early on in the product development process. If they are not included early on
in the process, the final product design may fail to meet cost requirements,
which could necessitate redevelopment and redesign.
Step 4: Product development

During this stage, the business designs and tests prototypes based on the
specifications identified in Step 3. The technology behind the product concept
is realised and tested to ensure that it meets the specifications in the product
protocol. The organisation's manufacturing function should be included during
this stage of the NPD process, as the design of the product will have an impact
on how it is manufactured - simple changes to the design can often lead to
cost cuts and time savings in manufacturing the product.
During the product development stage, beta testing or field testing is
usually conducted to establish whether the product does what it is intended
to do and whether it satisfies the needs of the market. Beta or field testing
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download a beta version of the new operating system to test its features and
functions. Field testing, on the other hand, is generally used in manufacturing
industries.
Lastly, the business should develop a full marketing and business plan,
which includes all additional services and products required by the new product.
Step 5: Launch (commercialisation)

Once the product has been tested, the new product can finally be launched and
commercialised on the market. Before launching the new product, companies
must develop a launch strategy that is based on the innovativeness of the
product. This stage therefore includes market testing, prelaunch preparations,
launching the product offering and post-launch control. If new-to-the-world
products are launched, a more educationally focused launch will be required to
educate potential consumers about the product and to show how it will meet
their needs. If the product launch only offers add-ons or product improvements,
or if the product is a copy of competitor products, an educationally focused
launch would not be used.
Step 6: Evaluation
The last stage of the NPD process as identified by Dwyer and Tanner (2002:253)
is the evaluation of the process and market launch. The following three factors
guide the evaluation of the NPD process:
1. Time frame: How much time has elapsed from conceptualisation or idea
generation to the launch of the product to the market? There is a significant
market share advantage to be gained by being first in the market - this is
referred to as first-mover advantage.
2. Cost of development: The cost of development can be large, and the company
will hope to recover it by selling the new product. The focus here is not on
whether the new product will make a profit for the company, but whether
it can be produced and launched in the market within budget.
3. Competitive advantage: Has the new product process resulted in a
competitive advantage relative to other product offerings? The rewards of
achieving a competitive advantage are great.
6.5.2 Why new products fail

So far this chapter has discussed the NPD process and the importance of meeting
the needs and expectations of customers in order to create value for customers.
135
Unfortunately, not all products are successful in achieving management's

performance objectives. After having completed the NPD process, a company
might find that the new product is not doing as well as expected, or the product
may fail from the get-go.
Havaldar (2006:127) and Bothma (2013:81) have identified various
reasons as to why new products fail:
• Co-ordination: Failure can result from inadequate co-ordination between
the development of the product and the marketing function. This will lead
to new product offerings not satisfying the needs of customers.
• Uniqueness: A product can fail if it is not significantly different from
existing products in the market or products already offered by the company.
These products are either too similar to current products or imitate existing
products.
• Expectations: New products can also fail if poor product design and features
lead to the company being unable to meet the expectations of the customer.
• Processes: Companies that do not have a rigid product development process
can be beaten by competitors who copy their products but offer superior
quality and have more marketing effectiveness.
• Pricing: If the price of the new product is higher than the value perceived by
the customer, the new product will likely fail. A company might make the
mistake of launching a new product at a higher price in an attempt to recover
the cost of design, development and market introduction too quickly.
• Timing: If a company launches its product ahead of time or too late, the
market may not be ready for the product, as it might be too expensive or
the product attributes may not correspond with the needs and wants of
customers. Customers will therefore fail to see the benefit of purchasing the
new product.
• Hype: In some cases, marketing managers will launch a forerunner product
that is unique, has many useful functions and benefits, and is cutting-
edge technology. Marketers must be careful about the attributes that they
communicate to the public, as it can backfire and fail. For example, consider
the Ford Edsel. A big hype was created around the launch of the new car,
but when the time came to unveil it, the US economy had plunged into a
recession and numerous customers could not afford the car.
• Prohibitively strong branding: Although it is thought that a strong brand
is normally an asset to a company, it can also cause a product to fail. For
instance, when Colgate launched their food line in the US in 1982, hoping
to capture the growing market for ready-to-eat meals, customers could not
imagine a toothpaste brand offering food or a good meal. This product line
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• Co-branding: This is a strategic alliance between two companies with

established brand names that apply to the same product. Co-branding can
go wrong if the image of one brand is stronger or if one brand has specific
attributes (core competencies) that are prevalent in the market.
Marketing managers should always be aware of the needs and want of customers
in order to come up with a product that matches customer expectations.
Marketing managers also need to do thorough research in order to find out how
and when to launch new products successfully. (See Chapter 4 for information
on market research.)
6.6 828 services

As you know by now, businesses purchase products from other companies
in order to produce their own product offerings. Apart from raw materials,
machinery, office equipment, stationery and many other products that
a business may purchase from other companies, it also purchases services,
such as technical support or cleaning services and maintenance. A
service can be temporary, such as building maintenance done once a year, or
it can be a permanent service offering, such as payroll or cleaning services.
The intangible nature of services and the inseparability of production
and consumption create even greater dissimilarity among BiB services than
in the case of physical product offerings. For instance, many B2B services are
provided by qualified professionals whose expertise and skills are key elements
of the quality of the service provided. B2B services are far more complex
and require the management of a large number of parameters to ensure their
flawless provision and outcomes. Consequently, it is not a mundane task to
select, evaluate and decide on the continuation of relationships with B2B
service providers, even in the case of established providers.
In B2B markets, a service can be classified as either a pure service offering
or a product offering accompanied by a service. A pure service offering is not
associated with any kind of product, and includes only service offerings. The
range of businesses offering pure services is vast, and includes, for example,
legal, financial, insurance, human resources, IT, banking, transportation and
consulting services. Many companies nowadays are opting to outsource a
variety of different service offerings. Hence the need for excellent B2B services
is expanding, and services are making up a substantial percentage of total B2B
purchases.
137
Formerly, the majority of B2B service providers were reluctant to actively

market their service offerings, due to a lack of understanding of the role of
marketing in acquiring new clients. Today, however, with the rise of competitors
and the increase in outsourcing of key activities, B2B service providers have
found it important to develop highly focused marketing strategies. Developing
sound marketing strategies allows a B2B service provider to pre-establish
relationships with clients, improve its reputation as a leader and reinforce its
relationship with existing clients.
The second B2B service category includes a B2B service offering that
is accompanied by a physical product (products supported by services). The
degree and nature of the service can vary from one company to another. In
this instance, the wide range of service elements that accompany the physical
product offering is frequently as important as the technical solutions offered by
the product itself. Examples of these service offerings include the installation
of a software program or machinery, or equipment repair and maintenance. In
order to create a sustainable and differentiated advantage in the B2B market,
marketers need to place emphasis on creating additional value and offering
additional benefits to their customers. One important aspect of creating satisfied
customers is providing support services.
Good service results when the customer's perception of the service meets
or exceeds her or his expectations. B2B service providers are therefore urged
to position themselves carefully so that customers expect a little less than the
company can actually deliver. Because B2B services are intangible and non-
standardised in nature, clients tend to have greater difficulty in evaluating
services than physical products. Clients generally evaluate the quality of service
providers based on five service quality dimensions, namely:
1. reliability: whether the service provider delivered on its promises, such as
the promised delivery time, the correct quantity and quality
2. responsiveness: the service provider's willingness to support and help the
client by promptly replying to the client's requests or queries
3. assurance: whether the service provider can gain the client's trust and
inspire confidence through professional and knowledgeable staff
4. empathy: being able to adapt to the specific needs of the client and offering
customised service offerings based on the client's individual needs and
wants
5. tangibles: the service provider's ability to represent the service offering
physically, such as with brochures or information booklets.
Of the five quality dimensions discussed above, reliability is considered to be
the most important to customers. To customers, service quality is personified
This chapter dealt with managing and developing 828 products. Firstly, the strategic importance of
developing new products in order to create a value proposition was explored. The value proposition
is a set of benefits that a 828 supplier offers to a customer organisation.This chapter also discussed
how companies can define their product in relation to the company's core competencies, the
product quality and the product policy.
The importance of having an NPD process in place was also discussed. Conceptualising a product
must go beyond mere physical descriptions of the product; it must include all the benefits and
services that provide value to customers. Managers must decide what their business's core
competencies are and develop strategies and tactics to improve their products and the services
they offer to customers. A product strategy allows a company to understand how many products
should be included in the product line and how many product lines are necessary. Managers
must also understand the PLC and have strategies in place for each stage of the cycle. In short,
understanding the core competencies of a product and at what stage of the PLC the product lies
will allow a company to successfully create product strategies and identify opportunities for NPD.
Having a good NPD process in place can help managers weed out poor ideas and concentrate on
the successful ones.
The chapter discussed some reasons why new 828 products may fail. Lastly, the chapter looked
at 828 service offerings, which can be categorised as either pure service offerings or services
accompanied by a physical product offering. Offering high-quality services to 828 customers will
ensure the continuing success of 828 service providers.
1. Explain the importance of developing new products in B2B markets. In
your answer, refer to the creation of a value proposition.
2. Define B2B products in terms of the company's core competencies, product
quality and product policy.
3. Discuss the stages in the NPD process of a B2B product offering. Use
examples to illustrate your discussion.
4. Explain the PLC of a B2B product offering by means of practical examples.
5. List reasons why new products can fail. Make suggestions as to how these
failures can be prevented.
6. Discuss the importance of support services in B2B markets. In you discussion,
make reference to the five dimensions of service quality.
139
References
Aaker, DA Et McLoughlin, D. 2010. Strategic market management: Global
perspectives. 1st ed. West Sussex: Wiley.
Bothma, C. 2013. Product Management. Cape Town: Juta.
Brennan, R, Canning, L Et McDowell, R. 2007. Business-to-business marketing.
New Delhi: Sage.
Dwyer, FREt Tanner, JF. 2002. Business marketing: Connecting strategy, relationships
and learning. 2nd ed. New York: McGraw-Hill Higher Education.
Evans, N. 2015. Strategic management for tourism, hospitality and events. 2nd ed.
Oxon: Routledge.
Fill, C Et Fill, KE. 2005. Business to business marketing: Relationships, systems and
communications. London: Pearson Education.
Havaldar, KK. 2006. Industrial marketing: Text and cases. 2nd ed. New Delhi: Tata
McGraw-Hill.
Hurt, MD Et Speh, TW. 2014. Business marketing management: B2B. 11th ed. Ohio:
South-Western Cengage Learning.
Thomasnet.com. 2016. Industrial product life-cycles. Available: http://www.
thomasnet.com/ articles/ engineering-consulting/life-cycle-industrial-product
(Accessed 11 July 2016).
ln.novation and
competitiveness
Gert Human
I I
learning outcomes
• describe the changing nature of competition
• describe how competitive conditions shape 828 marketing
• describe the changing nature of competitive advantage
• describe the drivers of innovation
• describe the dimensions of innovation
• describe the types of innovation
• describe the innovation life cycle
• describe a simple model for innovation management
• explain what disruptive innovation means
• explain the implications of various aspects of innovation for
828 marketing.
I
Introduction
Innovation and competitiveness are fundamental to B2B marketing, and the
B2B marketer constantly finds him- or herself in a world where competitors
are trying to out-innovate each other, resulting in a continuous interaction
between various actors, systems and technologies. This gives rise to growing
complexity and associated demands on managerial capability.
In this chapter, we will explore competitiveness and innovation as key
aspects in B2B marketing. In particular, we will consider the changing nature
of competition and swiftly move to innovation as the key response to change in
modem business. Our discussion of competition pauses to consider competitive
advantage, which has been and still is the bedrock of competitive strategy
thinking. The creation and maintenance of competitive advantage remains the
ultimate goal in competitive behaviour and demands that firms be innovative
in terms of creating new market offerings and in terms of how they design and
implement their strategies. This notion allows us to consider innovation more
closely.
We therefore consider the drivers, dimensions and types of innovation
and also explore the innovation life cycle. These aspects of innovation facilitate
the construction of a simple model for innovation management that help us to
understand the relationship between innovation and firm performance, and the
challenges associated with managing innovation. We also consider a special
case of innovation, called disruptive innovation, before we move on to consider
the implications of innovation for B2B marketing. Marketing both harbours
and spawns innovations and the road to the successful commercialisation of
innovations almost always passes through marketing.
7.1 The changing nature of competition

Stephen H Haeckel (a former Director of Strategic Studies at IBM's Advanced
Business Institute) once proposed to his audience that the challenge of modem
business is to transform 'make-and-sell organizations' into 'sense-and-respond
organisms'. 1 At the time, this was an attempt to emphasise the information
required in businesses, but it also speaks to the changing nature of competition.
Today, firms not only have to deal with global competitors from foreign
countries; a new competitor can literally emerge overnight. Thus, the linear
and predictive fashion in which competition took place no longer exists.
Alex Gourlay (ChiefExecutive, Health and Beauty Division, Alliance Boots)
remarked: 'In my thirty two years as a retailer, I have personally witnessed a
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growing focus on value and value creation throughout the value chain. The
very focus on value already suggests that B2B customers are becoming more
demanding in response to changes in the competitive environment.
Fundamental shifts in the nature of competition have been the focus
of many commentators' work2 and for a while now it has been argued that
traditional competition, based on relatively stable industry structures, is being
challenged by disruptive technologies, aggressive competitive behaviour,
globalisation, deregulation and trade liberalisation. According to Thomas and
D'Aveni (2009), many commentators have suggested a shift towards a type
of competition that is consistent with the Schumpeterian3 view of 'gales of
creative destruction', where competitive advantage is created and destroyed
very rapidly. Moreover, some might say that competitive advantage is no longer
just about industry structure and company size- rather, it is about speed. Not
so long ago, larger firms could eclipse smaller competitors because of their
reputation and scale advantages. Today, some argue that having a large firm
with a solid organisational structure to enjoy economies of scale and facilitate
good management within the hierarchy, is no longer enough. Large companies
have more systems and processes in place, which limit the speed and flexibility
with which they can react to sudden changes in the marketplace. This opens
the door to smaller competitors who can do business at a higher speed and who
have the ability to customise their offerings.
In an article also published in The Wall Street Journal, Vivek Wadhwa writes:
Not long ago, you could see your competition coming. What you had to
worry about most was a new entrant within your industry that had a
simpler, lower-priced product. To stay ahead, you could either improve
your product's functionality or build new products that extended the
range and value of your offerings. [...] [now] you can no longer see the
competition coming. Technologies are no longer progressing in a predictable
linear fashion, but are advancing exponentially - and converging. Fields
such as computing, medicine, artificial intelligence, 3D printing, robotics,
nanomaterials and synthetic biology are simultaneously making advances,
and combining these allows one industry to rapidly disrupt another- before
market leaders even know what hit them. (Wadhwa, 2014)
Traditional and modern views of competition have been contrasted by

various scholars. Thomas and D'Aveni (2009) contrast traditional and modem
competition: In the traditional view competition is described as static and
characterised by its steady nature with continuous stable performance of
individual firms and fixed competition across firms. Tactical decisions to
collude and exclude assets are in the interest of the entire industry and benefit
143
all firms within it. Furthermore, it is argued that within the traditional view
of competition an immovable version of the resource-based view is adopted.
This allows for efficiency rents across firms to be quite substantial, due to
the significant difference between the levels of resources held by firms within
the industry. This occurs due to profits representing rents to resources or
competitive intangible assets leading to lowered costs and premium pricing. It is
therefore not surprising that Michael Porter4 refers to this approach as focusing
on operational efficiency. Under such conditions, the firm that operates the
most efficiently will enjoy the greatest advantage.
In contrast to the traditional view, according to the new competition view,
the competitive landscape is contended to be much less stable and the advantages
enjoyed by firms are also less durable. Changes in the business environment
pertaining to supply and demand, technology, credit, information and internal
business activities occur more frequently and have more considerable impact.
Thomas and D'Aveni (2009) prove this by establishing that over a firm's long-
term performance:
• volatility for profit has increased
• within-industry heterogeneity has increased
• across-industry heterogeneity has decreased as a share of total variance
• the correlation across industries of its volatility (short-term profit) with the
heterogeneity (long-term profits) will increase.
In addition, Thomas and D'Aveni (2009) also demonstrated the following:
• Because of the interconnectedness of firms (for example sharing suppliers,
sharing technology platforms, maintaining close relationships, etc) in
industrial markets, they can influence each other quite significantly. We
therefore can say that they codetermine the industry conditions. Moreover,
any disruptions in the industry that deviate from the norm ('business as
usual') were shown to have significant effects on the profitability of firms
in the industry.
• If the firms in a particular industry are rather different in terms of their
products, services, market focus, etc (referring to the composition of an
industry and in other words referring to considerable heterogeneity across
firms) and these firms therefore experience varying levels of profitability
(variance), the long-term profitability of that industry appears to be
negatively affected.
Naturally the abovementioned findings by Thomas and D'Aveni should not
be generalised across all industries. Rather, they serve to show how industry
conditions can affect individual firms in that particular industry.
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is on obtaining a bigger share of the existing demand. This dash for market
share attracts more players and the market becomes very crowded, while
the initial prospects for profit and growth start to fade. Eventually, products
become commodities and the increased competition turns the competition into
a 'bloody' affair, as it leaves many firms 'bleeding' from the fierce battles over
existing demand. Hence, a so-called 'red ocean' results.
Kim and Mauborgne (2004) state that, in the new competitive paradigm,
players focus on industries that are not currently in existence, as they attempt
to serve markets that other competitors have not yet thought of. They are
literally exploring unknown market spaces which are still largely untamed by
competition. In this scenario, demand is created rather than fought over, and
there is ample opportunity for growth that is both profitable and rapid. These
players have two strategic options: they can either attempt to create totally
new industries (like eBay did), or they can create new industries by pushing
existing industry boundaries. Thus, a new competitive arena is created. This
new arena is referred to as the 'blue ocean', because the commodity level
battles over micro-shares of the demand has not yet 'turned the water red'.
7.2 Drivers of competitive change in 828

markets
Given the findings of scientific studies on the changing nature of competition, one
cannot place enough emphasise on the importance of seizing new opportunities,
encouraging creativity and developing the ability to work effectively in teams
to achieve innovation. Successful managers will endeavour to remain up to
date with changing market conditions as it provides numerous opportunities
for creativity and innovation. Therefore, the B2B marketer constantly needs to
understand the key drivers of change in his or her environment. Marketers often
operate in highly diverse and rapidly changing circumstances. Many of the
underlying drivers of change in B2B and business-to-consumer (B2C) markets
are not dissimilar, but they vary in size and shape. From a B2B marketing
perspective, these key drivers of change can be summarised as follows:
• Interdependence: As competition increases and companies become more
specialised, their dependence on other firms (often specialists) increases.
Gone are the days where companies could confidently say, 'We do it
alone'. Very few firms have the capability, in today's hyper-competitive
environment and interconnected world, to exist without the support of
other firms in the business ecosystem.
145
• Technology: There are many instances of technologies in the market today

that would have been impossible a few years ago. These technologies reduce
the lifespan of many existing products and frequently expose entirely new
product directions. Examples of this abound. Gaming applications are
becoming drivers for many applications, not just the training of fighter
pilots; nowadays gaming platforms are supporting advances in a range
of medical areas, sensor development, wireless enhancements and remote
monitoring. Sometimes those technology improvements become easier
than you might expect. Pharmaceutical manufacturers, for example, are
finding new applications for some of their existing drugs in areas they
might not have considered just a few years ago. In many situations, these
new applications are relatively easy to implement, due to the minimisation
of clinical trials for toxicity evaluations (Studt, 2008). Changes such as the
ones described in these examples are critical for the B2B marketer, as they
bring challenges in terms of managing product and relationship portfolios.
• Globalisation: For the B2B marketer, globalisation means that often clients
can source products and services on a global scale. This means that as trade
is liberalised, the threat of competitors is increasing. Moreover, advances
in information technology, such as increases in internet connectivity and
the use of social media, have resulted in specialised knowledge being
distributed with ease. This empowers customers to a much greater extent
than in the past. Nowadays, marketers deal with informed customers and
have to react to their demands in real time. For example, the weakening of
the world economy in the late 2010s changed the competitive landscape for
steel producers completely. This was also the time when China emerged as
a major supplier and many buyers of steel shifted their purchases to China
to take advantage of lower prices. In South Africa this meant that steel
buyers were no longer dependent on ArcelorMittal to supply their growing
demands, and they too started to purchase steel from China. This situation
did not suit the South African steel producer and it had to consider various
strategic options. In the end, ArcelorMittal convinced the South African
government to increase import duties, with long-terln effects for the very
clients that they hoped to retain. This shows how c!knging international
conditions can affect competitive behaviour in B2B markets.
• BletffAs globalisation and technology reduce the size t
blurring. For example,
/'
in South Africa a major bank recently (at the time
of publication of this book) won an award for developing the best app in
one of the categories of the MyBroadband competition. This shows how the
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That kind of thinking is rather dated, as firms today need to be responsive
to an array of social, ethical, environmental and economic pressures. Today,
these broader environmental and societal issues have become much more
mainstream, and the discussion in many corporate boardrooms is often
focused on aspects such as sustainability and ethics. The B2B marketer is
increasingly under pressure to adhere to societal demands and avoid risky
opportunism. It is therefore not uncommon for B2B customers to require
evidence of responsible corporate citizenship before selecting a supplier.
7.3 Competitive advantage

Competitive conditions in a particular industry often dictate what firms can
and cannot do. In business, as in many spheres of life, this means having to
find ways to outperform competitors. Firms therefore constantly seek to build
a competitive advantage over their rivals. More specifically, the B2B marketing
professional is often in a position where he or she needs to demonstrate how the
firm (including its product and services, but not limited to products and services)
can offer customers an advantage over their rivals. Competitive advantage is
sometimes referred to as the 'holy grail' of management, particularly in the
field of strategic management. Conventional theory asserts that this deals with
the notion of establishing an advantage over rivals and then attempting to
sustain that advantage for as long as possible.
According to Michael Porter, a professor at Harvard Business School,
firms can achieve this by providing something different (differentiation),
providing a cheaper product or service (lower cost), focusing on a specific
market segment or segments, or any other aspects that can bring advantage for
the firm.5 Today, we know that competitive advantage can stem from a variety
of sources, including access to natural resources such as high-grade ores or
inexpensive power, highly skilled personnel, geographic location and high-
entry barriers. New technologies, such as robotics and information technology,
can also provide a competitive advantage, whether as a part of the product
itself, as an advantage in the making of the product or as a competitive aid in
the business process (for example better identification and understanding of
customers).
7.3.1 The conventional view of competitive advantage

The conventional wisdom is that firms build or develop a competitive advantage,
and as soon as the advantage is established, rivals attempt to limit or diminish
147
it with their counterstrategies. This idea also suggests that the objective is for a
firm to sustain its competitive advantage for as long as possible (see Figure 7.1).
Hence the term 'sustainable competitive advantage' has become common
business language.
Advantage
decline as
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en Advantage Advantage competitors
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Figure 7.1: The conventional view of competitive advantage
7.3.2 Transient competitive advantage

The conventional way of thinking about competitive advantage has, however,
come under scrutiny. Rita McGrath, a professor at Columbia Business School,
argued that the notion of 'sustainability' is problematic in modem times. Today,
change happens rapidly and in a nonlinear fashion, which means firms no
longer have the luxury of committing to one particular advantage for sustained,
long periods. Rather, firms need to view competitive advantage as waves of
advantage that come and go as resources are committed and withdrawn in
order to create, build, maintain and end the advantage (McGrath, 2013). Thus,
the 'shelf life' of a particular advantage is much shorter. McGrath aptly calls
this 'transient competitive advantage'.
Figure 7.2 illustrates this concept. A firm may start to build a competitive
advantage by innovating some aspect of its business. This is followed by a
period where the firm allocates resources to the commercialisation of the
innovation, in order to ramp up the advantage (ramping). If successful, a period
of exploitation follows, where the firm attempts to derive maximum benefit
from the advantage. McGrath adds that this is also a period where the firm
needs to be very alert to possible factors that can cause the advantage to
decline. Finally, the advantage starts to diminish; that is when the firm needs
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equal amount of time. This approach allows for a more dynamic understanding
of competitive advantage.
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Figure 7.2: Transient competitive advantage (adapted from McGrath, 2013)
7.4 Innovation, competitiveness and firm

performance
Innovation, especially in highly complex and turbulent environments, has
become part of business life, and we know that firms innovate in various ways.
Business models, products, services and supply and distribution channels are
all good candidates for innovation. This has become necessary to maintain
or capture markets, to beat competitors, and to assure long-term growth and
survival.
Innovation is closely associated with two key aspects: collaboration and
failure. Successful innovators understand the art of collaboration, and frequently
their innovations are either the result of some form of collaboration or the
unlocking of new market opportunities as a result of collaborative engagement.
Innovators are also acutely aware that success is never guaranteed, and, as
with entrepreneurial activity, failure often visits the innovator. However, it
seems that innovators can learn from such failures - to provide the spark for
the next innovation.
It is imperative to create a culture of innovation in businesses and within
society at large. In this way, the skills, temperament and psychology needed to
develop innovative leaders who can solve modem problems will be developed.
149
7.4.1 What is an innovation orientation?

Sigauw, Simpson and Enz (2006) argue that although innovation has been
associated with better firm performance, the defining factor of long-term
survival through innovation appears to be based not on specific, discrete
innovations or on a single market or learning orientation, but rather on
an overarching, organisation-wide knowledge structure, which is termed
'innovation orientation'. Sigauw et al define innovation orientation as follows:
A multidimensional knowledge structure composed of a learning philosophy,
strategic direction, and trans-functional beliefs that, in turn, guide and
direct all organizational strategies and actions, including those embedded in
the formal and informal systems, behaviours, competencies, and processes
of the firm to promote innovative thinking and facilitate successful
development, evolution, and execution of innovations. (2006:560)
Siguaw et al (2006) alert us to four common mistakes in understanding

innovation orientation:
1. To adopt an innovation orientation, the firm must nurture a willingness
to learn. It is argued that innovation orientation is a learning philosophy
in which firms have common standards and beliefs about learning and
knowledge that pervade and guide all functional areas toward innovation.
2. Innovation orientation is strategic. It is broad in scope and encompasses
the total enterprise and all functional areas of the organisation, rather than
just a single functional area such as research and development (REtD) or
marketing. Hence it is considered to be an intentional and calculated plan
or strategic intent that provides direction toward an organisation-wide
commitment to more and faster innovations.
3. Innovation orientation is cross-functional. That means it must span across
functional departments of the firm. It is of little use if only one department
(such as REtD) adopts an innovation orientation, but other departments
do not. This will mean that business problems are not confronted across
the firm with a consistent mindset that seeks to innovate. Therefore 'an
innovation orientation transfunctional acclimation [some authors prefer
'cross-functional'6 ] is generally seen as a set of common understandings
and beliefs pervading the innovation-oriented firm that creates a unifying
comradeship, enthusiasm, and devotion among employees' (Sigauw et al,
2006:6).
4. Sporadic, infrequent innovation outcomes do not mean that the firm has
an innovation orientation. Although the desired outcome of an innovation
orientation is innovation, the innovations do not define the orientation;
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5
in an entrepreneurial manner - and over time develop innovation as a key
competitive weapon.
7.4.2 The drivers of innovation

Once the importance of fostering an innovation orientation is understood, the
firm's attention can be shifted to innovation itself. It is useful to investigate
the drivers (dimensions or components) of innovation, so that managers know
what will demand their attention. Dobni and Klassen (2015) surveyed 1127
business leaders from Fortune 1 000 firms and composed a diagnostic tool
(see Figure 7.3) to assess the health of innovation in firms. The tool assists in
understanding the firm's framework in order to illustrate the various dimensions
of innovation.
u
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Figure 7.3: Drivers of innovation (Oobni & Klassen, 2015:1 07)
The framework in Figure 7.3 incorporates both employee-centric and

management-centric dimensions of innovation. This means that the employees
are influenced by co-workers (staff), the skills of co-workers, the managerial
style in the firm, socialisation in the firm, and the employees' state of general
151
awareness of what is going on in the firm. On the management side, aspects

such as shared values, the strategy of the firm, the structure of the firm, and
systems and support mechanisms influence management's perception of
innovation. These drivers are explained in Table 7.1.
Table 7.1: Internal drivers of innovation (Dobni & Klassen, 2015:107-108)
Dimension Innovation Explanation

Factor
Context Innovation The degree to which the organization has formally established-
Propensity within their business model- architecture to develop and sustain
innovation.This would be communicated through vision, goals, and
objectives, and adopted by the senior leadership team.
Employee This involves how employees think of themselves vis-a-vis their

Connectivity colleagues. For example, do they feel that they can contribute? Do
they feel valued and equitably treated? Do they trust and respect
management? Do they resonate with what the organization is
doing, and are they working together to achieve the vision?
Strategic Infrastructure for the purposes of innovation involves the business

Infrastructure model employed to support the strategy process and innovation
overall.
Resources Employee Skills The extent to which employees have the skills to be innovative.
and Creativity This includes levels of personal creativity and the surrounding
environment (time and space) to allow their skills and creativity to
be utilized.
Organizational Properly tooling employees involves committed education and

Learning training programmes that focus on developing processes that
facilitate the learning of new behaviours, and then post-training
reinforcement.
Technical The extent to which the organization provides resources (financial,

and Financial time, people, other) to support innovation initiatives.
Support
-
Knowledge Knowledge The environment to support knowledge generation by employees

Management Generation from all stakeholders of the company- including industry and
organizational value-chain knowledge.
Knowledge The environment to support the dissemination of knowledge to the

Dissemination right people on a timely basis.
Business The ability of employees, based on knowledge generation and
Environment dissemination, to understand the dynamics of their business
Enactment environment, in efforts to define value-added projects and
initiatives. These advantages can be identified by observing
ilnrlllnrlE>rstilnrlino the industrv. comoetitors and stakeholders.
Execution Employee This involves the psychological empowerment of employees and
Empowerment their perceived ability/confidence to undertake autonomous actions
that contribute to value creation.
New Venture This involves the level or degree to which employees can pursue
Management what appear to be opportunities or initiatives, with less certainty
than they are traditionally comfortable with, or for which policies
allow for (ie entrepreneurial activity).
Alignment This is a measure of alignment to support desired innovation-

related behaviours. For example, the performance management
and management control systems, and the alignment of innovation
strategy with the organization's strategy. I
---- --- I
7.4.3 How to build a culture of innovation

Based on their findings, Dobni and Klassen (2015) offer a few suggestions for
firms that are serious about advancing their organisation's innovation agenda:
• The organisation has to be prepared to adopt innovation as a central theme. If
an organisation uses the concept of innovation loosely, then it will not have
the necessary senior management support to get traction. To support this, there
needs to be a clear innovation strategy that sets out what the organisation
intends to achieve through innovation, and how the organisation will adopt
an attitude of change to break down long-standing risk-adverse inertia. This
must be clearly communicated and understood throughout the organisation,
and must form the basis to start and sustain an innovation orientation.
• Innovation thrusts are long-term investments. It may take years, rather
than months, to embed change in the way employees think and act.
Therefore organisations need to be patient and persistent in the pursuit of
an innovation culture.
• The innovation culture needs to be measured, so that an organisation can
establish a baseline understanding of its current innovation state and then
measure or monitor improvement over time. A culture assessment also
enables the organisation to develop effective innovation implementation
activities that are focused and that can be completed in realistic time frames
in a cost-effective manner.
• It is important for the organisation to develop a simple, robust and proven
governance approach to innovation that allows for the progression of ideas
from initial stimulus through to implementation. Early (and quick) wins are
essential in reinforcing the innovation programme. Support mechanisms
and resources need to be part of management's efforts to encourage the use
of consistent innovation processes and tools.
153
• It is essential that a significant number of employees are involved in the

innovation process, either to drive innovation themselves or to support the
progress of others.
• Knowledge management is critical to support ideas around the products,
services and processes necessary to create strategic value from innovation.
It is important that knowledge is not only systematically captured, but
also effectively disseminated to the point that information can be used by
employees for innovation.
• Finally, support for innovative behaviour by employees must be embedded
in the performance management system (ie results matter, and employees
need to be rewarded accordingly).
7.5 The dimensions and types of innovation

7.5.1 The four Ps of the innovation space
Tidd and Bessant (2013) argue that innovation can bring about change in four
broad dimensions, which they also refer to as the four Ps of the innovation
space. In addition to the very well-known product (and/or services) dimension,
which relates to the offerings of the firm, and process innovation, which deals
with changes in the way offerings are created and delivered, they add two more
dimensions. First, they include position to account for changes in context,
and then paradigm to indicate changes in the underlying mental model which
frames what the firm does.
A distinction between these four dimensions is useful for our understanding
of innovation. First, the dimension of position illustrates that innovation is not
limited to products, services and processes. This implies that firms can also
bring about change by altering the context in which they operate. For example,
we can say that Henry Ford changed the context of transportation in that he
brought transportation to a whole new market segment that was previously
unable to afford this technology. In doing so, he created a new context for
competing in the transportation industry. Second, the existing paradigm can be
changed by making participants (customers and competitors) understand that
what seemed impossible previously is now possible. An example of this is the
way that innovators in the air travel industry changed the air travel paradigm by
introducing low-cost air travel. Previously, air travel was extremely expensive
and only within the reach of the very rich. Low-cost airline companies have
brought air travel within the reach of the middle classes.
It is important to note that the boundaries of these dimensions are often
very blurred and they are not intended to be an absolute categorisation. Both
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yield a different mix of innovation concentration to suit their competitive
approach. This is illustrated in Figure 7.4, where it is evident that product and
position innovations are creating advantage for Firm A, while process and
paradigm innovations have advantages for Firm B. Note that the scale in this
case is anchored at incremental innovation and radical innovation, ranging
from 0 to 10 (see Section 7.5.2 for an explanation of this).
Position ( ( ( ( ( •' Q I'V' ) )' ) ) Process
Paradigm
-Firm A ---Firm B
Figure 7.4: An example of firms focusing on different dimensions of innovation
7.5.2 Types of innovation

The scale used in Figure 7.4 suggests that some measure of innovation novelty
is assumed. This idea originated from Henderson and Clark (1990), who viewed
product and process as systems. By considering the role that knowledge plays
in each of the systems, they were able to distinguish between component
knowledge and system knowledge:
• Component knowledge is part of the core design of the product and refers
to the knowledge of each component that performs a specified function.
• System knowledge focuses on how the system works and how the various
components are integrated.
155
This distinction allowed Henderson and Clark to distinguish between four

types of innovation that can be placed on a continuum of novelty, as show in
Figure 7.5. The different types of innovation range from incremental to
modular, architectural and radical innovation:
1. Radical innovation usually stems from major technological breakthroughs
and results in new components and new systems.
2. Incremental innovation, on the other end of the continuum from radical innovation,
usually implies incremental changes to current products and services to enhance
the potential of their existing designs. Therefore, incremental change usually
results in component improvements, but no system changes occur.
3. Modular innovation 'uses the architecture and configuration associated with the
existing system, by employing new components' (Smith 2015:39). This means that
modular innovation usually results in new components, but no system changes.
4. Architectural innovation focuses on the reconfiguration of existing
systems and seeks to connect components in new and different ways. Thus,
architectural innovation usually results in improved components and some
level of system reconfiguration.
Radical ArchiteduraI Modular Incremental
Figure 7.5: Types of innovations (Smith, 2015:39)
7.6 The innovation life cycle

The innovation life cycle is not to be confused with the product life cycle
(discussed in Chapter 6); however, it appears that a similar approach to
understanding the change of innovation over time is useful. In the case
of innovation, the life cycle pattern is arguably more difficult to isolate
and therefore we should expect to see variation between different types of
innovation. Nevertheless, according to Abernathy and Utterback (1987), it is
possible to identify three stages in the life cycle of innovation, namely a fluid
stage, a transitional stage and a specific stage (see Figure 7.6):
1. During the.fluid stage, technological and market uncertainties prevail, many
changes occur, and the outcomes of the innovation are varied. During this
stage, the manufacturing process is greatly leveraged on highly skilled labour
and all-purpose equipment. There is also little or no innovation during the
fluid stage. The various competitors (represented by the diamante shapes in
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innovations from new entrants can be major threats subject to this being
radical and/or competence-destroying.
2. In the transitional stage, the technological application of the innovation
becomes more apparent and customers' needs will start to normalise.
During this stage, the innovation is likely to get adopted by consumers and
subsequently the market will start developing. The convergence pattern7 in
this phase will lead to the emergence of a dominant design. A dominant
design is when the fundamental design elements (components and core
characteristics) remain the same regardless of the model. New products
introduced to the market are often merely variations of this design based on
individual innovations. Utterback (1994:7) articulates it perfectly when he
says the features of a dominant design has to be duplicated if competitors
and innovators wish to attain any market share.
3. After the inception of a dominant design, competitors will have to shift
from product differentiation to differentiation based on performance or
cost. As companies now have a clearer picture of the segments within the
market, they can concentrate more on serving specific customers, and so
the specific stage is born. During the specific stage the focus is more on the
use of highly specialised equipment rather than employing highly skilled
labour. Due to commoditisation taking place, the bargaining power of both
suppliers and customers will increase.
In addition, Abernathy and Utterback (1987) argued that product innovation
and process innovation behave somewhat differently as they move through the
stages, as can be seen in Figure 7.6.
Fluid stage Transitional Specific stage
• Exploration stage • Standardisation
• Uncertainty • Dominant • Integration
• Flexibility design
Product innovation Process
innovation
Rate of
major
innovation , ,
,,
,,
,
,,
-'
Time
Figure 7.6: The innovation life cycle (Utterback, 1994:56)
157
The original innovation life cycle work by Abernathy and Utterback (1987)
remains a useful tool for understanding innovation. From these insights we can
now consider the implications of this model for business and strategy using a
framework suggested by Daniel Scocco (2006a), as shown in Table 7.2.
Table 7.2: Implications of the innovation life cycle model (Scocco, 2006a)
variable Description
c Fluid stage Product changes/radical innovations Transitional
0
- stage Major process changes, architectural innovations

c
.5 Specific stage Incremental innovations, improvements in quality
Fluid stage Many different designs, customisation

ti
::I
"CI Transitional stage Less differentiation due to mass production
e
a..
Specific stage Heavy standardisation in product designs
I!! Fluid stage Many small firms, no direct competition

s Transitional stage Many competitors; emergence of a dominant design will
Cl. cause a decline
E
8 Specific stage Few competitors: a classic oligopoly
c
0
Fluid stage Entrepreneurial, organic structure
""2' Transitional stage More formalised structure; task-group based

Il
0
...
en
Specific stage Traditional hierarchical organisation
-
.c
1-
"'
Fluid stage
Transitional stage
Old technology, new entrants
More product advances and imitations
Specific stage New technologies and firms bringing disruptive innovations
Fluid stage Flexible and inefficient

"..,'
Ql
Transitional stage More rigid, and changes occur in large steps
0 ...
a..
Specific stage Efficient. capital-intensive and rigid
Fluid stage There are two options:

>
1. The company can try to out-manoeuvre competitors
en-
- Ql
l!!
and establish its own product as the dominant design.
This strategy will involve agreements with distributors
and marketing investments to affect customers'
perceptions. +-
assets and wait for the appearance of the dominant
design. Then, once the standard becomes clear, it will
try to secure most of the profits, basing its competitive
advantage on the distribution channels, supplier
contracts, complementary technologies, value-added
services and others.
Transitional stage Winning the battle for the dominant design is desirable
because it will enable the firm to collect monopoly rents8
(given imitability is not so high or intellectual property
rights can be applied). Even if the standard is 'open', the
developer can build complementary products or enhanced
versions faster, possibly establishing a higher standard for
the future. Microsoft established the dominant design for
graphic computer operating systems with the invention
of Windows, largely attributed to the company's previous
dominant position with the MS-DOS operating system.
The threat of new entrants in the transitional phase is
dependent on the type of technology involved in the
innovation, and whether the proprietary incumbents
are favoured in the market. Once a firm is in this phase,
strategies need to be put in place to consolidate product
positioning and start increasing production capacity as
well as process innovation in order to enter the next phase
successfully.
Specific stage In essence, the market becomes oligopolistic as competitive

intensity reaches new heights. As can be expected,
this is when incumbents seek to secure their position
through supplier relations, distribution channels and other
complementary assets, with the objective to lay down
barriers to entry.
7.7 Towards an innovation management model

