Marketing Management Canadian 14th

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 Chapter 7: Analyzing Business Markets

CHAPTER
7 ANALYZING BUSINESS
MARKETS
LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. What is the business market, and how does it differ from the consumer market?
2. What buying situations do organizational buyers face?
3. Who participates in the business-to-business buying process?
4. How do business buyers make their decisions?
5. How can companies build strong relationships with business customers?
6. How do institutional buyers and government agencies do their buying?

CHAPTER SUMMARY
1. Organizational buying is the decision-making process by which formal organizations
establish the need for purchased products and services, then identify, evaluate, and
choose among alternative brands and suppliers. The business market consists of all the
organizations that acquire goods and services used in the production of other products or
services that are sold, rented, or supplied to others.
2. Compared to consumer markets, business markets generally have fewer and larger
buyers, a closer customer supplier relationship, and more geographically concentrated
buyers. Demand in the business market is derived from demand in the consumer market
and fluctuates with the business cycle. Nonetheless, the total demand for many business
goods and services is quite price inelastic. Business marketers need to be aware of the
role of professional purchasers and their influencers, the need for multiple sales calls, and
the importance of direct purchasing, reciprocity, and leasing.
3. The buying center is the decision-making unit of a buying organization. It consists of
initiators, users, influencers, deciders, approvers, buyers, and gatekeepers. To influence
these parties, marketers must be aware of environmental, organizational, interpersonal,
and individual factors.
4. The buying process consists of eight stages called buy phases: (1) problem recognition,
(2) general need description, (3) product specification, (4) supplier search, (5) proposal
solicitation, (6) supplier selection, (7) order-routine specification, and (8) performance
review.
5. Business marketers must form strong bonds and relationships with their customers and
provide them added value. Some customers, however, may prefer a transactional
relationship. Technology is aiding the development of strong business relationships.

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6. The institutional market consists of schools, hospitals, nursing homes, prisons, and
other institutions that provide goods and services to people in their care. Buyers for
government organizations tend to require a great deal of paperwork from their vendors
and to favour open bidding and domestic companies. Suppliers must be prepared to adapt
their offers to the special needs and procedures found in institutional and government
markets.

OPENING THOUGHT
Students unfamiliar with business and business operations will have a difficult time
understanding the concept of organizational buying. The major differences between the
consumer market and the B2B market are in the complexity of the decision process and
the amount of people involved in the final purchasing decision.

Instructors can best serve their student audiences by incorporating guest speakers from
the business community who are responsible for purchasing products and/or services to
help students understand the complexity in the buying process for businesses. Sales-
people, who sell to businesses, are also good resources to have as guest speakers when
covering this chapter. Instructors can also use university situations or other common
business examples to get across the concept of organizational buying to their students.

TEACHING STRATEGY AND CLASS ORGANIZATION

PROJECTS
At this point in the semester-long marketing project, no presentations are necessary
unless the instructor has approved a business-to-business product or service.

Students should select a local firm and interview a member of that firm’s buying staff
(buyer, head-buyer, purchasing manager, etc.) regarding their firm’s buying processes.
Using Figure 7.1 (p. 189) of this chapter as an outline, the students should draw an
organizational chart depicting all of the buying processes, members, and internal
customers that would become involved in a major purchase decision. Subsequently,
students should compare and contrast the complexity of that buying process to the ones
noted in Chapter 6—Analyzing Consumer Markets. How and where are the major points
of differences between the two markets in their purchase intensions? Can a firm market
its products to both the industrial and consumer markets with one strategy? Are there
sufficient differences between markets for different products and strategies to be
developed?

Sonic PDA Marketing Plan: Business-to-business marketers have to understand their

markets and the behaviour of members of the buying center in order to develop
appropriate marketing plans. Jane Melody has defined the business market at Sonic as
mid- to large-sized corporations that need to help their workforces stay in touch and input
or access important data from any location. She has asked you to find out:

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 What specific types of businesses appear to fit the business market definition used
at Sonic?
 What needs could Sonic’s PDA address for these businesses?
 Who would participate in and influence the purchase of PDAs for use in these
businesses?
 Which environmental, interpersonal, and individual influences are likely to be
most important to business buyers of PDA products—and why?

Report your findings and conclusions in a written marketing plan or type them into
the Market Demographics and Target Markets sections of Marketing Plan Pro.