The scope of innovation is rather broad and many factors may influence
innovation initiatives in organisations. It is therefore very easy to be
overwhelmed by the complexity of innovation, and managers often fear this
process. However, Tidd and Bessant (2013:47) offer a simple approach to allow
managers to work systematically through the main challenges of managing
innovation in organisations. They base their approach around four fundamental
steps that need consideration if the firm hopes to be successful in managing
innovation, namely search, select, implement and capture (see Figure 7.7).
1. Search: How can the firm find opportunities for innovation? First, the
organisation needs to search for innovation opportunities. Fundamentally,
159
this implies scanning the internal and external environment and

taking cognizance of the relevant signals of environmental threats and
opportunities that the firm might have to face. This search activity needs to
be broad-based and inclusive, as it hopes to include all potential sources of
opportunity for change.
2. Select: What innovation is the firm going to pursue and why is it going
pursue this innovation? The information gathered in the search phase
should provide the critical information for the second phase, namely
selecting opportunities for innovation. This decision is based on a strategic
view of how the organisation should develop. It is therefore a profound
decision which requires careful analysis and deep insight, backed by vision.
3. Implement: How is the firm going to make innovation happen? Primarily,
the third phase deals with the proverbial how-to question. Essentially, this is
about understanding the potential of something new and then launching it
in an internal or external market. Making this happen is not a single event,
but specifically requires the accumulation of knowledge and resources that
are critical to the implementation of the innovation. It also implies that
the firm often needs to operate under conditions of uncertainty, which
demands extensive problem-solving capabilities.
4. Capture: How is the firm going to derive benefits from the innovation? The
final phase is about capturing value from the innovation. Obviously this
includes value derived from the sustained adoption and diffusion of the
innovation, but perhaps a more important element is the organisational
learning that is required to feed the knowledge and resources of the firm.
Do we have a clear innovation strategy?
Search: Select: What Implement: Capture:

How can are we going How are Howarewe
we find to do- and we going going to get
why? to make it the benefits
happen? from it?
innovation?
Do we have an innovative organisation?
Figure 7.7: A simple innovation management model

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with contemporary thinking in strategic management and marketing.
7.8 Disruptive innovation

Disruptive innovation has evolved into an important concept during the last
decade. In this theory it is argued that the introduction of radical innovations
can reinforce an incumbent's position in a specific industry. To explain this
concept, we can adopt the term 'sustaining innovation' as the opposite of
disruptive innovation. Sustaining innovation is therefore innovation that seeks
incremental advances and it is usually the result of a systematic REtD process
with the view to achieving continuous improvement.
The central idea of Christensen's work is the dichotomy between
sustaining innovation and disruptive innovation. Sustaining innovation
hardly results in the downfall of established companies, because it improves
the performance of existing products along the dimensions that mainstream
customers value. Disruptive innovation, on the other hand, will often have
characteristics that traditional customer segments may not want - at least
initially. Such innovations will seem cheaper, simpler and even of inferior
quality when compared to existing products. However, some marginal or new
segment will value it. Christensen relied on the disk-drive industry to explain
this phenomenon, as described in the following case study.
The first disc drive, developed by IBM in San Jose in 1954, was as large as a refrigerator and could
only store five megabytes (MB) of data. By 1976 various producers (IBM, Control Data, Univac
and OEM producers - Nixdorf, Wang, Prime) integrated efforts and US$1 billion worth of disc
drives were being produced on an annual basis. Roughly 129 firms entered the market during
that period, of which 109 ceased to exist. By 1996 only IBM was still in the market, now worth
US$18 billion. During this period, technological discontinuities crafted the market space for new
innovations; the physical limitations of oxide discs, in terms of data storage, forced companies
to develop alternatives. It cost companies such as IBM, Control Data and other incumbents an
investment of over US$50 million to develop thin-film coatings, in order to keep their position in
the face of such sustaining innovation. In contrast to this, there was also an absence of disruptive
innovations during this period, which ultimately led to the downfall of established firms.
Christensen highlights the most noteworthy disruptive technologies to be the architectural

innovations which shrunk the size of drives, from disks with a diameter of 14 inches to 8, 5.25 and
3.5 inches, and then from 2.5 to 1.8 inches. +
161
Disk drives of 14 inches were subsequently produced to supply mainframes. The parameters used
by these producers as performance measures included capacity as well as cost per MB. Around
1980, new entrants to the market (eg Micropolis, Priam and Quantum) developed smaller 8-inch
drives; unfortunately, these drives only packed 10 to 40 MB of capacity, while mainframes required
400 MB. Leading companies in the market could quite easily copy these new entrants and also
manufacture 8-inch drives, as the technological innovation only involved architectural changes.
However, they opted not to do this, as mainframe producers were their main customers and they
were not interested in smaller drives. The new entrants were not able to sell the 8-inch drive to
mainframe producers; consequently, they were forced to look for new applications that would see
value in the characteristics of their product, mainly in terms of its reduced size. They found this
application in the minicomputer. Luckily for them, manufacturers such as DEC, Prime and HP were
willing to pay a higher price per MB in order to get smaller disk drives.
Customers' demand for capacity was growing at a rate of 25% per year, while producers of 8-inch
disk drives found that with sustaining innovations they were able to increase their disk capacity
by 40% every year, almost twice as fast as the demand necessitated. Eventually the 8-inch drives
were offering a much lower cost per MB than the 14-inch drives and their capacity was enough to
supply lower-end mainframes. The incumbents of the 14-inch generation experienced their markets
being penetrated; and at this point it was too late to react. Only one-third of the original 14-inch
producers managed to make the transition into the new technology, but eventually all of them
exited the market.
(Source: Scocco, 2006b)
New trajectory of
Trajectory of incremental innovations as a result of
innovations (to sustain the disruptive innovation
firms in the industry)
r--
Performance
Time
Figure 7.8: Disruptive innovation

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even developed the 3.5-inch drives internally before the new entrants launched
their 8-inch drives, but they chose not to invest in these innovations as soon as
their mainstream customers showed no interest (5.25-inch drives were used for
desktop computers while the 3.5-inch drives would be employed for notebooks).
So what happens in the case of a disruptive innovation? At a very basic level,
the trajectory of a sustaining innovation is all of a sudden altered, and it then
moves to a completely new trajectory, as shown in Figure 7.8.
Therefore, the theoretical inflection point is the point where the performance
of the innovation that the market can absorb is suddenly (almost) shifted to
a higher level. It should be noted that the disruptive imiovation is generally
quicker to improve the situation of the disruptor and therefore it outpaces the
shift in demand (see Figure 7.8). This situation allows disruptors to be more
aggressive in their competitive behaviour and attack competitors. Another
thought to ponder would be the relative slopes of the market absorption and
sustaining technology curves. From a B2B marketing perspective, it should be
noted that the slope of the customer absorption curve can have a considerable
influence on the time that it takes to absorb a new innovation.
According to Christensen (2003:47), 'the crucial factor to understand is
the concept of a value network, described as 'the context within which a firm
identifies and responds to customers' needs, solve problems, procure inputs,
react to competitors and strive for profits'. In value-creating networks, firms
come together to create customer value. This superior customer value, together
with the firm's core capabilities and the many B2B relationships it maintains,
are the building blocks of the value-creating networks. 10 Value networks are
created when linkages between firms with different assets and competencies
exist, linkages which allow these firms to respond to new market opportunities.
The fact that these firms are connected and can share resources and knowledge
drives their ability to create value for customers.
7.9 Implications of innovation for 828 marketing

In a world characterised by nonlinear change and hyper-competition, innovation
enjoys considerable attention. As mentioned, today, the key competitive tool
in the armoury of most modem companies is innovation. In highly crowded
market spaces, where very few trade secrets exist and markets become 'red
oceans' (see Section 7.1) very quickly, the competitiveness of a firm is directly
associated with its ability to innovate - thus creating 'blue oceans'11 • For
the B2B marketer this means understanding the innovation imperatives of
customers. However, the B2B marketer must also keep in mind that innovation
163
has multiple dimensions and manifests in many different ways. Therefore, it is

important to pay attention to innovation from a managerial perspective, as this
will allow the B2B marketer to understand how it can enhance a firm's ability
to compete. More importantly, it will prevent the situation where innovation
is treated as an off-the-shelf construct to be used only when the threat of
competition becomes deafening. Rather, innovation should be integrated with
B2B marketing to emphasise a holistic approach.
B2B marketers operate exactly in the space were innovation interacts
with the market. This means that B2B marketers not only need to have deep
insight into the needs and demands of their customers; they also need to
understand the trajectory of innovation in a particular industry or market. In
particular, they should understand how the business of their customers evolves
over time and what the external and internal factors driving this evolution
are. Moreover, modern B2B marketers need to develop the ability to anticipate
pending innovations in their markets and alert both their clients and their own
firms. In many B2B environments, paradigm shifts brought about by disruptive
innovation are often almost unavoidable. Under such circumstances, the B2B
marketer must demonstrate flexibility and adaptive capability and the required
resilience to guide both his or her own firm and customers through periods of
profound change.
Currently, some of the key implications of innovation for the B2B market
can be summarised as follows:
• Collaborate: Increased interdependence between firms and the associated
effects of globalisation and innovation are increasingly forcing firms to
engage in strategic partnerships to remain competitive and to expand
market share. Hence, it can be said that the competitive paradigm has
shifted from 'differentiate or die' 1 2 to 'collaborate or die'. 13
• Be engaged: With the mounting pressures on social and environmental
sustainability pointing to a future where firms will be judged on the so-
called triple bottom line, it is conceivable that firms will become fully
engaged in the societies they claim t!> serve. This means doing good in
the community, but it also means also adopting a 360-degree view of the
environment to include all stakeholders.
• Focus on content marketing: Content marketing is 'a strategic marketing
approach focused on creating and distributing valuable, relevant and
consistent content to attract and retain a clearly-defined audience - and,
ultimately, to drive profitable customer action' (Contentmarketing.com, nd).
New information technology allows marketers to share credible content
with B2B customers and thus indirectly promote their brand.
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ideas of interaction and customer-centricity, marketers can seek to measure

the experience of their B2B customers through various touch points as
they engage with the firm. Some of these measures often determine how
loyal the customer will be and how readily the customer will recommend
a supplier. Hollyoake suggests that, in B2B marketing, 'it is not so much
the relationship or the way customers are managed that differentiates, it is
the experience developed through the relationship that makes a difference'
(2009:149).
This chapter emphasised the importance of innovation and its association with competitiveness
in the B2B marketing arena. Since B2B marketers are confronted with new innovations on a daily
basis, they do not have the luxury of ignoring the centre of innovation on markets, businesses and
society at large. It is therefore imperative that B2B marketing professionals seek to understand
innovation orientation, innovation itself, and its relation to competitiveness.
This chapter demonstrated how the nature of competition is changing and how that shapes B2B
marketing strategies. Specifically, the notion that competitive advantage is no longer something
that can be sustained over a prolonged period of time, but rather something that expands and
contracts as businesses move in and out of advantage positions is fundamental to our understanding
of competitive behaviour. This notion also provides the impetus to understanding the role that
innovation plays in competitiveness and competition in general. Innovation and competition are
fundamentally linked through the context in which the firm operates, its resources, its employees,
the knowledge it possesses, and the manner in which it executes strategic innovations.
In constructing a continuum of innovation, this chapter distinguished between four types
of innovation: incremental, modular, architectural and radical innovation. The chapter then
demonstrated the life cycle approach to innovation. This revealed that innovation appears to go
through three phases: a fluid stage, a transitional stage and a specific stage. The chapter also
considered disruptive innovation and how it can bring about fundamental shifts in the way firms
compete. Lastly, the implications of innovation for B2B marketing were examined briefly.
Naturally, this discussion of innovation and competitiveness is limited. The B2B marketer must
understand that innovation and competitiveness are key aspects of the profession, and therefore
substantial further exploration of these issues is necessary. That journey may well be challenging
and complex, and this chapter constitutes only one step of the way.
165
CAsE STUDY
The implantation of mobile phones, organ transplants with 3D printed organs, clothing or reading
glasses connected to the internet ... all these things might seem like science fiction to us now, but
by 2025 they might very well be a reality as the world enters an era of advanced robotics, artificial
intelligence and gene editing. This statement, made by the World Economic Forum (WEF) following
a survey of executives, was further substantiated by almost half of the respondents indicating that
they expect an artificial intelligence machine to be sitting on a corporate board of directors within
the next decade. Welcome to the next industrial revolution.
Following steam, mass production and information technology, the so-called 'fourth industrial
revolution' will sprout forth such innovation that it will pose huge challenges to companies,
workers, governments and societies. The promise is more affordable goods and services, driving a
new wave of economic growth.
The threat of mass unemployment is very real and places more pressure on already strained
relationships between corporations and populations. 'There is an economic surplus that is going to
be created as a result of this fourth industrial revolution.' Satya Nadella, CE of Microsoft, told the
WEF's meeting in Davos. 'The question is how evenly it will be spread between countries, between
people in different economic strata and also different parts of the economy.' he said.
Advances in areas such as artificial neural networks are starting to blur the barriers between
humans and machines, while robots march forth into homes, hospitals, shops, restaurants and
even war zones. During the WEF's meeting in Davos in 2016, the most noteworthy delegate was a
prize-winning South Korean robot called HUBO, who was strutting its stuff amid a large crowd of
smartphone-clicking delegates.
A report by UBS, released at Davos, predicts that these advances in technology will only worsen
feelings of inequality by further widening the wealth gap between developed and developing
economies. 'The fourth industrial revolution has potentially inverted the competitive advantage
that emerging markets have had in the form of low-cost labour.' said Lutfey Siddiqi, global head of
emerging markets for FX, rates and credit at UBS. 'It is likely, I would think, that it will exacerbate
inequality if policy measures are not taken.'
An analysis of major economies by the Swiss bank concluded that Switzerland is the country best
placed to adapt to the new robot world, while Argentina ranks at the bottom. In the race for
technological advancement there will be winners and losers, as new entrants move into established
industries with disruptive new technologies. That was something that was uppermost in the minds
of many Davos attendees.
(Source: Hirschfer 20 16)
Cape Watch is a leading supplier of precision tools and jewellery supplies. Cape Watch
services the jewellery trade's retailers, watchmakers, gemmologists, manufacturers,
repairers, hobbyists and allied industries.
We celebrated our 50th anniversary in 2012 with a brand new showroom and Jewel Quip
have merged with us increasing our product range and technical hands-on
experience. Stocking an extensive range from findings, tweezers, magnifiers and many
specialised areas of equipment. Find the right tool for any jewellery-making project. Whether
you need beading tools, a new jewellery work bench, or any other jewellery tools and
supplies. We even offer jewellery-making equipment for casting and other advanced
techniques. (Cape Watch, 2016)
Questions:
You have been appointed to advise Cape Watch on their marketing strategy. Answer the following
questions:
1. How can Cape Watch obtain a better understanding of what innovations their customers
expect to see within the next two to five years?
2. How can Cape Watch develop an innovation strategy?
3. What advice can you give to Cape Watch regarding the impact of disruptive innovations, as
referred to in the article?
1. Describe how you would explain the nature of modern competition in B2B
markets and specifically refer to a modern view of competitive advantage.
2. Assume that you were appointed by Bidvest to advise them about their
innovation strategy.
- Explain the innovation life cycle to your client and support your
explanation with examples where possible.
- Describe the drivers of innovation in B2B markets and support your
answers with examples from the business of Bidvest.
- Propose a simple innovation management model for Bidvest.
3. Explain the concept of disruptive innovation. Use a diagram to support your
explanation and refer to a disruptive innovation that you have observed in
the business world.
167
References
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Technology Review 80(7): 40-47.
Cape Watch. 2016. About us. Available: http://www.capewatch.co.za/about-us
(Accessed 25 February 2016).
Christensen, C. 2003. The innovator's dilemma. Harvard: Harvard Business School
Press.
Contentmarketing.com. nd. What is content marketing? Available: http://
contentmarketinginstitute.com/what-is-content-marketing/ (Accessed 26
August 2016).
Dobni, CB a Klassen, M. 2015. 'Advancing an innovation orientation in
organizations: Insights from North American business leaders'. Journal of
Innovation Management 3(1): 104-121.
Henderson, RM a Clark, KB. 1990. 'Architectural innovation:The reconfiguration of
existing product technologies and the failure of established firms'. Administrative
Science Quarterly 35(1): 9-30.
Hirschler, B. 2016. Techno future inspires awe amid concern. Business Day. http://
www.bdlive.co.za/world/europe/2016/01/21/techno-future-inspires-awe-amid-
concern (Accessed 25 February 2016).
Hollyoake, M. 2009. 'The four pillars: Developing a "bonded" B2B customer
experience'. Database marketing and customer strategy management 16(2): 132-
158.
Kim, WC a Mauborgne, R. 2004. 'Blue ocean strategy. If you read nothing else
on strategy, read these best-selling articles'. Harvard Business Review 82(10):
76-84.
McGrath, RG. 2013. The end of competitive advantage: How to keep your strategy
moving as fast as your business. Boston: Harvard Business Review Press.
McGrath, RG. 2014. The end of competitive advantage trailer. Available: https:/1
www.youtube.com/watch?v=9LJQtfrU9rO (Accessed 26 August 2016).
Schumpeter, JA. 1942. Capitalism, Socialism, and Democracy. New York: Harper
a Row.
Scocco, D. 2006a. The Abernathy-Utterback model. Available:http://innovationzen.
com/blog/2006/08/29/innovation-management-theory-part-6/ (Accessed 23
February 2016).
Scocco, D. 2006b. Disruptive innovation. Available: http://innovationzen.com/
blog/2006/10/04/disruptive-innovation/ (Accessed 27 August 2016).
Siguaw, JA, Simpson, PM a Enz, CA. 2006. 'Conceptualizing innovation orientation:
A framework for study and integration of innovation research'. Journal of
Product and Innovation Manaaement 23: 556-574.

...._, ., .ILA..I..I.O"" \"" :a................. oJoJ'-"-A- ..... ..., "":a......_b ..... oJ"- ..... ..., ... ...,1.
Thomas, LG Et D'Aveni, R. 2009. 'The changing nature of competition in the US

manufacturing sector, 1950-2002'. Strategic Organisation 7(4): 387-431.
Tidd, J Et Bessant, J. 2013. Managing innovation: Integrating technological, market
and organisational change. 5th ed. Chichester: Wiley.
Utterback, J. 1994. 'Mastering the dynamics of innovation: How companies
can seize opportunities in the face of technological change'. University of
Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership
Historical Research Reference in Entrepreneurship. Available: http://ssm.com/
abstract=1496719 (Accessed 26 August 2016).
Wadhwa, V. 2014. How the nature of competition has changed. Available: http://
wadhwa.com/ 2014/0 5I 14/how-the-nature-of -competition-has-changed/
(Accessed 26 August 2016).
Wikipedia. 2016a. Customer experience. Available: https:/ /en.wikipedia.org/wiki/
Customer_experience (Accessed 5 September 2016).
Wikipedia. 2016b. Economic rent. Available: https:/ /en.wikipedia.org/wiki/
Economic_rent (Accessed 5 September 2016).
Notes
1 Unpublished speech delivered at the 1992 World Logistics Conference in
Cincinnati, Ohio. Also consider this article: Haeckel, S Et Nolan, R. 1993.
'Managing by wire'. Harvard Business Review 71(5): 122-132.
2 See the following works:
• Bettis, R Et Hitt, M. 1995. 'The new competitive landscape'. Strategic
Management Journal16 (Summer Special Issue): 7-20.
• Brown, S Et Eisenhardt, K. 1998. Competing on the edge. Boston, MA:
Harvard Business School Press.
• Christensen, CM. 1997. The innovator's dilemma. Boston, MA: Harvard
Business School Press.
• D'Aveni, RA. 1994. Hypercompetition. New York: The Free Press.
• Hamel, G. 2000. Leading the revolution. Boston, MA: Harvard Business
School Press.
• Slywotzky, A. 1996. Value migration.Boston, MA: Harvard Business School
Press.
3 See http:/ /www.econlib.org/library/Enc/bios/Schumpeter.html. The Austrian-
born Joseph Alois Schumpeter was an economist and political scientist. At one
point in his career he was employed as the Minister of Finance for Austria, but
he is probably better known as an Economics professor at Harvard Business
169
School, where he gained popularity. He is often regarded as one of the most

influential economists of the 20th century. He coined the seemingly paradoxical
term 'creative destruction', and generations of economists have adopted it as
a shorthand description of the free market's messy way of delivering progress.
Schumpeter wrote:
The opening up of new markets, foreign or domestic, and the organizational
development from the craft shop to such concerns as U.S. Steel illustrate
the same process of industrial mutation - if I may use that biological
term - that incessantly revolutionizes the economic structure from within,
incessantly destroying the old one, incessantly creating a new one. This
process of Creative Destruction is the essential fact about capitalism.
(1942:83)
Although Schumpeter devoted a mere six-page chapter to the process of
creative destruction, in which he described capitalism as 'the perennial gale of
creative destruction' (1942), it has become the centrepiece for modem thinking
on how econqmies evolve.
4 See: Porter, ME. 1996. 'What is strategy?'. Harvard Business Review 74(6):
61-78.
5 See his seminal work in the area: Porter, ME. 1985. Competitive advantage.
New York: Free Press.
6 See: Smimova, M, Henneberg, SC, Ashnai, B, Naude, P a Mouzas, S. 2011.
'Understanding the role of marketing-purchasing collaboration in industrial
markets: The case of Russia: Industrial Marketing Management 4(1): 54-64.
7 For more information on convergence patterns, see Utterback, 1994.
8 Wikipedia gives the following description:
In economics, economic rent is any payment to a factor of production in
excess of the cost needed to bring that factor into production. In classical
economics, economic rent is any payment made (including imputed value)
or benefit received for non-produced inputs such as location (land) and for
assets formed by creating official privilege over natural opportunities (e.g.,
patents). In neoclassical economics, economic rent also includes income
gained by beneficiaries of other contrived exclusivity, such as labor guilds
and unofficial corruption.
Economic rent should not be confused with producer surplus, or normal
profit, both of which involve productive human action. Economic rent
is also independent of opportunity cost, unlike economic profit, where
opportunity cost is an essential component. Economic rent should be
viewed as unearned revenue, whereas economic profit is a narrower
term describing surplus income greater than the next best risk-adjusted
alternative. Unlike economic profit, economic rent cannot be eliminated
Q ..:l'-Q.1'-.1LJ V.l ..:lU.'-.1.1 YYV.lA'-.l.:J}• .&. V.l Col }'.LVU.U.'-'-U. '-V.L.L.L.LL.LVU..LLJ 7 '--'-V.L.LV.L.LI..L'- .L'-.L.L'-
may also be due to the legal ownership of a patent (a politically enforced

right to the use of a process or ingredient). For occupational licensing, it
is the cost of permits and licences that are politically controlled as to their
number, regardless of the competence and willingness of those who wish
to compete in the area being licensed. For most other production, including
agriculture and extraction, economic rent is due to a scarcity of natural
resources (e.g., land, oil, or minerals). When economic rent is privatized,
the recipient of economic rent is referred to as a renter.
By contrast, in production theory, if there is no exclusivity and there is
perfect competition, there are no economic rents, as competition drives
prices down to their floor.
Economic rent is different from other unearned and passive income,
including contract rent. This distinction has important implications for
public revenue and tax policy. As long as there is sufficient accounting
profit, governments can collect a portion of economic rent for the purpose
of public finance. For example, economic rent can be collected by a
government as royalties or extraction fees in the case of resources such as
minerals and oil and gas.
Historically, theories of rent have typically applied to rent received by
different factor owners within a single economy. Hossein Mahdavy was
the first to introduce the concept of 'external rent', whereby one economy
received rent from other economies. (Wikipedia, 2016b)
9 See: Christensen, CM. 1997. The innovator's dilemma: When new technologies
cause great firms to Jail. Boston, MA: Harvard Business School.
10 See: Kothandaraman, P 8: Wilson, DT. 2001. 'The future of competition: Value-
creating networks'. Industrial marketing management 30: 379-389.
11 See: Kim, WC 8: Mauborgne, R. 2005. Blue ocean strategy: How to create
uncontested market space and make the competition irrelevant. Boston: Harvard
Business School Press.
12 As expressed in the title of this work: Trout, J 8: Rivkin, S. 2003. Differentiate
or die. 2nd ed. London: Wiley.
13 See: Lash, R. 2012. 'The collaboration imperative'. Ivey Business Journal76(1):
37-41.
171
Chapter
Pricing in! business-to-business

marketing
Nicole Cunningham
Learning outcomes
• compare pricing in a B2B and B2C context
• discuss the pricing process in detail
• understand the concept of transfer pricing
• describe the transfer methods available to organisations
• explain the effect of the internet on B2B pricing
• describe what competitive bidding entails
• explain the concept of price negotiation and what it entails.
B2B and B2C pricing differs. This will be touched on in the first section of
this chapter. The steps involved in the pricing of products include formulating
pricing objectives, determining the cost of the product, evaluating the influence
of demand, examining the influence of competitors, assessing additional
factors influencing the price and finally setting the price. It is important to
follow the steps - which are elaborated on later on in the chapter - to ensure
that a business prices its products or services appropriately. The chapter will
also highlight the impact of transfer pricing, which is a common occurrence
in B2B firms.
As more and more organisations are 'going online', it is important for not
only B2C organisations, but also B2B organisations to evaluate the effect of
the internet on pricing. The last section of the chapter focuses on competitive
bidding and the types of competitive bidding available, as well as the concept
of price negotiation. The latter is important for the organisation to understand,
as customers and organisations often have conflicting interests - one wants to
buy the product for the least amount of money while the other wants to make
as much profit as possible.
8.1 82C versus 828 pricing

Essentially, the price of a product or service is what is given up by one party
in exchange for a product or service from another party. Price is the only 'P'
in the marketing mix that leads to revenue, which in turn leads to profits for
a firm.
It is important to note that pricing differs in a B2C context and a B2B
context. When a customer purchases a product for personal consumption, for
example buying a pair of running shoes to wear when jogging, the customer
generally considers whether the price of the product justifies the value being
offered. However, in a B2B context, price has the potential to influence general
operating costs, the cost of the end product being sold and ultimately the profit
margin. For example, a printing company wanting to sell business cards would
need to purchase items such as printers, paper, ink, labour and so forth. The
printing company would need to consider the price of all these items when
determining the unit cost it will charge for its business cards.
More specifically, pricing in B2C and B2B contexts differs as follows:
• B2B buyers usually are not using their personal money to purchase.
People spending their own personal money (as in a B2C context) have
a different mindset when purchasing products. Sometimes consumers
173
purchase products just because they can, or based on impulse, whereas in

a B2B context the purchase needs to be justified. For example, when going
shopping for grocery items, you may select items that are not on the list
just because you see them in the aisles. However, when a B2B buyer is
looking to purchase new machinery, the buyer often cannot deviate from
what she or he intended to purchase or buy more pieces of machinery than
planned, mostly because machinery is expensive and because the buyer
needs to account to the organisation for the decision made.
• The buying process for B2B purchases tends to be more complex. B2B
buyers need to have a lot more information on hand in order to make a
decision. Also, the B2B buying process tends to be a formal process that
includes bids from different suppliers (see Section 8.5), budget analysis,
bargaining with suppliers and so forth before a final decision can be made.
On the other hand, in a B2C context, a customer is often able to make a
decision on the spot and may not need to consult with anyone else before
making a purchase. For example, when you go to buy a tube of toothpaste,
you do not formally request Colgate, Aquafresh and other brands to bid for
the purchase. On the other hand, if a firm needed to buy office paper, the
firm would request suppliers such as Mondi Rotatrim or Typek to submit
a bid and perhaps set up a meeting to discuss prices before making a final
decision. (See Chapter 2 for more information on B2B buying and the B2B
buying process.)
• There is a longer decision-making process involved for B2B purchases.
When making a B2B purchase, there are more people who need to agree to
the decision and sign off on the purchase as compared to a B2C purchase.
For example, when you go and purchase a washing machine for personal
use, you may have discussed the purchase with friends and family members
who have made similar purchases (the influencers) and made a decision
based on their recommendations. However, with a B2B purchase, it is not
that easy. There are often barriers or people who need to be approached
before the final decision maker is reached, and there may be conflicting
views regarding the purchase, which can draw out the process.
• B2B buyers are more cautious when purchasing products or services. The
risks of purchasing a new product or service are much greater for a B2B
buyer, as the costs are higher, there is more time involved and the buyer's
reputation may be at risk. Most B2B buyers play it safe and purchase from
suppliers who have been in the industry for some time and have a good
track record - a way of reducing the possible risk. In a B2C context, the
consumer may be willing to take a chance in purchasing a new product
--+
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example, from an unknown supplier, as there is the risk that the machinery
may not perform as expected. In that case, the B2B buyer would have gone
through the entire buying process for nothing and would need to start again.
8.2 The pricing process

There is no single recipe for pricing a B2B product or service, as there are
different variables involved, namely the organisation's pricing objectives, the
cost of the product, the influence of demand on the price, the influence of
competitors on the price and the influence of additional factors. Once these
variables have all been evaluated, as shown in Figure 8.1, a price can be set.
Step 1: Formulating pricing objectives
Step 2: Determining the cost of the product
Step 3: Evaluating the influence of demand on price
Step 4: Examining the influence of competitors
Step 5: Assessing additional factors influencing the price
f - - ----·--=......._
SETTING THE PRICE
Figure 8.1: The pricing process in a B2B context
8.2.1 Step 1: Formulating pricing objectives

In order to survive in a highly competitive market, an organisation needs to
form pricing objectives that are in line with its overall business objectives.
Organisations should also keep in mind that their pricing objectives cannot be
fixed; they need to change over time according to the business environment
and the organisation's capabilities. There are three specific pricing objectives
a B2B firm can adopt, namely profit-orientated pricing objectives, sales-
orientated pricing objectives and status quo pricing objectives.
175
Profit-orientated pricing objectives

This type of objective involves setting a price that will ensure a profitable
sale. The objective is therefore to focus on current profit maximisation rather
than long-term performance or long-term relationships with B2B customers.
An organisation can do this by setting a targeted return, which is a specific
percentage or rand amount that has been calculated based on demand and cost.
Another option is to maximise profits as much as possible, which would be
feasible if there are not many competitors in the industry.
For example, when Sage Pastel Accounting was first introduced to the
South African market in 1989, the pricing objective was profit-orientated,
mainly because it was the only company offering accounting software packages
to small, medium-sized or large companies. There were very few accounting
packages available and most organisations had dedicated accountants. Sage
Pastel Accounting was a way for companies to streamline the management
and accounting processes, and companies were willing to pay a lot of money
to have this package installed.
Sales-orientated pricing objectives

This objective is either based on increasing market share or maximising sales:
• Market share refers to the organisation's product sales as a percentage of
the total sales for the industry. Many organisations aim to increase market
share, because a larger market share usually gives the organisation more
control or power in the industry and greater economies of scale, thus
leading to higher profits.
• When maximising sales, organisations are concerned with methods of
increasing sales, such as running more promotions, following up on more
prospects, doing more advertising, etc. However, the maximisation of sales
should not be a long-term objective, as it would not lead to long-term
profitability. Many B2B organisations only attempt to maximise sales in
order to sell excess or outdated inventory. For example, Konica Minolta
attempts to maximise sales on its older Konica Minolta Bizhub printers
when newer versions enter the market by selling the older versions at a
lower price.
Status quo pricing objectives

This objective aims to maintain existing prices or to match competitors' prices.
Organisations would use this pricing objective when there is a clear market
leader and it is difficult to compete with this market leader on price. The
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industry, and other vehicle rental companies such as Europcar and Hertz use
status quo pricing objectives, therefore matching their commercial vehicle hire
prices to Avis's prices. '
8.2.2 Step 2: Determining the cost of the product

Determining the actual cost of a single product can be a challenge for
organisations, as often organisations use the same resources, such as electricity,
machinery, labour and so forth, to produce more than one product. The cost
of the product can include the costs of raw materials, product development,
testing, packaging, promotion, distribution and acquiring customers.
In order to simplify the process and allocate the correct costs to the
correct products, firms can make use of activity-based costing (ABC). ABC
enables the organisation to determine the costs that should be assigned to a
particular product based on the activities that go into the production of these
products (for example the maintenance of machines and other activities) and
the resources used during these activities (for example labour and materials).
The main benefit of using ABC is that managers can determine the true cost
of producing a product and therefore predict a true profit. Traditional costing,
on the other hand, assigns costs to items manufactured based on the volume
(eg the amount of labour hours needed to produce an item, the units produced,
etc), which could make the cost calculation unreliable. The following case study
illustrates a simple example of traditional costing and ABC.
g . I
- '
Xoliswa runs a factory, called Xoliswa's Pies and Patties,* that produces burger patties and pies.
This month, the company sold 10 000 burger patties and 10 000 pies to school tuck shops in
Johannesburg. This would make the total number of items sold during the month 20 000.
Xoliswa wants to determine the cost per item of the electricity used for running the machinery.
At the end of the month, she gets an electricity bill of R20 000. Using traditional costing, she
determines the electricity cost per item by dividing the cost (R20 000) by the volume of items sold
(20 000): R20 000 7 20 000 = R 1 (cost per unit).
However, Xoliswa realises that this costing result would only be correct if an equal amount of
electricity was used to produce the products. In fact, Xoliswa knows the factory uses 3 kW of
electricity to produce one patty, but only 1 kW of power to produce one pie. Xoliswa knows that
the electricity costs should therefore be higher for the patties than for the pies, as producing patties
requires more electricity. +-
177
Xoliswa then uses ABC to work out the activity-based costs for the two products. The cost of
calibrating (maintaining) the machines for one month was R16000, and the machine needed to
be calibrated (the activity) 160 times over the past month. This means that each calibration costs
R100 (R 16 000 + 160). Xoliswa timed how long it takes to make the different products. She found
that it takes the machines 120 hours to make the patties but only 40 hours to make the pies, so she
cannot generalise on the cost per calibration: the patties contribute more to the machine needing
to be calibrated, as the machine was used for a longer period of time to make patties. Therefore,
the activity-based cost for the patties (in other words the amount the patties contributed to the
machine needing to be calibrated) would be R 12 000 (120 x R100) and the activity-based cost for
the pies would be R4 000 (40 x R100). This shows Xoliswa that the patties contributed three times
more to the cost of calibrating the machine as compared to the pies. She now knows the exact cost
associated with each product. This means that she needs to sell the patties for a higher price, as
more costs go into producing the burger.
As shown in the case study, ABC is much more accurate than traditional
costing. Traditional costing is unreliable where the cost of production is higher
for one product than for another.
It is very important that organisations are able to calculate the exact
cost of a single item accurately. It allows organisations to identify profitable
and unprofitable products, eliminate unnecessary costs and price products to
achieve acceptable profit margins
8.2.3 Step 3: Evaluating the influence of demand on price

The demand of a B2B product can be difficult to determine, because a B2B product
can be used in many ways - different businesses could have different uses for
the product and the levels of demand may differ between an organisation's
market segments. It is important to note that B2B customers are not as price-
sensitive as B2C customers. For example, a company that needs fuel to operate
its machinery would still need to purchase as much fuel as before even if the
fuel price rose, whereas B2C customers could find ways of using less fuel, for
example by finding alternative modes of transportation. B2B demand can be
explained through four categories of demand in B2B markets, namely derived
demand, inelastic demand, joint demand and fluctuating demand.
Derived demand
As most B2B organisations buy products to use in the production of their own
products, which are often destined for the end consumer, the demand for B2B
6
be derived from the orders it receives from customers, as shown in Figure 8.2.
828 demand (fabric, thread, etc) 82C demand (bespoke clothing)
Price Price
;
s
;
;
D Dl Dl
c Do
Demand Demand
Figure 8.2: Example of a derived demand curve
Inelastic demand
Inelastic demand refers to a situation where a significant increase or decrease
in the price of a product does not significantly affect the demand for the
product. This is especially applicable to the B2B context, as many customer
firms buy various products as part of a mix of products to use in their own
production processes. For example, a car manufacturer needs to buy various
component parts in order to manufacture cars. Even if the price of a certain
part increased, the manufacturer would still purchase it, as it is only one of
many purchases, and it is necessary for the manufacturing of the car. This
concept is shown in Figure 8.3.
Price
Dl
Demand
Figure 8.3: Inelastic demand
179
Joint demand
This occurs when two or more items are used together in a final product.
The demand for the items is thus interdependent. For example, a company
manufacturing laptops would need all the components (ie keys, screen, track
pad) in order to produce the laptop. Therefore, without one of those components,
the laptop would not be of much use.
Fluctuating demand
The demand for B2B products can be less stable than the demand for B2C
products. A small increase or decrease in consumer demand may have a large
effect on B2B demand. For example, if the consumer demand for DVD players
suddenly increased by 15%, retailers would probably buy more products in
order to produce that additional output. If the consumer demand dropped
again, this could result in the retailer owning too much stock.
8.2.4 Step 4: Examining the influence of competitors

It is important for B2B organisations to understand that unless they are
operating in a very specialised market, they do not operate in isolation.
Understanding what competitors offer B2B consumers in terms of additional
value and product price is important. An organisation does not want to price
its products higher than the competition unless it offers something additional
(for example an extended warranty on machinery) or unless the organisation
is a market leader. If the organisation is a market leader, for example, smaller
firms would not really challenge the organisation's prices, as the market leader
could easily match or even lower their prices due to its size and power in the
market. (See Chapter 7 for more on competition.)
Understanding market conditions

When examining the influence of competition, the organisation should firstly
understand the market conditions, in other words whether the organisation is
operating in a dynamic or a static market:
• A dynamic market would be a market where products are developed rapidly
and the market is constantly changing. A dynamic market is often attractive,
but difficult to survive in, and thus there are generally quite a few firms
entering and exiting the market. An example of this type of market would
be anything that involved the development of technology. These markets
are also considered to be hypercompetitive. Hypercompetition is defined
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advantage is often not sustainable in the long term. Some organisations

can use price adjustments as a way to create a competitive advantage;
however, this could lead to a price war, which is usually expensive for
organisations to carry out.
• In a static market, very little change occurs over time and products do not
really change frequently. There are not as many competitors entering and
exiting the market, therefore an organisation could develop a fixed long-
term strategy to develop a sustainable competitive advantage.
Assessing competitive responses

Once the organisation understands the market in which it is operating, it
needs to assess the ways in which competitors could respond to changes.
Technological developments have made it much easier for organisations to
analyse possible reactions. They can do this by looking at public statements
made by companies, annual reports, industry reports, etc. It is important that
an organisation assesses this information before making price decisions or
changes, as it could prevent the organisation from making a pricing mistake.
Competitors predominantly react in three ways:

1. The competitor could ignore the price change. If an organisation increases
its prices in order to increase profit, for example, a competitor may choose
not to emulate the price increase, which could result in the organisation
losing customers to the competitor.
2. The competitor could match the price change. This often occurs when
organisations have no choice in increasing or decreasing prices. For
example, an organisation may need to increase prices due to inflation or
it may need to de.crease prices in order to hold its position in the market.
Competitors could match this.
3. The competitor could offer more for the same price. If an organisation
decreases its prices, a competitor could ignore the price decrease and
instead offer the customer something extra, such as customised products
or extended services. In this instance, the competitor may attract more
consumers, thereby increasing its market share and perhaps creating a
competitive advantage.
8.2.5 Step 5:Investigating additional factors impacting the price

At times, there are additional factors that have the potential to influence the
price of a B2B product, such as the exchange rate and issues in the political
181
and legal environment. These factors vary in the level of control that the
organisation has over them.
Exchange rates
Exchange rates strengthen or weaken on a daily basis. This is important for
organisations to understand, especially when they are importing or exporting
products, as B2B organisations often do.
• If the exchange rate strengthens, it means that the value of the rand increases
relative to another currency. For example, if the rand has strengthened to
the US dollar, it would mean that the rand now buys more US dollars than
it did before (for example an exchange rate that goes from US$1 = R15.01
to US$1 = R14.26). This would make imports from the USA to South Africa
cheaper (as a South African company would be paying less for more), but
it would make exports more expensive (as South African companies would
be receiving less in terms of monetary value).
• When the exchange rate weakens, it means that the value of the rand falls
in comparison to another currency. For example, if the rand weakened to
the US dollar, it would mean that the rand now buys fewer US dollars than
it did before (for example an exchange rate that goes from US$1 = R 15.01
to US$1 = R16.27). This would make exports from South Africa to the USA
cheaper (as South African companies would be receiving more in rands
than before) but it imports would be more expensive (as South African
companies would be paying more in rands than before).
Some organisations do not want to take the risk of exchange rate fluctuations
and therefore enter into forward exchange contracts. A forward exchange
contract (also known as forward cover) allows an organisation to secure an
exchange rate for a future date. Organisations who import or export may make
use of a forward exchange contract, as it protects them against unfavourable
exchange rate fluctuations. Also, it allows them to calculate the exact value of
the goods being imported or exported for up to 12 months, which essentially
allows for accurate costing and budgeting. However, if the exchange rate
becomes more favourable, the contract cannot be changed. The contract can
only be cancelled if both parties agree.
For example, suppose a company has acquired equipment valued at
£200000 from a company in the UK, which it needs to pay for within 90 days.
In order to hedge against the risk of unfavourable exchange rate fluctuations
during the 90 days, the company decides to enter into a forward exchange
contract with the bank-at the current exchange rate of £1 = R20.27. When it is
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contract. On the other hand, had the exchange rate strengthened, say to £1 =
R19.02, the company would have no choice but to pay the sum ofR4054000,
calculated at the agreed-upon exchange rate (£1 = R20.27), even though the
sum would have been lower (R3 804 000) at the actual exchange rate.
The political and legal environment

The political environment is out of the organisation's control and can influence
the organisation directly. This environment constitutes rules, regulations and
legislation that can affect day-to-day operations. The political and legal
environment can have an impact on the price of products, as the political
environment links to the stability of a particular country and certain products
are more susceptible to government standards and regulations (for example in
the medical products industry).
When setting a price for a product, an organisation needs to consider the
current regulations and possible future regulations that could have an impact,
and plan accordingly. For example, in late 2015, a proposal was introduced
in the South African steel industry which aimed at decreasing the amount of
scrap metal exports. This meant that scrap metal exporters needed to offer
their scrap to domestic foundries and mills at a cheaper rate (between lOOfo and
300/o cheaper than the export price) in order to support the local industry. In
addition, scrap metal exporters needed to apply for export licenses in order to
export steel. This meant that steel exporters were forced to decrease the price
they paid per tonne in order to try and make a profit when selling locally.
8.3 Transfer pricing

Transfer pricing is when organisations set prices for products and services
sold between entities within an organisation. For example, if a subsidiary sells
products to its parent company, the price of the product (which the parent
company pays the subsidiary) is known as the transfer price. Transfer pricing
can be quite complicated, and there are tax implications involved, which
makes it important that organisations understand the different pricing methods
available:
• Market-related transfer pricing: This is the simplest and most common
form of transfer pricing. This occurs when the subsidiary sells the product
for the market-related price. Therefore, the price is the same regardless of
whether the subsidiary sells the product internally or externally.
183
• Negotiated transfer pricing: Transfer prices could be negotiated between the

I
two parties without using a market price as a starting point. This method
could be used in a small market, where products are customised and where
it may be more difficult to calculate the market price.
• Cost-plus pricing: If no market-related price is available, an organisation
could decide to use costs as the basis of the price. The mark-up would be
applied to the indirect and direct costs. This is a relatively simple method
to use.
• Cost-based pricing: A subsidiary could choose to transfer the products to
the other party at cost. The receiving party would therefore add the cost
of the purchased product to the total cost of the final product, and the
receiving party would obtain the entire profit for the product.
When deciding on a transfer pricing method to use, the organisation needs
to ensure that it can justify the reasoning behind selecting the method. Some
organisations misuse transfer pricing in order to avoid taxes - an example is if
an organisation sells its products to a subsidiary in another country with more
relaxed tax regulations, or if a subsidiary sells the products at a discounted
price. SARS focuses heavily on transfer pricing and conducts audits on a
regular basis (Baxter 2015).
8.4 The effect of the internet on pricing

The internet has opened up the B2C market, as consumers are now able to
look at and buy products and services online, including products in other
countries. Many organisations are using the internet to sell the final product
to the consumer in the B2C context. However, the online B2B market is still in
its infancy, mainly due to the fact that B2B companies have not really adopted
the internet for selling or buying.
Many B2B organisations are reluctant to place pricing information on
the internet, as this would allow B2B consumers to make comparisons and
negotiate with the competition. Although this is a legitimate concern, it should
not prevent organisations from placing pricing information online, especially
on their own websites. They should, however, take care to explain that there
could be a difference in price depending on distribution and transportation,
for example. In addition, B2B organisations tend to be reluctant to buy online,
mainly due to the nature of the product. For example, an organisation buying
machinery would want a demonstration before buying the machinery.
B2B suppliers could also use the internet to their advantage. For example,
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8.5 Competitive bidding

B2B sales are usually completed through competitive bidding, especially in
the case of government institutions. Instead of using a base price, the B2B
organisation needs to develop a price that meets the customer's product or
service requirements. Competitive bidding is not an easy task and not one
that a supplier organisation should enter into lightly. Before a supplier enters
into competitive bidding, adequate planning should be done and the supplier's
own capabilities as well as the buyer's requirements should be taken into
consideration.
There are two main approaches to competitive bidding:
1. A competitive bid could be placed on materials or products that are
considered to be specialised, in other words products where the design and
manufacturing are unique and according to specifications provided by the
buyer. An example of this is a wheat producer requesting a silo to be made
according to specifications.
2. The other approach to competitive bidding is a reverse auction, where
many suppliers bid for an order from a single buyer. The suppliers indicate
the amount they are willing to be paid for the products or services and
at the end the buyer usually selects the supplier with the lowest prices.
For example, a company that wants to purchase printers could invite B2B
suppliers to bid by stating the price they would charge for the printers. The
company would then probably select the cheapest bid.
8.5.1 Aspects to consider before engaging in competitive

bidding
Before making a bid, the B2B supplier should consider five aspects:
1. If the company wins the bid, can its manufacturing plant handle the
capacity? In other words, can the current plant handle the request over and
above other obligations and deliver on time?
2. What is the potential for becoming a preferred supplier and what are the
chances of securing future orders or contracts? Sometimes B2B buyers
(including government agencies) use the promise of future contracts as a
way to convince the supplier to reduce its prices. B2B suppliers should be
wary of such promises, unless the future opportunities are guaranteed in
writing.
185
3. What is the quantity required? A larger quantity is normally preferred,

however, when a B2B supplier is bidding with a B2B buyer or a government
agency for the first time, it may not receive an order for a high quantity.
The B2B supplier should therefore take quantity and the possibility of future
contracts into consideration.
4. What is the potential profit? If the profit margin is not attractive enough,
the supplier should consider not submitting a bid.
5. Does the supplier have the experience to handle the request? Sometimes
suppliers submit bids before thinking about this important aspect. If the
supplier does not have the necessary experience or expertise, could it
acquire these? If not, the supplier runs the risk of offering more than it can
deliver. A failure to deliver could mean being excluded from future bidding
opportunities.
8.5.2 Closed or open bidding

Once a supplier decides to enter into the bidding process, the bidding that takes
place could be either dosed or open:
• Closed bidding is when potential suppliers are sent a formal invitation
to submit a written, sealed bid. Once all the bids are received, they are
opened and reviewed at the same time. The contract is usually awarded to
the lowest bidder. Using dosed bidding allows the buyer to keep suppliers
unaware of the other companies engaging in the bidding process as well as
the prices being brought forward for consideration. This forces suppliers to
price aggressively in order to win the bid.
• Open bidding is slightly more informal. Suppliers are allowed to submit
bids up to a certain date. All suppliers are allowed to submit a bid, and
the bidding request may be advertised. The buyer is able to negotiate with
different suppliers during the bidding process and this therefore allows for
the bids to be modified during the bidding process. The main benefit of
using open bidding is that it allows suppliers to compete with one another -
usually based on price - and it minimises the risk of preferential treatment.
8.6 Price negotiation

When people hear the word 'negotiation', they often perceive it to be negative
in the sense of involving manipulation or lying. The fact is that negotiation
involves a discussion, which should result in a mutual agreement. In order for
any type of negotiation to take place, both parties need to show commitment
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the supplier could ask the buyer for a referral in return for a discount.
(Having good referrals is very important when a supplier is looking for new
B2B customers or prospects.) In this way, the buyer organisation receives
what it wants (the product for less) and the supplier receives a referral which
could result in future sales. However, referrals are only really effective
when received from a reputable manager or organisation. It is important to
remember that not every referral will be a good one.
• Offer non-monetary points of negotiation. When negotiating, price is not the
only point of negotiation. Most buyers are looking for value and most B2B
organisations perceive that to mean a lower price, but this is not always the
case. Instead of offering discounts, the supplier can offer the buyer services
(for example free training for staff or customer support), a shorter contract,
promotional materials, etc. These could have a lot of value for the buyer,
especially services such as training for staff at no additional cost.
• Be selective in who is sent to negotiate. In most cases, salespeople will be
sent to negotiate with the buyer. The salesperson needs to be trained to
handle possible questions or 'strong-arm' tactics that the buyer could try to
use. The most important aspect is that the salesperson should be perceived
as trustworthy and not just as a salesperson who is willing to say anything
to dose a deal. If the buyer trusts the salesperson, the buyer may be less
likely to try to 'strong-arm' the salesperson into making a deal.
When starting the negotiation process, it is important that the supplier asks the
buyer questions to establish motives and gain information. This will allow the
supplier to understand what the buyer actually wants from the negotiating process.
Often, trade-off conversations are held. For example, the buyer could offer to sign
up a week earlier than it had planned to, in return for a 5% discount. This shows
that the buyer is willing to negotiate and give the supplier the business earlier than
expected - both parties thus get something out of the negotiation.
Pricing in a 828 context can be more challenging than in a 82C context, as there are additional
variables that the 828 organisation needs to take into consideration. One needs to keep in mind
that organisations purchasing 828 products are doing so in order to produce their own final
product, and the price of the 828 product can have an impact on the final price of the product that
is sold to the end user. It is also not as easy to sell a product to a 828 organisation, as there may
be formal processes in place (such as competitive bidding, as discussed in this chapter) which could
impact the chances of the supplier being awarded a contract. •
187
Businesses should price their products according to the pricing process outlined in this chapter,
and taking the competition into account. B2B organisations should also keep in mind that B2B
buyers buying their products often want to negotiate on price (which is not as common in the B2C
market). This chapter discussed guidelines for negotiation. B2B suppliers should keep in mind that
both parties should benefit from negotiation and that negotiation is not purely based on reducing
prices or offering discounts.
Mpho and Sarah own a travel agency called First Travel*. The company predominantly offers its
services to individual consumers looking for information about different destinations or wanting to
book their personal holidays.
However, Mpho and Sarah have noticed a gap in the market for a company offering a complete
range of corporate travel services to small companies, from expert advice to corporate travel
bookings. There are currently a few corporate travel competitors in the market, but they mostly
target larger corporations. Mpho and Sarah have therefore created a corporate travel division
which targets smaller companies.
Mpho and Sarah understand that price is quite an important factor for an individual consumer,
and in the B2C market they therefore compete using a sales-orientated pricing objective. However,
they do not necessarily want to compete on price with their corporate travelling division, as these
contracts tend to be larger in terms of monetary value and it may be difficult to compete on price
with the more established corporate travel companies. As this is a service being offered, there are
also not many complicated costs involved - generally, a booking fee is added on to the overall
cost for the service. Mpho and Sarah realise that they need to build stronger relationships with
airlines and hotels in the different countries they send their clients to, as this might enable them to
be slightly more competitive on price.
Recently, FirstTravel entered a closed competitive bid for a contract at a small investment company,
called Great Investments, who regularly sends their employees overseas and around South Africa.
The bid was for a convention in France that 10 people in the investment company would need
to attend. The travellers would need flights as well as accommodation and transport while in
France for six days. First Travel used creative solutions, such as offering bundled prices on flights,
accommodation and transport, in order to bid competitively against the larger travel companies.
FirstTravel implemented a range of cost-saving initiatives, such as airline tickets that were cheaper
due to the time of day the flights departed, and accommodation in the hotel where the convention
took place (in order to save on transport costs). First Travel won the bid and became a preferred
supplier for Great Investments.
*A fictitious company ...

1. Mpho and Sarah are still slightly unsure about the difference in the buying process when
they offer their services to an individual consumer {B2C) and a business {B2B). Explain the
ways in which the pricing context differs in the B2B and B2C market. Provide examples where
applicable.
2. First Travel is considering offering an online portal where businesses can make their travel
bookings. Would this be feasible in an industry such as this? What are the advantages and
disadvantages of offering this type of portal?
3. As First Travel is a preferred supplier for Great Investments, they no longer need to engage in
the bidding process. Great Investments is now looking to send five employees to Cape Town
for a convention. However, they want to negotiate on the price initially quoted. Describe
the aspects First Travel needs to consider before entering into negotiations. Provide practical
examples when possible.
1. Identify and explain the steps involved in the pricing objectives. Apply the
process to a company wanting to purchase office furniture.
2. Assume that MondeHz (who owns Cadbury, Oreo and others) would like to
transfer some raw materials from Cadbury to Oreo. Explain the different
transfer methods available and identify the best possible transfer method
for Mondelez.
3. Differentiate between the two types of competitive bidding.
4. Explain how the internet can be used in the B2B context.
5. Mark sells forklifts and is about to enter into price negotiations with a
potential buyer. Explain the aspects Mark should consider before entering
into these negotiations.
References
Baxter, R. 2015. Transfer pricing is truly well regulated in SA. Business Day Live.
Available: http:/ /www.bdlive.co.za/opinion/2015/07 /28/transfer-pricing-is-
truly-well-regulated-in-sa (Accessed 27 August 2016).
Financial Times. 2014. Definition of hypercompetition. Available: http://lexicon.
ft.com/Term?term=hypercompetition (Accessed 27 August 2016).
189
Chapter
Business development and

planning
Gert Human
learning outcomes

• explain the importance of strategic management in business
• describe a broad generic framework for strategic management
in a firm
• explain strategic marketing planning
• describe a broad generic framework for strategic marketing
management
• develop a strategic marketing plan for a firm
• explain business model innovation
• construct a business model canvas for a business.
I
to ensure that shareholders got a little more than expected earnings growth.
Because so many markets were either closed or undeveloped, leaders could
deliver on those expectations through annual exercises that offered only
modest modifications to the strategic plan. Prices stayed in check, people
stayed in their jobs, and life was good. Then came market transparency, labour
mobility, global capital flows, the internet, instantaneous communications,
globalisation, high-speed broadband, social media and mobile or nomadic
computing - and the simple life was blown to smithereens. All businesses now
had to focus on one thing: change. Rosabeth Moss Kanter, a professor at the
Harvard Business School, even said that all firms need to develop 'a culture
that just keeps moving all the time' (1999).
This presents many executives with an unfamiliar challenge.
Conventionally, in the major transformation of large enterprises, managers
and their advisors focused their attention on devising the best strategic and
tactical plans. However, in order to succeed in the rapid and unpredictable
environment of today, they also must have an intimate understanding of the
human side of change management. This means aligning the firm's culture,
values, people and behaviours in order to encourage the desired results.
The term 'business development' has different meanings for different
people. In practice, business development is often seen as a combination of
strategic analysis, marketing and sales, with the objective of growing the
company's business by establishing new partnerships and increasing sales from
existing accounts. According to this understanding, the role of the business
development manager is to identifY new business opportunities - new markets,
new partnerships, new ways to reach existing markets, or new product or
service offerings to better meet the needs of existing markets - and then to go
out and exploit those opportunities to bring in more revenue. How exactly that
happens depends on the industry. It can be a combination of attending events
and networking, participating in exhibitions and conferences, cold calling and
responding to incoming leads. Business developers also look for partnering
opportunities to 'cross' and 'up-sell' services. This approach clearly overlaps
with what academics term 'marketing'.
Academics usually speak of business development in two other contexts.
First there is the economist view, where business development is considered
a phenomenon of economic development and primarily refers, among other
things, to the policies and climate needed for entrepreneurship to flourish and
create new businesses. The managerial view, on the other hand, looks more at
business development as the organisational evolution of the firm over time,
and is therefore primarily concerned with the act of business planning.
191
Although all three of the above views are often integrated and share theoretical
grounds, for the purposes of this chapter we will primarily focus on business
development as a deliberate act of management to ensure that the firm remains
relevant and able to respond and to anticipate change in its environment. To
the B2B marketing professional, this aspect is very important. B2B marketing
professionals often cross firm boundaries and therefore need to have a
fundamental understanding of how the business is planning to adjust, in order
to stay ahead of demanding market conditions and competitive pressures.
The purpose of this chapter is to provide B2B marketing professionals
with an: overview of:
• strategic planning and how it is relevant to B2B marketing
• strategic marketing planning, with specific reference to B2B marketing
• the importance of business models and business model innovation.
9.1 A strategic management framework

When it comes to the continued development of a business - large or small -
the field of strategic management is a useful framework to allow a bird's-eye
view of the firm. In a seminal article, Michael Porter, a professor at the Harvard
Business School, explains that strategy is not to be confused with operational
efficiency (1996). Operational efficiency is important, as all businesses should
strive to manage the relationship between inputs (cost) and outputs (benefits)
to the best of their ability, but merely maximising this difference is not enough
for modem business survival and growth. Firms also need a strategy (or, more
accurately, a portfolio of strategies).
Strategy is often described as the pattern or plan that integrates an
organisation's major goals, policies and action sequences into a cohesive
whole. Convention suggests that a well-formulated strategy helps to marshal
and allocate an organisation's resources into a unique and viable posture based
on its relative internal competencies and shortcomings, anticipated changes in
the environment, and also contingent moves by intelligent opponents. (Also
see Chapter 3 for a definition of strategy and strategic management.) All types
of businesses require some sort of strategy in order to be successful, otherwise
their efforts and resources will be spent haphazardly and likely wasted.
9.1.1 Strategic management orientations

Although strategy formulation tends to be handled more formally in large
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of developing strategy has changed dramatically in response to changes in the
business environment.
A strategic orientation can be thought of as the strategic mindset which
the strategist brings to the strategic planning table. Hence, we assume this
will influence his or her approach to strategy.1 It is worth noting that firms
may also adopt different and even multiple strategic orientations over time, as
they expand and contract in response to and in anticipation of changes in the
business environment.2 Hakala (2011) identified four key orientations that are
common in the management literature:
1. Market orientation:3 This can be viewed as the culture or activities of the
organisation that effectively create the behaviours required for superior
performance. To achieve this, an organisation-wide generation and
dissemination of market information - and the response to that information
- are needed. Market orientation promotes a deep understanding of
customers (customer orientation), competitors (competitor orientation) and
the importance of co-ordinating business activities across functional areas
(cross-functional co-ordination). Thus, firms nurturing a market orientation
are supposed to be highly responsive to what the markets demand of them.
2. Innovation orientation:4 Innovation (and the closely related technology
orientation) refers to a firm's inclination to introduce or use new
technologies, products or innovations. It suggests that customer value and
the long-term success of the firm are best created through new innovations,
technological solutions, products, services or production processes. (Also
see Chapter 7.)
3. Entrepreneurial orientation:5 The entrepreneurial tendencies toward risk-
taking, innovativeness and pro-activeness are considered to be central to the
entrepreneurial orientation. Thus, entrepreneurial orientation is a strategic
orientation which captures, specifically, the entrepreneurial aspects of a
firm's strategies.
4. Learning orientation: 6 This is viewed as the organisation's propensity to
create and use knowledge in order to attain a competitive advantage. In
this view, learning may be viewed as the development or acquisition of new
knowledge which has the potential to influence behaviour. Thus, it may be
deducted that learning can result in new behaviours or value creation. To
achieve this, learning-orientated firms need to have a shared vision, open-
mindedness and a commitment to learn - as well as the ability to share
knowledge between organisations.
193
Each of these strategic: orientations, and some combinations of them, has been
associated with increased firm performance. Despite this evidence, however,
strategic: orientations have also attracted their fair share of criticism. The
objections vary from issues of measurement and scientific: distinctiveness, to
issues of their theoretical nature. Nevertheless, it is useful to know that different
firms may hold different strategic orientations, or lack certain orientations.
This will influence which aspects of a firm's strategy are emphasised over
time. Importantly, other orientations, such as the service orientation, have also
received research attention; hence, more types of orientations may exist.
9.1.2 The strategic management process

Strategic vision and mission
Figure 9.1: The conventional strategic management process
Figure 9.1 illustrates the conventional strategic management process. This

process implies that managers engage in a never-ending cycle of analysis,
formulation, implementation and control. Although many modem authors
claim that this rather deductive approach to strategy is of limited use in a
discontinuous, changing environment, many managers and strategic processes
still use this basic approach - although it is being disguised in many different
ways. The approach entails the following:
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1. The process starts with the leadership of the firm articulatina vision and
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sufficient insight and then synthesises these insights, employing a process
that yields dear strategic objectives.
3. These objectives then become the central pin around which strategies are
designed. The execution of strategies should allow the firm to achieve its
objectives. Therefore, no firm can stop at merely formulating strategies;
strategies are meant to be executed. The skill with which the strategies are
executed (implemented) determines the results.
4. Finally, the results (or outcomes of the strategies) invoke more action
designed to better control the execution of the strategy.
These actions (the feedback loop) can be done to conduct new or additional
analysis (internal or external), and then to tweak the strategy and/or its
implementation.
It is useful to note the following regarding the conventional strategic manage-

ment approach:
• This process should not be the exclusive domain of senior management.
Rather, managers at all levels should use this process in a variety of ways.
• The process should not only be executed once a year (or whatever the
planning horizon might be). Rather, the process should be dynamic,
and should be continuously refined and adjusted according to changing
environmental conditions.
• The approach is highly generic and should not be regarded as a 'one size fits
all' model. Therefore, managers can and should make appropriate changes
as they go along, to fit the circumstances of their organisation.
• In recent years it has become evident that the process is not only applicable
to organisations or groups, but also to individuals. Therefore, strategy can
be seen as something that firms have, as well as something that individuals
do; the latter refers to the notion of strategy as practice.7
9.1.3 The relevance of strategic management to 828

marketing
It is also important to understand how marketing benefits from the overall
strategic planning in the business. As a functional area of management,
marketing and marketing planning can be seen as a subset of the overall
strategic planning that happens in a firm. Marketing shares many of the tools,
techniques and approaches of strategic management. This is because marketing
in general - but B2B marketing specifically - operates rather dose to the overall
strategy of the firm, and therefore any adjustment in the overall strategy usually
195
implies changes for marketing. The sections that follow attempt to demonstrate
the stake that B2B marketing has in the various components of the overall
strategic planning process, while deliberately trying to avoid a deeper focus on
strategic management and the strategic management tools.
The strategic vision and mission

All functional-area strategies are tied to the overall vision and mission of the
firm. For marketers to be successful in securing new business for the firm,
as well as to keep existing customers loyal, they often have to convince B2B
customers that the firm has a clear picture of the future, knows what it strives
to do for its customers, and has a deep appreciation of the complexities of the
environment in which B2B customers operate... Therefore, marketers need to
have an intimate knowledge of the firm's vision and mission. This is especially
valuable in highly collaborative business relationships, where the interaction
with B2B partners takes place at a senior level.
The internal analysis

Marketing executives regularly engage in internal analyses of their firms.
Understanding the capabilities, strengths, weaknesses and resource constraints
of the firm, among other things, allows a B2B marketer to service customers
better and provide superior value. The marketing function plays an important
role - as the voice of customers - in providing input for internal analysis. By
bringing the sentiments of customers and trends in the industry to the internal
analysis process, marketers can assist the firm to remain relevant to the needs
and challenges of customers.
The external analysis

In the external analysis, the firm's marketers are particularly relied upon to
inform the firm about two aspects, namely customers and competitors:
• In modem firms, marketing is not the sole responsibility of the marketing
department, but the marketing department (particularly in its sales and
customer service roles) is primarily designed to interact with customers.
Hence, marketers are expected to have superior insights regarding the needs
and wants of customers - and therefore they need to be able to inform the
planning process on the demands of customers.
• Similarly, marketing practitioners come into direct contact with competing
firms, and often have to anticipate the strategic moves that competitors will
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make to win over new customers or influence the switching behaviour of

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specific strategies for each stakeholder group of the firm.
Formulating strategic objectives

Because B2B marketing is primarily a customer- and competitor-facing
function, marketers need to play a critical role in the process of setting
strategic objectives for the firm. B2B marketers are expected to understand
various market segments and to identify target markets. They are therefore key
to ensuring that the firm sets the correct growth and customer service targets.
Formulating a strategy
This step deals with the act of strategising. B2B marketers are expected to
have plans for accessing new markets and maintaining loyal customers, and
- based on their exposure in the marketplace - make suggestions for new
products that can provide customers with superior value. Strategising primarily
deals with assigning priorities and responsibilities, and allocating resources
to various marketing (and other) initiatives. Again, B2B marketing plays an
important role in these decisions, especially with marketers being custodians
of the segmentation-targeting-positioning process. Marketers can be expected
to make suggestions on how to segment markets, recommend which segments
to target, and then devise a plan to position the firm and its products in those
targeted segments. The result of this is a marketing strategy which reveals
decisions on product, price, promotion, distribution, processes, people and
physical evidence.
Implementing a strategy
B2B marketers are as much part of 'getting things done' as any other functional
area in the firm. At a functional level, the overall strategy therefore usually
implies that the marketers need to come up with action plans to ensure who
needs to do what, by when, and at what cost. Thus, B2B marketing has (like
all other functional areas) an activation responsibility. This may include the
launch of a new product, ensuring that a new promotional campaign runs well,
or, for example, how the firm responds to the enquiries of customers.
Evaluating and controlling strategy

Gone are the days where B2B marketers could distance themselves from
performance measurement and control responsibilities. A key characteristic of
197
modern marketing is that it needs to be accountable for its decisions. Various

processes and approaches are required to ensure that activities are controlled
and managed according to specified plans. Marketing is not a blank cheque.
Rather, it entails the execution of a well-crafted plan, which is guaranteed
to experience some deviations. Therefore, B2B marketing must be able to
introduce counter-actions in response to the deviations.
9.2 The strategic marketing planning process

The preceding section set the scene by demonstrating how the marketing function
is part and parcel of the overall strategic planning process. This brings us to
strategic marketing planning. Most marketing texts will claim that, in theory,
there is a logical process to follow when doing marketing planning, and many
may point to the marketing plan8 as a key result of such a planning exercise.
The focus in this chapter is not on the marketing plan as such. Rather, we focus
on the planning process which can be useful for a commercial enterprise, not-
for-profit organisation or public sector agency. Does this mean the marketing
plan is not useful? The answer is: not at all. Many firms do use marketing
plans to great effect and they remain a key business document. Of course in
current times it has to be a very dynamic document in order to cope with
strategic change, and it is perhaps not as extensive in its descriptions as it used
to be. It is safe to assume that, because of various governance requirements,
enormous demands are being placed on the time of board members, and they
increasingly seem to prefer a more compact presentation of the marketing plan.
Thus, marketing plans are getting shorter.
Figure 9.2 on page 199 and Figure 9.3 on page 202 explain the two
main components of the strategic marketing planning process in B2B firms.
While Figure 9.2 deals with the analysis part of the process, Figure 9.3 deals
with the strategising and controlling part. This is consistent with the literature
in the field that follows the analysis-choice-implementation-control paradigm.
According to this paradigm, the process takes place as follows:
1. The firm first analyses its situation to generate different strategic options.
2. The firm chooses which option(s) to pursue.
3. The firm develops a strategy to execute the plan.
4. The firm establishes a means to control and measure the execution of the
plan.
i'-- [V_ _i_s io_n_ _ .Mission
_f _ .Objecti:=Jes
-'i
Strategic mar keting mandate
+
Strategic B2B markerng planning process
Business model analysis:

Customer segments Value
External analysis: proposition
Network analysis:
Customer analysis Customer relationships
Actors Resources
· Competitor analysis Channels
Activities
Industry analysis Revenue streams
Environmental analysis Key partners
Key activities
Key resources
Cost structure
Opportunities Strengths
-- -'--- - - Weaknesses ,.
I
Threats
Strategic issues Constraints
Figure 9.2: The strategic 828 marketing planning process: marketing analysis
As shown in Figure 9.2, it is the corporate mission, vision and objectives that
provide the strategy mandate for marketing units at the level of strategic
business units (SBUs) to activate their marketing planning and to pursue target
markets. This connection to higher-order strategic intent (Hamel a Prahalad,
2005) is a rather obvious one, but it is of specific importance to B2B marketing.
As mentioned previously, because of the characteristics of the B2B market (for
example the fact that it is capital intensive, with high competitive intensity and
high levels of collaboration), the B2B marketing department often functions
very close to the strategic centre of the firm, and it is not uncommon for B2B
marketing units to be situated at headquarters.
For the purposes of B2B strategic marketing planning, we recommend
three major types of analysis: the conventional external analysis, the network
analysis and the business model analysis.
199
The conventional external analysis

This includes variables typical to the field of marketing:
• Marketers need to analyse customers, and although this is often done with
the aid of professional marketing research firms, the marketing planning
process should provide answers in terms of which customer segments
should be served, why those segments are considered good opportunities,
and what the unmet needs of customers in the targeted segments are.
• In addition, this part of strategic analysis needs to pay attention to competitive
analysis, which provides insights in terms of the identity, strategic groups,
performance, objectives, strategies, culture, cost structures, strengths and
weaknesses of competitors.9
• The strategic marketing planning process also needs to include a thorough
analysis of the industry. In this regard, marketers need to produce
information pertaining to the size of the industry, its projected growth, the
industry structure, entry barriers into the industry, general cost structures
in the industry, distribution systems available in the industry, major trends
in the industry and key success factors of the industry.
• As can be expected, the external analysis for strategic marketing purposes
also needs to include an environmental analysis. The common PESTLE
analysis (referring to the political, economic, social, technological, legal
and natural environment) needs to be done. Specifically, the marketing
strategist wants to identify opportunities and threats present in each of
these environments.
The network analysis

In addition to the external analysis, it is advisable for B2B marketing strategists
to conduct a network analysis. Networks consist of three main components:
actors, resources and activities. In this type of analysis, the B2B marketing
professional wants to consider each of these components in the network to
which the firm is either directly or indirectly connected.
It is important to be aware that network pictures vary from observer
to observer. 10 This means that the same network may be portrayed in many
different ways. It is therefore advisable to consult widely in the organisation
when compiling a network picture or a simple list of the network. Table 9.1
suggests some of the critical questions that need to be answered for each of the
network components.
Actors • Who are the actors in the firm's network?
(individuals • What roles do the actors play in the network?
and/or firms) • How are different actors connected?
• Which actors should be directly linked to the firm J
• Which new actors are on the horizon?
Resources • Who owns or controls the mission-critical resources in the network?

• How do other actors get access to network resources?
• Which critical resources are not currently available in the network?
• Which resources in the network will soon become redundant?
• What is the price of certain resources in the network?
Activities • What are the main activities performed by the network?

• Who controls the key activities in the network?
• Which activities are problematic (in terms of quality and volume) in the network?
• How can the firm secure activities in the network that it cannot periorm for itself?
• Which activities may become obsolete because of new innovations?
• Which new activities can be introduced to the network?
The business model analysis

The final major component of the strategic analysis is about considering the
business model of the firm_ The business model is a representation of how
the firm creates value in each market it serves, and it offers insight into
the underlying system that drives the business, and also the profit-generating
capability of the firm. The business model will be discussed in detail in
Section 9.3, and therefore is not discussed in detail here. Figure 9.2 on page 199
indicates the components that should form part of the business model analysis.
9.2.2 Strategising and controlling

The result of the strategic marketing analysis is that the firm should now have a
prioritised list of opportunities, threats, strategic issues, strengths, weaknesses
and constraints, to which it should respond in the execution of its marketing
strategy. In essence, together these aspects frame the strategic marketing
mission for the firm. In the strategic management literature, it is often stated
that the mission indicates what the business of an organisation is all about.
Similarly, the strategic marketing mission frames the business case for the
marketing unit, and ultimately leads to making strategic choices in developed
and developing marketing strategies to deliver value across multiple dimensions
and for multiple stakeholders. Figure 9.3 suggests that the strategic marketing
mission allows firms to start making strategic choices, developing strategies
and implementing those strategies. Together, these aspects can be viewed as the
strategising effort of the firm.
201
I
I
Withdraw n_t?if! !9. - r_e_a_t - - a__:
Divestment Generic competitive Innovation strategy

strategy strategies Product innovation
Relationship ending Low-cost Process innovation
t Differentiation Business model
Market withdrawal Focus innovation
t Marketing mix
Resource withdrawal Product, price, promotion, place
Strategy implementation
Strategy, structure, systems, skills, shared values, staff, style
-·
Qj Cd LD CQ
'
----.J'
I
L-----------·---- - --------- -··-- -----------••
Figure 9.3:The strategic B2B marketing planning process: strategising and controlling
Strategic choices
It is important to note that the process starts with making strategic choices.
This is central to the idea of strategy making, because it means that the firm
will choose (to the extent that the environment allows) what activities it will
pursue, reduce or stop engaging in. A good strategic analysis should typically
leave the strategist with choices. These choices are hardly ever easy, but
without choices there is very little for the strategist to do other than to pursue
operational efficiency. 11 Strategic choices can be categorised into three main
categories, namely divestment strategies, generic competitive strategies and
innovation strategies.
Divestment strategies
These are strategies to facilitate withdrawal from certain markets or to reduce
the firm's exposure to a certain market radically. Divestment strategies are
needed when the strategic analysis shows that serving a particular market is
no longer profitable or that it requires competencies and capabilities that the

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1. The B2B marketer's first priority is to consider how the firm's existing
relationships will be affected by the withdrawal. Then a plan needs to
be designed to ensure that these relationships are either ended or toned
down in an appropriate manner. The key principle here is not to 'bum any
bridges'. Later, the B2B marketer may need to reinstate relationships with
actors in this market, and it is therefore important that the relationships are
left 'latent' rather than 'dead'.
2. The B2B marketer needs to start to withdraw the firm's offerings from the
market in an appropriate manner. The key objective is that this needs to be
done in a way that protects the reputation of the brand and the integrity of
existing business relationships. It should be a planned exercise, and it often
requires high levels of engagement with key customers and perhaps even
suppliers.
3. The firm can now start to withdraw resources (such as people, networks,
stores and service facilities) from the market. All too often, however, a firm
starts the divestment process by withdrawing resources, only to irreparably
damage its brand and its business relationships. If the withdrawing firm
takes good care of its relationships and the reputation of the brand prior
to withdrawing resources, the divestiture will not come as a shock to the
market and the chances to rekindle these relationships in future are much
better. This, however, is easier said than done. Usually, firms find themselves
in a position where the resources committed to the non-performing market
are rather urgently needed for redeployment elsewhere. Hence, firms seek
to free up these resources as quickly as possible.
Generic competitive strategies

These strategies are designed to maintain a certain position in the market or
to grow the firm's revenues from that particular market. In this situation, the
firm seeks to capitalise on its existing advantages in the market and protect
its competitive position in the market as long as it feels it has a position of
advantage and can offer superior value. In short, these are strategies where the
firm seeks to sell existing products to existing markets. This type of strategy
is primarily delivered through the marketing mix (product, price, promotion,
distribution). The competitive options for such a strategy include low-cost,
differentiation and focus (also see Chapter 3):
• A cost leadership strategy is followed by a firm which aims to be more
cost-effective than competitors within the same industry. The ways in
which a firm can obtain this type of leadership strategy are varied and
203
will also be dependent on the industry in question. They might include

economies of scale, preferential access to raw materials and other factors.
In order for a firm to become a cost leader, it will need to find and exploit
all possible resources of cost advantages. Once a finn has obta ined cost
leadership and is able to sustain it for a period of time, it shows above
average performance within its industry - provided it can command prices
at or near the industry average.
• A strategy of differentiation is followed when a finn pursues a unique
position in the industry. A firm can achieve this by focusing on the attributes
most valued by customers. The firm will select the attributes perceived as
value-adding wirhin the industry and uniquely position itself to address
those needs. In many cases the uniqueness of the proposition can lead to
the charging of premium prices.
• A focus strategy is a generic strategy where the firm's focus rests on the choice
of a narrow competitive scope within its industry. The firm will typically
select a specific market segment or a group of segments and adapt its offer
in order to serve these segments specificaiJy, sometimes at the exclusion of
others. The focus strategy can also take on two types of variations: the firm
can combine a low-cost strategy with a focus strategy, which will allow
it to exploit certain cost advantages (but only focused within a specific
segment), or the finn can combine a focus strategy with a differentiation
strategy which aims at being differentiated in a specific smaller market
segment. Both of these variations are reliant on the differences that exist
between the finn's chosen market segment and other segments in the larger
market. These segments must have customers with unique needs for the
focus strategy to be achievable; alternatively the production and delivery
system must be completely different from the rest of the industry. A cost
focus will exploit differences within the cost behaviour of customers, while
a differentiation focus will isolate the specific and unique needs between
segments.
Innovation strategies
The third group of strategies primarily deal with innovation. These are called
blue ocean strategies, 12 as they primarily aim to create new opportunities through
value innovations. We can also call these strategies 'game changers', as they
seek to make the competition irrelevant by creating a new competitive context
based on innovation. Innovation is the subject of many scientific debates in
recent management literature. This is because technological advances and the
globalisation of production and markets have created a competitive landscape
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A ......
the design of established products or the use of new materials or components

in the manufacture of established products.
2. Process innovation refers to the implementation of a new or significantly
improved production or delivery method (including significant changes in
techniques, equipment and/or software). To differentiate such innovations
from normal incremental changes to constantly improve processes we can
say that the following is excluded from process innovation:
- a standard increase in the manufacturing capabilities of the firm to
produce more products or services
- simply ceasing to use a particular process
- the normal replacement of capital equipment
- changes in process due to changes in the prices of labour, capital and
land, or other regular planned seasonal/cyclical changes to production
- the trading of new or significantly improved products.
3. Business model innovation is the process of changing both the value that
is promised to customers and how it is delivered, in order to tap into new
profit sources. Thus, business model innovation is the development of new
(unique) concepts supporting an organisation's financial via}?ility, including
its mission, and the processes for bringing those concepts to fruition. The
primary goal of business model innovation is to realise new revenue sources
by improving product value and how products are delivered to customers.
(See Section 9.3 for more on business model innovation.)
Implementing strategies
Implementing or executing the chosen strategies involves the activation of
seven key aspects of the business. Here we refer to the McKinsey 7s framework, 13
developed by legendary management experts Robert Waterman and Tom Peters.
The McKinsey 7s framework is based on the theory that, for an organisation to
perform well, seven elements need to be aligned and mutually reinforcing. The
seven elements are:
1. strategy: the direction and scope of the company over the long term
2. structure: the basic organisation of the company, its departments, reporting
lines, areas of expertise and responsibility (and how they relate to each
other)
3. systems: formal and informal procedures that govern everyday activity,
covering everything from management information systems (MISs) through
to the systems at the point of contact with the customer (such as retail, call
centre and online systems)
205
4. skills: the capabilities and competencies that exist within the company -
what it does best
5. shared values: the values and beliefs of the company, which ultimately
guide employees towards 'valued' behaviour
6. staff: the company's people resources and how they are developed, trained
and motivated
7. style: the leadership approach of top management, and the company's
overall operating approach.
Finally, Figure 9.3 on page 202 shows that the execution of the strategy needs
to be linked to a multidimensional control system which allows the strategist to
monitor the strategy in real time and to consider its performance from multiple
perspectives. The Balanced Scorecard (BSC) approach/ 4 originally proposed by
Robert Kaplan and David Norton in 1992, is just such an approach. It goes
beyond simply measuring performance. It is based on the idea that to truly
understand the performance of strategies, we need to view them from multiple
perspectives - and that a purely financial measure cannot fully cover the
contribution (or lack thereof) of strategies. This approach allows the strategist
to intervene in the strategising and implementation process in a proactive
manner, as opposed to the reflective approach embedded in many of the
traditional business performance measures.
Originally, Kaplan and Norton (1992) argued that such a multifaceted and
proactive monitoring system of strategies can best be captured by considering
four key dimensions of the business. Within each of these four dimensions it is
preferred that only a few, but relevant, high-level measures are chosen in order
to address specified questions:
1. Financial: The measures chosen should provide enough information for
strategists to answer the question: 'How do we look to our shareholders?'
Examples include cash flow, sales growth, operating income and return on
equity.
2. Customer: The measures chosen should be able to illustrate clearly the
answer to: 'How do our customers see us?' Examples include the percentage
of sales from new products, on-time delivery, share of important customers'
purchases and the ranking of importance of customers.
3. Internal business processes: The measures chosen should sufficiently
examine the question: 'What should we excel at?' Examples include
production cycle time, production cost per unit, our yield, new product
innovations.
4. Learning and growth: The measures chosen should help determine the answer
to the question: 'How can we continue to improve, create value and innovate?'
.... - . .... r- ..... _ ---....
from multiple dimensions is important to understand. It is also unlikely that
one set of strategy control mechanisms will suit different businesses equally
well. Therefore, it is important that the B2B strategist develops a set of measures
(a dashboard) specific to the needs of the business at hand. This approach will
ensure that the measures are relevant and that they provide real feedback on
the performance of the strategy.
Strategy mistakes
Despite the widespread adoption of the BSC, managers continue to make
fundamental mistakes that undermine otherwise well-intentioned strategy
formulation efforts.
According to Barrows (2009), there are four fatal flaws that consistently
creep into strategic planning processes and that, if avoided, can significantly
improve the process and the results:
• Skipping rigorous analysis: Many managers believe their business
experience and knowledge base a,lone equip them with all the information
they need to conduct effective strategic planning. This belief is almost
always untrue, and serves only to undermine the kind of critical thinking
from which truly creative strategies are born. A good strategic planning
process takes full advantage of the numerous tools of strategic analysis -
such as the five forces model, strategic group maps, or the value chain - to
gain key insights into how the industry is evolving, how competitors are
changing positions, and where an individual firm's sources of competitive
advantage lie.
• Believing strategy can be built in a day: Many executive teams earnestly
believe that effective strategies can be identified, explored and agreed
upon during abbreviated offsite meetings. While offsite meetings are useful
forums in which to share information and address key issues, meetings
should be adequately timed - over days or weeks if necessary - so that
sufficient preparation and review and discussion can occur before and
during the event.
• Failing to link strategic planning with strategic execution: Executing strategy
requires the work of the entire organisation, whereas strategic planning
often only requires the top team. But part of a top team's challenge in
execution often stems from the failure to link their work with ongoing
strategy execution. Strategic success demands a 'simultaneous' view of
planning and 'doing'. Managers must be thinking about executing- even
while they are formulating a plan.
207
• Dodging strategy review meetings: When there is no activity in place to

keep them alive, strategic plans quickly become obsolete. Worse, managers
sometimes feel freed from execution accountability - with reviews being
continually rescheduled or dropped from the calendar altogether. The most
direct way to maintain a consistent focus on strategy is to schedule and
hold regular strategy review meetings. At the end of the strategic plan
formulation, managers should establish a strategic governance process,
where strategy review meetings - monthly or quarterly - are scheduled a
year in advance. This way, managers can be sure the time for the sessions
remains sacrosanct. A typical strategy review lasts between a half day and
a full day (Barrows 2009).
9.3 Business model innovation