ASSIGNMENTS
In small groups (five students suggested as the maximum), have the students visit your
college or university’s Central Purchasing or Procurement department (you may have to
clear this with your administration before assigning). Have the students conduct
interviews with purchasing personnel on how they buy, who is involved in a purchase
decision, and what characteristics do the best salespeople who call on them share.
Students should format their questions to the key concepts contained in this chapter.
Student reports should also characterize the differences found between government or
institutional buying, business-to-business buying, and consumer purchasing.

To improve effectiveness and efficiency, business suppliers and customers are exploring
different ways to manage their relationships. Have the students visit each of the
company’s Web sites mentioned throughout the chapter. Which one(s) do the students
feel most effectively and efficiently addresses the needs of the corporate buyer? Which
Web sites do not? Why and what in their opinion is missing from the least effective Web
sites? How can the firm do better in its execution?

The text states that cultivating the right relationship between business suppliers and
customers is paramount to the success of business marketers. Ask the students to debate
this statement, with one group of students taking the affirmative stance, and the other
group of students taking the negative.

Have the students visit GE‘s Canada’s Web site (www.ge.com/ca/en/). Given the content
in this chapter, have the students prepare a 1-2 page outline of one of GE Canada’s
product lines and how the chosen product line addresses the needs of its business
partners. What is GE Canada doing right, what is GE Canada doing wrong, and where
can GE Canada improve?

The growth of the B2B market has become a most significant trend in business today.
Ask the students to research this phenomenon further by conducting internet research and
find, read and comment on five additional articles. In their report each student take a
position that this trend will, or will not, continue, and that the methods to reach this
emerging market do, or do not, work well.

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Ask the student to choose an ad for a product that is aimed at the consumer market, and
another ad for the same product that is aimed at the business market. (For example, Dell
Computers) The students should compare and contrast the ads in terms of the buying
motives appealed to in the ad.

Small businesses have been described as the “lifeblood” of the economy. Students, who
have after school jobs in small business, should be assigned to interview their employers,
managers, or purchasing departments to understand how small businesses purchase goods
and services. How many of the concepts of this chapter small business owners actually
employ (for example, is the purchasing habits of the student’s small business owner
organized, how many decision makers are involved in purchasing, how important is the
customer-supplier relationship to them, is their purchasing just transactional, etc.)?
Students should prepare to present their findings to the class in either an oral or a written
report. Students not employed should be prepared to question the presenting students as
to their understanding of the “whys” for such actions.

Using the Marketing Insight Big Sales to Small Business have student research small
business credit cards and lines of credit offered by Royal Bank, CIBC and Scotia Bank.
What are the main features and benefits (other than interest rate and fees) that banks and
credit unions use to market these products to small business.

Assign as extra reading material a sales or selling textbook used by your college or
university or one of the articles cited as sources in this chapter. Have the students share
their insights of information/material not contained in the chapter. How can this
information be helpful to marketers in designing marketing plans and objectives? Does
any of the information learned contradict the material in the chapter? Why do they think
this occurred?

MARKETING TODAY—CLASS DISCUSSION TOPICS

Invite local salespeople (those involved in B2B and those involved in consumer selling)
to speak to the class about how they sell—how they gain and deliver strong customer
relationships with their clients, what they believe are some of the necessary character-
istics of a successful salesperson for their industry, etc. In a panel setting, conduct a
discussion about the differences between the two types of selling and the similarities of
these two types of selling. Engage the students to keep notes about both the differences
and similarities discussed to help them understand these differences and the role that
these differences play in marketing their products.

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END-OF-CHAPTER SUPPORT

MARKETING DEBATE—How Different Is Business-to-Business Marketing?

Many business-to-business marketing executives lament the challenges of business-to-

business marketing, maintaining that many traditional marketing concepts and principles
do not apply. For a number of reasons, they assert that selling products and services to a
company is fundamentally different from selling to individuals. Others disagree, claiming
that marketing theory is still valid and only involves some adaptation in the marketing
tactics.

Take a position: Business-to-business marketing requires a special, unique set of

marketing concepts and principles versus business-to-business marketing is really not that
different and the basic marketing concepts and principles apply.

Pro: Business-to business marketing requires a unique set of marketing concepts and
principles versus consumer marketing. The special set of concepts and skills needed in
business-to-business marketing include professional salespeople; products that meet
specific and sometimes specially engineered needs of a set of a few customers; marketing
promotional aspects that deemphasize price in exchange for services; delivery terms;
special financing arrangements; and other traditional “non-marketing” considerations.