Business model innovation could perhaps be considered an odd topic to include
in a marketing textbook. However, business models have become important
competitive weapons in an era where organic growth in many B2B markets is
hard to come by and innovation has become key to unlocking customer value
and creating new pathways to growth. Importantly, B2B marketers no longer
compete on product and services only. Rather, they compete with business
models. Consider, for example, the case of Uber, which changed the business
model for modem public transport.
CAsE Sruov: UBER

In September 2015, Breaking News correspondent David Lipschitz wrote: 'You see, in order to use
public transport, I need choice. This means there must be competition, for example the Integrated
Rapid Transit system (IRT), buses, trains, taxis, Uber, planes, other transport services, etc' (Lipschitz
2015). Public transportation in South Africa is considered to be expensive and can be slow and
erratic. Trains, taxis and buses are all firmly regulated, but many operators still do not comply with
regulations. Enter Uber.
Unlike traditional cab groups, Uber does not own a fleet of licensed cars. It is a software company
with a mobile phone app that connects people with a pool of private drivers. Uber has managed
to change the conventional public transport model, which used to be primarily based on fleet
ownership.
This potentially low-cost transport option without the burdens of public transportation appears to
be well liked by customers. Many large firms now pay for Uber expenses when executives travel on
business assignments and need to get around in large cities, which are foreign to them. Some say
that Uber is especially designed for developing countries, as it brings reliable, self-regulated and
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B2B firms attend trade shows. These firms do not attempt to sell their products
at the trade show; rather, they sell their capabilities and competencies. The
result is that B2B firms compete through their business models as much as they
compete through their services and products.
9.3.1 Defining the business model

Leading business innovation scientists Chesbrough and Rosenbloom (2002)
describe a business model simply as the method of doing business which
sustains a company. Over the years, many other authors 15 have contributed to
the definition. Today, the following can largely be accepted as a definition of
a business model:
[An] abstract representation of an organization, be it conceptual, textual,
and/or graphical, of all core interrelated architectural, co-operational,
and financial arrangements designed and developed by an organization
presently and in the future, as well as all core products and/or services
the organization offers, or will offer, based on these arrangements that are
needed to achieve its strategic goals and objectives.
We can rephrase this more succinctly and define a business model as a plan for
the successful operation of a business, which involves identifYing sources of
revenue, the intended customer base, products and details of financing.
9.3.2 Osterwalder's business model canvas

The business model canvas offered by Osterwalder 16 (Osterwalder et al, 2011)
(see Figure 9.4 on page 211) is arguably the most used template for a business
model. This model suggests that a business model comprises the following
components:
• Customer segments: Here the firm needs to decide for whom it has to create
value, who the most important customers for the firm are and, especially,
what their needs are and which problems require solving.
• Value proposition: Here the firm must know which customer problems it is
helping to solve and what value it is bringing to the life of customers. This
component is all about what the customer views as value. It is of critical
importance that the selling firm does not decide on behalf of the customer
what constitutes good value. Customers often differ in their perceptions of
value, and firms need to take cognizance of this. This also implies a deep
understanding of the customer's problems, and how they can be solved. It
may also mean that the selling firm joins forces with the buyer to search for
209
solutions, as solutions are not always readily available. It is also especially

useful to know which bundle (or portfolio) of products is considered
valuable by customers, and how these bundles vary across customers.
• Customer relationships: This entails what types of relationships customers
want. Some customers may need highly collaborative relationships, while
others prefer more distant (transaction-orientated) relationships. The
firm must also decide which customer relationships are well developed,
which need more development, which new ones need to be created and,
importantly, which ones need to be ended in order to free up resources
for other purposes. The firm must also know the costs associated with
managing these relationships.
• Channels: Here the firm needs to decide the best way to deliver value to its
customers, how these channels are changing and the costs or benefits of
owning the channel versus just hiring the channel.
• Revenue streams: The firm needs to establish how customers are currently
paying, what they are willing to pay for and how they would prefer to
pay. Importantly, the firm needs to consider what the value-to-cost trade-
off would be that customers are willing to make. This trade-off needs to
be factored into how the revenue stream from this business model will
contribute to the overall revenue stream of the business. Note the suggestion
here that firms may have multiple business models.
• Key partners: Here the firm needs to consider closely whom will it collaborate
with in the industry. These can be technology partners or suppliers, and
the decision is based on which resources the firm needs to compete in
the industry. Thus, the firm will select partners based on the resources,
activities and capabilities that the partners can bring to the collaboration.
• Key resources: It is critical for the firm to establish which resources
(including relationships) it will need in order to participate successfully in
a particular industry. The firm should also think about which distribution
channels (as a resource1 will be required.
• Key activities: Here the firm needs to consider what business activities are
demanded by the value proposition, which distribution decisions the firm
made, which relationships the firm hopes to create and manage, and what
revenue streams the firm is hoping to achieve.
• Cost structure: A deep awareness is required of the cost associated with
delivering value to customers. In this context, the seller needs to be
specifically aware of the costs associated with resources, activities and
channels of delivery.
r-..ey acliVIIIe
relationships
- i
Key Value Customer
partners proposition - segments
d Key resources Channels

'
I
,....... - . - J
rc
-
Cost structure
- -
I Revenue streams
-- -
III
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Figure 9.4: Osterwalder's business model canvas (Osterwalder eta!, 2011 :44)
9.3.3 Defining business model innovation

Business model innovation is the development of new, unique concepts
supporting an organisation's financial viability, including its mission, and also
the processes for bringing those concepts to fruition. In other words it means
'adjusting' any of the components of the business model canvas, thereby
creating a new business model and hence a new engine for the generation of
profit. Tidd and Bessant (2013) propose a number of questions that will assist
a firm in advancing its innovation process:
• Does the firm have a clear innovation strategy?
• Does it have an innovation organisation?
• How can the firm find new innovation opportunities?
• What innovation is the firm going to do, and why?
• How will the firm make the innovation happen?
• How will the firm benefit from the innovation?
By seeking answers to these questions, firms can systematically ensure that
innovation becomes part of the culture of the firm; some will say it needs to
be part of the DNN 7 of the firm. More importantly, we need to ask how this is
relevant to the task of the B2B marketer. •
9.3.4 The relevance of the business model for 828 marketing
As indicated earlier, B2B marketing goes far beyond selling products. It usually
211
involves highly collaborative and complex relationships, where the interaction
between the buying firm and the selling firm is multidimensional. B2B marketers
212
often have to operate across company boundaries and play various roles, including
those of consultant or trusted advisor. The B2B marketer therefore needs to
understand more than just the firm's own product offering and those of its rivals.
Rather, he or she also needs to understand the business model that drives profit in
the firm, because the marketer is often involved in high-level interactions that are
critical to the strategy of both the buying and selling firms.
USE STUDYJACQUES' IT COMPANY*

Jacques Pitout runs a small IT company focusing on solutions for the health insurance and medical
aid industries. Jacques is responsible for securing new business for the firm, which means he often
negotiates with the CEOs of major medical aid administrators, even though his key relationship
is with the IT managers of these companies. Moreover, from time to time, he needs to answer
questions from the principle officer of the medical aid, the board of trustees and even the medical
aid members themselves.
Jacques needs to have an intimate knowledge of the needs of his customers (cost-effective
administration of medical claims, amongst others) and needs to figure out a transaction system
that will deliver his value proposition (simple and fast management information) to his clients. If
one considers the typical list of demands Jacques gets from his medical aid administrator clients,
one gets a sense of how deeply Jacques needs to understand the business model of his firm. Typical
administrator requirements are the following:
• The transaction system must be cheap to run, and should not contribute further to the already
high levels of medical aid inflation.
• The system must be simple and easy to install and operate. It must also be easy to train new
staff in terms of using it.
• The system must require minimal resources. This refers to the number of people needed to
maintain it, and the demands in terms of hardware.
• The system must meet the complex set of legal requirements that medical aids are exposed to.
• The system must provide administrators with real-time data and information to optimise the
administration of the medical aid.
• The systems must enjoy support 24 hours a day, seven days a week.
• The system must be able to interface seamlessly with other systems belonging to actors in
the industry (including systems used in hospitals, medical practices, government agencies,
emergency facilities and pharmacies).
• The supplier of the system must be able to stay ahead of new developments in the industry
and provide cutting-edge solutions. For example, customers must be able to see test results on
their smartphones.
It is clear that it is not enough for Jacques to merely sell a CD with many lines of computer code
on it. Rather, he needs to engage in an intensive interaction process with the administrators to
convince people such as CEOs, financial directors and IT managers of the capabilities of his firm
and its software. Simply put, Jacques must understand the business model well.
)Uateglc p1annmg remams an Important component at most modern firms. However, plans
themselves do not capture value; value is realised only through the sustained, collective actions of
employees who are responsible for designing, executing and living with the changed environment.
Long-term structural transformation has four characteristics: scale (the change affects all or most of
the organisation), magnitude (involving significant alterations of the status quo), duration (it lasts
for months, if not years) and strategic importance. Yet companies will reap the rewards only when
change occurs at the level of the individual employee. Many senior executives know this and worry
about it. When asked what keeps them up at night, CEOs involved in transformation often say they
are concerned about how the work force will react, how they can get their team to work together,
and how they will be able to lead their people. They also worry about retaining their company's
unique values and sense of identity and about creating a culture of commitment and performance.
Leadership teams that fail to plan for the human side of change often find themselves wondering
why their best-laid plans have gone awry.
No single methodology fits every company, but there is a set of practices, tools and techniques that
can be adapted to a variety of situations. These were explored in this chapter and still provide the
foundation for the continued development of 828 marketing in many firms. There is little doubt
that the future challenges for 828 development and planning will be significantly different from the
ones we face currently. It therefore remains imperative that the current tools are pushed to their
limits and transformed into new tools, approaches and methodologies. After all, existing tools and
approaches were never intended to be recipes.
CASE STUDY
David Koch, a German, founded NKR leather* in 1980, in Namibia. This leather manufacturer
included a large manufacturing plant and tannery. Being situated in a country with abundant
wildlife, it is not surprising that NKR started to manufacture leather products from kudu, oryx apd
ostrich later in its existence. However, this was not always the case.Originally, NKR focused on the
manufacturing of Swakara garments, to be sold mostly in the South African market. Today NKR
exports leather to Italy and France, but South Africa remains its largest market (90%). South African
leather sales are largely driven by the furniture manufacturing industry. The European market
remains rather small (5%) and involves products.such as belts, nandbags and wallets. The company
employs about 150 people and prides itself on the difference it makes in the lives of this relatively
poor community. Moreover. NKR is a positive contributor to the Namibian balance of trade, as it
exports about 30 000 square metres of leather per month on average.
The Namibian leather industry is in its infancy and among the many problems it faces is the relative
scarcity of skilled labour, especially graduates. David is particularly dissatisfied with this limitation
in the Industry and is not shy to express his dissatisfaction with the Ministry of Home Affairs.
He argues that this leaves NKR with no other option than to import labour from neighbouring
countries,at considerable-cost. +
213
In addition, the process of applying for a Namibian work permit is cumbersome at best and limits
the ability of NKR to maintain its production schedule. To add insult to injury, obtaining export
permission for natural products in Namibia is equally problematic, as the flow of documentation
is very slow. According to David, this is evident in the fact that the Ministry of Environment and
Tourism often takes five working days to issue the required export confirmation. Invariably, another
five days are spent waiting for the South African customer to arrange import permission, and before
you know it, two weeks are wasted.
Besides these issues, the real thorn in David's side is the customs and excise regulations between
South Africa and Namibia. This is because most of NKR's South African customers are small and
medium-sized enterprises that do not register for VAT and therefore do not have a deferred VAT
account. In order to facilitate the export concession, NKR therefore has to pay the VAT on behalf of
its customers, just to avoid the transaction being stalled. Of course the prepaid VAT can be claimed
on an interest-free basis, but this is normally done only after two months, resulting in serious cash
flow problems for NKR.
The additional layout for VAT on behalf of their customers sometimes makes it difficult for NKR to
cover their operational costs. This is because the chemicals (such as dyes, oil and tanning agents)
used in the production process are expensive and the transport costs to import them from Europe
are high. Delays in issuing the necessary legal documentation to conduct business, such as export
and work permits, can lead to sizable losses for NKR and, more importantly, unhappy customers.
(Source: Thetradebeat. com, 20 12)
Questions:
1. Do you think the problems that NKR experiences can be overcome through good strategic
marketing planning? Motivate your answer.
2. Use Osterwalder's business model canvas to construct a new business model for NKR, one
which is aimed at serving a different market.
1. Briefly describe any two types of strategic orientations and support your
answer with real-world examples.
2. Assume that you are appointed as consultant for the business banking
division of Nedbank. Briefly suggest a strategic planning framework for
the bank and explain the basic working of it with a short accompanying
paragraph.
BUSINESS-TO-BUSINESS MARKETING . J _ £' 1-- -""----""- --"n"'"'n , .._.: _ -1- ----::- - -- .,.,-
to map the business model of the firm.
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215
Notes
1 This may well be a strong assumption. However, it corresponds with recent
findings, largely driven by advances in behavioural economics, which
suggest that who we are and how we think influences our decisions, and that
rationality cannot be assumed under all circumstances. For more information,
see: Kahneman, D. 2011. Thinking, fast and slow. New York: Farrar, Straus and
Giroux.
2 For more information, see: Sioncke, G 8: Parmentier, A. 2007. 'Different
approaches to strategy formulations'. Total quality management 18(1-2): 181-
187.
3 See the following sources:
• Deshpande, R, Farley, JU 8: Webster, FE Jr. 1993. 'Corporate culture,
customer orientation and innovativeness in Japanese firms: A quadrad
analysis'. Journal of marketing 57: 23-37.
• Narver, J 8: Slater, S. 1990. 'The effect of a market orientation on business
profitability'. Journal of marketing 54: 20-35.
4 For more information, see: Gatignon, H 8: Xuereb, JM. 1997. 'Strategic
orientation of the firm and new product performance'. Journal of marketing
research 34: 77-90.
5 Over the years there have been many conceptualisations of entrepreneurial
orientation, but in the mid-90s the definitions of the following sources were
widely supported:
• Covin, JG 8: Slevin, DP. 1989. 'Strategic management of small firms in
hostile and benign environments'. Strategic managementjournallO: 75-87.
• Miller, D. 1983. 'The correlates of entrepreneurship in three types of firms'.
Management science 29: 770-790.
6 For more information, see: Sinkula, JM, Baker, WE 8: Noordewier, T. 1997.
'A framework for market-based organizational learning: Linking values,
knowledge, and behaviour'. Academy of marketing science journal 25: 305-
318.
7 For more information, see: Jarzabkowski, P. 2004. 'Strategy as practice:
Recursiveness, adaptation, and practices-in-use'. Organization studies 25(4):
529-560.
8 See page 42 of the following source for an outline of a marketing plan (many
other marketing texts will provide similar outlines): Ferrell, OC 8: Hartline, MD.
2011. Marketing management strategies. 5th ed. Mason, OH: South Western
Cengage Learning.
9 For more information, see: West, D, Ford, JB 8: Ibrahim, E. 2006. Strategic
marketing. Oxford: Oxford University Press.
• Henneberg, SC, Naude, P 8: Mouzas, S. 2010. 'Sense-making and
management in business networks - some obseiVations, considerations,
and a research agenda'. Industrial Marketing Management 39(3): 355-360.
• Mouzas, S, Henneberg, S 8: Naude, P. 2008. 'Developing network insight'.
Industrial marketing management 37(2): 167-180.
• Oberg, C, Henneberg, SC 8: Mouzas, S. 2007. 'Changing network pictures:
Evidence from mergers and acquisitions'. Industrial marketing management
36(7): 926-940.
• Oberg, C, Henneberg, SC 8: Mouzas, S. 2012. 'Organizational inscriptions of
network pictures: A meso-level analysis'. Industrial marketing management
41(8): 1270-1283.
• Ramos, C, Henneberg, SC 8: Naude, P. 2012. 'Understanding network
picture complexity: An empirical analysis of contextual factors: Industrial
marketing management 41(6): 951-972.
11 Porter, in a seminal article, argues that operational efficiency is not strategy,
but rather a necessary but insufficient requirement for competing. For more
information, see: Porter, ME. 1996. 'What is strategy?'. Harvard Business
Review 74(6): 61-78.
12 Based on the notion of blue ocean strategy as described by WC Kim and
R Mauborgne. For more information, see:
• Kim, WC 8: Mauborgne, R. 2005. Blue ocean strategy: How to create
uncontested market space and make the competition irrelevant. Boston:
HaiVard Business School Press.
• Kim, WC 8: Mauborgne, R. 2016. What is blue ocean strategy? Available:
https://www.blueoceanstrategy.com/what-is-blue-ocean -strategy/
(Accessed 29 August 2016).
The key points of the blue ocean strategy are as follows (Kim 8: Mauborgne
2016):
• It is grounded in data developed by W Chan Kim and Renee Mauborgne.
Kim and Mauborgne's study spanned over 100 years and measured over
150 strategic moves across more than 30 industries.
• It pursues differentiation and low cost. It is an 'and-and', not an 'either-or'
strategy.
• It does not aim to outperform the competition, but rather to establish
an uncontested market space. Its focus is on rendering the competition
irrelevant by reconstructing the boundaries within the industry.
• It empowers through tools and frameworks in an attempt to break away
from the competition in an uncontested market space.
217
• A four-step, step-by-step process is provided, spanning from assessing the

current state of an industry, to exploring the six paths to a new market
space, to understanding how to convert non-customers into customers.
• The blue ocean idea index allows firms to maximise opportunities while
minimising risk. Firms can test the commercial viability of ideas and learn
how to refine them in order to maximise the upside and minimise the
downside.
• The process and tools also include the execution phase within the strategy.
This makes it easier to understand and communicate to all stakeholders.
This leads to the process being less intimidating and also provides an
opportunity to use the collective wisdom of a company.
• The integrated approach of the blue ocean strategy shows how to align
value, profit and people. This will help ensure the organisation is aligned
around the new strategy and that it creates a positive outcome for buyers,
the company, employees and stakeholders.
13 The McKinsey 7s framework is a management model developed by well-known
business consultants Robert H Waterman, Jr and Tom Peters. The model is
usually used as an organisational analysis tool to assess and monitor changes
in the internal situation of an organisation. It is based on the theory that,
for an organisation to perform well, these seven elements need to be aligned
and mutually reinforcing. The model can thus be used to help identify what
needs to be realigned to improve performance, or to maintain alignment (and
performance) during other types of change. For more information, see:
• Waterman, RH, Peters, TJ 8: Phillips, JR. 1980. 'Structure is not organization'.
Business Horizons 23(3): 14-26.
• Hayes, J. 2014. The theory and practice of change management. London:
Palgrave MacMillan.
14 For more information, see: Kaplan, RS 8: Norton, DP. 1992. 'The Balanced
Scorecard: Measures that drive performance'. Harvard Business Review
(January-February): 71-79.
15 See the following works:
• Al-Debei, MM, El-Haddadeh, R 8: Avison, D. 2008. 'Defining the business
model in the new world of digital business', in Proceedings of the Americas
Conference on Information Systems (AMCIS) 1: 1-11.
• Chesbrough, H. 2010. 'Business model innovation: Opportunities and
barriers'. Long Range Planning 43(2-3): 354-363.
• Chesbrough, H 8: Rosenbloom, RS. 2002. 'The role of the business model
in capturing value from innovation: Evidence from Xerox Corporation's
technology spin-off companies'. Industrial and Corporate Change 11(3):
529- 555.
.JJ• "'t U-""'t:U.l .
16 For more information, see the following sources:

• Osterwalder, A, Pigneur, Y Et Smith, A. 2011. Business model generation.
New Jersey: Wiley.
• Osterwalder, A. 2010. 470 practitioners from 45 countries. Self-published.
• Osterwalder, A. 2004. The business model ontology - A proposition in a
design science approach, PhD thesis, University of Lausanne.
17 Corporate DNA is defined thus by Wikipedia:
In essence, the term 'corporate DNA' is business jargon for organizational
culture. It is a metaphor based on the biological term DNA, the molecule that
encodes the genetic instructions in living organisms.
In a 1997 book, Gareth Morgan defined the corporate DNA metaphor as the
'visions, values, and sense of purpose that bind an organization together' to
enable individuals to 'understand and absorb the mission and challenge of
the whole enterprise'. Lindgreen and Swaen define it as an 'organization's
culture and strategy'. Ken Baskin defines it as 'flexible, universally available
database of company procedures and structures' which develops from
the company's history, and that the organization's employees behave to
satisfy the resultant corporate identity. Baskin also likens the availability
of information throughout an organization to the presence of DNA in all of
an organism's cells. Arnold Kransdorff defines corporate DNA as the set of
institution-specific experiences that 'characterizes any organization's ability
to perform'. (Wikipedia, 2016)
219
Chapter
10
Busines -to-busines: s selling
and mahaging the c:ustomer
Gert Human
l _l
learning outcomes
• explain 828 interaction using the Industrial Marketing and
Purchasing (IMP) interaction model
• describe the main components of 828 sales management
• discuss the changing role of sales management and the selling
function in a business
• broadly explain what is understood by key account
management (KAM)
• define and describe customer relationship management (CRM)
• explain the spectrum of 828 relationships
• explain the importance of inter-organisational networks and
relationships
• explain the key components of customer relationships
• explain the key drivers of customer relationships.
v.<.u 0 Luc
associated with developing and maintaining business relationships. Most of
modern-day B2B sales involve some level of CRM and even very transaction-
orientated sales often imply some potential for developing a future business
relationship. We therefore combine these two aspects of B2B marketing in a
single chapter. In reality, however, each of these two subject areas probably
warrants a book on its own.
In this chapter our approach is to provide an overview of the key aspects
of both themes, but we encourage readers to supplement their reading with
more focused material on each of these topics. We focus specifically on the
B2B context of sales and CRM and our approach to sales management is best
described as a relational view of the selling function. Therefore our chapter is
biased towards developing and nurturing B2B relationships. Firstly, the chapter
considers the interaction between buyers and sellers in B2Bmarkets.
10.1 Understanding 828 interactions

B2B relationships are established through a series of interactions between the
parties involved in the business transaction. This includes the actions and
reactions of all stakeholders. The principle of this type of interaction should
be viewed differently, as the exchange between companies is not typically
characterised by an active seller and a passive buyer. It is from our enhanced
understanding of the B2B landscape that this distinction is made. It manifests
in an active search by both parties to optimise value. The interaction model (see
Figure 10.1 on page 223) encapsulates relationships as witnessed throughout
B2B markets, with all their diversity and complexity.
Both the buying firm and the selling firm interact as organisations,
but they are also represented by individuals. Each organisation brings the
advantages and disadvantages of its own technology, structure and strategy.
Likewise each individual involved in the process brings her or his own aims,
skills and experience to the interaction. In addition, Brennan (2006) noted
that both the buyer and the seller firm arrive at the exchange with its own
abilities (problem solving abilities, and the ability to transfer its expertise to
another party) and uncertainties (in terms of the capacity of the firm to meet
customer needs, about the application of its skills and abilities and regarding
the transaction) 1• Thus, the seller and buyer would both like to use their abilities
to address the uncertainties of the other party and at the same time they each
expect the other party to address their own uncertainties.
221
The interaction model furthermore adequately illustrates the process of

interaction between two organisations as well as clearly showing the
individuals representing each organisation within this relationship, both in the
short and long term. In the long term the institutionalisation (formalisation)
of the relationship and the level of adaptation that each party is willing to
make to accommodate the other party, becomes important characteristics of the
interaction. Keep in mind that recurring interactions over a period of time will
inevitably lead to a relationship with a history. Each new interaction will add
to the history in such a way that the relationship becomes far more than just
the individual interactions and exchanges. As a result of the elements present
in an interaction, the relationship partners will come to know each other better
and develop specific expectations of each other's roles and responsibilities
respectively. This establishes a manner of institutionalisation, which suggests
that at this stage the parties do not really have to think about every step they
take. Furthermore, as the relationship unfolds, the parties often need to make
revisions within the exchange, whether it is to the elements or the process.
These constitute relationship investments.
In the short term, the prevailing aspects of the relationship will have an
impact on, and will be impacted by, the individual interactions or exchanges.
These exchanges include products or services, financial, informational and
social exchange:
• Products or services are often where a relationship originates, as it
provides the reason for the exchange and so creates the opportunity for
the relationship to develop. Therefore, the nature of the product or service
involved plays an important role in the interaction. For example, the way
in which a firm would sell a shovel to a small garden services firm differs
substantially from the way a firm would sell a new submarine to the navy.
• Financial exchange can substantially impact the perceived relative importance
of a relationship; thus, the amount of money involved is very important.
• The commodities in question during an exchange are not necessarily only
products or money. Often a large amount of informational contact is the
purpose for the exchange. In this case the nature of the exchange between
the parties can be derived from the nature of elements such as the width and
depth of the information, the number of people involved, the formality of
the process and whether personal or impersonal communication channels
are used.
• Finally, social interaction also plays an important role in maintaining
relationships. It can be particularly versatile in eliminating uncertainties
which occur between parties due to cultural or geographic origins. Over time
BUSINESS-TO-BUSINESS MARKETING • 11. 1 • ,_ .
Market structure, Dynamism, lnternationalisation, Channel position, Social system
Atmosphere
Power/dependence
Co-operation
Closeness
Expectations
--------------------------
Long-term relationships
Institutionalisation, Adaptation
Individual
Short-term exchange Aims
episodes
Products/services
Information
Figure 10.1: The interaction model (Hakanson, 1982:66)
Importantly, the model (see Figure 10.1) also shows that the interaction takes
place within a wider environmental context and atmosphere. 'Atmosphere'
refers to the immediate circumstances of the relationship and includes aspects
such as the relative power and level of dependence of the parties involved,
the nature and extent of the co-operation that is required, the closeness of
the relationship and the expectations of the parties. More distant from the
interaction are the typical macro-level factors associated with the environment
within which the interaction takes place. Here we think of aspects such as the
particular structure of the market (number and size of the players), the level of
international competition, the relative position of the interacting parties in the
value chain (channel position), and the socio-economic systems that govern or
enable the nature of business in a particular country or cultural context.
1 0.2 828 sales management

Sales management literature has evolved over many decades and today sales is
a distinct area of specialisation for many marketing academics and management
consultants. Figure 10.2 is an attempt to summarise the key aspects of sales
223
management. From it we note that sales management includes four pillars:

sales management planning, sales management activities, the determinants of
sales performance and, finally, evaluation and control.
The Sales Sales Determinants Evaluation

Environment management management of sales and control
planning activities performance
Macro:
Social
Technological The personal Sales force
Legal selling function organisation Salesperson's Sales force
Political view of job performance
Natural Recruitment and requirements
The personal selection
Market: selling process
Competitors Sales
Suppliers
Customers Sales
management
--- training and
development
'---+
Salesperson's
role perceptions
---+-
Firm
performance
Micro: planning Compensation
Firm and incentives
resources
Forecasting Information Personal
Firm
and sales technology characteristics Feedback
capabilities
budgeting applications systems
Networks and
relationships
Sales force
supervision
i i i i
Figure 10.2: Overview of sales management (adapted from Connet, Abratt & Cant,
201O:vil)
To plan its sales effort, the firm is confronted with questions such as what
kind of selling functions the firm needs to perform, the sales process that the
firm can expect its sales team to be aware of and how this can be applied in
a way that is responsive to changing circumstances. Also, sales forecasting
and budgeting are required to set targets that will assist the firm to achieve its
strategic objectives. These aspects all inform the sales planning process and
usually result in a comprehensive sales plan 2 • To implement the sales plan, the
firm needs to execute a number of sales management activities. These activities
include selecting and recruiting sales staff, organising the sales function in
the firm, training and developing sales staff, ensuring that sales staff are
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the performance of the sales function in a business. Research has shown that
sales professionals' understanding of their job requirements, their perception
of what their role in the business is and the personal characteristics of the
individual salespeople can and does influence sales performance. Finally,
management needs to consider how sales performance will be evaluated to
facilitate pro-active control. This means developing a feedback system that
provides management with accurate and timeous data to encourage proactive
control of the sales function. Obviously the above is a complex system of
interrelated components and may differ from firm to firm.
10.3 The changing role of personal selling

So what do salespeople do? In the traditional sense of the word, we would say
that the primary role of salespeople is to sell the products or services of the firm
to customers. In essence, this means the successful execution of an eight-step
process, as depicted in Figure 10.3.
Step 8 Servicing Deepening the relationship by looking after aspects such as

customers reliability, responsiveness, assurance, empathy and tangibles
Step 7 Developing Developing, nurturing and safeguarding a relationship with the
relationships customer
Step 6 Closing the sale Establishing commitment via direct request, benefft summary,
balance sheet, assumptive, alternative choice, agreement on
minor points, compliment and negotiation methods
Step 5 Handling Distinguishing between hidden, stalling, money/price, product
objections and source objections
Step 4 Making sales A process involving making a good impression, developing
presentations rapport, confirming customer needs, offering solutions and
building credibility and trust
Step 3 Approaching Planning how to approach a prospect
prospects
Step 2 Qualifying Establishing if prospect is willing and able to purchase and
prospects whether there is potential for developing a relationship by
considering need, authority, money, timing and added value
issues
Step 1 Prospecting Finding people/firms that are suspected of being willing and
able to pur chase
Figure 10.3: The sales process (Connet, Abratt & Cant, 2010:32)
225
In addition to the personal selling process, we see that sales professionals also
perform a number of other tasks. These are listed in Figure 10.2 on page 224.
However, Storbacka et al (2009) noted that sales in a B2B context is increasingly
associated with account management and solution development. It is suggested
that the sales function is increasingly taking on a relationship management
role. Perhaps the most noticeable manifestation of this in B2B selling is in
the emergence of KAM - or strategic account management (SAM), as some
scholars refer to it. KAM is a strategic sales activity, driven by issues such as
increasingly sophisticated customers, declining profit margins in manufacturing,
and commoditisation caused by short-termism. The key account manager has
become the custodian of the customer relationship, pursuing consultative and
solution selling activities. The role of the key account manager is not just to
sell new products and services but also to manage the ongoing relationship
with the customer, to co-ordinate delivery and customer service, and to oversee
the profitability (not just the revenues) of the relationship.
10.4 Key account management

Managing key accounts remains, despite scholarly criticism, a commercial
reality. The idea behind KAM is to isolate customer accounts that are considered
as of strategic importance and then to ensure that these customers are handled
in such a manner that their strategic value is optimised. Proponents of KAM
(Ryals 8: Holt, 2007) claim that this approach brings a number of benefits, aptly
called the five Cs of value, to such customers. The five Cs are:
1. customisation: meeting or anticipating customer needs with differentiated
products or services
2. consultancy: advising customers on, for example, the total costs of
ownership, the supply chain and market opportunities; this requires
additional skills in the key account manager or team and may even require
a dedicated key account manager or team
3. complexity management: managing a complex relationship in a seamless
way for the customer, which may include supply chain management; also
dealing quickly with complex, sometimes cross-border issues
4. consistency: harmonisation of products, prices and processes across multiple
geographies or customer divisions
5. continuity and trust: long-term relationships with people, also continuity
of service and product availability. The customer feels secure in the
relationship. Trust implies openness and, often, information sharing and
shared performance evaluation. There are possibly fewer bids, and possibly
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just reserved for long-term customers, and that KAM does not always allow its
users to demand price premiums on the strengths of the 'extra' things they will
do for the supplier. Regardless of these, in practice, two aspects of KAM remain
with us, namely different models of KAM and the idea that KAM evolves over
time as the business relationship matures.
In Figure 10.4 on page 228, the two models on the left show two extreme
models of KAM:
1. In the bow-tie model, the key account manager is primarily responsible for
the interaction with the buyer. We can say that the key account manager
acts on behalf of the rest of the firm. This approach is often found in
smaller firms with less developed KAM units.
2. By contrast, the diamond model suggests that the key account manager
attempts to co-ordinate multiple interactions with the buyer, as individuals
from many different departments may have to interact with their counterparts
in the buying firm. This approach is usually found in larger firms, where
the collaboration is complex and many experts need to interact to ensure
that the transactions occur and that the relationships are maintained. KAM
literature also suggests that usually firms start KAM strategies with bow-
tie-like models and that these then evolve into diamond-type models.
The pyramid structure on the right-hand side of Figure 10.4 on page 228
depicts the evolution of the KAM approach that we see in many firms. This
evolutionary process can be described as follows:
1. Pre-KAM: Here the main role of the key account manager is to identify
which of the buyers have key account potential. ·This decision will direct
resource allocations. While the customer will be evaluating the value offered
by the seller, managers in the supplying firm should be asking whether the
buyer can provide them with adequate volumes and an acceptable profit
margin to make a long-term investment in the customer.
2. Early KAM: This involves a fairly transactional approach to trading with
the customer, where the two parties establish their suitability as potential
partners by conducting some initial sales interactions.
3. Mid-KAM: This represents a more co-operative approach, where an
increasing number of contacts from each organisation communicate with
each other. The buying firm begins to trust the seller more and more, and
may commit to purchasing a broader range of goods and services. KAM
participants should seize any opportunity to add value to the relationship
by identifying additional needs and recommending solutions.
227
4. Partnership KAM: This stage reflects a high level of mutual commitment

between the two organisations. The selling firm may become recognised
as a preferred or even sole supplier by the buying firm, and the seller
will clearly define the customer as a key account of strategic importance,
signifYing the level of dependence between the parties. It will be vital for
the key account manager to ensure that everyone involved in the KAM
process is delivering consistently high-quality service to the customer, and
that all departments prioritise the allocation of resources to the partnership.
5. Synergistic KAM: Here, the value of the inter-organisational relationship
(IOR) is so great that the two firms effectively begin to act as one, exchanging
significant resources - including large amounts of information and even
personnel - in order to solve complex operational challenges. It reflects a
great deal of organisational and personal allegiance to the account on both
sides.
Many scholars acknowledge one more KAM level, referred to as decoupling.
This is the stage where the business relationship has served its purpose and
has reached the end of its lifespan. It implies that firms need to execute a
decoupling strategy (ending the relationship) - of course with a view not to
burn any bridges.
Buying firm Selling firm
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processes fundamental to B2B marketing. This is, however, not a new
phenomenon, and we can probably say that relationships have been a part
of business for as long as we can remember. It is conceivable that even when
buyers and sellers interacted in ancient times, they most likely would have
attempted to establish a business relationship for the purposes of future
transactions. The only difference is that at the time these relationships may
not have been recognised as .such and, arguably, neither were they managed
as such. The importance of business relationships were only fully recognised
in recent times, with the advent of hyper-competition, increased global trade
and high levels of business innovation. This was when marketing scholars and
practitioners started to understand that business relationships can contribute
to competitive advantage and overall business performance. Building and
maintaining positive relationships with customer firms could ensure higher
levels of repurchasing and, ultimately, foster customer loyalty. Hence, the era
of CRM was born. In addition, firms also discovered that by collaborating
with other players in the market, such as key suppliers, they can gain access
to resources and capabilities that allow them to better serve their customers.
Therefore, these firms started to build IORs.
In B2B markets, the development and maintenance of positive relationships
between buying and selling organisations have become very important for
success. Unlike consumer markets, where relationships are often considered to
revolve around an active seller and a passive buyer, the relationships in B2B
markets include multiple layers, best described as networks, where multiple
interactions take place. For example, think of the many business interactions
that are associated with an airline providing its customers with a hot in-flight
meal. To finally get the meal in front of the passenger means that the airline had
to interact with many suppliers - among others, the suppliers that prepared the
food, transported it to the loading bays, supplied the packaging and equipment,
ensured that the health standards were met and even gave input to the airplane
manufacturers about their requirements. Many, if not all, of these transactions
are the result of B2B relationships, as the buyers and sellers participate in a
common value chain. It is therefore probable that the airline will have a whole
portfolio of B2B relationships to manage. Clearly, B2B relationships provide
the glue that keeps these transactions and collaborations yielding benefits for
all parties involved.
Such an understanding of relationships in business spawned the notion of
relationship marketing. Relationship marketing centres on all activities directed
toward establishing, developing and maintaining successful exchanges between
customers and other constituents. Because keeping existing customers is highly
229
profitable and generally cheaper than obtaining new customers, relationship

marketing has grown into a strategic priority. It is now generally accepted that
managers representing firms interacting in the supply/demand chain must plan
together in order to achieve a seamless stream of products to satisfy customer
needs at a profit. It is obvious that good IORs are something that the B2B
marketer cannot do without. To grasp this idea fully, we need to understand
that relationships may vary depending on the circumstances surrounding the
interaction. We can thus refer to a spectrum of relationships.
10.6 The relationship management spectrum

In a seminal article, George Day (2000) noted that marketers have to deal
with different types of relationships, which can be placed on a spectrum, as
illustrated in Figure 10.5. At the one end of the spectrum are the almost purely
transactional exchanges, where the interaction between buyer and seller is
primarily based on the transaction and no real relationship is formed. An
example of such a B2B transaction might be where the owner of a small printing
shop walks across the street to buy a box of new pencils from a stationery shop
for use in her or his business. This is a B2B transaction, but it does not involve
a deep business relationship.3
Transactional Value-added Collaborative

E xchanges Exchanges Exchanges
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Automated purchasing integration of supplier or
customer or channel partner
Example: Admin assistant in a law firm Maersk awards a tender for

(as part of her or his monthly a new custom-built
duties) buys new reams of container ship to a Chinese
paper for the photocopy manufacturer.
machine.
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develops a new bridge for a client, such as the City of Johannesburg. Such a
transaction (project) requires intense negotiations and involves multiple players
(actors) and probably takes place over a protracted period of time.
In Figure 10.5 the area between the two extremes is referred to as value-
added exchanges. This simply means that this area represents all variations
in the additional value that sellers and buyers want to add to the transaction.
Theoretically, as the seller shifts from attracting customers to keeping customers,
the collaboration (hence the relationship) becomes more prominent. The seller
then adds value to enhance the relationship with the buyer in the hope that
it will translate into repeat purchases in the future. Day (2000) argues that
as one moves from the transactional end towards the collaborative end, the
operational linkages between buyers and sellers become more complex. Such
operational linkages include systems, procedures and procurement routines.
For the marketing practitioner, this idea of a relationship spectrum has
important implications. In essence, it means that the marketer will need to
adjust her or his behaviour according to the type of relationship that she or he
is dealing with at the time. Table 10.1 contrasts transactional and collaborative
relationships across six dimensions to show how these are different and how
they call for different approaches.
Table 10.1: Transactional versus collaborative relationships (adapted from Cannon &
Perreault, 1999)
Transactional exchange Collaborative exchange

Availability of alternatives Usually the buyer has many The buyer has few options to
alternatives. choose from.
Supply market dynamism Because there are many suppliers Because the exchange is complex,
and the products are often depends on many environmental
commodities, these markets tend to variables and has many
be relatively stable. However, this is stakeholders, these markets tend to
not always the case. be volatile.
Importance of the In general the purchase is of Usually the purchase is critical for
purchase relatively low importance and/or the buyer.
can easily be switched to another
supplier.
Complexity of purchase The complexity of the exchange is The complexity is high, because the
low, as it mostly involves price and exchange needs to keep multiple
quantity issues. variables in mind.
•
231
Transactional exchange Collaborative exchange

Information exchange Generally the buyer does not Generally the buyer requires high
need much information and the levels of information exchange and
information exchange is low. does extensive research to arrive at
a decision.
Operational linkages Because of the low complexity of Higher exchange complexity

the exchange, limited operational drives extensive development
linkages are required. and maintenance of operational
linkages such as systems and
processes.
For customers with whom more collaborative relationships are maintained,

relationship building strategies aimed at creating strong and lasting
commitment are especially appropriate. For these customers, sales and service
personnel work not only with purchasing managers but also with other
managers in the customer firm on a broad array of strategic issues. Operational
linkages and information sharing mechanisms will form an important part
of the relationship to ensure that product and service offerings are aligned
with the strategic direction of the customer. Given the long-term horizon and
high switching costs, collaborative customers are often concerned with the
seller's long-term capabilities and it is therefore important for the seller to
demonstrate the relevance of its capabilities to the future of the customer. By
contrast, transaction-orientated customers display less loyalty or commitment
to a particular supplier and can easily switch their purchases from one supplier
to another. The business marketer who offers an immediate and attractive
combination of benefits (product, service, price, etc) stands a good chance
to win the support of these customers. However, it is important to note that
customers may differ in their demands and the marketer should avoid a 'one
size fits all' approach. Rather, the marketer should ensure that she or he aligns
the offering with market conditions and the strategy of the customer.
10.7 Networks of inter-organisational relationships

In addition to the relationship spectrum, another important perspective that
modern B2B marketing practitioners need to keep in mind is the fact that
they probably will have to interact with multiple stakeholders, which often
requires varied relationships. This idea gave rise to the notion of networks
of relationships, and simply means that no business can be considered an
island. Businesses often have multiple connections (relationships) with many
nthPr h11c;nPccpc ThPrPfnrP H ;., PnnPP;u!:>hlP th,;,t thP rp],;,t;tnlch;n ,.,;th "'
any one relationship can be influenced by its other business relationships.
Together, all these relationships have the potential to be interconnected and in
that manner the firm becomes connected to a wider network within which it is
'embedded'.5 Thus, the network is representative of the environment in which
the B2B marketer must operate. The relationships within the network will enable
the firm to expand and develop, however, these relationships may also cause
some constraint.6 According to Brennen et al (2007) this is a fundamental issue,
because strategically the relative value of a firm can be seen as an extension
of its position in the network. This will require that the firm adopt a different
frame of mind, strategically speaking, than the traditional view where a firm
is seen to be composed of many simple elements, independently deciding
upon strategy and having the freedom to pursue that strategy. The network
view demonstrates how firms are largely dependent on a specific network and
embedded in the network. This dependence can inhibit firms' ability to think
and act independently.
Making sense of a network is not easy, as al the dependencies are not
evenly visible and significant. Given this complexity, practitioners would find
analysis of the network overly cumbersome. Hakanson and Snehota (1995)
propose three important components (also called the substance ofrelationships)
that networks bring together from all those organisations within the network:
actors, resources and activities (ARA):
1. Actor bonds are the initiators of relationships within a firm, as they create
and control resources and activities. It would be very beneficial to a firm
if it were to identify as many organisations and individuals within its
network that also have alternative networks with substantial connections.
Connections for an organisation can be economic or social in nature.
2. Activity links are established when relationships start to achieve their
purpose, as activities are undertaken to deliver whatever purpose was
initially set, whether it be a design activity from a supplier or a request
for information from a customer. Traditionally speaking, the cycle of
activity is opened once an order or request has been placed, and ends
with the delivery of said order or request. Depending on the nature of the
relationship, however, it might be noteworthy to record other activities
within a network diagram, for example a joint research project or combined
promotional activities. Such a diagram provides a clear outline of the
links between parties, the range of activities involved and the role of each
company within the process.
3. Resource ties are the connections between the various resource elements.
Resources are the reason behind any exchange (in other words, the main
233
drivers behind activities performed by actors), or they can even be created

during the exchange. Resources can refer to the firm's own resources
(own equipment), which can be used by the actor during the exchange
or in combination with other firms' resources to achieve a shared goal.
Developments in technology have increased the ease of sharing for
companies.
It is vital for a firm to investigate the various links between firms within a
network. Knowledge of these interconnections enables the firm to establish
where the critical mass lies in terms of the actors, resources and activities (the
ARA components). This then in tum assists the company to determine where
it is situated relative to the other role players within that network, whether its
presence is strong in the network or whether it is on the periphery of network
developments.
10.8 Customer relationship management

Spurred on by the landmark works of Kohli and Jaworski (1990) and that of
Narver and Slater (1990), marketing literature during the 1980s and 1990s was
almost dominated by the importance of market orientation for firm performance.
Finally, this transformed into the importance of developing and maintaining
customer relationships and supported the idea of relationship orientation.
A relationship marketing orientation (RMO) has generally been assumed to
create a competitive edge for an organisation, and to have a positive impact on
organisational performance. A key contributor to this thinking was the seminal
work by Morgan and Hunt (1994), who proposed a 'commitment-trust theory
of relationship marketing'. This research not only confirmed the importance of
trust and commitment in relationships, but also indicated how social factors
mediate the effect of other factors - such as relational cost and benefits, shared
values, communication and opportunistic behaviour - on outcomes such as the
propensity to remain in a business relationship, conflict management and co-
operation in the relationship. Since the publication of this work, many authors
have contributed to our understanding of how social factors influence business
relationships.
In this context, a relationship marketing orientation is made up of various
components, namely:
• trust: the component of a business relationship that determines the level
to which each party feels she or he can rely on the integrity of the promise
offered by the other party
• bondinQ: the COmDOnent Of a hu nf'SS rt>J::Jtionc;hin th::t Tf'<;ll]tc; ;n twn n<>rHPc
• snarea vatues: m Xl nl w wnu.:n pann rs navu u 1s 1n l.:ommun
about what behaviours, goals and policies are important or unimportant,
appropriate or inappropriate, and right or wrong
• empathy: the component of a business relationship that enables the two
parties to see the situation from each other's perspective
• reciprocity: the component of a business relationship that causes either
party to provide favours or make allowances for the other in return for
similar favours or allowances at a later date.
With the key objective of enhancing customer loyalty, firms can develop long-
term relationships with customers by attempting to better manage these key
aspects of relationships. Moreover, Lages, Lancastre and Lages (2008) argued
that the firm's performance in terms of how well it manages its relationships
can be measured by considering dimensions such as relationship policies
and practices, relationship commitment, trust in the relationship, mutual co-
operation in the relationship and how satisfied the parties involved are with the
relationship. Various other studies have associated relationship performance
with better firm performance, and today it is widely accepted that by looking
after their business relationships, firms can improve the performance of the
business. Palmatier (2008) suggested the mechanism (see Figure 10.6) by which
we can understand the performance of relationships. Figure 10.6 shows that
relationship breadth, quality and composition drive customer value (as a
performance measure of relationship marketing) via their effect on relationship
strength and efficacy.
Figure 10.6 shows that a seller's relationship marketing activities influence
three fundamental drivers of RM effectiveness: relationship quality, breadth
and composition. Each of these drivers encapsulates a different, yet important,
feature of inter-firm relationships which will have a positive impact on the
seller's performance outcomes. These fundamental drivers work in synergy
with each other to achieve and enhance relational outcomes:
1. Relationship quality refers to the level of relationship and the standard
of the bond between exchange partners. This concept is paralleled by
the concept of tie strength in network theory (relational bonds between
actors) and denotes the concepts of relational embeddedness, closeness
and degree of reciprocity in social bond theory.7 Palmatier cited research
that shows that relationship quality can be attributed to constructs such
as commitment, trust, reciprocity norms and exchange efficiency. These
constructs are all inter-related as part of the relational bond and can in turn
have a positive influence on exchange outcomes. In aggregate, however,
they reflect the overall quality of the bond between the partners in the
business relationship.
235
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.
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I Relationship
.
t
breadth I
..
t
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Relationship
I
strength
mrm
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I
. I
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.
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Figure 10.6: Drivers of relational marketing effectiveness (adapted from Palmatier; 2008)
2. Relationship breadth refers to the number of relational bonds that exist

with a specific exchange partner. Inter-organisational relationships have
the ability to reveal inter-organisational key information, find profit-
enhancing opportunities and endure disruptions to individual relationships.
3. Relationship composition refers to the level of decision-making capability
of all relational parties in a network. A network which is diverse and
authoritative in nature will enable the seller to effect change in the market,
as it can circulate information among various perspectives and gain critical
access to decision makers. Relationship composition essentially represents
the aggregate ability of a network to influence decisions by acknowledging
the different areas within the customer firm where decisions are made and
not just blindly focusing on only 'key' decision makers.
When seen in isolation, these three relational drivers capture very different
aspects of IORs, but in unity they reinforce each other and promote optimum
relationship value. According to Palmatier: '[R]elationship quality does not only
have a direct effect on the seller's outcomes but also a conceptually meaningful,
positive, leveraging effect through its interaction with relationship breadth and
the composition of outcomes' (2008:24). In tum, the three fundamental drivers

lead to two secondary predictors of relationship performance:
\.f\•l<::U. J.l.YJ UJ.J.\..1. _tJ"J.VVlU\.... .llll.l\.... }J.1Vl\....\....l..1U.1.1 0.50..1.1.l,:)l l.l.l\... .:ll.l\....:l.:l Vl a ,:)\.....lV.l\....\.... .lQ lUl\..
(eg poor delivery performance), as such low-quality bonds will not be in

a position to support the seller (lack of relational motivation). Similarly,
the inclusion of a single high-quality contact (high quality, less breadth) is
likely not possible, as this contact is unlikely to risk being the sole supporter
within a network. In contrast to this, if multiple high-quality contacts
(greater breadth, high quality) are present, there will be sufficient relational
motivation (commitment, norms of reciprocity) and confidence (trust) to
support the seller during the service recovery process. As a form of indirect
support, both relationship duration and breadth can have a positive impact
on service recovery. Alternatively stated, relationship strength positively
influences a seller's outcomes by increasing the lOR's capacity to be resilient
against problems and conflict while still functioning effectively.8
• Relationship efficacy captures an lOR's ability to realise its desired objectives.
High-quality bonds in a well-structured network will give sellers more
opportunity to execute selling strategies effectively.
Overall, this model (see Figure 10.6 on page 236) integrates social network
theory in such a way that an lOR marketing framework is developed. The
framework explains that, in addition to relationship quality, relationship
breadth and relationship composition are also fundamental in understanding
the impact of IORs on performance. It also recognises that the interactions of
these drivers can significantly enhance these effects. Finally, the framework is
a representation of how relationship marketing investments will affect seller
outcomes due to the mediating mechanisms unique to IORs.
In this chapter we explored B2B selling and B2B customer relationship management. We noted
that in the modern firm these two aspects of B2B marketing can no longer be separated. This is
because today the personal selling function primarily deals with business relationships.To facilitate
our theoretical understanding we have separated these two components, but we all know that
in practice they are intertwined. We noted that we need to consider B2B selling and CRM in the
broader context of inter-organisational interaction. Understanding the context of B2B interaction
allows us to understand relationship marketing.Within this broader context, we can appreciate the
importance of KAM and inter-organisational networks. Overall, the chapter calls for a relational
approach to B2B interaction and it is therefore useful to remind ourselves of three key observations
regarding business relationships: +-
237
1. Relationships consist of two-way interaction. It is an interactive process between two parties

in which they have to use each other's resources. Even in cases where one party is dominant,
a level of reliance is still required.
2. Relationships are generally complex. A variety of variables is involved and present at different
degrees of applicability. One relationship might be explained by the provision of a scarce
resource which places the supplier in a position of power, while another relationship might be
based on and defined by a common history and levels of trust.
3. Relationships build up a history over time. Whether a relationship is long term or short term, at
any given point in time there will be past interactions that have led to that point. The history
provides the setting and the trend for the future. Understanding the history of a relationship
is necessary in providing insight into what it can become in the future.
Eskom is South Africa's primary electricity supplier. The company, which is wholly owned by the
South African government, generates, transmits and distributes electricity to industrial, mining,
commercial, agricultural and residential customers, and to municipalities, which in turn redistribute
electricity to businesses and households.
Eskom sells electricity directly to about 3 000 industrial customers, 1 000 mining customers, 50 000
commercial customers and 84 000 agricultural customers. It also supplies electricity to more than
4.7 million residential customers- many of whom are in rural areas- who account for about 40%
of all residential customers (which include prepaid customers) in the country.
According to Moneyweb's Antoinette Slabbert (2016), Eskom proposes to deal with future supply
shortages of electricity through load shedding aimed at households instead of reducing the load
of electricity utilised by its industrial clients. Eskom applied to the National Energy Regulator of
South Africa (Nersa) for some exemptions from the national standard (NRS 048-9) applying to
load shedding. The application has been presented to Nersa's electricity subcommittee, which
recommended it be approved by the regulator. Up to this point, when demand was expected to
outstrip supply, Eskom commonly relied on industrial clients to reduce their demand by 10%. It was
only if this desired demand reduction did not pan out that Eskom would revert to load shedding
for households.
However, Eskom has requested that domestic load shedding become its first response in times of
supply shortages, instead of load reduction of industrial clients. The reason for this request is based
on the response time of households (1 0-30 minutes) versus industrial clients (up to two hours).
Eskom has requested permission to deviate from prescribed protocols due to countrywide power
emergencies. It argued that as demand peaks between 17:00 and 21:00 during winter, shortages
can be limited to short periods. Furthermore it was stated that it was unnecessary to declare a
countrywide power emerqency, as this would have a neqative impact on the countrv's reputation.
impaired. However, the utility warns all customers in advance when the supply is under pressure.
In the case where people react and switch off appliances, the emergency is generally averted,
but industry has still suffered disruption and financial loss. If it is possible for the utility to drop
the municipal load and limit the supply interruption to necessary, isolated periods, domestic load
shedding will be a more efficient solution. The load shedding might, for example, be limited to 15
minutes, whereafter everything will return to normal.
The proposal is to subject industrial clients only to load shedding as an absolute last resort. Eskom
also argues that compliance to the standards set by municipal power distributors is problematic, as
they fail to react within 15 minutes as they are supposed to. Eskom requested that municipal load
shedding schedules be incorporated into its system in order to enable Eskom to reduce municipal
demand when necessary.
Even though the national standard is currently being reviewed, the process may take more than
a year to finalise. Large stakeholders and industrial clients of Eskom are well represented on the
panel. The panel has insisted that Eskom comply with some code of practice during times of load
shedding and emergency, as in the past there was no accountability for decisions made by Eskom.
They refer to this practice as 'load-shedding by stealth'.
The exemption, if granted, will apply until this review has been finalised. Shaun Nel, spokesperson
of the Energy Intensive Users Group (IEUG)- which represents Eskom's biggest industrial clients
(a collective use of 44% of the electricity Eskom generates) - has welcomed the move. According
to him, it is good that some recognition is expressed for the severe impact that load reduction has
had on industry over the past 18 months. 'While load shedding households may not be a popular
route, it addresses the true nature of the problem,' Nel says. The evening peak is mainly driven by
people in households switching on appliances and cooking after they get home from work, and he
believes that load shedding these customers will address the problem at its root.
(Source: 5/abbert, 2016)
Questions:
1. Motivate why it is desirable, or not, for Eskom to have a KAM strategy.
2. Describe what Eskom can do to improve its B2B customer relationship management (B2B-
CRM) strategies.
Assume you have been appointed as marketing consultant to ABC, a major
logistics company that provides transportation and warehousing services to
customers across a wide spectrum of industries, but with major clients in fast-
moving consumer goods and the household market goods.
239
1. Explain how you would advise your client regarding the importance of
their interaction with customers using the IMP interaction model.
2. Propose a selling process that ABC can follow to increase the effectiveness
of its sales effort to attract new customers.
3. Describe to ABC how you would explain the value of following a KAM
approach using the five Cs.
4. Explain to ABC the importance of networks in modem B2B marketing by
highlighting the roles of actors, resources and activities.
5. Explain to ABC what the key factors of importance are in establishing a
relationship orientation to ensure that ABC retains their major customers.
Support your answer with examples.
References
Brennan, R. 2006. 'Evolutionary economics and the markets-as-networks approach:
Industrial Marketing Management 35(7): 829-838.
Brennen, R, Canning, L, Et McDowell, R. 2007. Business-to-Business Marketing.
London: Sage.
Cannon, J Et Perreault, W. 1999. 'Buyer-seller relationships in business markets'.
Journal of Marketing Research 36(4): 439-460.
Connet, B, Abratt, R Et Cant, M. 2010. Sales management. 3rd ed. Johannesburg:
Heinneman.
Day, GS. 2000. 'Managing market relationships'. Academy of Marketing Science
Journal 28(1): 24-30.
Ellis, N. 2011. B2B marketing. Oxford: Oxford University Press.
Hakanson, H. 1982. International marketing and purchasing of industrial goods:
An interaction approach. Chichester: John Wiley Et Sons.
Hakanson, H Et Snehota, I. 1995. Developing relationships in business networks.
London: Routledge.
Kohli, AK Et Jaworski, BJ. 1990. 'Market orientation: The construct, research
propositions, and managerial implications'. Journal of Marketing 54(1): 1-18.
Lages, LF, Lancastre, A Et Lages, C. 2008. 'The B2B-RELPERF scale and scorecard:
Bringing relationship marketing theory into B2B practice'. Industrial Marketing
Management 37(6): 686-697.
Morgan, RM Et Hunt, SD. 1994. 'The commitment-trust theory of relationship
marketing'. Journal of Marketing 58(1): 20-38.
Narver, JC Et Slater, SF. 1990. 'The effect of a market orientation on business
profitability'. Journal of Marketing 54(4): 20-35.
Palmatier, RW. 2008. Relationship marketing. Relevant knowledge series.

....,J.QUU\..1L, .l"'l... LV1U • .1\.\...11\:1 111 ;)1C,11l lUl .L;:)J\.Ulll 1HUU U1d.1 \.:lU:Jll=:. • .1"\..Vd.Ui:::t.Ult:
http://today.moneyweb.co.za/ article?id=767667 #.V-y14_l96Uk (Accessed 29

September 2016).
Storbacka, K, Ryals, L, Davies, lA 8: Nenonen, S. 2009. The changing role of
sales: Viewing sales as a strategic, cross-functional process'. European Journal
of Marketing 43(7/9): 890-906.
Notes
1 As parties in a B2B exchange interact with each other over time, a distinction
can be made between what happens in any individual interaction and what
happens at the level of the organisation. Brennan (2006) uses the term
'exchange episodes' to refer to the short-term interactions between the parties.
2 The sales plan is beyond the scope of this chapter, but it remains widely used
in many B2B firms. On the internet many examples can be found illustrating
which elements to include in a sales plan.
3 Note that we cannot really say that there is no relationship either. A business
relationship may well develop over time and the stationery shop can become a
supplier to the printing shop.
4 See Ford, D 8: McDowell, R. 1999. 'Managing Business Relationships by
Analysing the Effects and Value of Different Action'. Industrial Marketing
Management 28(5): 429-442.
5 See Granovetter, M. 1985. 'Economic Action and Social Structure: The Problem
of Embeddedness'. American Journal of Sociology 91: 481-510.
6 See Ford, DE 2002. Understanding business marketing and purchasing. London:
Thompson Learning.
7 See: Rindfleisch, A 8: Moorman, C. 2003. 'Interfirm Cooperation and Customer
Orientation'. Journal of Marketing Research 40(11): 421-436.
8 Useful readings regarding relationship strength include:
• Brown, R. 2000. Group Processes: Dynamics Within and Between Groups.
Malden, Massachusetts: Blackwell Publishing Ltd.
• Bejou, D 8: Palmer, A. 1998. 'Service Failure and Loyalty: An Exploratory
Empirical Study of Airline Customers: Journal of Services Marketing 12:
7-22.
• Hess, RL, Ganesan, S 8: Klein, NM. 2003. 'Service Failure and Recovery:
The Impact of Relationship Factors on Customer Satisfaction'. Journal of
the Academy Marketing Science 31(2): 127-45.
241
Chapter
Business-to-busines·s branding:
creating and fos ering
the. brand Ricardo Machado
I
learning outcomes
• define what branding is
• explain the elements of a brand
• discuss the advantages of branding for 828 marketers
• explain the phases followed to build brand loyalty
• discuss the brand pyramid to build up brand equity
• explain different types of brands
• discuss the elements of each of the steps in the branding
process
• evaluate a business's branding efforts using Keller's report
card
• explain the basic brand metrics that can be used to manage
the branding effort.
l
consider when making important purchasing decisions, either in terms of a
product or service purchase. As an example, consider a heavy truck workshop
that needs to buy spanners. Downtime can kill the business. Would the company
choose to purchase cheap imports or a quality product? Another example:
in getting advice on a large merger, would the firm search for the cheapest
consultants or would it look for the best merger specialists? The knowledge
of which option is the best to purchase, in both examples given above, is
facilitated through good branding.
This chapter introduces the concept of branding and explains what a
brand is. We will then discuss what advantages a firm can gain from good
branding efforts. The different types of brands are considered next, as well
as the different levels of brand loyalty. The process that marketers follow in
doing branding in order to build up brand equity is explained step by step.
We also discuss the actions and activities that can be used by an organisation
to measure the success of the branding programme. The chapter ends with an
explanation of the concept of brand equity and the metrics that can be used to
manage a brand.
11.1 Defining branding and brands

11.1.1 Differentiation and branding
Branding is the activity of trying to differentiate a product or service from
those of a competitor by providing the product or service with a distinct and
recognisable identity (a brand), and building the right associations with that
brand so that it is relevant and distinct from competitive products in the mind
of the customer or user. The two important words in this explanation are
'distinct' and 'differentiate'. Differentiation is trying to make a product different
from that of the competitor in the mind of the customer. This can refer to a
physical difference, such as a different form or structure, or to a psychological
difference, such as a perception of greater reliability, for example in the case of
an airline with a reputation for getting passengers to their destinations on time.
Note that this is not branding yet - for it to be branding, that differentiation
has to be linked to a specific name for the product or service, so that the
differentiating characteristic is dearly identified as belonging to a product of
a specific name.
Well-known brands such as IBM, Caterpillar, DHL and Avis have
differentiated themselves from other brands in the same market or category by
their distinguishing characteristics. For example, IBM is known for outsourcing
243
business problems and offsetting fees through savings in the process; this
association has been built up over years through IBM's performance and
marketing. Caterpillar has established a reputation as a company that provides
tough construction equipment, easily recognised through the distinctive colour
scheme used, and that can provide spare parts anywhere in the world within two
days. DHL can deliver items to destinations efficiently, because the company
owns its own planes and has a long track record of performance. Avis has
been the leading car hire brand in South Africa for a long time, and in a tough
environment has used service quality to establish and maintain its position as
leader in a tough environment.
11.1.2 What is a brand?

As explained above, branding is an activity dealing with identity and
differentiation. So how does this help in describing what a brand is? A
generally accepted definition of a brand is that it is a name, term, sign, symbol
or design - or a combination of these - intended to identify the goods and
services of one seller or group of sellers and to differentiate them from those
of the competition. This means that a brand may identify one specific product,
a family or range of products, or all the products a marketer provides to a
market. It may identify a specific company or range of companies (such as the
Barloworld group). Different types of brands will be discussed in more detail
later in Section 11.4.
Many marketers feel that the activities around trying to establish a well-
known, differentiated and relevant brand in the minds of their customers is one
of the key tasks of marketing. The following are various aspects related to the
concept of a brand:
• The name is the part of the brand that can be said out loud. It can include
letters, words and numbers. Examples are DHL or kulula.com. Sometimes
the name is the only difference between competing products. The name
thus has to do with the identity of the product. This helps to provide
benefits for customers (see Section 11.2). A brand name with strong relevant
differentiating characteristics is obviously better than one that is just a
name.
• A brand mark is the part of a brand that cannot be said out loud. This
would therefore include any signs or symbols used. A great example of this
is the symbol for Apple, which is easily recognisable. This will be discussed
further in the next section on the visual elements involved in branding.
• The trademark is the legal indication that the owner of a brand has
exclusive rights over the use of the brand or its parts, and that it cannot be
............... ,.., WoW.'-. HW.IU'-. .1\.... .l.'-.1.3 l.V l..U.\... ..lU.U
example of this would be the Toyota Motor Corporation, which is the

trade name of the company that owns and markets many brands used for
company fleets, such as the Toyota Hilux and the Toyota Corolla.
11.1.3 The elements of brand identity

There are many visual brand components that help to identify and differentiate
a brand. The most important of these are the name, the logo or symbol used,
the colours used and the typeface used. Each of these elements will be discussed
in the following sections.
Other aspects that are linked to visual identity are elements such as the decor
of shops or offices, signage, stationery, employee uniforms, the corporate website
look, packaging, sound, and the corporate cars and trucks in the company's fleet.
For example, UPS is known for the brown uniforms worn by its delivery staff,
while kulula.com used colour on its airplanes right from the start to differentiate
the company from other airlines and to portray an image of fun and irreverence.
Other examples of this are the start-up sounds of the Microsoft operating system or
Samsung cellphones, both of which have become strong worldwide brand elements
for their brands. These elements can form part of the trademark, in which case they
can be protected; however, this can depend on the courts and to what extent the
brand actually owns the specific element.
The mainjob of the elements mentioned above is to help create awareness
for the organisation - it is generally accepted that high levels of awareness are
associated with familiarity and also with customers having a positive feeling
towards the brand. These visual aspects help the communicator to activate
the mental image of the organisation or brand in the minds of customers,
and this mental image can both differentiate the organisation and aid in
improving communication effectiveness. This shows that visual identity helps
in building awareness, which in tum is linked to the corporate image that
enables differentiation and communication. These two aspects can help with
building brand equity and a favourable reputation.
The following is an example of the different components that are involved
in creating the identity of a particular brand range, namely the Toyota Hilux:
• Name: Toyota Hilux
• Design: the vehicle's body shape
• Style: the lettering style used for the word Toyota and the word Hilux
• Words: 'Toyota Hilux'
• Packaging: distinctive packaging, with distinctive colours and logos, used
for Toyota Genuine Parts
• Symbol: three interlocking ellipses.
245
The brand name

This is probably the most important element for visual brand identity, as it
helps identify and differentiate one organisation from another. The general
guidelines for developing a name for a brand or organisation are pretty well
known, and include the following:
• The name should be easy to communicate via all mediums, especially sound.
• The name should be original, to avoid confusion with the names of
competitors.
• The name should be easy to pronounce and spell in the countries where it
will be used.
• The name should not begin with a country name. The words 'global',
'national' or 'international' should ideally be avoided. This is because of
the perception that these elements create.
• The business must check for unexpected possible interpretations or
symbolism connected with the name. This has to do with differences
between cultures and ethnic groups. It is important to avoid a situation
where a certain national or ethnic group sees a particular meaning where
the business intended for there to be none.
Some companies have used names that break these general rules, so exceptions
are possible. The crux of the matter is that the organisation must be able to use
the name to achieve its objectives in terms of communicating with stakeholders
and building recognition to be able to grow brand equity and reputation linked
to that name.
The following are examples of different categories of brand names:
• Founder name: Rolls Royce, Kaizer Chiefs, Maponya Mall, Ford, Hewlett
Packard, Murray a Roberts
• Animals and objects: Caterpillar, Jaguar, Apple, Shell
• Acronym: KFC, LG, BP, HSBC, IBM, MIN, DHL, SANRAL
• Combinations: South African Airways, Rainbow Minerals
• Location: Saks Fifth Avenue, the Gautrain, the Johannesburg Stock
Exchange, Cape Town Fish Market, Bloemfontein Celtic, Europcar
• Analogy: Burger King, Carnival Cruises, Holiday Inn
• Descriptive names: Brandhouse, Vodafone, Facebook, Telkom
The logo and/or symbol

As discussed earlier, the brand mark includes visual elements and is used to
identify the organisation and also to signal consistency for stakeholders in
and technology and the proliferation of advertising, people are exposed to
countless logos and symbols. The trick for creating an effective brand mark
is therefore that it needs to have meaning for the viewer. This is done by
meaningfully linking the brand mark to something important to the viewer
and differentiating it from other organisations' brand marks. Linking the brand
mark to meaning takes repeated exposure and learning on the part of customers
so that they come to understand the association and meaning. A good example
of this is Apple's logo. The brand mark was linked to innovative products that
became very relevant to the everyday lives of its target customers, such as the
iPod, iPad, iPhone and iStore. This meant that the brand mark was associated
with meaning and, in the process, differentiated.
As with the creation of a brand name, in the creation of a logo one should
also take into account possible unforeseen cultural meanings the symbol/s
could have, especially in countnes other than that of the originator. The logo
design must not be affected by cultural interpretation or meaning.
Colour
This element was alluded to earlier with the example of the Caterpillar brand:
think of the colour used in this brand mark. The colour used in the brand mark
is an important part of the organisation's visual identity, and must be chosen
carefully within the context of the products and location. The following are
issues that should be considered:
• Is the colour appropriate to the product? For example, certain colours are
better for a food company, as they are more appealing in this context than
others.
• What meanings are associated with the colours? Colours are linked to
emotions, and if the organisation is crossing international boundaries, then
the cultural meanings of the particular colours will need to be researched
before a decision is made. For example, Western cultures tend to see red as
fiery, and green and blue as calmer colours.
• What colours do the competitors use? A firm will have to take into
consideration the colours associated with its competitors, so as to avoid
confusing consumers by similar colour schemes. For example, the five
m(\jor banks in South Africa all use different colour schemes: Absa uses red,
Standard Bank uses dark blue, Nedbank uses green and FNB uses turquoise.
Capitec, on the other hand, has had to establish the colours red and blue as
a colour association in the minds of customers in order to achieve the same
level of colour association as other banks.
247
Typeface
The typeface is a visual identity element that helps to visually differentiate the
organisation's or brand's name from its competitors, but it is also an aspect
that is often not remembered or recalled well. Typeface refers to both the type
of font as well as formatting options, such as uppercase, lowercase, or a mix of
these. Toyota's brand name is written in uppercase, for example, while kulula.
com (sometimes referred to as just kulula) is all lowercase. In designing or
choosing a typeface, it is important to make the typeface clear and recognisable.
One must also take into account that some consumers attach meaning to the
logo and its shape, and that this may be transferred to their perception of the
company itself.
Many customers can recognise a brand name and typeface better than
recalling it. Some of the major global brands - such as IBM, Samsung and
Caterpillar - have done a good job of associating the brand's typeface clearly
with the company. In South Africa, the typeface used by SARS in its logo is
pretty well established in the minds of the taxpaying public. Other examples
of strong typefaces that are easily identified include those of Anglo American
and MAN Trucks.
11.1.4 Differences between branding in a 828 and 82C context

The characteristics of the B2B market mean that branding has to be approached
differently in a B2B context. As has been explained in previous chapters in this
book, the B2B market has the following characteristics:
• There are fewer buyers, and they are larger, as they are firms and not
individual consumers.
• Buyers are often geographically concentrated.
• Demand is derived from the demand for consumer goods.
• Demand is inelastic demand, meaning that pricing does not affect the
demand very much.
• Demand tends to fluctuate, depending on the demand chain.
• The buying process is more professional and formalised, since trained
professionals perform the buying function and the process forms part of
formal business negotiations.
• The buying process involves more complex decisions.
• The buyer and seller tend to be more dependent on each other.
• The aim is to build close, long-term relationships with customers.
The following are six key guidelines for B2B branding:
1. Make sure the whole business understands the brand and managing the
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4. Build important brand associations around the product associations that

exist.
5. Build emotional connections to the brand among stakeholders.
6. Segment markets and customers carefully (see Chapter 5), and then tailor
the brand and marketing to those propositions.
11.2 The importance of branding

Over the years, the advantages accrued to marketers as a result of good branding
have been documented and generally accepted. Branding has particular
importance for different role players in the B2B market. The advantages that
branding can have for the B2B seller include the following:
• Improved perceptions of product performance: The brand gives the B2B
customer an anchor by which to identify the relevant differentiators that
separate the brand from its competitors and to judge quality. This helps to
reduce the perceived risk of the purchase.
• Greater loyalty: If the customer knows that a specific brand has performed
consistently, he or she is less likely to switch. Branding also makes it easier
for the customer to decide on appropriate products to satisfy his or her
needs. The creation of loyalty and satisfaction can lead to the customer
becoming a brand advocate - a customer who shares positive feelings
about the brand with other parties through word-of-mouth, online or social
media, or even traditional media.
• Less vulnerability to competition: This is a result of the loyalty aspect
mentioned above. If a customer is loyal, and as long as the brand delivers
on its promise, competitors could find it difficult to get the customer to try
their product. The supplier may also actually reward the customer through
status associations as a preferred purchaser.
• Less vulnerability to crises: This is linked to the consistency aspect in terms
of the brand promise and delivery. By retaining the customer through
consistent delivery of the brand's promises, the marketer can become less
vulnerable to volatility in terms of market share or profitability.
• Larger margins: Customers are willing to pay for what they value. The brand
and its characteristics establish a strong identity in customers' minds which
they associate with value and for which they may therefore be willing to
pay more.
• Inelastic customer response to price increases: If the brand is strong,
customers are less likely to switch if prices increase (within a reasonable
249
margin). In order to gauge this, though, the brand must monitor customer
perceptions of value and price.
• Elastic customer response to price decreases: Because of the value associated
with the brand, a price decrease signals a chance for customers to gain
good value at lower cost. Customers recognise this as a good deal and often
respond favourably.
• Greater trade co-operation: Trade sees the franchise that a good brand has
as a way of attracting channel members and customers. This is because
many well-known brands are at the core of customers' purchasing habits
and help communicate value and quality to the demand chain.
• Creating differentiation: By creating strong brand performance or
emphasising specific characteristics of the brand, the marketer may be able
to differentiate itself from other marketers in the B2B marketing sphere.
For example, Mercedes-Benz differentiates itself from its competitors in the
truck market through its great after-sales service delivered to truck fleet
customers. It differentiates itself on the basis of service.
• Targeting or positioning: This point is related to differentiation. For example,
by understanding that the company differentiates itself on the basis of
great quality and service, Mercedes-Benz knows it is better to target truck
fleet customers that are looking for reliability and service response, and
willing to pay for that. It would not target a fleet looking for the cheapest
trucks, so it would not position itself as a supplier of cheap trucks. It might
position itself as a truck company that delivers the least downtime for a
fleet owner due to truck quality and great service response and delivery.
• Increase in the effectiveness of the integrated marketing campaign (IMC):
The brand is the key element of many IMCs and helps provide consistency
and synergy to communication efforts, thereby generating better results.
• Licensing opportunities: This happens when the brand owner is able to use
the brand as a product itself and to sell the power of the brand to other
organisations that may want to use it or piggyback on it in order to sell
their products. Examples of this would be the licensing of the Caterpillar
brand to be used as a clothing and shoe range.
• Brand extension opportunities: This was alluded to in the previous point.
This happens when the brand owner is able to leverage and extend the
brand across geographic and usage categories. Classic examples of this
would be Barloworld entering Spain and Siberia through their Caterpillar
brand franchise.
For the B2B buyer, branding is important, because it:
• provides for easier product identification
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11.3 Brand loyalty

Many of the benefits noted in Section 11.2 revolve around creating and
supporting the development of brand loyalty and advocacy among customers.
Satisfaction and loyalty are well-known brand metrics.
11.3.1 The levels of brand acceptance

It is generally accepted that there are three levels of brand acceptance linked to
loyalty that a brand can instill in customers, namely brand recognition, brand
preference and brand insistence. These three levels go from weaker to stronger:
1. Brand recognition is what enables a brand to move from a level where
customers are unaware of the brand to a level where they are aware of
the brand. Brand recognition and brand recall are related concepts (both
discussed in Section 11.7.2 on page 267). Brand recognition is usually tested
by showing a customer a portfolio of brands and asking the customer to
identity those he or she has seen or knows. Brand recall is a deeper measure
of awareness, as the customer identifies the brand unaided - the customer
produces the brand name without the aid of prompts or visuals. To gain this
first level of brand acceptance, the marketer of a new brand has to make
sure that customers are introduced to the brand through media or sales
presentations, to generate awareness or induce trial.
2. Brand preference implies the customer has had trial and been encouraged to
engage in repeat purchases, and that the brand has satisfied the customer;
in other words, repeat purchasing is now a reality. This level of acceptance
means the customer has built preference for the brand. This means that if it
is available the customer will buy the brand, however, if it is not available,
the customer will likely switch to one of the other brands in the customer's
brand portfolio for this product type. Marketers try to establish a franchise
for their brand by having a large number of customers who prefer their
brand to others in the categories in which the brand competes. This is
predicted on good sales follow-up and a competitive price.
3. Brand insistence is the last stage of brand acceptance. This stage means
that the customer will not accept any other brand or substitute, and is
willing to undertake sizeable sacrifices in time and effort to make sure
he or she gets that particular brand. This is obviously a good position
for a brand to be in, as it means the customer has loyalty towards the
brand, new competitors will find it difficult to change the customer to
251
their brand, and repeat purchases are almost ensured. It is very rare that
a brand achieves brand insistence. There are only some product categories
where a brand has managed to get to the level of insistence. One can check
which products have established brand preference or brand insistence by
looking at a buyer's buying list - these will be the brands that are listed by
brand name and not just the product descriptor (for example 'Avis' instead
of 'car hire'). Brand insistence can occur in B2B marketing. For example,
many workshops will insist on purchasing Gedore spanners rather than risk
purchasing cheaper but less reliable tools.
The concept of loyalty does not undermine the power of an attractive price for
B2B purchasers, however, loyalty can be created if the purchaser can justify
the possible price difference between a low-cost option and the branded option
through better and more relevant value delivery to the organisation.
11.3.2 The steps to building strong brand equity

Brand equity can be defined as the total commercial value that derives from
a customer's perception of the brand name of a particular product or service
from a supplier, rather than from the product or service itself. The branding
pyramid, or the branding ladder, is a concept related to brand equity and that
builds further on the different levels of brand loyalty discussed in the previous
section. This is also a step-wise model. The marketer has to get the customer to
move through different steps up the pyramid, as in Figure 11.1, each step being
dependent on the customer having moved through the previous step.
4. Relationships
What about you and me?
Intense active loyalry
Resonance 3.Response
What about you? Positive
emotional reactions
Judgements Feelings I
2. Meaning
What are you? Strong,
favourable, unique brand
Performance Imagery associations
"';'
I
1. Identity
What are you?
Awareness
...
Deep, broad brand awareness
the customer understands the brand in the context of the category in which
it competes and the functions it performs. The marketer will have to build
these associations in the customer's mind through the correct use of cues. The
customer needs to know which of his or her needs the brand satisfies. This is
done at two levels (see also Section 11.7.2):
1. The depth of brand awareness is the probability the brand will come to the
customer's mind when the category concerned is thought of. For example,
in the case of the Toyota Hilux bakkie, in South Africa the depth of brand
awareness is generally strong for the product category of a business
workhorse vehicle, as the Hilux has been the leading bakkie in terms of
market share and sales almost every month since around the middle of the
2000s.
2. The breadth of brand awareness refers to the range of categories and
purchase situations for which the brand comes to mind. In the case of the
Toyota Hilux, brand awareness is also broad as it applies to the fleet car
category, meaning that there are many brand categories where the brand
operates, such as 4x4 requirements for forestry companies.
Step 2: Creating meaning in the mind of the consumer

This step deals with establishing a brand image and also establishing what the
characteristics of the brand are, and what it stands for. The two building blocks
for this step are thus performance and image:
1. Brand performance is how the product itself meets the functional needs of
the customer. This aspect is concerned with the actual product and service
characteristics.
2. Brand image (see also Section 11.7.4) is the way the brand tries to meet the
customer's psychological needs. This aspect is linked to the associations
which the brand builds up in the customer's mind. For example, the Toyota
Hilux brand has built up strong associations of durability, reliability and
toughness. It also has a strong association of availability of support and
parts throughout Africa. Associations can be based on the country of origin
(eg Mercedes-Benz and Germany), co-branding (for example Dell computers
with Intel processors), awards and prizes won, and anything else that the
customers link to the brand through their experience with the brand over
time. This is why care must be taken to ensure the organisation operates in
line with the brand values. For example, BP will have to overcome strong
negative associations due to the oil spill in the Gulf of Mexico. Another
example is Investec, a company that has gone a long way towards trying
253
to improve its image by offering a global presence and having offices in

business locations such as London.
These two important building blocks are cultivated through communications
from the company to the customer, but also through the associations made by
the customer about the brand - either directly through his or her experiences
with the brand or indirectly through exposure to brand communication efforts.
Step 3: Eliciting a response from the consumer