Finally, the other major difference between consumer and business-to-business marketing
usually involves the amount of people involved in the sale: from both the sellers firm and
the purchasing firm. In consumer selling, the user is generally the purchaser. In the
business-to-business, marketing both the selling firm and the buying firm includes
members of other disciplines (engineering, transportation, warehousing, finance, and
others) from the beginning of the process to the time of actual purchase. The addition of
these people fosters strong ties between the two firms but also lengthens the time and
complexity of the sale.

Con: Business-to-business marketing does not really differ from the consumer market in
ones approach. The major differences between the two is not in “delivering value to the
consumer” but in the implementation and time phase. Buyers still buy to “solve
problems” and business-to-business marketing and consumer marketing still has to solve
the buyers’ problems. Time and attention to detail may be extended for business-to-
business marketers but the accepted marketing principles of price, place, promotion, and
product still apply it is just their implementation and application(s) that differ.

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MARKETING DISCUSSION
Consider some of the consumer behaviour topics from Chapter 6. How might you apply
them to business-to-business settings? For example, how might non-compensatory
models of choice work?

Suggested Response:
From Chapter 6 we have learned that consumer behaviour is influenced by cultural
factors, social factors, and personal factors. These are individual considerations that apply
to the business-to-business market as well as to the consumer market. The difference is
that all of the members of the buying center will possess different sets of these
considerations and that the business-to-business marketer must try to appeal to all of
these simultaneously.

In addition, there are four main psychological processes: motivation, perception, learning,
and memory apply as well to the business-to-business market. Again, in business-to-
business marketing, each member of the buying center will exhibit different degrees of
each of these processes.

Finally, in the business-to-business buying situation, problem recognition, information

search, evaluation of alternatives, purchase decisions, and post-purchase behaviour will
differ from the consumer market. The difference(s) lie in the amount of time involved,
the degree of research expended, the decision-maker’s role and the evaluation of the
product or service.

In the business-to-business market, more attention is paid to information search, purchase

decisions, the evaluation of alternatives, and the fact that the “user” may not be the final
decision maker. In the business-to-business market, there are seven roles demonstrated by
people within the company (initiators, users, influencers, deciders, approvers, buyers, and
gatekeepers), each of which must be considered as a factor in the selling process. In the
consumer market, many of these roles are included in the single role as buyer.

Non-compensatory choice models and other “impartial” decision-making tools receive a

greater degree of importance as the business-to-business buying center tries to remove
personal choice options from the equation.

MARKETING EXCELLENCE—HOURSTON GLASCRAFT

1. What would be some differences in your company trying to sell to another business
versus to the government?

Selling to another business would more than likely not involve the level of complexity
and detail that a government contract would involve. Most business have a level of
process regarding purchasing that emphasizes efficiencies and not processes designed to
ensure a broad level of public transparency.

2. MERX claims to have levelled the playing field in that business of any size have
equal access to information on contracting opportunities with the Government of

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Canada. Is this website helping or hindering the government and Canadian

businesses?

It is perhaps a doubled edged sword. On the one hand, providing access to one central
web site where all Canadian businesses can access information regarding government
tendered contract allows business of all sizes to compete in a fair and open process. On
the other hand, the processes outlined at the MERX web site would appear to be complex
and cumbersome for small or medium sized businesses.

3. Are there situations when a government contract could be undesirable?

Yes. For small business a government contract could potentially be undesirable if it

cannot meet the strict conditions set out by a large organization, such as the government.

4. What are some ethical challenges that could arise from pursuing a government
contract?

Yes. Business’ is oriented towards a profit motive which could be in ethical conflict with
the broader social goals of government policy.

DETAILED CHAPTER OUTLINE

Business organizations do not only sell; they also buy vast quantities of raw materials,
manufactured components, plant and equipment, supplies, and business services. To
create and capture value, sellers need to understand these organizations’ needs, resources,
policies, and buying procedures.

Many principles of basic marketing also apply to business marketers. They need to embrace
holistic marketing principles, such as building strong relationships with their customers, just
like any marketer. But they also face some unique considerations in selling to other
businesses.

WHAT IS ORGANIZATIONAL BUYING?

Webster and Wind define organizational buying as the decision-making process by which
formal organizations establish the need for purchased products and services and identify,
evaluate, and choose among alternative brands and suppliers.

The Business Market versus the Consumer Market

The business market consists of all the organizations that acquire goods and services used
in the production of other products or services that are sold, rented, or supplied to others.
A) More dollars and items are involved in sales to business buyers than to consumers.