This step is about the customer's response (both mental and emotional) to
communication and marketing efforts around the brand. These responses can
take place in two areas, namely brand judgements and brand feelings:
1. Brand judgements refer to the opinion of the customer about the brand. This
aspect is based on an evaluation of the image, associations and perceived
performance of the brand. This judgement influences the customer's view
of factors such as the brand's quality, credibility and superiority.
2. Brand feelings deal with the emotional responses and reactions to the brand
by the customer. These emotions can be quite strong - think of the emotion
involved in the loyalty some contractors show to an equipment brand such
as Caterpillar. Building trust in the brand is an example of how emotions
can play an important role in the B2B sphere. Beneficial emotions for a
brand can be immediate emotions (such as satisfaction, value and care) or
more enduring emotions (such as a feeling of security, loyalty and respect).
For example, a brand such as Avis wants customers to associate experiences
eliciting the immediate emotions mentioned above with its brand, but it
also wants to build a more enduring connection to its customers so that
they may achieve brand preference or insistence.
Step 4: Establishing the relationship with the consumer

This refers to the level, nature and strength of the relationship between the
customer and the brand. A number of well-known brands are recognised for
their ability to build strong brand advocates, such as Apple and Caterpillar.
Brand resonance has four important aspects that help to determine the type of
relationship that exists between the customer and the brand:
1. Behavioural loyalty: This refers to the number oftimes the brand is purchased
and the amount that is purchased. An Apple loyalist, for example, will only
buy Apple when purchasing hardware such as tablets, phones and laptops.
2. The level of personal attachment to the brand: For example, Apple loyalists
do not iust think the brand is Q:ood - thev think the brand is so snecial that
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clubs and forums on social media. This type of community can be a boon,
as buying managers are increasingly using social media as an information
source.
4. Active engagement: This is when the customer actively participates and
engages with the brand and its support structures, for example if a fleet
manager visits Toyota events related to the Hilux, buys the merchandise,
promotes the brand to others without compensation, and becomes a brand
ambassador.
11.4 Types of brands

11.4.1 Corporate branding
The most common type of branding in the B2B environment is called corporate
branding. This branding consists of a name that encompasses all of a particular
business's products and services. An example of this in South Africa would
be an organisation such as Rand Merchant Bank (RMB) - all its products and
services fall under the RMB brand. This becomes the umbrella brand under
which all the individual brands or sub-brands fall, and which also represents
the vision, mission and values of the parent company. Think of the great
corporate brands that have been created in South Africa, such as Rainbow
Resources, Anglo American, De Beers, SABMiller, Shoprite, MIN and Vodacom.
There are advantages to creating a strong corporate brand. It provides
a stable and strong identity, and by creating a strong brand the business
emphasises the broad range of products and services it offers and also leverages
the marketing communication spend to generate a strong brand awareness for
one brand name. The potential disadvantages of corporate branding include
the danger of tainting the brand image if the company acts irresponsibly, since
there is only one corporate brand name. Another possible disadvantage is that
it might lead to the brand not being clearly positioned or differentiated in the
marketplace, as this is easier to do with a product brand aimed at a specific
segment or application. Table 11.1 explains corporate branding by means of a
comparison with product branding.
255
Table 11.1: Differences between corporate branding and product branding (Hatch &
Schultz, 2008: 9)
Product brand Corporate brand

I
The scope and
scale
One product, or a group of related
products
I The whole company, all its products
and services and all its stakeholders
I
The source of the Advertising and market The company's history, values, beliefs
brand identity communication and heritage
The target Customers or users Many stakeholders, including

audience customers
The person Usually a product manager The CEO and Board; reputation is
responsible paramount
The planning The lifespan of the product The lifespan of the company
horizon for the
brand
11.4.2 Product branding

It is clear that the decision to brand is not an easy one. There are many options
available to the marketer, all of which have their own benefits and risks. Care
must thus be taken in the decision to brand. It is generally accepted that there
are three broad types of product brands, based on the ownership of the brand
and for whom the brand is identifying. The three types are:
1. producer brands, also called manufacturer brands or national brands
2. dealer brands, also called house brands, store brands or private brands
3. generic brands.
Producer brands
This is a brand where the producer or manufacturer puts its name on the brand,
owns the brand name and protects it. Examples of this would be Coca-Cola,
Mercedes-Benz and Defy. These brands are usually available throughout the
country and are therefore also called national brands.
Customers who buy these brands are usually loyal to the brand; they
look for the status and promise of quality that these brands often provide.
An example is a restaurant owner who buys the catering package of Mrs HS
Ball's chutney. The producer brand is often the cornerstone of the company's
promotion strategy, and it gives the producer some control and an identifiable
brand loyalty and market share. A producer uses this brand type because of the
following reasons:
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Within the decision to market a producer brand, there are further choices as to
what type of brand naming strategy to follow. In this instance the marketer has
three distinct choices for a national brand, namely:
1. invididual branding: giving each individual product a different brand name
2. family branding: using the same brand name for a range of products
3. company name branding: using the company name with a brand name.
Individual branding
The marketer can name each individual product item with a specific brand
name. Figure 11.2 shows an example of individual branding. An example of a
company using this strategy in South Africa is SABMiller - it uses individual
brand names for different products when it tries to market its products to
businesses such as shebeens, bars and restaurants, such as Flying Fish, Hansa
Pilsener, Black Label and so on.
Using individual brand names means that each brand has a separate
identity which can be tracked in the marketplace. Furthermore, the product and
its performance are self-standing, so if anything goes wrong it does not have
an impact on the other brands. This strategy also provides an opportunity for
strong marketing communication and differentiation opportunities, which can
be tailored to the specific product's characteristics. For example, a bar owner
may need to stock a lighter beer, such as Hansa Pilsner, and a lager beer, such
as Black Label. Individual branding does mean, however, that each individual
brand requires resources for advertising and for creating its own brand equity,
and this strategy can therefore be expensive.
,.-.--
The Walt Disney Company
I I I I I
abc Disneyland
Touchstone
Pictures
MIRA MAX
films
ESPN l
Figure 11.2: An example of individual branding for companies wanting to advertise
on Disney channels (Merriam, 2014)
257
Family branding
At the other end of the spectrum to the individual brand is the family brand,
where the brand name is used for an entire range of products, or even every
product manufactured by the producer. An example of the first case is Coca-
Cola, with its brand names Coca-Cola, Coke Light and Coke Zero. SABMiller's
Castle range is also a family brand, since it consists of Castle Lager, Castle
Light, Castle Draft and Castle Milk Stout. An example of a family brand being
used for all of a company's products would be Caterpillar, which has established
itself as a major player in the earth-moving and materials-moving category
by using the family brand name for its bulldozers, trucks, backhoes, rollers,
scrapers and so on.
The advantages here are pretty clear: any new product can use the brand
equity of the family brand name to get into the market. However, the downside
of family branding is that any negative aspects associated with a new product
could be generalised to the whole range.
Using the company name with a brand

The company name can be used with an individual brand name or a name
for a range of products. This strategy is used to identify the company that
manufactures and stands behind the specific brand name or the range. Figure
11.3 shows an example of the use of a company name. An example of this in
South Africa is the use of the company name 'Toyota' in the Toyota Corolla and
Toyota Hilux ranges. Figure 11.3 shows an example of the use of a company
name.
;r.- - -· -···---·-- ·-
General Electrical (GE)
l J l
GE GE GE
Transportation Healthcare Appliances
Figure 11.3: An example of a company name used with a brand name (Merriam,
2014)
Dealer brands
In the case of a dealer brand, the producer of the product is not known to the
customer; the identification, ownership and control of the brand rest with the
retailer or wholesaler. Dealer brand products are only available at the dealer's
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The customer that purchases these types of brands is usually price-

conscious, and often compares national brands to the dealer brand. The dealer
brand still has implied levels of quality, since the dealer is dearly identified as
the owner of the brand and is accountable for the quality. The price of the dealer
brand is usually lower than that of the producer brands in the category, but this
is not always the case. Dealers can make attractive margins on dealer brands -
the costs are lower, as the dealer does not have to pay for the producer's brand
equity. Good examples of this are the Lithotec paper brands, where the dealers
make good margins on the Lithotec products they sell to customers.
Generic brands
A generic brand is an unbranded product. It usually comes in plain white
packaging and is labelled only in terms of the product type or category. For
example, in the case of printing paper, the product would be a bundle of printer
paper with a white label that says 'A4 printer paper'. These products are usually
priced lower than other types of brands, thanks to lower-quality ingredients,
lower packaging costs and lower promotional costs (if any).
The customer likely to buy these brands is a price-conscious customer
looking for acceptable quality and a lower price. These brands tend to be
successful in categories where customers do not care much for quality or do
not see much differentiation between producer brands and the generic brand.
Examples of categories where generic brands exist in South Africa are toilet
paper, car parts and printer cartridges.
Brand relevance
In the B2B sphere a marketer can consider the circumstances in the market
environment around customers and/or competitors to see how much relevance
or what importance a brand may have to a B2B purchaser. These circumstances
are highlighted in Table 11.2. If the circumstances indicate that there is high
brand relevance, then the differentiation on the basis of good branding is
important and an individual or company brand strategy would be effective.
If the circumstances lead to low brand relevance, then it is more likely that a
marketer should follow a dealer or generic brand strategy.
259
Table 11.2: Factors leading to high or low brand relevance (adapted from Kotler &
?foertsch, 2006:49)
Factor High relevance Lower relevance

How many suppliers are there? One, or a few powerful Fragmented
ones
How many competitors are there? Only a few Many

How complex is the buying process? Very simple Very complex
How many people are directly involved in the Many Few
buying decision?
Do the customers understand the brand and Very visible Not very visible
what it does-is the value visible to the
customers?
11.5 The brand management process

Brariding is not as simple as choosing a name and designing a logo. As explained
in Section 11.3.2, there needs to be a connection or resonance with consumers
in order for the brand to succeed. This means that a marketer needs to manage
the brand in order to build up brand equity. Keller (2003) identified a process
that highlights the specific steps and concepts involved in the building of
brand equity. This process is shown in Figure 11.4, and the steps are discussed
in the sections that follow.
Steps Key concepts
Competitive frame of reference
Identify and establish brand Points of parity and points of difference
positioning and values J Core brand values
Brand slogan
Mixing and matching of brand elements

Plan and implement brand 1 Integrating brand marketing activities
marketing programmes Leverage of secondary associations
Brand audits
Measure and interpret brand Brand tracking
performance · Brand equity management system
brand eouitv
Grow and sustain
Brand-product
matrix
Brand portfolios and
hierarchies
Brand expansion
strateqies
This step requires some serious thinking about the nature of the company
and its brand, what the brand is going to represent and stand for, and how
it is going to be positioned relative to its competitors. With positioning, the
company should try to establish a superior position for the brand as well as
differentiation from perceived competitors in the customer's mind. (See Chapter 5
for more on positioning.) In order to do this, the company must do the following:
1. Decide what the strategic competitor group is, and understand the
competition's branding efforts, as this is the frame of reference against
which customers will compare the company's efforts.
2. Work out the points of parity and points of difference (see also Chapter 6)
for the brand:
- A point of parity is the characteristics or attributes that the brand will
need in order to be considered a viable option for the customer in the
frame of reference. This does not guarantee that the brand will perform
well; rather, it is needed in order for the brand to be seen as a legitimate
player. In other words, it gets the brand 'into the game'. For example, in
South Africa a bank must be an accredited financial services provider
in order to be a legitimate player in the corporate banking or financial
services field.
- A point of difference is a strong, favourable and unique association
that differentiates the brand from other brands. This may be in terms of
specific attributes, performance benefits or image associations. While
points of parity can be considered as qualifying criteria to be considered
a viable choice by a consumer, points of difference are the winning
criteria that the brand uses to differentiate itself from its competitors.
For example, Capitec Bank's points of difference are its easy, customer-
friendly processes and its low-cost model.
The core brand values are the few attributes and benefits that characterise the
most important dimensions of the brand. These are important, because every
action performed by the organisation has to be in accordance with the values
of the brand. The brand slogan is a short phrase that captures the essence or
spirit of the brand positioning and brand values, and is often linked to the
pay-offline in the advertisement. All ofthe concepts mentioned in this section
require considerable thought and analysis if they are to build equity in the
brand later.
261
11.5.2 Step 2: Planning and implementing brand marketing

programmes
The elements described in Step 1 above are of no use if they are not used by
the marketer as the basis for the marketing and communication campaign. The
marketer must choose the brand name, logo, symbols, packaging - everything
that is going to be presented to the customer as a brand value proposition -
and must take the concepts in Step 1 into account.
Many people think that branding is merely about design and choosing
elements, but that is only the first phase. Marketing and branding is about
creating and linking the right meaning, associations, feelings, experiences
and image to the product in the customer's mind. In other words, branding is
not what the marketer does, it is what the marketer does that impacts on the
customer's mind in the desired way. This means that the marketing activities
and elements must be integrated to reinforce each other and build up the
desired associations in the customer's mind. This is quite a challenge, because
many functions and units in an organisation make operational decisions that
do not always take the brand and its values into account. The receivables
section of a supplier needs to be aware of the brand and its values, so as to
make sure its behaviour and method of dealing with a customer reinforces the
brand rather than destroying it through bad behaviour.
Brand associations are mostly built up by the experience of the customer
with the brand over time. The marketer can leverage the relevant associations
to reinforce the brand. An example of strong associations linked to a brand
can be seen in the following examples, which are only a few of the very strong
associations that Toyota has built up with their brand over the years to help in
marketing to B2B customers for their usage or fleets:
• Colours: white and red
• Design (typeface and symbol): a characteristic typeface and a symbol
consisting of three ellipses
• Country of origin: Japan
• Country of operation: a global manufacturer; in South Africa for many
years
• Feelings: trust, reliability, care
• Co-products: accessories, parts, services and other Toyota-branded products;
an association with the Hino (trucks) and Lexus (premium cars) brands
• Slogans: 'Lead the way'
11.5.3 Step 3: Measuring and interpreting brand performance

--·- - .. --- ---·- -- - - r -- ---------- -- ---- --o----------- -- ---rr-- ---- -----J --
-
SO as to better understand the investments and expenses required and the
outcomes gained as a result of them.
The organisation will have to gain the correct information, and this
means systematic collection and analysis of brand data in the short term as
well as the long term. Brand audits and tracking studies can provide both
a static and dynamic view of brand activity and generate information for
decisions. A brand audit is a process that assesses the health of the brand
and where it has managed to build up brand equity. It is used to help uncover
methods to improve and build on the brand equity that exists. The brand equity
management system incorporates all the procedures necessary to collect data
that is relevant and timely in order to assist in managing the overall branding
effort. Brand metrics are expanded on in Section 11.7 of this chapter.
11.5.4 Step 4: Growing and sustaining brand equity

Once the data has been collected and analysed, the organisation needs to use this
information to make specific strategy decisions about the branding effort over
time, over geographic areas and over segments. The brand hierarchy and brand
product portfolio help establish the structure of the brands in the organisation and
their depth and ordering. A brand portfolio is a matrix where the set of brands
offered by a company to a specific category or market segment is identified.
The types of decisions resulting from this information could be, for
example, to reinforce the work done on the brand in the mind of the customer,
or to revitalise the brand by renewing the branding effort in new and unique
ways. The organisation may be able to leverage the brand by extending the
brand into other categories not usually associated with the brand. As previously
mentioned, the Caterpillar brand has expanded into consumer clothing and
shoes. Another example is Anglo American, that implemented a strong
branding initiative after repelling the take-over efforts of a rival organisation.
The management team realised that the brand had not been valued strongly
by many of its stakeholders, and this led to efforts to revitalise the brand by
developing a focused brand effort for all the units within the Anglo American
umbrella. As of 2016, this process is still active in trying to improve the brand
equity of its brand across varied stakeholder groups in the mining sector.
11.6 Evaluating the branding effort

Kevin Lane Keller is one of the world authorities on branding, and he devised
a list of ten actions or attributes, called Keller's brand report card, that
263
can be used to judge the health of the branding effort in an organisation

(Keller 2000):
1. Does the brand excel at delivering benefits that consumers really want?
Apple is an example of a brand delivering great design and innovation for
its consumers across all of its product categories. This has been extended
even into retail, where the Apple stores have been extremely successful in
creating a new retail model and generating great support and sales for the
Apple brand.
2. Does the brand stay relevant for its target market? IBM, for example, had
to work hard to regain its relevance in the industry after going through
a stage where the existence of the brand itself was threatened. Today, in
2016, it is once again one of the strong global brands.
3. Is the pricing strategy based on customer perceptions of value? It is
important that marketers understand what customers think of a brand, and
how price relates to those perceptions. This must be taken into account
when considering changes to pricing. If a price drops too low, there may be
questions raised about attributes such as quality, reliability and consistency.
On the other hand, too high a price may make a purchaser reconsider other
alternative brands or look for substitutes. We can again look at IBM, which
had to relook its value proposition to B2B customers. At one point, many
customers thought that IBM's products had become too expensive and that
the company was trying to sell them equipment and systems they did not
really need, a perception which put the continued existence of the company
at risk. This led to the replacement of the Chief Executive Officer (CEO)
and a relook at the value IBM delivered. The aim was to make its pricing
be perceived as more moderate than premium. This, among other actions,
helped ensure the survival of the iconic IBM brand.
4. Is the brand properly positioned? Many of the great brands have been
successful because they established a strong positioning in their target
segments. Examples in the automotive industry include Toyota (reliability),
BMW (driving excitement), Lexus (quality and customer service) and
Mercedes-Benz (status and engineering).
5. Is the brand consistent? A brand can only convince customers of its
positioning by consistent performance and delivery of the value proposition
it promises its customers. For example, Caterpillar had to make sure its
machines were better at operational efficiency and that its service levels
and parts delivery were at a consistently high level to convince its B2B
customers that its products were worth the difference in price as compared
to some of its competitors.
fi_ Do the brand nortfolio and hiern.rrhv mn.ke <;Pn<;e? Thi-. mt>: n-. th:t tht>
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equity? Capitec waited a while after arriving in the market and then, in
2010, launched a hard-hitting television advertisement, which highlighted
the typical pain points that dealing with established retail banks presented
to customers. Capitec's message, emphasising simplicity and low costs,
resonated with its target market.
8. Do the brand's managers really understand what the brand means to
customers? This is not as simple as it sounds. An example of a failure in
this regard is a financial service provider that does not value its customers
enough in tough times, and then tries to regain business from customers
in the economic upswing. Customers will remember who supported them
during the tough times.
9. Is the brand given proper, sustained support? This is linked to being aware
of the strategic path of the brand, as all brands operate in very competitive
markets. Nokia and Blackberry are examples of brands that achieved great
success initially but got bought out as a result of poor performance in the
global cellphone market.
10. Does the company monitor the sources of brand equity? Many of the great
branded companies discuss the brand or the brands the company markets
at board level, since the real value of the organisation often rests in the
intangible assets represented by the brand equity it has built up. This is
reflected in the growing importance of reputation management in the B2B
space, and the growing concern about brand risk as a material risk for
many businesses.
11.7 Brand metrics

A metric is a number that is used to measure something that the business needs
to manage. Metrics are used more and more to manage businesses, and the
branding effort is one of the important areas for most businesses to manage. A
brand metric is therefore a measure or a number that the business can use to
help manage its brands or branding efforts.
For example, management may want to increase the brand equity (or
the rand value associated with a brand) by a given percentage. The starting
point for setting any such reference point is the business objectives of the
organisation, which indicate what the organisation is setting out to do. It is
quite important that these business objectives either directly address branding
objectives or can relatively easily be translated into branding objectives. If the
organisation's business objectives are too obscure to be readily translated into
265
branding objectives, then management may either neglect the important task
of brand building altogether, or a 'disconnect' (gap) may develop between what
the organisation sets out to do from a business perspective and the branding
effort of the organisation, resulting in wasteful effort. It is generally accepted
that many B2B management teams almost take the brand for granted, and
concentrate more on operational aspects.The large successful B2B organisations
take care to manage their reputation and brand, and the brand and its function
are often included at board level discussions.
Munoz and Kumar (2004) suggest that the key benefit of measuring
branding efforts is that it enables the company to link its branding efforts to
business performance and objectives. Brand metrics also enable a company to:
• compare the impact of its different branding efforts or campaigns
• compare its brand with those of its competitors
• measure the return on investment (ROI) of its branding efforts (efficiency)
• measure the success of its branding efforts (effectiveness)
• determine what its brand is worth
• determine how loyal its customers are
• determine what attribute of its brand contributes most to the brand's
success.
The following sections highlight a selected number of typical branding metrics
that are likely to be encountered in measuring brand performance. It is important
to stress that this is not a definitive list. The purpose of the description of these
metrics is to provide you with some insight into their nature and to help you
understand that different metrics have different purposes and benefits, and
may also have different drawbacks.
11.7.1 Branding return on investment

ROI is a common metric used in finance, marketing and other fields. A company
should strive to measure whether there is a positive income being generated
from its investment in a particular resource or activity, in this case branding.
In other words, does the money that the company spends on all of its branding
efforts result in greater income being generated by the firm?
Calculating branding return on investment

The total branding ROI can be calculated by one of the following formulas:
• Total branding ROI = contribution to income generated by the firm's
branding efforts - the cost of such branding efforts
• Total branding ROI = sum of the contributions from each individual brand
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Branding ROI, although it seems rather a simple calculation, is actually quite a

difficult metric to calculate, because it is not so easy to isolate what direct effect a
branding campaign has on income. The cost side is fairly easy to determine if the
company is rigorous in tracking the expenses associated with each campaign. This
is one area most businesses are good at measuring, but value aspects such as the
impact of the brand have not received the same level of attention.
11.7.2 Brand awareness

Brand awareness is the extent to which a customer is aware of a particular
brand. As mentioned in Section 11.3.1, brand awareness can be characterised
by depth and breadth. The depth of brand awareness relates to the likelihood
that the brand can be recognised or recalled by a customer. The breadth of
brand awareness relates to the variety of purchase and consumption situations
in which the brand comes to a customer's mind. Brand awareness is made up
of two measures, namely brand recall and brand recognition (discussed in the
sections that follow).
In B2B branding, it is important to make sure the initial brand presentation
is done well in order to ensure that purchasers gain awareness of the brand
and the company behind the brand. This is crucial where the product is an
important component of a total product and quality is required, Awareness
helps the marketer to get into the consideration set for the purchaser.
Brand recall
Brand recall is the extent to which a brand name is recalled by a customer as
a member of a particular brand, product or service class. Such recall may be
unaided (without prompting) or aided (with limited prompting). For example,
many workshop owners, when asked what spanners they prefer, would say
they prefer Gedore spanners even if the workshop does not actually use Gedore
spanners. This means the recall is high for them.
Top-of-mind is a version of brand recall. It is the extent to which a brand
name is recalled by customers 'off the top of their heads' (that is, it is the first
brand that comes to their minds) as a member of a particular brand, product
or service class. The example of workshop owners' recall of Gedore spanner
is also an example of this. When customers think of a brand first, the brand
in question (normally) resonates with them. The customer will inevitably buy
the brand that comes to mind first, unless an alternative brand presents a
compelling value proposition to buy at the time of purchase.
267
If a brand is in the minds of customers, then it suggests that the company's

branding efforts are working. However, one needs to be aware that the
customer may be recalling the brand name because of a negative experience
he or she has had with the brand in question. This suggests that when the
business undertakes the research, it needs to be clarified whether the memory
the customer has of the brand is a positive one or a negative one. A significant
share of negative recalls is of great concern, because these customers are likely
to speak out about the brand to other potential customers. Brand recall is
also one way in which to measure how one particular brand compares with
others (its competitors). If competition firms are generating higher percentages
of unaided recall than the business's brand, this suggests that they are more
successful in their branding efforts. High levels of unaided, positive top-of-
mind recalls are clearly an excellent measure of branding success, and a better
measure of success than aided recall. The trick is to translate that into long-
term sales.
As mentioned before, the aims in B2B marketing are firstly to build
associations in the customer's mind, so that the brand becomes synonymous
with the thought of the category which it belongs to and, secondly, to ensure
that purchasers have high brand recall. The more important the product is to
the purchaser, the higher the recall of the brands used. However, as previously
mentioned, recall can be high in terms of positive associations, but also high
for negative associations, such as having disappointed a customer or damaging
the environment. A B2B business wants strong, positive associations so that
recall is positive and high in the mind of the buyer and the buying team.
Brand recognition
Unlike brand recall, which is about finding out which brands are in the minds
of customers, brand recognition is about determining whether customers
recognise a brand when confronted with one or more attributes of a brand,
such as a logo, tagline, jingle, colour or font. For example, a customer who
recognises the Samsung mobile phone start-up sound as being associated with
Samsung is exhibiting brand recognition. In this regard, brand recognition is a
form of aided brand recall.
High levels of brand recognition are clearly a good measure of branding
success and they highlight the specific brand attributes that contribute to brand
recognition or recall. Brand recognition is one way to measure the effectiveness of
a business's various branding elements in encouraging customers to remember its
brand. Brand recognition is also a way to measure how one brand compares with
others (the competitors). If a competitor's brand is generating higher percentages of
Calculating brand awareness
Brand awareness can be calculated by using the following formula:
• Brand awareness = (brand recall + brand recognition)
In this formula, brand recall and brand recognition are determined as follows:
• Brand recall = percentage of customers from a sample that were able to
recall (aided or unaided) the brand name upon questioning
• Brand recognition = percentage of customers from a sample that were able
to recognise a brand name when presented with a logo, tagline or jingle
associated with the brand in question
Furthermore, top-of-mind recall can be calculated by using the following
formula:
• Top-of-mind = percentage of customers from a sample that, upon
questioning, recalled (unaided) the brand name first, before any other
brand name
11.7.3 Brand association

Brand association is the extent to which a brand name is linked (or associated)
in the minds of customers with various aspects, elements or attributes which
further enhance the brand (for instance product attributes, product class,
personality, expressions, attitudes, qualities, benefits, meanings, images,
price, advertising, employees, celebrity users, and so on). Brand association
is therefore a more qualitative measure and simply identifies those (hopefully
positive) images that exist in the mind of the customer when encountering
the brand. For example, when encountering a Mercedes-Benz truck, some
customers may associate the brand with prestige, quality and reliability. All of
the information that exists in the mind of a customer about a brand is referred
to as brand knowledge.
Calculating brand association

Brand association can be calculated as follows:
• Brand association = a list of aspects/elements/attributes that the customer
associates with or links to the brand in question
269
11.7.4 Brand image

Brand image is the overall image that the customer has in his or her mind of the
brand in question. (Brand image and brand association are not the same: brand
association contributes to brand image, and brand image, in tum, contributes
to brand equity.) A brand may be associated with a number of images in the
mind of the customer. Together, these images contribute to a single, overall
image of the brand in the mind of the customer. Keller (2006) defines brand
image as customer perceptions of and preferences for a brand, as reflected by
the various types of brand associations held in consumers' memories. These
associations differ across a number of different dimensions, such as strength,
positivity, uniqueness and abstractness. Strong, favourable and unique brand
associations are essential as sources of brand equity to drive customer behaviour
and purchasing. Note that brand identity is what a company strives to build,
while brand image is what is actually in the minds of customers.
Information regarding brand image is gathered qualitatively by asking
customers what image the brand brings to mind. Often, a free-elicitation
procedure is used to gather information from customers. In this instance,
customers are free to say anything and everything they wish about a brand
when stimulated with various cues. Many businesses use customer panels to
keep in touch with customer perceptions of their brands, or they rely on their
sales teams to monitor the image of the business in the minds of their customers.
Calculating brand image

Brand image can be calculated as follows:
• Brand image = single overall image that the customer has of the brand
11.7.5 Brand equity

Two measures that are very important in measuring brand performance are
brand equity and brand value. These two concepts are often confusing. Brand
equity is a measure of the premium in the minds of customers that a brand
name adds to a product or company - it is the customers' views of the brand.
Think of the image that a name like Caterpillar or IBM brings into your mind.
Brand equity is not an easy metric to measure, and different branding experts
use different formulae for calculating it.
Calculating brand equity

Brand equity can be calculated by using the following formula
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11.7.6 Brand value
As pointed out, brand equity and brand value are often confused in the literature.
Brand value is the financial value associated with a brand. In other words, this
metric strives to measure what a brand is worth in economic terms. Like brand
equity, brand value is not an easy metric to measure, and the literature reveals
many different approaches and formulae.
Calculating brand value

As brand value involves many different models and providers, only the key
approaches to measuring brand value are identified here:
• Cost approaches attempt to measure the value of a brand by measuring
all the costs associated with developing the brand. The cost method is not
an effective means of determining brand evaluation, although it can be
used in instances where companies have easily replaceable assets such as
software or customer databases. It does not capture the intrinsic value that
exists in a brand because of a brand's competitive position, brand strength
or brand risk, and it may be difficult to calculate costs if a brand has been
around a long time.
• Market approaches consider recent transactions that have involved similar
brands and for which data regarding transaction prices is known. This is
a comparative approach in which either the sale of a similar brand or the
estimated cost of paying royalties to obtain the rights to a similar brand is
considered as a means of evaluating the value of a brand.
• Income approaches are perhaps the most common approaches used. In this
category there are many different approaches one can follow, including
determining price premiums, brand strength analysis, gross margin or
profit comparisons, cash flow differences, company valuation less value of
tangible assets, and so on.
Branding is something that affects everyone, either as marketers or as customers, and the benefits
that a good brand can bring mean that the successful branding actions of marketers will continue
to drive results for those firms. +-
271
This chapter introduced the concept of branding, and explained what is meant by branding. We
identified the direct benefits gained from branding by companies as well as explained the different
levels of brand loyalty. The different types of brands were introduced, and we went through the
steps followed in the branding process to build up brand equity. Lastly, we discussed the actions
and activities that can be used by an organisation to measure the branding programme of an
organisation.
1. Explain the guidelines for choosing a brand name.
2. Discuss the brand elements that need to be considered when designing a
brand.
3. Discuss the characteristics of B2B marketing that makes it different to B2C
marketing.
4. Discuss the different levels of brand acceptance.
5. Explain the brand pyramid and its components.
6. Compare the characteristics of a product brand and a corporate brand.
7. Explain and compare brand acceptance, brand recognition and brand recall
as brand metrics.
8. Explain any five of the 10 actions Keller identified that a marketer can use
in the brand report card to evaluate brand health.
References
Hatch, MJ Et Schultz, MS. 2008. Taking brand initiative: How companies can
align strategy, culture, and identity through corporate branding. San Francisco:
Jossey-Bass.
Keller, KL. 2000. 'The brand report card'. Harvard Business Review Jan/Feb, 78(1):
147-155.
Keller, KL. 2003. Strategic brand management. 2nd ed. Upper Saddle River: Prentice Hall.
Keller, K. 2006. 'Measuring brand equity', in The handbook of marketing research:
Uses, misuses and future advances, edited by R Rover and M Vriens. Thousand
Oaks: Sage: 546-569.
Kotler, P Et Keller, KL. 2006. Marketing management. 12th ed. Upper Saddle River:
Pearson Prentice Hall.
Kotler, P Et Pfoertsch, W. 2006. B2B brand management. Heidelberg: Springer.
Merriam, L. 2014. Brand loyalty- how it impacts markets: Lessons for Hillary and
the GOP. Available: http:/ /lisamerriam.com/author/ldmerriam/page/4/ (Accessed
7 September 2016).
Supply !chains and channel
relationships
Mercy Makhitha
learning outcomes
• understand what supply chain management (SCM) is
• explain the different activities in SCM
• discuss the importance and benefits of SCM
• understand the role of buyer-supplier relationships in SCM
• explain the nature of the buyer-supplier relationship
• discuss the role of e-commerce in SCM.
I - - -
Introduction
The previous chapters covered important elements in a B2B marketing
environment. This chapter will discuss SCM. It is important for a marketer to
understand SCM, since all B2B transactions take place through the business
supply chain. Understanding the business supply chain enables businesses to
market their products better than those that do not. Each B2B business has
its suppliers and B2B customers. Therefore understanding the supply chain
implies that the business understands its suppliers and its customers as well as
the activities that are performed throughout the supply chain in the process of
getting goods to its final destination.
In addition to understanding the supply chain, businesses must also forge
relationships with other members of a supply chain. This entails relationships
with suppliers and business customers. This chapter will therefore also cover
buyer-supplier relationships.
12.1 Supply chain management and what it

involves
The supply chain brings suppliers and customers together by providing the
right product, at the right time and in the right place. Without the supply chain,
businesses would find it difficult to meet the requirements of the market. In the
supply chain, raw materials are sourced from suppliers, products are produced
and kept in stock for customers to place orders, and goods are delivered to
customers when needed. This could not happen without the supply chain. Since
organisations rely on supply chain activities to succeed, the effectiveness and
efficiency of these supply chain activities determine business success. It has
been said that winning organisations are those led by people who understand
their supply chain.
The supply chain includes upstream linkages (sources of supply), internal
linkages (inside the business) and downstream linkages (distribution to end
customers). There are four major components to a supply chain, namely:
1. the flow of physical materials from suppliers downstream through the
business itself and finally to distributors and/or B2B customers
2. the flow of money upstream from organisational customers back to the
company itself and higher up to suppliers
3. theflow of information up and down the stream to all supply chain members
4. the flow of products back upstream from the customers, typically for repair
or recycling.
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tremendously since the mid-1990s and has overtaken the rail industry as a
supply chain choice, since trucking companies are able to provide speedy and
reliable services. All these activities form part of SCM.
SCM is one of the very important functions within a business. SCM is
defined by the Global Supply Chain Forum as 'the integration of key business
processes from end user through original suppliers that which provides products,
services, and information that add value for customers and other stakeholders'
(Lambert Et Cooper, 2000:66). It is furthermore defined by Hilletofth (2009) as 'a
set of approaches utilised to efficiently integrate and co-ordinate the materials,
information and financial flow across the supply chain so that merchandise is
supplied, produced and distributed at the right quantities, to the right location,
at the right time, in the most cost efficient way, whilst satisfying customer
requirements' (2009:16).
12.1.1 Activities of supply chain management

The steps and activities in SCM can be depicted as in Figure 12.1. This figure
also illustrates how the supply chain process involves moving goods and
services from suppliers of raw materials through to customers.
Sourcing Operations: Outbound Inbound of

raw production, storage/ storage/
Vendors/
warehousing,
suppliers materials transportation transportation
inventory moving goods
t-- manageme11t out of storage
Upstream suppliers Downstream customers
Figure 12.1: Illustration of the supply chain process
There are various activities that must be performed by supply chain members
in the process of getting goods and services from one source of supply to the
next destination. These include activities such as sourcing raw materials and
parts, manufacturing and assembly, transportation, warehousing and inventory
tracking, order entry, order management, distribution across all channels and
delivery to the customer. Information sharing among supply chain members
makes the supply chain more effective and efficient, since businesses in
the supply chain then understand the needs of its members in the supply
chain. Supply chain activities also consist of customer service and support,
demand forecasting and planning, purchasing and procurement, inventory
275
management, order processing and logistics communications, materials hand-

ling and packaging, transportation, facilities site selection, warehousing,
storage, returned goods handling and reverse logistics. This also includes
supply base management, inbound material transportation and storage,
outbound transportation and distribution, manufacturing, warehousing and
marketing and sales.
As already stated, SCM involves movement of goods from suppliers
through to manufacturers, distributors and end users. For goods to move from
suppliers and eventually to end users, various supply chain activities must be
performed. The following sections discuss some of the major activities of the
supply chain.
Sourcing
Sourcing is the process of purchasing raw materials and other goods and
services from suppliers for use in the production of other goods and services
as well as for the operation of the business. Buyers or buying personnel are
responsible for the sourcing of raw materials and other goods and services,
and there are many activities that B2B buyers perform as part of their duties.
Sourcing is therefore an activity in B2B buying (see Chapter 2).
Warehousing
A warehouse is a storage space used by businesses to store raw materials and
other goods before they are used in production or transported to customers
downstream. For example, businesses buy raw materials and keep them in
warehouses. These raw materials are then moved from the warehouse to the
production process as and when needed. It is to the business's advantage to
keep stock in a warehouse, since stock can then be made available as and when
needed, instead of the business having to wait for a delivery. The challenge for
businesses is to maintain sufficient stock in the warehouse but also reduce the
cost of storage. For example, if a company keeps too much stock, it will pay
more for warehouse space. The company will also incur maintenance costs as
well as the costs of insuring the stock.
There are many warehouses in South Africa that a business can rent
for keeping its stock. Some businesses prefer to build their own warehouses
instead of renting out the space. Retailers such as Pick n Pay, Shoprite and
Spar have their own warehouses where they keep the stock they have bought
from manufacturers before they distribute it to their store branches. SAB has
seven depots in Gauteng, where production takes place. After the beer has been
produced, SAB keeps stock in these depots for distributin!! to customers.
mentioned, a business should keep sufficient stock in the warehouse to avoid
running out of stock. Inventory management entails a responsible person,
usually the warehouse manager, determining how much stock to keep in the
warehouse and monitoring the movement of stock in and out of the warehouse.
Buffer stock is the minimum stock required by the business not to run out of
stock. Remember that being out of stock means that production will come to a
standstill, and that the business will not be able to make products available in
the market. This could have a negative impact on the business, especially since
competitors' products would be available in the market - customers would
then opt for competitor's products. Businesses can lose market share as a result
of the unavailability of products in the market. Inventory management also
affects the time-to-market; it is obviously to a business's advantage to have
products ready for the market, on time and before its competitors.
Transportation
Transportation is needed throughout the supply chain to move goods from
one supply chain member to another. For instance, suppliers of raw materials
need transportation to move stock from their warehouses to manufacturers'
warehouses. After producing goods, manufacturers need to move the finished
goods from their warehouses to the warehouses of wholesalers, retailers or
distributors. These parties also need transportation to get goods from their
warehouses to the different branches or stores. There are many trucks on the
road covered with the names of retailers and manufacturers.
Depending on a company's location, the type of products in question and
the company's financial position, there are different types of transportation
methods that can be used, such as road, rail, air, water and pipeline. Each
of these transportation methods has its own advantages and disadvantages.
Businesses must carefully select the mode of transport they want to use to
distribute their products. As mentioned earlier, the trucking industry in South
Africa has grown tremendously since the mid-1990s and has proved itself as
an efficient and effective method of getting goods to their destination on time
and cost-effectively.
Order processing
All businesses that produce goods, as well as those involved in the trading of
goods, have an order processing system in place to enable customers or other
members of the supply chain to place orders. For instance, manufacturers buy
raw materials from suppliers through the supplier's order processing system.
277
Manufacturers must also have an order processing system so that their customers
can place orders when they want to buy products. Different types of systems
are used, depending on the size and technology adoption of the business. The
purpose of order processing is to ensure that B2B customers are able to place
orders conveniently and that the business is able to deliver the right product,
at the right time, at the right place. This is achieved by including information
in the order request, such as the product description, the quantity, the price,
the place where the order should be delivered and, sometimes, the time when
the product is needed by the B2B customer. Many businesses have created
systems whereby customers can place orders via the internet. These systems are
useful in that businesses can communicate the availability of stock as well as
other information required, such as a change in price or price specials, to B2B
customers. There are also advanced order processing systems, however, they
fall outside the scope of this book.
Customer service
This is a very important element of SCM. A business cannot only focus on
selling goods and services without providing the necessary customer support.
Customer services are needed to support the sales of goods and services and to
ensure that customers' queries and complaints are handled on time. This is vital
to building relationships with customers. The customer service section of the
supply chain deals with complaints, queries, returns, exchanges, repairs and
so forth. The customer service process must be designed in such a way that it
enables and encourages customers to approach the company should there be
dissatisfaction with the products.
ZZ2 is a South African farming enterprise. ZZ2's branded tomatoes are sold to the public through
major retailers. ZZ2 supplies tomatoes to different companies in its supply chain. For example, ZZ2
supplies tomatoes directly to the fresh produce market (FPM) and processing businesses. Processors
are manufacturers who buy tomatoes to produce other products, such tomato sauce, canned
tomatoes and so forth. The FPM markets (of which there are 17 in South Africa) are government
wholesaler markets that sell to exporters, wholesalers, wholesale-retailers and retailers such as
supermarkets, hawkers and tuck shops which then sell to final consumers.Furthermore, businesses
in the catering and hospitality industry buy tomatoes from ZZ2 then sell them to final consumers.
Figure 12.2 shows ZZ2's supply chain. ZZ2 engages in various activities in managing the supply
chain. For example, the company may keep stock of the raw materials needed to plant and grow
tomatoes. After the farming of the tomatoes, the company may need to keep stock of tomatoes
company does not run out of stock.
( Producers ) Tomato Farmers Countrywide

• Large-scale farmers • Small-scale farmers
,!.
} Produce markets
( Wholesale • 17 national fresh
produce markets Proces90rs
(FPM) • Paste • Canning
• Sauces • Freezing f---.
+
Exporters
• Preparations
Other Eg Nestle, Giants Canning & Tiger
• Direct sales Brands
intermediaries
• Export agents
J
Wholesale-
retail
I • Distribution centres
• Satellite produce markets
• Chains eg Fruit & Veg City
Formal and informal retailers

( Retail ) • Supermarkets • Greengrocers
-
• Hawkers • Tuck shops (spazas)
t t t
Catering Hospitality Institutions
r
Further
processing ) • Restaurants
• Fast-food
• Hotels
• Bed & breakfasts
•
•
Corporate
Government
• Functions & • Lodges • Hospitals
events • Prisons
. of
+
Final consumers
( Consumers ), • Local consumption • Foreign
markets (mainly
regional)
-
Figure 12.2: ZZ2's supply chain (DAFF, 2014)
279
12.2 The role of supply chain management within

a business
According to Pienaar and Vogt (2012), the purpose of SCM is to create value,
enhance efficiency and satisfy customers. Since the cost and quality of goods
and services sold are directly related to the cost and quality of goods and
services purchased, SCM is important to the success of a manufacturing firm.
Purchased goods and services account for 800fo of sales revenue, which makes
SCM key to success for any business (Quayle, 2003). SCM creates competitive
advantages as well as greater profit for businesses. SCM has an impact on key
competitive dimensions such as product availability, order-to-delivery cycle
time, costs of the product, information availability and customer services.
12.2.1 Supply chain management and the four Ps

There is no business that can succeed without an effective and efficient supply
chain. The supply chain affects the activities performed by other functions in
the business, such as marketing, operations and production. It ensures that
the right product is made available, at the right time, in the right condition,
in the right place and at the right price. The supply chain should therefore be
co-ordinated well with other functions within the business. The following are
some ways in which SCM interacts with the four Ps of the marketing mix:
1. SCM and product: Product decisions are concerned with the product itself
- its size, shape, weight, design, packaging and so forth. Product decisions
affect the movement and storage of the product, which means that the
supply chain manager must consider product decisions first before making
decisions on how the products will be stored and moved. Furthermore,
it is the role of SCM to source raw materials as well as other goods and
services needed in the company. This will have an impact on the quality of
products the company produces, which means that SCM has a direct impact
on the quality of products and on whether production can take place or not.
Unless raw materials have been sourced, the production department cannot
start with the production process. This means that SCM also affects the
ability of the company to provide its products and services to the market
on time.
2. SCM and price: The price of the product is also influenced by the cost of
SCM activities. If SCM managers are able to bring SCM costs down, this
will enable marketing managers to set competitive prices. SCM costs may
be brought down through managing the costs of purchasing, and managing
inventory by ensuring that the business does not keep unnecessary stock,
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companies compete on costs, their ability to manage supply chain costs

would enable them to maintain their competitive advantage.
3. SCM and place: Getting products to the right place at the right time is a major
function of SCM. This involves activities such as sourcing, warehousing,
inventory management, order processing and customer services. Products
must be delivered to, for example, retailers so that they can resell them to
consumers. It is SCM's responsibility to forecast demand so that products
can be made available as and when customers need them. Demand
forecasting is important, since it enables the business to determine the
future demand for its products and services. This information enables the
business to supply the products as and when needed. A major case in point
is the load shedding and power cuts that South Africa has experienced.
Although there are many reasons why Eskom has at times been unable to
supply electricity on demand, demand forecasting is one of the issues. For
example, Eskom could have predicted the higher demand for electricity and
built power stations to provide for this demand.
4. SCM and promotion: Companies run promotions from time to time. This
requires that stock be made available during the promotion period. SCM
can enhance the promotion of a product by ensuring that products are made
available on time. It would create negative publicity should an organisation
advertise products that are not available for customers to buy.
12.2.2 The benefits of supply chain management

According to Hutt and Speh (2004:150-151), SCM has four goals, each of which
brings significant benefits to the organisation involved:
1. Waste reduction: SCM reduces waste throughout the supply chain by
minimising duplication, harmonising operations and systems, and
enhancing quality. Duplication can be reduced if inventories can be
centralised and maintained by a few organisations at critical points in the
distribution process. Harmonisation can lead to waste reduction through
achieving uniformity and agreement among the organisations regarding
operations and systems. For example, instead of having two different pallet
systems, participants may decide on one. This means the same equipment
can be used in handling and storing pallet loads, and it can gain leverage
for the entire supply chain in dealing with pallet suppliers. Waste reduction
can also be achieved through maintaining quality products, operations and
assets, since this is essential to operating an efficient supply chain.
281
2. Time compression: This refers to the compression of the order delivery

time. Supply chain entities are able to operate efficiently when production
and logistics processes are accomplished in less time, which leads to
reduced inventories throughout the system. Time compression means that
information flows smoothly and quickly through the supply chain, which
enables parties to respond quickly to customers while maintaining minimal
inventory. Time compression also means that parties can observe and
understand the cumulative effect of problems that occur anywhere in the
chain and respond quickly.
3. Flexible response: This means that individual customer needs are responded
to in a cost-effective and profitable manner. Organisations can be flexible in
order handling, product variety, order configuration, order size and several
other dimensions. It may also mean customising products to customer
requirements.
4. Unit cost reduction: This involves reducing the cost per unit for the
end customer. To achieve this, organisations must determine the level
of performance desired by the customer and then minimise the costs of
providing that service level. The main purpose of unit cost reduction is not
cost cutting, but reducing costs to the lowest level possible for the service
level required. Unit cost reduction can easily be achieved if management
pays attention to eliminating actions and activities that unnecessarily
add costs, such as duplicate inventories, keeping unnecessary inventory,
transportation costs, double and tripling handling of the product,
unconsolidated shipments and uncoordinated promotions, such as special
sales.
When organisations achieve the goals of SCM, it benefits both the organisation
and the customer. The organisation will experience financial gains if all SCM
goals are achieved.
12.3 Supply chain management and buyer-

supplier relationships
The buyer-supplier relationship is a well-researched topic in SCM. Due to the
need to satisfy demanding customers, globalisation, accelerated competition,
technological advances in the communication of information, decreased
governmental regulations worldwide and intensified environmental concerns,
organisations are focusing on developing and maintaining relationships as a
means of survival and to compete. The management of the buyer-supplier
uevewp some wunung re1anonsmp wn:n mem. nuyer-suppuer re1anonsmps
may involve a buying organisation developing relationships with its suppliers,
B2B customers as well as other members of the supply chain.
Businesses adopt buyer-supplier relationships for two reasons: to ensure
cost savings and to attract specialised competencies. Buyer-supplier relationship
management entails managing relationships with preferred suppliers and
finding new ones while reducing costs, making purchasing predictable and
repeatable, sharing experiences and extracting benefits for both parties in the
relationship. In order to manage buyer-supplier relationships, suppliers adopt
a customer relationship management (CRM) approach, which enables them
to increase customer loyalty and business over the lifetime of a customer.
Organisations adopt CRM to achieve three primary goals, namely:
• building long-term and profitable relationships with chosen customers
• getting close to chosen customers at every contact point
• maximising the B2B supplier's share of the B2B customer's wallet.
12.3.1 The importance of integration and information sharing

The increasing competitive pressure and the rapid pace of technological
development in the market today have forced organisations to focus on
partnerships with suppliers as a means of distributing risk and enhancing
business processes, through the development of joint skills and shared inter-
organisational routines. The benefits of SCM can be maximised when buyer-
supplier relationships involve intra-firm and inter-firm functional integration,
sharing and co-operation. This implies that functions in organisations must
break down functional silos to foster internal co-ordination and integration
across marketing, production, purchasing, sales and logistics. Information
sharing within the organisation is possible if there is internal integration, since
personnel across departments can then easily communicate with each other.
For example, the production department can communicate their requirements
to the buying department, which makes it possible for the buying department
to meet their needs. The marketing department may also communicate the
needs of final customers, which would influence what the buying department
would buy as well as what would be produced by the production departments.
In addition, external co-ordination and integration of the actions,
systems and processes of all supply chain members - all organisations in the
supply chain - must be achieved. The successful integration of supply chain
activities can best be achieved if organisations are involved in close working
relationships with members upstream as well as downstream. Joint planning
and communication that cut across functional and organisational boundaries
283
to co-ordinate the movement of products to the market are therefore common

in SCM.
Supply chain arrangements are formed to increase the competitiveness of
channel members, and this requires that channel members share information,
including strategic information, so that they can jointly plan to satisfy each
other's requirements. For example, SCM requires that parties share sensitive
and confidential information about customers, actual demand, point-of-sale
transactions and corporate strategic plans. Changes in the needs of customers
also need to be communicated to suppliers so that suppliers know how to
adapt their supply to meet the needs of the B2B customers. Suppliers may
also need to communicate with their B2B customers if changes occur within
the organisation that may have an impact on B2B customers or other supply
chain members, such as changes in the supply of stock, technological changes
and other developments. Supply chain co-operation also reduces waste. For
example, the sharing of information can help organisations to plan their
inventories in such a way that they supply enough when needed instead of
over-supplying, which may lead to waste.
12.3.2 Developing the buyer-supplier relationship

Buyer-supplier relationships are believed to develop according to a sequential
process consisting of four stages:
1. The pre-relationship stage is initiated by searching out information
sources, evaluating existing suppliers' performance, and evaluating the
efforts of potential suppliers. Suppliers are evaluated based on the buyer's
experience with previous suppliers, the buyer's uncertainty about potential
suppliers and the buyer's distance from potential suppliers. This early
stage is characterised by a high level of uncertainty, with low commitment
and experience. At this stage, parties can negotiate a sample delivery to
test the ability of potential suppliers to deliver reliably and according to
specifications. The purpose of this stage is to avoid long-term commitments
in a relationship by testing potential suppliers before such commitments
are made.
2. The developmental stage is a phase where buyers and suppliers start to get
to know each other. The level of uncertainty is reduced and there is an
increased level of commitment, experience and trust. The buyer and supplier
share information. The buyer may increase the quantity of purchase as
well as the variety of products bought from the supplier. The purpose is to
ensure that the supplier's capability is well assessed and that the B2B buyer
is satisfied with the performance of the supplier.
'-0.'-ll UlllCl.
4. The last stage, which is the final stage, involves a situation where the
parties deal with each other based on an industry code of practice, with
long-established markets and with extensive institutionalisation.
In a buyer-supplier relationship, the parties must overcome certain barriers
that can inhibit successful integration. Barriers include the fact that the parties
may not want to reveal certain information to each other. This takes place in
the early stages of the relationship process, before parties develop some level
of trust in each other. Another possible barrier is the fact that B2B buyers
might not want to accept new product ideas from suppliers. Due to changes
in the market, technological developments and macro-factors, suppliers may
sometimes supply new or different raw materials to B2B buyers. Since the
customer may have to accept a new type of raw material, the supplier needs
to ensure that it has built a good relationship with the customer. To overcome
these barriers, commitment is needed from the top management of both
B2B buyers and suppliers. There must be a joint agreement on performance
measures. Confidence in the supplier's capability as well as formalised reward
or risk sharing are also required. For example, a supplier may request a buyer
to buy more stock and guarantee to buy back the stock if it does not sell,
which involves the supplier sharing risk with the buying organisation. The
development of trust is paramount, as trust is important for buyer-supplier
relationships. It enables the buyer and supplier to share the information
and resources needed to serve each other better. High levels of trust reduce
perceptions of risk, increase confidence and reduce transaction costs.
Certain factors facilitate greater co-operation between buyers and
suppliers:
• The goal of high and consistent quality: Parties in collaborative relationships
(see Section 12.3.3) have the goal of producing high and consistent product
quality through co-operation with each other.
• The need for flexible responses: This is done to accommodate the changing
needs of B2B customers.
• The need for joint product development work: Parties in collaborative
relationships work jointly on the development and production of goods.
They might also work together to generate product ideas on behalf of both
parties.
• Requirements regarding specific delivery times: The B2B customer must
communicate its delivery requirements in order for suppliers to match these
requirements. This entails the packaging requirements, when products
should be delivered and where products should be delivered.
285
• Frequent ordering: Collaborative relationships sometimes lead to products

being designed to a customer's specification. In these cases, the supplier
will benefit more from investing in that particular customer if the customer
orders the product more frequently.
• A buyer requiring wide product ranges from a limited number of suppliers:
Organisations buy from a limited number of suppliers, because they want to
maintain long-term and collaborative relationships with suppliers instead
of changing suppliers from time to time and adding new ones over time.
• High degrees of physical product differentiation: Organisations buying
products that require a high degree of product differentiation may opt
for a collaborative relationship so that their product requirements are
communicated to the suppliers and so that all parties can work together
on the development of the products. Therefore, collaborative relationships
ensure that parties can work together on defined B2B customer requirements
and that requirements are met.
• Strong manufacturer brands: This can be achieved through working with
reliable suppliers who are able to supply products of high and consistent
quality.
12.3.3 Types of buyer-supplier relationships

Buyer-supplier partnerships have become one of the major forces influencing
how businesses do business with each other. Relationships between organisations
range from arm's-length relationships, which consist of once-off exchanges or
multiple transactions, to the vertical integration of two organisations.
Although there is no one relationship that is appropriate for all buying
situations, most partnerships share common elements and characteristics.
Various scholars have classified buyer-supplier relationships in different ways.
In this section we present three different possible categorisations of relationships,
each of which contributes something of value to our understanding of buyer-
supplier relationships. There are also some similarities across the different
categorisations.
There are three main types of partnerships:
1. Transactional relationships: Two organisations carry out transactions with
each other without being involved in a long-term relationship. This is also
known as an arm's-length relationships. Arm's-length relationships involve
a seller offering standard goods or services to a wide range of customers who
receive standard terms and conditions. These relationships end when the
exchanges end. There is no sense of joint commitment or joint operations
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major factor when deciding whether to buy or not. The relationship centres
on the timely exchange of basic products for a highly competitive market.
Buyers prefer transactional relationships when there are many alternatives
in the market, the purchase decision is not complex and the supply market
is stable. Furthermore, buyers consider this relationship when the purchase
is considered less important to the achievement of organisational goals.
Buyers typically use this kind of relationship when they buy products such
as office supplies, commodity chemicals and shipping services.
2. Collaborative relationships: In this relationship the organisations have
progressed beyond the mere co-ordination of activities to the integration
of activities. These types of partnerships have a long-term focus and
involve multiple divisions within the organisations. These relationships
involve a B2B buyer who wishes to create new value by moving some
operational parameters in the provision of goods and services by a supplier
in exchange for the customer obtaining a higher profit or reference sales.
It features dose information, social and operational linkages as well as
mutual commitments that are made in expectation of long-term benefits.
Buyers prefer collaborative relationships when there are few alternatives,
the market is dynamic and the complexity of the purchase is high. Buyers
seek this type of relationship when the purchase is considered important
and strategic to the buying organisation. Products such as manufacturing
equipment, enterprise software or critical component parts are examples of
products bought by buyers using this kind of relationship.
3. Exclusive relationships: Organisations involved in this type of partnership
(also called strategic relationships) show significant levels of integration,
viewing each other as extensions of their own business. In this type
of relationship, the customer has exclusive rights over some supplier
capabilities, such as capacities, products or product lines, in return for
committed growth for the supplier. For example, McDonald's markets
some of its products as meals sold with a cooldrink such as Coke and
other brands. This makes Coca-Cola significant to McDonald's business,
since McDonald's cannot sell the meal without the drinks. These strategic
alliances require that buyers and suppliers integrate their core competencies
and add value to the relationship. Information is shared and there is a more
efficient supply chain, with members being treated equally. Partners also
share the risks and rewards of the relationship and trust is important to
establish increased integration between the parties.
287
Depending on the nature of the products and services, as well as the relationship
between the supplier and the B2B buyer, buyers may source goods and services
from one or many suppliers. This implies that the nature of the products will
determine the nature of the relationships B2B buyers and suppliers must have
- for their own survival.
The types of relationships are also influenced by the buying situation that
a B2B buyer is involved in - a new-task buy, a modified rebuy or a straight
rebuy (see Chapter 2). For example, a buyer in a new-task buy will be involved
in a transactional relationship, whereas a buyer in a straight rebuy situation
may be involved in either a long-lasting collaborative relationship or a long-
lasting strategic alliance relationship. A buyer in a straight rebuy situation
might decide to source from one supplier with contractual penalties. In a
modified rebuy, a buying organisation might source from multiple suppliers
and also get involved in strategic alliances and partnerships.
The history of the relationship between a buyer and supplier can influence
the structure of the buying process. For example, information requirements
will differ depending on whether a buyer and supplier have a long-standing
relationship or a new relationship. There is also a greater information exchange
between buyers and suppliers involved in a long-term, strategic relationship. The
type of relationship that exists between a B2B buyer and a supplier influences
supplier selection, since the buyer will consider the type of relationship it has
with various suppliers when evaluating them and also when determining the
supplier selection criteria. For example, cost and quality criteria are suitable
for all levels of relationship, while manufacturing capability and performance
history criteria are important for collaborative and strategic relationships. The
rate of acceptance of new products by B2B is also higher when buying from
existing suppliers (in-suppliers) than when buying from new suppliers (out-
suppliers).
12.3.4 Relationship connectors

In any type of relationship, there are different factors that connect the two
parties in a relationship. Hutt and Speh (2004:94) identified four factors that
connect a buyer and a seller in a relationship:
1. Information exchange: Parties expect to share information openly for
the benefit of both parties. Both parties are willing to share important
information, including proprietary information such as product development
plans or cost data. Sharing information improves product quality and
speeds up product development. Organisations use the internet to exchange
information with customers and to deliver technical support to them.
-" - _ 1 -, _ _ }_ "'T
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retail organisation so that the supplier can determine the level of stock
available to retailers. This helps suppliers to plan their supply ahead of time
to avoid running out of stock.
3. Legal bonds: These are binding, contractual agreements defining the
obligations of both parties in a relationship. Formal agreements exist
in some cases between organisations in a relationship. However, more
informal verbal agreements are still used among many organisations. The
purpose of the legal bonds is to protect parties should something go wrong.
However, the legal bonds can also become liabilities, since it might not be
possible for parties to exit the relationship before the end of the contract
period, thus reducing the flexibility available to the relationship partners in
responding to environmental changes.
4. Co-operative norms: These norms reflect how the two parties in a
relationship expect to work together to achieve mutual and individual
goals, and what the two parties regard as appropriate behaviour regarding
co-operation. Parties with a high level of co-operation in their relationship
approach problems as joint responsibilities, while those with a low level of
co-operation work independently of each other to achieve individual goals.
12.3.5 The benefits of collaborative buyer-supplier

relationships
Traditionally, many businesses worked in isolation, engaged in what was defined
in the previous section as transactional relationships. However, as businesses
realised the benefits of closer co-operation, there was a general move away
from transactional relationships to more collaborative relationships. Today,
many B2B buyers apply supplier base reduction, in other words reducing
their number of suppliers and focusing on fewer suppliers in a bid to build
collaborative relationships.
The benefits businesses gain from building collaborative relationships
include (Benton, 2007:191):
• a greater competitive advantage, since the organisations co-operate to
increase overall sales and reduce total costs rather than competing for a
bigger share of the profit
• improved business processes across the supply chain, which lead to a
reduction in the cost of parts and materials
• reduced uncertainty for the B2B buyer in material costs, quality and timing,
as a result of communication and information sharing between parties
• a reduced supplier base, which is easy for the buyer to manage
289
• reduced uncertainty for suppliers in the market due to a greater understanding

of consumer needs and product specifications - in collaborative
relationships, suppliers and their B2B customers share information about
their needs and requirements, which reduces uncertainty for suppliers
• reduced uncertainty for both buyer and supplier due to convergent
expectations and goals, reduced effects from externalities, reduced
opportunism and increased communication and feedback
• a better performance on aspects such as delivery reliability and delivery time
- the organisation is able to deliver products on time and per specifications,
as information is made available
• increased competencies, which contribute to faster product development,
higher product quality, increased shared technology, product innovation
and greater joint involvement of product design thanks to joint product
and process development
• cost savings thanks to economies of scale in ordering, production and
transaction and decreased administration
• greater flexibility in time management thanks to faster product development,
a shorter time-to-market for new products and improved cycle times
• shared risks and rewards thanks to joint investments, joint research and
development - businesses involved in a collaborative relationships may
work together by investing in a project for mutual benefit, as well as by
means of research and development
• increased profitability.
12.4 Power in channel management

12.4.1 Conflict in the supply chain
As with any relationship, conflict may occur between the parties in the supply
chain, for a variety of reasons. Supply chain members need to manage their
relationships so that conflict may be avoided or reduced. Conflict may occur
between upstream members as well as downstream supply chain members.
Dwyer and Tanner (2002) listed the following types of conflict:
• Goal conflict occurs when a party in the supply chain pursues goals that
are in conflict with another party's goals. For example, a manufacturer may
want to increase the sales of its products, while the distributor wants to
increase profit. This means that parties need to communicate openly with
each other regarding what their goals are to ensure that they understand
each other's needs and what each party wants to achieve.
• Means conflict occurs when parties disagree on how something should be
U.P.P..t. V .P..t. ..I.Cll..'-•
• Conflicting views may arise when supply chain members have different
perceptions and theories of what should happen, for example if a
manufacturer expects a distributor to stock more products than what the
distributor plans to. Two parties may have different views regarding how
much stock to keep, which products to keep and how many sales calls a
customer should receive.
Conflict in the supply chain can be avoided or reduced through open
communication between the supply chain members. Members should also
avoid making decisions without the involvement of other parties. The parties
also need to understand each other's business, so that they can avoid making
decisions that have a negative impact on other members of the supply chain.
12.4.2 Power in the supply chain

Since parties in the supply chain may have different levels of expertise,
resources and skills, power might not be evenly distributed among them. Power
is the ability of one party to make another party do what that party would not
otherwise do. It occurs when one party is dependent on the other for valued
resources (Dwyer a Tanner, 2002). For example, small manufacturers may not
have the resources needed to access distribution channels and might as a result
depend on large retailers as distribution channels. Retailers or distributors often
abuse the power they have over these small manufacturers by, for example,
demanding lower prices that might affect the profitability of the relationship
for the small businesses.
The following are the types of power that might arise in the channel:
• Reward power is the ability of one member to provide payoffs to another
party for a specified behaviour or outcomes. For example, a manufacturer
may promise the salesperson from the distributor a free trip to a destination
for selling more of the manufacturer's products than competitors' products.
• Coercive power is when one party has the ability to use the threat
of punishment to get another party to do something. For example, a
manufacturer might threaten a distributor with terminating the supply of
products if the distributor does not sell a certain quantity of products or
charge a particular price for the product. Distributors might also threaten a
manufacturer with terminating an order, delaying payments or withholding
sales efforts.
291
• Information power refers to the power conferred on a party if it possesses

information that gives it an advantage over others. For example, a channel
member might rely on facts and figures, models and insights from partners
in the supply chain. The parties in the supply chain therefore influence each
other to the extent that they rely on the information, facts and figures that
other parties possess.
• Expert power is gained when a party is seen as knowledgeable (an expert)
by others in the supply chain. Other channel members trust the expert and
their behaviour is influenced by the expert as a source of information.
• Referent power is the ability of a channel member to influence another
party because the other party desires to identify with or be like the powerful
firm. If a channel member has referent power, it means other parties want
to emulate it, which enables it to influence other parties' behaviour.
• Legitimate power stems from tradition or contract:
- The channel member with traditional legitimate power is able to direct
the behaviour of the target due to the support of cultural norms. This
implies that there are certain expectations that channel members have
in the relationship due to cultural norms. For example, a distributor
may have the final say on the prices charged to customers.
- The contractual legitimate power is the power parties have as agreed
upon by both parties and as stipulated in the contractual agreement.
For example, channel members might sign a contractual agreement
whereby one party, especially the distributor, will carry a certain
quantity and certain types of products from a manufacturer. In this case
the manufacturer would also be bound by the contractual agreement to
deliver the agreed number and types of products.
12.5 The role of e-commerce in supply chain

management
The developments and advancements in e-commerce since the mid-1990s
have done a lot to facilitate SCM among organisations. £-commerce involves
B2B communications and transactions over networks and through computers,
specifically the buying and selling of goods and services, and the transfer of
funds through digital communication media.
Internet technology has created many opportunities for businesses to
communicate with stakeholders, as it is a low-cost medium for conducting
economic activities. The benefits of internet technology in the B2B context
includes the following:
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sell their products, such as books and music, online.

• The internet is an invaluable source of market research and information, for
example information on products and components, new suppliers, current
suppliers, competition, and so forth.
• The internet can allow suppliers to facilitate product delivery and service
performance through streamlining the supply chain, improving speed,
lowering costs and being more flexible.
The purpose of this chapter was to discuss SCM. SCM is important for the success of any business,
and requires that businesses integrate all supply chain activities for the benefit of all parties. Supply
chain activities include warehousing, transportation, order management, inventory management,
customer service and sourcing (purchasing). SCM also plays an important role in businesses in that
it has an impact on the aspects of product, price, place and promotion.
SCM must be managed effectively in order for the company to benefit from an effective and efficient
supply chain. For the supply chain to be more effective, parties in the supply chain need to share
information, some of which will be confidential. This calls for a relationship that is based on trust
and commitment. Trust and commitment are the foundation for a collaborative relationship. The
type and nature of relationship a business is involved in will determine how they benefit from such
a relationship. There are certain factors that connect parties in relationships, such as information,
and operational, legal and co-operative norms. These factors determine the nature of relationships
between parties. Furthermore, it is important that businesses manage conflict and power in the
supply chain so to avoid conflict with other parties or to reduce and manage the power one party
might have over the supply chain.
Lastly, this chapter discussed e-commerce, which plays a critical role in SCM. Companies need to
adapt to changes in e-commerce, since this has an impact on their ability to compete in the market.
1. Select a company and investigate the supply chain of this company. In
your investigation, identify supply chain members, their roles as well as the
supply chain activities performed by each member in the supply chain.
2. Select one business from three different industries. One of these must be a
business providing a service. Compare the three companies' supply chains.
How similar or different are they? Do they perform similar activities?
3. Refer to the companies you studied in Question 2. Study the nature of the
buyer-supplier relationships in each of the supply chains.
293
References
Benton, WC. 2007. Purchasing and supply management. New-York: McGraw-Hill/
Irwin.
DAFF (Department of Agriculture, Forestry and Fisheries). 2014. A profile of the
South African tomato market value chain. South Africa: DAFF.
Dwyer, FR 8: Tanner, JF. 2002. Business marketing: Connecting strategy, relationships
and learning. 2nd ed. New York: McGraw-Hill Irwin
Hilletofth, P. 2009. 'How to develop a differentiated supply chain strategy'.
Industrial Management and Data Systems 109(1)1: 16-33.
Hutt, MD 8: Speh, TW. 2004. Business marketing management: B2B. 8th ed. Mason,
Ohio: Thomson South-Western.
Lambert, DM 8: Cooper, MC. 2000. 'Issues in supply chain management'. Industrial
Marketing Management 29: 65-83.
Pienaar, WJ 8: Vogt, JJ. 2012. Business logistics management: A supply chain
perspectives. 4th ed. Cape Town: Oxford University Press.
Quayle, M. 2003. 'A study of supply chain management practice in the UK industrial
SMEs'. Supply Chain Management 8(1): 79-86.
Communicating With the
business-to-business market
Isolde L ubbe
learning outcomes
• understand the roles of the components of the communication
process
• explain the development of marketing communications
orientations
• discuss the objectives of marketing communication in a B2B
context
• apply the marketing communication process to a B2B context
• describe the role of marketing communications in a B2B
context
• consider the range and potential impact of each element of
the marketing communications mix
• devise a B2B marketing communications plan
• compare marketing communications in the B2C and B2B
markets.
Introduction
Getting the right message to the right B2B buyer(s) is essential for B2B success.
B2B buyers are people too, seeking personal benefits just as consumers do.
Therefore understanding how to target the right buyer or prospect with the
right information, through the right channels at the right time, is crucial and
of the upmost importance. Without communication, the main focus of B2B
marketing - to connect with new customers, retain existing customers and to
turn prospective B2B customers into sales - will not be achieved.
The interdependent relationships between buyers and sellers make the
communication process in B2B markets complex. As the B2B market consists
of a complex network of companies working together, the objective of B2B
marketing is to manage the buying and selling relationship. The exchanges
between buyers and sellers is where marketing communication plays an
integral role in a business's overall success. The customer in the B2B context
is not an anonymous enterprise but a specific person or people, and marketing
communications should be directly targeted at those people making the
purchasing decisions.
For the purpose of this chapter, we will discuss the application of six
main promotional mix elements to a B2B context, namely personal selling,
direct marketing, sales promotions, advertising, public relations and online
marketing or social media. It will become evident, though, that building a
relationship between the customer and the brand is key in B2B.
13.1 The communication process

Communication can be defined as 'the act or process of using words, sounds,
signs, or behaviors to express or exchange information or to express your
ideas, thoughts, feelings, etc to someone else' (Merriam-Webster.com, 2016).
This suggests that, for communication to take place, there must be some
common understanding between two parties and a transfer of information. The
two major participants in the communication process are the sender and the
receiver. The success of communication depends on the medium used to transfer
the message, the receiver's interpretation of the message, the environment in
which the message is received and the nature of the message. The process of
communication is illustrated in Figure 13.1.
The main components of the communication process, as depicted in
Figure 13.1, include the source or sender, encoding, the channel the message
is communicated through, the decoding of the message, the receiver of the
messa!le and the feedback nrocess:
be knowledgeable, trustworthy and credible.
Sender's Receiver's
field of field of
experience exper.ience
Cit
_ _ IIT01 se
0
a::
Figure 13.1: The communication process (Belch & Belch, 2007: 739)
• Encoding is the process through which the source creates the message by
putting together symbols, words, pictures and so forth to represent the
message. The process involves the transformation of ideas, thoughts and
information into a symbolic form that will be understood by the receiver.
• The message may be verbal or non-verbal, oral or written, or even symbolic.
In any case the source hopes that the message contains. information or
meaning that will be understandable to the receiver. The message should
be developed with the channel of communication being used in mind. For
example, a message communicated through a face-to-face meeting with
the Head of Procurement will be very different in context and delivery
than a similar message communicated through a website. It must be noted
that the meaning assigned to the message lies not in the actual message
but in the decoding done by the receiver (the person or people who see and
interpret the message). In order to be effective, the encoded message must
meet the following requirements (Cant, 2013):
- It must hold the attention of the target audience; it must therefore be
attractive.
- It must convey a message that is understandable to the specific target
audience.
- It must communicate and convince the target audience about the
benefits mentioned in the message.
- It must enable a favourable reaction from the target audience.
297
• The channel is the path through which the message travels from the source
to the receiver. There are different types of channels:
- Personal channels of communication include direct face-to-face
(interpersonal) contact, such as meetings with salespeople.
Social channels of communication include obtaining information from
friends and associates.
- Non-personal channels of communication mostly refer to the mass media
or mass communications. Here the message is sent to many individuals
at one time. Examples include television, radio, newspaper, magazines,
the internet, billboards, T-shirts, packages, point-of-purchase displays
and signs. The message can also be indirectly transmitted via word of
mouth communication
• Decoding refers to the transformation of the sender's message into
understanding and thought in the mind of the receiver. In simple terms,
decoding means the way in which the receiver hears, reads or views the
message. The receiver's field of experience and frame of reference play a
very important role in how the message will be interpreted. The receiver's
attitudes, perceptions and values are thus important influencers. Common
ground between the sender and receiver also plays an important role in
how the message will be interpreted. The more knowledgeable the sender
is about the receiver, the better the receiver's needs will be understood. If
the sender can empathise with the receiver, it can enhance the effectiveness
of communication. Problems can occur in establishing common ground
if there is a difference in age or in the field of experience of the sender
and receiver. For example, the field of experience of the marketing or
advertising professional can be very different from that of consumers.
• The receiver is the recipient of the message. In most instances the receivers
are the consumers who see, read or hear the marketer's message and decode
it. In a B2B context, the consumer can refer to a person or to a number
of people, as the buying process consists of a network of relationships
between companies and/or individuals. In most instances, individuals and
organisations are dependent on each other, complicating the reception of
the message.
• Noise refers to unplanned distractions that can distort the reception of the
message. Problems such as the distortion of a radio or television signal
or distractions when receiving the message are examples of noise, as are
problems with an internet connection or cellphone reception. Noise can
also occur when the fields of experience of the sender and the receiver do
not overlap, resulting in a lack of common ground.
• Response refers to the reactions of the receiver after he: rimr. sPPinP" or
0_ .. ........ _ ........"'
received to determine whether it has been correctly understood. Marketers

are interested in this feedback to monitor how the message was decoded
and received.
13.2 Defining marketing communications

There is no one common definition of marketing communications. There are
also many interpretations of the subject. The first marketing communications
definitions were based upon the purpose of marketing, which was to use
communications to persuade people to buy products and services. They thus
offered mainly a promotional outlook, with a product focus underpinned by
one-way communications with a short-term perspective. Later, new goals,
such as developing understanding and preference, as well as reminding and
reassuring customers, were added as important aspects of the communications
effort. The increased use of two-way communication shifted the focus to more
personal and customised communication. Table 13.1 shows how the main
orientations towards marketing communications have evolved over time.
Table 13.1: The developing orientation of marketing communications (Fill & Jamieson,
2006)
Orientation Explanation
Information and Mass media communications are used to persuade people into product
promotion purchase. The emphasis is on rational, product-based information.
Process and imagery Communications are used to influence the different stages of the purchase
process that customers go through. A range of tools are used. The emphasis
is on product imagery and emotional messages.
Integration Communication resources are used in an efficient and effective way to

enable customers to have a clear view of the brand proposition. The
emphasis is on strategy, media neutrality and a balance between rational
and emotional communication.
Relational Communication is used as an integral part of the different rel ationships that
organisations have with customers. The emphasis is on mutual value and
meaning, plus a recognition of the different communication needs and
processing styles of different stakeholder groups.
According to the Chartered Institute of Marketing (CIM), marketing

communications are 'the tools a company uses to deliver a range of promotional
299
messages to its target markets' (CIM, 2009:2). The following is a more elaborate
definition:
Marketing communications are a management process through which an
organisation engages with its various audiences. By understanding an
audience's communications environment, organisations seek to develop
and present messages for their identified stakeholder groups, before
evaluating and acting upon the responses. By conveying messages that
are of significant value, they encourage audiences to offer attitudinal and
behavioural responses. (Fill Et Jamieson, 2006:1)
There are three main aspects associated with this definition: engagement,
audiences and responses:
• Engagement describes the customer's relationship with the brand. As
customers' needs are different, the B2B marketer needs to communicate on
the customer's terms, using one-way, two-way or dialogic communication.
• The audiences is the group of people who are most likely to be interested
in the business offerings, whether it be products and/or services. The B2B
marketer's task is to identify whom the organisation needs to communicate
with and then predict the behaviour and information-processing needs of
each person or group of people.
• A response is a customer's reaction, which can be verbal or non-verbal.
The B2B marketer needs to anticipate the desired outcome of the
communication process. Will this outcome be based on values, beliefs,
changes in perception or changes in behaviour required? Especially in the
B2B context, it is advisable that the marketer establish rapport, follow up
appropriately and manage respondent fatigue.
At its core, marketing communications are used to engage audiences by
undertaking one of four tasks or objectives, as expressed in the DRIP model
(Fill 2013; Cant 2013; Baines Et Fill 2014):
1. To differentiate (D): Product, service and brand proliferation and the
increasing fragmentation of markets and market segments pose a huge
challenge in terms of differentiation. Many products and services are very
similar, so how does a business stand out and encourage customers to
buy its products and services rather than those of competitors? In many
instances, it is the images created by marketing communications that can
help differentiate one brand from another.
2. To remind (R): People do not remember all messages they receive. That is
why B2B consumers need to be reminded about products and services that
can fulfil their specific needs. Reminding and reinforcing (by applying sales
tcu"hn;n11oC" ..,...,.....o... .f',v.-no.:...... .rl' 1,..,........ -.... -....... -....... \ 1-- - - .L.L - n""n
product - it includes technical, economical and personal relationships
between the buyer and the seller. As many B2B products require a high
degree of technical customisation and specialisation, true one-to-one
relationships with the customer must be cultivated.
4. To persuade (P): To convince or influence a potential or current B2B customer
to buy, the marketer needs to identify the specific need and situation in
detail and then tailor the message so the buyer knows the message is meant
for him or her. As the B2B market is made up of knowledgeable buyers,
it is important to use referrals, tell success stories and explain how and
when the supplier's offering will make a difference to the buyer. The B2B
marketer also needs to solve any problems that may stand in the way of a
sale.
13.3 Marketing communications planning and

implementation
Marketing management's task is to plan the direction and scope of the
communication and to blend the right mix of promotional tools (see Section
13.4) and media in order to deliver the right messages, in the right place, at
the right time, to the right people or audiences. In order to do this, a marketing
communications strategy and marketing communications tactics are needed.
A marketing strategy is 'the way in which the marketing function organises
its activities to achieve a profitable growth in sales at a marketing mix level'
(Kotler, 2002:4) and the ways in which these objectives will be achieved, while
a marketing communications strategy is 'the ways in which the organisation
chooses to communicate with its customers and other stakeholders' (Egan,
2015:110). The tactical phase 'includes detailed plans of actions, concluding
the process in adjustment plans and monitorization if it is necessary' (Mongay,
2006:24); thus, the operations element of the communications plan. Tactics
are more orientated to the short term, while the marketing communications
strategy is a long-term plan. The marketing communications tactics involve the
choice the marketer makes between the different media or various marketing
communication techniques to achieve the strategy.
To grasp what a marketing communications plan should achieve, the
following principal issues of the marketing communications manager should
be given thoughtful consideration and planning:
• Who should receive the message?
• What should the messages say?
301
• What image of the organisation or brand are receivers expected to retain?