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B) Given the highly competitive nature of business-to-business markets, the biggest

enemy to marketers here is commoditization.
C) Commoditization eats away margins and weakens customer loyalty. It can be
overcome only if target customers are convinced that meaningful differences exist in
the marketplace, and that the unique benefits of the firm’s offerings are worth the
added expense.
D) Thus, a critical step in business-to-business marketing is to create and communicate
relevant differentiation from competitors.
E) Business marketers contrast sharply with consumer markets in some ways, however:
1) Fewer, larger buyers
2) Close supplier-customer relationship
3) Professional purchasing
4) Multiple buying influences
5) Multiple sales calls
6) Derived demand
7) Inelastic demand
8) Fluctuation demand
9) Geographically concentrated buyers
10) Direct purchasing

Buying Situations
The business buyer faces many decisions in making a purchase. How many depends on
the complexity of the problem being solved, newness of the buying requirement, number
of people involved, and time required. Three types of buying situations are the straight re-
buy, modified re-buy, and new task.
A) Straight re-buy is when the purchasing department reorders on a routine basis and
chooses from suppliers on an “approved list.”
B) Modified re-buy is when the buyer wants to change product specifications, prices,
delivery requirements, or other terms.
C) New task is when the purchaser buys a product or service for the first time.
1) The business buyer makes the fewest decisions in the straight re-buy situation
and the most in the new-task situation.
2) New-task buying is the marketer’s greatest opportunity and challenge. The
process passes through several stages: awareness, interest, evaluation, trial, and
adoption.
3) In the new-task situation, the buyer has to determine product specifications,
price limits, delivery terms and times, service terms, payment terms, order

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quantities, acceptable suppliers, and the selected supplier. This situation is the
marketer’s greatest opportunity and challenge.
4) Because of the complicated selling required, many companies use a missionary
sales force consisting of their most effective salespeople for new-task situations.
5) Once a customer has been acquired, in-suppliers are continually seeking ways to
add value to their market offer to facilitate re-buys.
6) Customers considering dropping six or seven figures on one transaction for big-
ticket goods and services want all the information they can get. One way to
entice new buyers is to create a customer reference program in which satisfied
existing customers act in concert with the company’s sales and marketing
department by agreeing to serve as references.
7) Business marketers are also recognizing the importance of their brand and how
they must execute well in a number of areas to gain marketplace success.

Systems Buying and Selling

Many business buyers prefer to buy a total solution to a problem from one seller. Called
systems buying, this practice originated with the government. It consists of:
A) Prime contractors
B) Second-tier contractors
C) One variant of systems selling is systems contracting, in which a single supplier
provides the buyer with its entire requirement of MRO (maintenance, repair,
operating) supplies.
D) Systems selling is a key industrial marketing strategy in bidding to build large-scale
industrial projects such as dams, steel factories, irrigation systems, sanitation systems,
pipelines, utilities, and even new towns. Customers present potential suppliers with a
list of project specifications and requirements.

PARTICIPANTS IN THE BUSINESS BUYING PROCESS

Purchasing agents are influential in straight-re-buy and modified-re-buy situations,
whereas engineering personnel usually have a major influence in selecting product
components, and purchasing agents dominate in selecting suppliers.

The Buying Center

Webster and Wind call the decision-making unit of a buying organization the buying
center. It consists of “all those individuals and groups who participate in the purchasing
decision-making process, who share some common goals and the risks arising from the
decisions.”
The buying center includes all members of the organization who play any of seven roles
in the purchase decision process:
A) Initiators—requests the product
B) Users—will use the product

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C) Influencers—influences the buying decision

D) Deciders—makes the decision of what to purchase
E) Approvers—authorizes the proposal
F) Buyers—have the formal authority to purchase
G) Gatekeepers—have the power to prevent seller information from reaching members of
the buying center
Several people can occupy a given role such as user or influencer, and one person may play
multiple roles.
Buying Center Influences
Buying centers usually include several participants with differing interests, authority,
status, and persuasiveness.
A) Each member of the buying center is likely to give priority to very different decision
criteria.
B) Business buyers also respond to many influences when they make their decisions.
C) Business buyers also have personal motivations, perceptions, and preferences
influenced by their:
1) Age
2) Income
3) Education
4) Job position
5) Personality
6) Attitudes toward risk
7) Culture
D) Individuals are motivated by their own needs and perceptions in an attempt to
maximize the rewards.
E) Personal needs “motivate” the behaviour of individuals.
F) Organizational needs “legitimate” the buying decision process and its outcomes.
G) People are not buying “products;” they are buying solutions to two problems:
1) The organization’s economic and strategic problem.
2) Their own personal need for individual achievement and reward.
H) Recognizing these extrinsic, interpersonal influences, more industrial firms have
put greater emphasis on strengthening their corporate brand.