• How much is to be spent establishing this new image?
• How is the message to be delivered?
• What actions should the receivers take?
• How does the organisation control the whole process once implemented?
• After the process: What was achieved?
Marketing communications planning is a systematic process. It involves
a series of procedures and activities, including the setting of marketing
communications objectives and the formulation of activities and plans for
achieving these objectives. The ultimate goal of the planning process is to
formulate and convey a message to a specific target audience(s) in order to
elicit or encourage behaviour, which may include the target audience thinking,
emoting, behaving or responding in a particular way. To communicate with
the consumer takes planning, implementation and control. As planning is an
essential management activity, a suitable framework is necessary. Figure 13.2
presents a marketing communications planning framework.
Step 4: Determining the

marketing communications
strategy
Step 5: Determining the

marketing communications
Figure 13.2: A marketing communications planning framework (adapted from Baines

& Fill, 2014:401; Koekemoer, 2014:14; Verhage, 2014:370)
factors affecting a business. It is also referred to as the foundation of any
marketing plan, and creates a good overview of the state of the organisation.
A situational analysis can, through market research, identify potential
customers, project growth, assess competitors and identify target factors that
will hinder the business. In an analysis, the potential problem, challenges and/
or opportunities should be highlighted and the marketing objectives should
be linked to solving the chosen issue(s). In most instances, this analysis is
referred as a SWOT analysis (strengths, weaknesses, opportunities and threats).
Strengths and weaknesses analyse the internal aspects of the company, while
opportunities and threats constitute an external analysis.
A thorough situational analysis includes various actions, namely:

• identifying internal strengths and weaknesses of the organisation, including
policies and procedures, personnel skills, management skills, management's
track record, the financial situation, brand history and the reputation of the firm
• examining how the organisation is differentiated, its competitive advantage,
its brand(s) and its brand equity
• investigating the target markets and key segments and obtaining consumer
insights
• identifying relationships such as trade relations, customer relations,
competitor relations and internal staff relations; identifying any relationship
issues that might arise
• conducting a competitor analysis to identify direct and indirect competitors
and to determine the brand's positioning in comparison with its competitors
• examining the external or uncontrollable SLEPTI factors (sociocultural,
legal, economic, environmental, political, technological and international)
• investigating the target market's media usage and identifying all the
available media touchpoints.
13.3.2 Step 2: Defining the target audience

It is very important to target the right people with the right message. In
marketing communications, the target audience is the specific person, people,
group of people or organisation(s) to whom the message should be addressed.
The communication target audience may extend beyond the organisation's
marketing target audience - not only customers are involved; those who
influence the customers are involved too. Stakeholders, channel partners,
investors and employees can either influence decision makers or be part of
the decision-making process. The distinction between primary and secondary
target audiences is thus crucial.
303
Especially in a B2B context, where many role players are involved, the
targeting identification process is definitely more complicated. Marketing
communications in a B2B context need to be more highly targeted than in the
B2C context. For example, consider the differences in target audiences when
selling a computer to a customer walking into a HiFi Corporation store, or
selling 1 000 computers to a university. B2B customers should not be treated
in the same way as B2C customers. Table 13.2 lists some of the most relevant
differences between the B2C target audience and the B2B target audience. (See
Chapter 1 for a more detailed analysis.)
Table 13.2: Target audience differences in 828 and 82C markets (adapted from CIM,
2009)
In the 828 market In the 82C market
B2B buyers use company money. B2C buyers use their own money.
There is a smaller number of buyers. There is a large number of buyers.
Decisions are made by groups, such as a buying Decisions are made by individual consumers.
centre.
The decision-making process is more formal and The decision-making process can be very short.
takes longer.
13.3.3 Step 3: Setting the communication objectives

It is not possible to decide on a marketing communications strategy if the
organisation has no clearly defined communication goals. It is important to
note that marketing communications goals are different from an organisation's
sales targets. There are many elements besides communication that contribute
to sales, such as product attributes, distributor policies and competitor pricing.
Thus, making marketing communications solely responsible for sales is
unrealistic. Marketing objectives focus on market share, market growth, service
targets, relationship targets, relationship issues, as well as sales. Communication
objectives, on the other hand, focus on:
• creating awareness
• achieving advertising recall
• achieving product recognition
• informing the target audience
• establishing or reinforcing desirable attitudes and perceptions
• creating an image
• eliciting liking and trust
towards and overall degree of preference for a brand. Each objective should be
SMART: specific, measurable, achievable, realistic and timed. An example of a
communication objective might be to increase unaided brand awareness from
180/o to 300fo among the primary target audience in the next six weeks. Another
example might be to get one in five households to the point where they are
planning to purchase the product in the next thirty days. An example of a
B2B marketing communications objective could be to inform all the head of
purchasing contacts of the new soon-to-be-launched heavy-duty photocopier
in the next two months.
13.3.4 Step 4: Determining the marketing communications

strategy
The marketing communications strategy is planned on the foundation obtained
from the situational analysis (Step 1) and the set objectives (Step 3). Generally,
there are three types of marketing communication strategies: pull (for end
user markets), push (for trade and channel intermediaries) and profile-designed
(to reach all significant stakeholders). The DRIP roles, as discussed on page
300-301 in this chapter, can be used to elaborate on the relevant strategy chosen.
Figure 13.3 illustrates a push and a pull strategy.
Push Pull
eg personal
selling; trade
press; mail Q.J
shots; offers; i:::'

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etc 0
eg personal E
0
selling; trade 0..
press; mail "cr
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Q.J
shots; offers;
etc '.
eg sales c::
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·;:::;
promotion; (;:;
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sale offers; O"l
Q.J
advertising
-- -- --. flow of communication
---------• flow of product

Figure 13.3: The push strategy versus the pull strategy (Verhage, 2014:370)
305
Push strategies
A push strategy (as shown in Figure 13.3) relies mostly on personal selling
done by sales representatives and account managers. This strategy is also
described as outbound marketing. If a push strategy is used in a manufacturing
setting, the objective is to convince a wholesaler or an intermediary to carry
and sell the merchandise. This can be achieved by attractive trade discounts
or other purchasing incentives. The wholesaler then pushes the product
forward to retailers by persuading them, usually by offering them co-operative
advertising allowances, training or other types of support. The retailer, in tum,
uses promotional strategies, such as advertising, displays, in-store promotional
instruments and leaflets to encourage customers to buy the product.
From a B2B perspective, in most instances the B2B supplier seeks prospects
out; very seldom will prospects seek out the business. For this reason, push
marketing is considered intrusive. Typical examples of B2B push marketing
include telephone calls, direct mail, online ads, cold-calling, advertising, trade
publications, email campaigns, text messages and sponsorships. Trade shows,
coined as an event marketing tool, is considered a critical B2B marketing tactic.
Pull strategies
A pull strategy (as shown in Figure 13.3) targets the consumers directly. The
marketers go over the heads of the distributors to stimulate demand. The goal is
that the consumers seek out the product or services. This strategy puts pressure
on the distribution channel in that the product has to be pulled through the
channel to meet the demand from customers. In some instances, an advertising
campaign would be supported by sales promotions, such as free samples, or
other promotional mix elements that further motivate resellers to provide the
product.
B2B marketers often comment on how long it takes to close a deal, from
first contact until the order with the prospect is signed. Pull marketing is a
possible way to shorten this sales cycle, as the prospect is given plenty of
chances to get to know the supplier through social media and internet research.
If a prospect uses his or her own time to do research, it saves time for the
company's staff.
A pull marketer needs to cultivate the following traits (Ryan 2009):
• Patience: It is important that the supplier accepts the prospect's timeframe
for purchase.
• Flexibility: Pull marketers require maximum flexibility - the message
must be flexible and easily transferable from one medium to another -
UllV llJlV lC<llll i1UVUl UlC !JlU IJC l:SHUUlU UC UCVClU!Jt::U allU 1UaHllalllt::U.
• Service orientation: Those who really have the desire to serve their
customers will succeed. Gone are the old ways of tricking or fooling people
into buying through superior salesmanship.
Profile strategies
A profile strategy targets all relevant stakeholders. The main message is about
the organisation, with the ultimate goal ofbuilding the organisation's reputation
and the corporate image. For example, if an organisation is changing its name,
or has just merged or acquired another company, it may choose to use a profile
strategy with the primary objective of informing its prospects and customers.
When a new brand is being launched, for example, a profile strategy will
be utilised to inform and differentiate the brand for current customers and
stakeholders. Thereafter a pull strategy will be used to inform and differentiate
the brand for the target audience.
13.3.5 Step 5: Determining the marketing communications

mix
The right mix of communication tools should be chosen to reach each
particular audience. The different marketing communication mix elements will
be discussed in detail in Section 13.5, but for now it is important to note
that there are six principal marketing communications tools: advertising, sales
promotions, public relations, direct marketing, personal selling and online/
social media. The first five in the list can be applied online too. The decision
about what kind of media to use, including online and offline, will probably be
undertaken by media experts.
Choosing the most effective communication mix may be challenging,
as the available budget, the product or service characteristics, the stage in the
product life cycle (PLC), the overall goals and the target market need to be
considered. Before selecting the right mix elements, it is important to decide
on the following:
• What does the marketer want to say? This refers to questions about who,
what is happening, why, when and where. This message(s) should be based
on the positioning requirements, which are in most instances developed in
collaboration with an outside communications agency. (See Chapter 5 for
more on positioning.)
• Who does the marketer want to communicate with? It is important to specify
each target audience and to develop a creative or message for each.
307
• How will the marketer present the message? The style and tone of the
message should be considered and should be relevant to the target audience.
Even in a B2B context it is still people who make the purchases, so marketers
should try to appeal to the heart as well as the head of customers. The style
and tone of the message will affect how it will be received.
• Where should the message be sent or delivered? This refers to the medium
or media that will be utilised.
• When should the message be sent or delivered? For example, there may be
seasonal implications, economic cycles or PLC issues to consider.
• How will the marketer follow up on the message? The marketer should have
a follow-up plan with stipulated steps to generate the desired customer
action (for example a sale or a visit to the store, or a website inquiry).
Based on these criteria, different marketing communications tools or approaches
will be appropriate for each market, as shown in Table 13.3.
Table 13.3: Different marketing communications approaches for different markets

(adapted from CIM, 2009)
828 markets 82C markets

A formal approach is appropriate. An informal approach is more appropriate.
Personal selling dominates. Advertising and sales promotion dominate.
Logic and information-based messages are used Emotions and imagery are used more.
more.
Sales management is a key priority. Brand management is a key priority.
In B2B marketing, personal contact between the buyer and the seller is
essential, as personal contact is vital in building trust, and in providing
after-sales service. As highlighted various times in this book, in B2B markets
the significance of relationships cannot be overlooked, and building these
relationships with the target audience is recognised as crucial when building a
competitive advantage. Thus, while B2C marketing communications use more
indirect mass media channels to target their audience, B2B marketing applies
more direct methods, of which personal selling and relationship marketing are
seen as the key ingredients, although direct marketing and sales promotion are
also utilised in the B2B context. The role of advertising in B2B marketing is
a supportive one, designed to help increase brand awareness or establish the
company's reputation. The internet and new technologies have had an impact
on the way in which B2B companies communicate with their customers, and
The strategy section of a marketing plan describes the direction the organisation
is headed for and the planned market position it hopes to achieve, given the
current competition and economic climate. The implementation section, on
the other hand, is the list of the actual 'do's' -the steps the organisation will
take to achieve the strategy. Both the strategy and the implementation are
equally important. Poor implementation of a great strategy will just result in
wasted time and money. If done without a strong strategic vision, even flawless
execution of the tactical steps will not lead to achieving the company's goals.
Implementation means execution, and missteps during this phase can be
detrimental to any organisation. Implementation steps may include designing,
producing and running ads, launching a website, visiting a prospect or sending
direct mail. If the implementation fails to be scheduled and completed, the
company will not successfully achieve its strategic objectives. The best ideas in
the world are meaningless if they are not enacted. The implementation phase
of the marketing communications plan ensures the marketing activities happen
sequentially and at the right time.
In addition, implementation will fail if the resources necessary to support
the plan have not been determined. Financial issues are not the only important
issues here; the quality of the available marketing expertise also matters. For
example, the company may not have the right marketing knowledge internally
and would therefore need to either appoint an agency or recruit new people.
Gantt charts or software project planning tools (even simple spreadsheets) can
be used to schedule the campaign's timing as well as the resources relating to
the actual budget and the actual costs of the selected tools, media and people.
Evaluation
The evaluation of the marketing communications plan focuses on analysing,
thereby measuring the success of the implementation of the strategy. Evaluating
means examining and interpreting the data to conclude whether or not the
company achieved its strategy objectives from the implementation phase.
Quantitative and qualitative metrics associated with implementation can be
applied. Examples of quantitative metrics could include the numbers of sales
leads obtained, customers reached and rand amounts achieved. Qualitative
metrics measure aspects such as customer satisfaction and loyalty. Note,
however, that measurement and evaluation should be an ongoing process
used throughout the entire development and implementation of any marketing
communications campaign. There are various methods of testing marketing
communication tool effectiveness, as shown in Table 13.4.
309
Table 13.4: Methods for evaluating the success of marketing communication tools
(Baines & Fill, 2014:408; Shimp & Andrews, 2013)
Communication tool Method of testing

Advertising • Pretesting of unfinished ads (eg concept testing, focus groups,
consumer juries) and finished ads (eg dummy vehicles, readability
tests, theatre tests)
• Physiological testing (eg pupil dilation, eye tracking, galvanic skin
response, tachistoscopes, electroencephalographs)
• Post-testing (eg inquiry tests, recall tests, recognition tests, sales-
tracking studies, financial analysis, likeability)
Sal"s promotions Trial, sales, stock turn, redemption levels
Public relations Press cuttings, content analysis, media evaluation, tracking studies,
recruitment levels
Direct marketing Response rates, sales, opening/reading ratios, trial
Personal selling Activities (such as face-to-face meetings, relationship-building, etc), costs,

knowledge and skills, sales, performance ratios, territory analysis
Online/social media Total new visits, referrals, bounce rate, conversations and projected return
on investment (ROI)
Control
Controls are necessary, as they provide the marketer with the opportunity
to monitor the campaign during the evaluation phase. Controls ensure that
there is no major deviance from the plan, and that opportunities exist to put
the campaign back on track as soon as possible if it does deviate. Controls
established during the creation of the marketing communications plan provide
benchmarks to assess how well the plan has accomplished its goals, such as
marketing budget and market share measures.
13.4 Marketing communication tools

While communications describe the process whereby 'commonality of thought'
is created and meaning is shared between organisations and individuals or
between individuals, marketing is 'a societal process by which individuals
and groups obtain what they need and want through creating, offering, and
exchanging products and services of value freely with others' (Kotler, 2002:4).
The term 'marketing communications' therefore represents the collection of all
the tools an organisation's promotional mix facilitates to establish an exchange
BUSINESS-TO-BUSINESS MARKETING • t I I t \
U.J.J.J. J.,
are advertising, sales promotions, public relations, direct marketing, personal

selling and online/social media, as shown in Figure 13.4. Each element of the
mix can be judged against a number of criteria, namely the four Cs (CIM, 2009):
1. Cost: Is it expensive to use the tool compared to the overall cost of the
campaign? What will be the cost to reach a certain number of individuals?
2. Clout: Is it possible for the campaign to reach a large number of people? Is
it possible for the message to be personalised?
3. Credibility: What is the credibility of the source? It is possible that a
favourable piece of press coverage will be viewed as more accurate by
consumers compared to an advert, which may be viewed with scepticism in
general.
4. Control: Is it possible to target a particular audience? Is it possible to adjust
the message to target specific individuals as the campaign progresses?
Figure 13.4: The promotional mix (also referred to as the marketing communications
mix) (Shimp & Andrews, 2013:9)
13.4.1 Personal selling

Personal selling has been defined as 'the interpersonal arm of marketing
communications'. In most B2B situations, it will be the first proactive
communication tool used to gain the first few orders in a new market. It is
the main component of a push strategy, with the aim of persuading members
in the distribution channel, such as agents, distributors or retailers, to stock
the product. It is however, very expensive. The expense can be justified in
situations where negotiations are required and where the revenue from the sale
is high compared to the cost, which is typically the case with B2B marketing.
311
This method involves a two-way interactive dialogue between the buyer and
the seller, not only to make a sale but to build a relationship too. A salesperson
has to build and maintain long-lasting relationships that are beneficial for both
the customer and the seller. This can only be achieved if the customer's needs
are clearly communicated so that problems can be solved. As soon as high-
priced and complicated industrial goods are sold, the personal selling element
plays a much bigger role in the entire promotional mix. This does not mean
that personal selling stands alone. Trade promotions, direct marketing, trade
advertising and public relations all play an important role in the mix and also
support the personal selling effort.
The impact personal selling has on a potential customer - because of
the content and specific targeting of the messages - is a great advantage of
personal selling. Also, the strength of personal selling lies in the two-way
interaction, which ensures fast and direct feedback. For example, high-value
contracts may well require a salesperson with specialist technical knowledge
and understanding of the processes and systems, and no other promotional
tool can deliver this with such precision. Negotiation, persuasion and high-
level expertise are best delivered through personal encounters. For example,
Rolls-Royce uses a complete team of accountants, salespeople and engineers to
sell aero engines to customers in foreign markets, some of these team members
making frequent visits to their markets.
Although the selling process has remained the same over the years,
methods of communication have evolved. The ways that people interact during
the sales process have become faster and are still evolving quickly due to the
use of the internet and interactive capabilities by salespeople and customers
alike. Collaboration is key, and consumer reviews, wikis, social networking and
other community-based tools simplify how seller and buyer - and even buyers
among themselves - interact. With the click of a button, salespeople can learn
more about their customers, which enables them to provide more relevant and
powerful solutions.
13.4.2 Direct marketing

Shimp and Andrews define direct marketing as 'an interactive system of
marketing that uses one or more advertising media to affect a measurable response
and/or transaction at any location, with this activity stored on a database'
(2013:402). Kotler and Armstrong state that the role of direct marketing is 'to
drive a response and shape the behaviour of the target audience with regard to
a brand' (2009). In this method, customers and prospects are contacted directly
with the aim of eliciting an immediate and measurable reaction or response. To
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communication with customers, prospects and any other relevant stakeholders.

Channel intermediaries such as dealers, sales staff and retailers are removed
in order to actively create and sustain personal communication with targeted
groups. Because direct marketing is associated with precise target marketing,
it means that messages are sent to, received by, processed by and responded to
by specific individuals and not other people. It is not like advertising, where
people who are unlikely to be involved with the product, service or brand also
receive messages. It is thus possible to inform and persuade customers, and
create and build closer relationships between the seller and the buyer.
The primary methods of direct marketing include direct selling,
telemarketing, direct response advertising and the use of database marketing
techniques. Direct response advertising involves the use of many media (such
as television, direct mail, print media and online efforts) to transmit messages
that encourage buyers to purchase directly from the advertiser. The case study
below provides an example of this.
CASIE S.iTtU"ov: Ts-rRA PAK's D'REAM CAP

In the middle of 2012, the Swedish food packaging company Tetra Pak launched a 828 marketing
campaign to highlight the merits of a new design, called the Dream Cap. The cap sits at a slight
angle to ensure that the nose of the user does not collide with the container. Tetra Pak decided
not to focus on the product's technical aspects alone, but to tell prospective customers about the
package. The company specifically wanted to talk to millennials about what they think, buy and do,
and offer them a solution to meet their needs.
Tetra Pak sent selected prospects colourful, fun mailers that took them on a mini-adventure. It
included a foldout that mimicked the look and feel of lnstagram, directing prospects into a portal
that offered additional design concepts and product features.The aim was to encourage prospective
customers to envision the product. The sample kits were delivered to only 72 targets, creating an
overwhelming response. (You can read more about the campaign at http://www.tetrapak.com/us/
on-the-go.)
(Source: Kleinschmit, 20 16)
13.4.3 Advertising
Advertising is a form of non-personal communication where a clearly identifiable
sponsor pays for a message. This message is transmitted through media to
reach large audiences in an impersonal way. The role is mostly to engage
audiences. In B2B markets, the role of advertising is more about informing
and reminding. It is mostly used to build up interest and to create awareness
313
(as opposed to public relations, direct marketing and personal selling, which
deal with differentiation and persuasion). There is a role for advertising in B2B
markets, as it acts as a supporting function to personal selling. It is much easier
for a salesperson to sell a product or service which is already known by the
prospective customer. The difficult task is to synchronise and integrate efforts
between sales promotions and publicity in order to achieve the best result from
advertising.
Message development is important, though complex, in B2B situations. It
involves determining the advertising objectives, evaluating the buying criteria
and analysing the language, format and style for presenting the message.
Messages that have direct appeals to action are stronger than those who do not.
For a B2B advertisement message to be successful, it must catch the decision
maker's attention. People tend to screen out messages, and if a message is
inconsistent with a person's attitudes, needs and beliefs, that person will still
tend to interpret the message in the light of his or her beliefs and attitudes.
Also, in most instances, B2B buyers buy benefits; however, they buy the
benefits they seek. Figure 13.5 shows an example of a B2B print advertisement.
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deliver a consistent message across formats. Digital online advertising by B2B

organisations is growing rapidly. Paid search engine advertising is a very
popular format- in 2016 it was shown that 87.50fo of online marketing support
was spending related to search engine optimisation (SEO) (Sterling, 2016). Rich
media/video format, a compelling way to tell a brand or product story, is also
growing. Business publications, especially trade publications, are also a good
choice for B2B marketers. Horizontal publications, such as Accountancy Age
and Marketing News, are directed at a specific technology, task or function,
whatever the industry. On the other hand, vertical publications may be read
by everyone within a specific industry, from the supervisor on the floor to
the Chief Executive Officer (CEO) of the company. An example of a vertical
publication is Computer Gaming World (Shimp 8: Andrews, 2013).
13.4.4 Sales promotions

Sales promotions offer an incentive or additional value to customers in order
to encourage an immediate sale. These incentives, or inducements, can be
targeted at distributors, agents, consumers and members of the sales force. In
some cases the sale would have taken place even without the incentive, but the
incentive brings the time of the sale forward.
In B2C selling, the key forms of sales promotions are sampling, coupons,
deals, premiums, contests and sweepstakes. In B2B markets, these forms of
promotion can also be applied to some extent, however, various forms of
allowances play a much bigger role. In the B2B market, sales promotions are
aimed at three main groups:the sales force, channel partners and organisational
customers. The role here is more to change attitudes or increase sales, and this
is achieved through rewarding existing customers or encouraging prospective
customers. The main type of promotion used in B2B markets is the allowance,
in the form of buying, count and recount, buy-back, merchandising and
promotional allowances. These types of allowances are utilised to entice
wholesaler and retail response
Trade shows and exhibitions are examples of trade sales promotions.
They are marketing communications tools used to display new products or
developments in the industry, exchange information and build relationships.
At a trade show, suppliers, manufacturers and distributors can meet to attract
new customers, increase market size, build loyalty, reward loyal customers
and reinforce other communication tools. An example of a trade show is the
Money Expo at the Sandton Convention Centre in Johannesburg. This is a
two-day event showcasing products from the banking, insurance and finance
315
industries. An exhibition provides the opportunity for manufacturers to display

their products, discuss their products and meet prospective customers in a
neutral environment. Seminars and technical and professional conferences are
also ways to generate interest and to build relationships with prospects and
customers.
13.4.5 Public relations

Public relations consists of a selection of communication activities or tools,
including press releases, interviews, press conferences, events, lobbying,
sponsorships, corporate advertising, crisis management and investor relations.
The focus is on presenting the company's values and creating strong and
positive images rather than selling. Public relations is therefore a promotional
tool used to influence the perceptions of various groups of stakeholders
regarding an organisation. This tool is differentiated from other promotional
tools in that no purchasing of airtime or space is required. The B2B marketer
does not pay to have an article or opinion piece in a magazine, for example, or
to be interviewed on television.
The messages created by a public relations campaign are perceived to be
extremely credible. If carefully managed, it is possible to shape the attitudes
and opinions of stakeholders. Furthermore, a good public relations strategy
attempts to co-integrate the company's own policies with the interests of
stakeholders for mutual goodwill and understanding. Through this process of
mutual goodwill and understanding, relationships are developed that are based
on the interests of all parties.
Public relations is a tool that can be effectively applied in the B2B
context. In B2B marketing it is important to build the organisation's image
by developing credibility and improving the organisation's profile, as this
will enhance the effectiveness of other marketing activities. Public relations
plays a big part in the integration of marketing communications and corporate
communications. For example, a public relations effort aimed at specific target
audiences can generate both awareness and interest when launching a new
product or service. An integrated public relations strategy can also assist in
accelerating an organisation's content marketing success. (You can read more
at http:/ /contentmarketinginstitute.com/2014/06/public-relations-successful-
content-marketing/.)
13.4.6 Online and social media marketing communications

The communications environment has seen some major changes in the way
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programme.
The internet provides a direct route to customers. In today's changing
market environment, customers are more empowered, and more traditional
methods are not working as efficiently as before. The internet provides
flexibility, speed, interactivity and global reach. In terms of its potential for
marketing communications, interactions on the internet are described by some
as the 'purest form of marketing communications dialogue outside of personal
selling' (Fill a Fill, 2005:323). The new generation of web tools - including
wikis, mobile marketing (such as designed apps), blogs, search engine marketing
(SEM) and consumer generated content - also provides novel ways to use the
internet. New information technologies and electronic communications have
had a profound impact on how businesses and individuals seek information
and communicate with each other. On the internet, the strengths of various
media are combined, and this medium can be used as a hybrid by bundling
together audio, visual and text. The internet can allow a company to combine
the promotional tools of advertising, sales promotions, public relations, direct
marketing and personal selling activities.
In B2B marketing, the organisation's website and social media
communications play a huge role in getting in touch with B2B customers:
• Generally, the first place B2B customers tum to for information is the
internet, including the organisation's corporate website. In most instances,
the B2B customer will obtain information about the organisation and its
products and services before getting in touch. Information should be easy
to find and pleasing to the eye. Contact information should be clear and the
information on the site should constantly be updated and upgraded.
• Social media, together with social networks, are constantly evolving and
altering the way companies communicate with existing and potential
customers. Social technologies such as Facebook, Twitter, Linkedln,
Google Plus, Pinterest, Instagram and YouTube enable easier two-way
communication with B2B customers. Now that most mobile devices allow
people to directly connect with social networks, collaboration activities
and conversation are more accessible anywhere in the world, any time of
the day. It is real-time communication and quick. It is, however, important
for B2B marketers to use highly precise targeting and to select the right
networks.
For example, Atlas Copco is an industrial equipment manufacturer that devised

an innovative app in the B2B space. The company's underground mining
and equipment app for iPhones and iPads delivers 360 degree/3D product
317
information, images, technical specifications, customer case studies and movies

for hazardous workplaces where there is poor or no signal. In these working
conditions, having information at the customer's fingertips is paramount. (You
can read more at http://www.smartinsights.com/b2b-digital-marketing/b2b-
content-marketing/ten-examples-brilliant-inbound-b2b-content-marketing/.)
Another example is the way General Electric has used Pinterest to great effect.
They showcase their creativity with dedicated boards on topics such as what
the business likes, is inspired by, what it is doing, where it has come from, and
more.
13.5 Integrated marketing communications

Although the marketing communication tools described in the previous section
can be applied individually and used in isolation, marketing communications
are usually more successful when the elements are blended and integrated, as
a synergistic effect is created when using multiple, well-coordinated marketing
communication tools. IMC can thus be defined as follows:
[t]he coordination of the promotional mix elements (advertising, public
relations, sales promotion, personal selling, direct marketing, and online
marketing/social media) with each other and with the other elements of the
brands' marketing mix (product, place, price) such that all elements speak
with one voice. (Shimp Et Andrews, 2013:12)
Market share, sales and brand loyalty are not increased by simply using attractive
advertisements; rather, a fully developed IMC programme has to be devised
where numerous marketing activities are integrated into a single package. This
makes the targeting of relevant audiences more effective. The communications
model or process, as depicted in Figure 13.1 on page 297, can be utilised as
the foundation for building an IMC programme. Furthermore, certain critical
features, which are interdependent, are critical to both understanding the
philosophy of IMC and to putting it into practice:
• The customer or prospect is key. IMC should start with the customer or
prospect. Only then can the marketing practitioner work backwards to
the brand, the message and the selection of media. In most instances,
the customers are in control. With consumer-generated content, online
marketing via location-based services, social media, smartphone scanning,
blogging, texting and so forth, consumers can choose what they want, how
they want it and when they want it.
• Use any form of relevant contact. Marketing practitioners should be
_,.............. _ . . .................. .......... :_..- -.11 c .... c __ . . .._ . . _ . . _ ,_

----vv_b_v v --- o-
to the places where the customers are, wherever that might be.
• Speak with a single voice. Consistency is key. It is critical to co-ordinate
messages and media to achieve a strong message delivered in a single voice
across all media channels with the goal of moving the customer to action.
A unified message involves the selection of a specific positioning statement
for a brand. This is the key idea that encapsulates what the brand stands for
in the target market's mind.
• Build relationships. Building a relationship between the buyer and seller
goes beyond a single transaction and involves retaining customers in the
long run and creating multiple exchanges. It is all about an enduring
link between the customers and the brand. This would first lead to repeat
purchase, and then ideally to loyalty. (See Chapter 11 for more on loyalty.)
• Affect customer behaviour. Although it is unrealistic to expect a customer
action as the result of one communication effort or from every communication
effort, the ultimate objective of IMC is still to affect the behaviour of the
target audience. The marketing communications should do more than just
enhance customer attitudes toward the brand or influence brand awareness.
Some form of behavioural response should be encouraged to lure the target
audience to action.
13.6 Beyond integration: Synchronised marketing

Traditionally, the goal of marketing communications has been to provide
information about products and services to the target audience. Today, the aim
is rather to deliver value to the target audience, by knowing and understanding
the needs of the target audience.
Today, some marketers argue against IMC (DeSantis Breindel, 2016);
they say that IMC is static, is too linear and lacks brand focus. Advances in
technology and platforms such as social media are turning marketing into an
ongoing conversation where the beginning and end are impossible to control.
The location where this conversation takes place is also increasingly difficult
to control. Synchronised marketing therefore refers to the move 'beyond
integration', where the voice of the brand speaks to every target through every
marketing communications tool at every touchpoint. It is collaborative, cross-
functional and a simultaneous process. Synchronisation allows the marketing
plan to be fine-tuned based on real-time customer feedback. The first encounter
the B2B prospect could have with the brand could be a Twitter feed, a diorama
in the airport or a mobile app.
319
The following guidelines can help a company to synchronise its marketing

communications:
• Keep the dialogue going and growing. The internet, and specifically social
media, has created platforms where customers can converse about a
brand. Most customers want to engage with brands or have some form
of dialogue. If B2B marketers understand the dialogue dynamic, they can
lead the prospect through the conversation to the consideration set. IBM
is a good example of a company conducting two-way communications
with its customers, in this case about making sense of cloud computing.
IBM conducted these conversations in clear, simple language, on every
available communications channel available. To create a high profile in
the complex field of cloud computing, the company implemented a robust
and synchronised educational effort for its B2B collaboration networks.
This made IBM an industry thought leader and a magnet for prospects with
similar problems with cloud computing.
• Connect multiple platforms. The traditional barriers between running an
advertisement (such as a television commercial or a print advertisement) and
making it into a prospect's consideration set no longer exist. Synchronised
marketing builds on a solid brand foundation, where all touchpoints feed
each other and become connected in a web of conversation. In the B2B
context, a link in a print or online ad can, with one click, lead a corporate
buyer to a microsite where the buyer can download more information
or watch a YouTube video offering insight, for example. A QR code in a
public relations piece can lead an influencer in the B2B buying process to a
microsite with more information that might just put that product or service
into the consideration set.
• Content marketing is 'the new black: An increasing number of corporate
prospects are short-listing companies based on their ability to clarity
complex issues, educate others about these issues and provide perspective
on them. It is thus advisable to turn intellectual property into content, for
instance as a by-lined article in a trade or business publication, a link on
a Facebook page, or a post on a blog. Established thought leaders in the
industry have more clout and credibility than those who are not seen.
• Do not forget employees. Recognising employees as a critical part of an
organisation's brand can be a significant doorway to external customers.
Employees are active on social media and in society in general. They are
the face of the organisation, and it is advisable to empower them so that
they understand their importance in the organisation. They can activate a
consistently strong brand identity at thousands of touchpoints.
It is evident that there are several major differences between the B2C and
B2B markets and how they communicate with customers. This difference is a
reflection of the nature of the environment, the overall need of the recipients
for different types of information and the tasks involved. It can be argued
that information needs can be pinpointed as the primary reasons for the
differences in the way marketing communication mixes are configured. The
differences between B2B and B2C markets, and the effects of these differences
on communications in these markets, include the following:
• Message reception: The way messages are received and the meanings that
are ascribed to messages are very different in the two markets. The B2B
context is mostly more formal, and the orientation to price is different,
as the purchase will probably be derived from the company's purse. As
product attributes and performance characteristics are more important for
a B2B customer, he or she usually comes prepared with information already
gathered to solve a business problem. For the marketing communications
practitioner, this points to the necessity to provide relevant, up-to-date and
easily accessible information that will meet the B2B customer's information
needs.
• The number of decision makers: In the B2C context, a single customer
makes the decision to purchase, while many decision makers are involved
in the B2B setting. This means that the interactions between individuals
need to be considered. Different individuals need to be influenced in the
B2B context; thus, personalised targeted messages should be devised. In a
B2B context the tone is therefore more personal and the focus is on longer-
term relationships. The smaller number of customers in the B2B context
means that each customer represents a greater lifetime value and should
receive a higher marketing investment.
• The balance of the communications mix: As mentioned before, sales
promotions and advertising primarily play a supporting role in B2B
communications. B2B markets have to provide a greater level of information
through advertising, which is geared towards generating leads that can be
followed up with personal selling. In B2C markets, advertising in most
instances plays the primary role, with support from other promotional mix
tools. In B2C markets, personal selling is only significant in high-involvement
product categories (such as cars and financial services), while it plays an
important role in B2B markets. The use of direct marketing in B2C markets
indicates that the personal approach is becoming more prevalent. Due to the
customised nature of the B2B market, direct marketing can be applied with
321
great success. It must be noted, however, that the internet and new media
appear to be altering the application of the marketing communications mix
and possibly reducing the gap and distinction between the mix used in B2B
compared to B2C markets.
• The constituents of the marketing communications mix: B2B marketers tend
to use a greater proportion of below-the-line activities. On the other hand,
in B2C marketing more funds are allocated to above-the-line marketing
communications activities.
• Message content: B2B purchase decisions are characterised by high-
involvement decisions, therefore, the communications tend to be more
rational and information-based as compared to B2C messages. However,
there is evidence that B2B marketers are increasingly making use of imagery
and emotions in messages.
• Length of purchase decision time: B2B purchase decisions tend to involve
lengthier and more complex processes. In most cases, the decision to
purchase is made by a team consisting of people from various departments
and from various levels in the organisation (see the discussion on the
buying centre in Chapter 2). Therefore, there needs to be a willingness
on the part of the B2B marketer and the B2B consumer to deliver and
distribute information between all the individuals involved.
• Negative communication: The impact of negative marketing communication
messages is limited in the B2C context compared to the implications of a
poor purchase decision in a B2B environment. Generally, a bad purchasing
choice by one end consumer will only have an influence on the consumer
and his or her friends and family that have access to the product or service.
In the B2B context, however, a poor purchase decision may affect all those
associated with the use of the product, the career of participants close to
the decision, and even the whole organisation.
• Target marketing and research: It is evident that target marketing strategies
and tactics are more advanced and sophisticated in the B2C context than in the
B2B context.The quality of marketing communications used to reach the target
audience is impacted by these targeting processes. However, B2B marketers
are becoming more aware in their approaches to segmentation and targeting
applications and approaches. (See Chapter 5 for more on segmentation.)
• Budget allocation: In the B2B market, the sales department normally
receives the bulk of the marketing budget. Compared to B2C markets, little
is spent on research.
• Measurement and evaluation: There are a variety of techniques available to
evaluate the effectiveness of communications in B2C markets. In the B2B
market. sales volume. v:: lue. nnmhPr nf innniriP<: !lnn m!lrlrPt <:n!lrP <>r<> th.,
The process of choosing, selecting and buying products and services is very different in the 828 and
82C markets. There is a much stronger relationship focus in 828 markets than in 82C markets, and
marketing communication efforts are therefore more personalised. In many instances, marketing
communication takes place face to face.
828 buyers are more sophisticated than 82C customers. They have training in the field and
will generally know more about the product and its applications than the 82C customer. 828
buyers usually come prepared to buy a solution to a specific business problem. On a marketing
communication level, this means references from existing customers are important and up-to-date
information about new products and contracts, as well as testimonials from current customers,
should be provided.
1. Explain why personal selling is more effective than advertising, but may be
less efficient?
2. How, in your view, can a B2B marketer use online and social media marketing
communications to communicate information about a new product range
to its B2B customers?
3. Differentiate between B2B and B2C marketing communications.
4. Argue the importance of delivering an IMC campaign to B2B customers.
5. Assume you are the Marketing Director for Dell computers. Critically
evaluate the six marketing communications mix tools and argue which
combination of tools you would apply in order to communicate information
about a new Dell laptop to five university clients.
6. Apply the guidelines that can help a B2B company to synchronise its
marketing communications to a B2B scenario of your choice.
References
Baines, P & Fill, C. 2014. Marketing. 3rd ed. Oxford: Oxford University Press.
Belch, GE & Belch, MA. 2007. Advertising and promotion, and integrated marketing
communications perspective. 7th ed. New York: McGraw Hill International.
Cant, M. 2013. Marketing: An introduction. 2nd ed. Cape Town: Juta.
CIM (Chartered Institute of Marketing). 2009. How to plan marketing
communications? 10 minute guide. Available: http://www.cim.co.uk/files/
marcomms.pdf (Accessed 1 September 2016).
DeSantis Breindel. 2016. Integrated marketing is no longer enough: Why B2B
brands need to be synchronised. Available: http://www.desantisbreindel.com/
insights/integrated-marketing-is-no-longer-enough/ (Accessed 8 September 2016).
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Dragonfly Digital. nd. Blue Thistle. Available: http:/ /www.dragonflydigital.co.za/

portfolio/client/Blue-Thistle#! (Accessed 8 September 2016).
Egan, J. 2015. Marketing communications. 2nd ed. Los Angeles: Sage.
Fill, C. 2013. Marketing Communications. 6th ed. Harlow: Pearson Education.
Fill, C 8: Fill, K. 2005. Business-to-business marketing: relationships, systems and
communications. London: Prentice Hall Financial Times.
Fill, C 8: Jamieson, B. 2006. Marketing Communications. Edinburg: Edinburgh
Business School. Available: https:/ /www.ebsglobal.net/EBS/media/EBS/PDFs/
Marketing-Communications-Course-Taster.pdf (Accessed 1 September 2016).
Kleinschmit, M. 2016. 3 examples of successful B2B marketing campaigns. Vision
Critical. Available: https://www.visioncritical.com/3-examples-successful-b2b-
marketing-campaigns/ (Accessed 1 September 2016).
Koekemoer, L. 2014. Marketing communications: An integrated approach. Cape
Town: Juta.
Kotler, P. 2002. Marketing management. lOth ed (millennium ed). New Jersey:
Prentice-Hall.
Kotler, P 8: Armstrong, G. 2009. Principles of marketing. 13th ed. London: Prentice
Hall.
Merriam-Webster.com 2016. Simple defintion of communication. Available: http://
www.merriam-webster.com/dictionary/communication (Accessed 8 September
2016).
Mongay, J. 2006. Strategic Marketing. A literature review on definitions, concepts
and boundaries. Munich Personal RePEc Archive.
Ryan, C. 2009. Fusion Marketing Partners. How to accelerate your success
with pull marketing. Fusion Marketing Partners. Available: https:/ /fusion
marketingpartners.com/resources/feature-articles/how-to-accelerate-your-
success-with-pull-marketing/ (Accessed 8 September 2016).
Shimp, TA 8: Andrews, JC. 2013. Advertising, Promotion, and other aspects of
Integrated Marketing Communications. 9th ed. USA: Cengage Learning.
Sterling, G. 2016. Forecast says SEO-related spending will be worth $80 billion
dollars by 2020. Available: http:{{searchengineland.com/forecast-says-seo-
related-spending-will-worth-80-billion-2020-247712 (Accessed 8 September 2016).
Verhage, B. 2014. Marketing, a global perspective. Hampshire, UK: Cengage
Learning EMEA.

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1.1 Defining 828 markets and 828 marketing

Marketing to a business involves the same concepts and strategies as

1.2 Types of 828 customers or buyers

Figure 1.1: Types of B2B customers

services themselves. Resellers do not make any substantial changes to the

1.2.2 Producers (commercial enterprises)

1.2.3 The government

In South Africa, there are policies which encourage the empowerment

1.3 The differences between 828 and 82C

As mentioned in Section 1.1, it is not the nature of the product or serviCe

Table 1.1: The defining characteristics of B2B and B2C markets

Market structure differences

Nature of demand Derived Direct

Demand volatility or fluctuation Greater volatility Less volatility

Demand elasticity Less elastic More elastic

Reverse elasticity More common Less common

Nature of customers Greater heterogeneity Greater homogeneity

Market complexity More complex Less complex

Market size Large overall value Smaller overall value

Number of buyers per segment Few Many

Market concentration Often clustered Usually dispersed

Buying behaviour differences

Buying influences Many Few

Purchase cycles Often long Usually short

Transaction value Often high Usually small

Buyer and seller Often high Usually low

Purchase professionalism Often high Usually low

Importance of relationships Often important Usually unimportant

Degree of interactivity Often high Usually low

Marketing practice differences

Dimension of difference B2B market characteristics B2C market characteristics

Personal selling and negotiation Used extensively Limited

Driving force Relationship-driven: concerned Product-driven: concerned with

Role of relationships Value of relationships is Limited

Promotional strategies Unique, customer-specific Mass market

Web integration Greater Limited

Branding Limited Extensive, sophisticated; brand

Market research Limited Extensive

Segmentation Unsophisticated Sophisticated

Competitor awareness Lower Higher

Product complexity Greater Lesser

Channels of distribution Shorter, more direct Longer channels and more

1.3.1 Differences in market structure

1.3.2 Differences in buying behaviour

1.3.3 Differences in marketing practices

1.4 Classifying B2B products and markets

1.4.2 Foundation products

1.4.3 Facilitating products

1.5 The essence of B2B marketing: Relationships

The stages of relationship-building

5. Strategic business advisor: The highest level of relationship is when the

1.5.3 The industrial marketing and planning approach

value. The IMP approach is therefore based on ongoing relationship-building

1.6 The impact of the internet on 828 marketing

After studying this chapter, you should be able to:

2.1 What is 828 buying?

All types of businesses, as well as businesses of different sizes, engage in B2B

828 buying 828 buying 828 buying

Figure 2.1: Illustration of a 828 supply chain

2.2 The strategic importance of 828 buying

• Timely marketing and delivery of products: B2B buying acts as a liaison