Targeting Firms and Buying Centers

Successful business-to-business marketing requires that business marketers know which
types of companies to focus on in their selling efforts, as well as who to concentrate on

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within the buying centers in those organizations.

TARGETING FIRMS Business marketers may divide the marketplace in many

different ways to decide on the types of firms to which they will sell.

Marketing Insight: Big sales to small business

Illustrates how some very large companies in Canada are reaching the small businesses
which in Canada employ over 5 million people and are defined as having fewer than 100
employees.

In developing selling efforts business marketers can also consider their customers’
customers, or end users, if these are appropriate. Many business-to-business transactions
are to firms using the products they purchase as components or ingredients in products
they sell to the ultimate end-users.

Targeting Within the Business Center

To target their efforts properly, business marketers have to figure out: Who are the major
decision participants? What decisions do they influence? What is their level of influence?
What evaluation criteria do they use?
A) Small sellers concentrate on reaching the key buying influencers.
B) Large sellers go for multilevel in-depth selling to reach as many participants as
possible.
C) Business marketers must periodically review their assumptions about buying center
participants.

THE PURCHASING/PROCUREMENT PROCESS

Business buyers seek to obtain the highest benefit package (economic, technical, services,
and social) in relation to a market offering’s costs.

A business buyer’s incentive to purchase will be a function of the difference between

perceived benefits and perceived costs.

The marketer’s task is to construct a profitable offering that delivers superior customer
value to the target buyers.

Business marketers must therefore ensure that customers fully appreciate how the firm’s
offerings are different and better.
1) Framing occurs when customers are given a perspective or point of view that
allows the firm to “put its best foot forward.”
2) Framing can be as simple as making sure customers realize all the benefits or cost

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savings afforded by the firm’s offerings, or becoming more involved and

influential in the thought process behind how customers view the economics of
purchasing, owning, using and disposing product offerings.
3) Framing requires understanding how business customers currently think of and
choose among products and services, and then determining how they should
ideally think and choose.
4) Supplier diversity is a benefit that may not have a price tag but that business
buyers overlook at their risk. As the CEOs of many of the country’s largest
companies see it, a diverse supplier base is a business imperative.
5) Minority suppliers are the fastest-growing segment of today’s business landscape.

Today’s purchasing departments are more strategically orientated and have a mission to
seek the best value from fewer and better suppliers.

Recent competitive pressures have led many companies to upgrade their purchasing
departments and elevate administrators to vice presidential rank. These new, more
strategically oriented purchasing departments have a mission to seek the best value from
fewer and better suppliers.

STAGES IN THE BUYING PROCESS

Robinson and Associates have identified eight stages and called them buy phases.
A) Problem recognition
B) General need description
C) Product specification
D) Supplier search
E) Proposal solicitation
F) Supplier selection
G) Order-routine specification
H) Performance review

Problem Recognition
The buying process begins when someone in the company recognizes a problem or need.
The recognition can be triggered by internal or external stimuli.

General Need Description and Product Specification

Next, the buyer determines the needed item’s general characteristics and required
quantity. The buying organization now develops the item’s technical specifications.
Suppliers can use product value analysis as a tool for positioning themselves to win an
account.

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Supplier Search
The buyer next tries to identify the most appropriate suppliers through trade directories,
contacts with other companies, trade advertisements, trade shows, and the Internet.

Companies that purchase over the Internet are utilizing electronic marketplaces in several
forms:
A) Catalogue sites
B) Vertical markets
C) “Pure Play” auction sites
D) Spot or (exchange) markets
E) Private exchanges
F) Barter markets
G) Buying alliances

Online buying offers several advantages:

A) Shaves transaction costs
B) Reduces time between order and delivery
C) Consolidates purchasing systems
D) Forges closer relationships

On the downside, online ordering may:

A) Help to erode supplier-buyer loyalty.
B) Create potential security problems.

E-Procurement
Web sites are organized around two types of e-hubs: vertical hubs centered on industries
and functional hubs.
A) In addition to using these Web sites, companies can use e-procurement in
other ways:
B) Direct extranet links to major suppliers
1) Buying alliances
2) Company buying sites
B) Moving into e-procurement means more than acquiring software; it requires changing
purchasing strategy and structure.
C) This often means creating a well-designed and easy-to-use Web site.

Lead Generation
The supplier’s task is to ensure it is considered when customers are in the market
searching for a supplier.

1) Marketing must find the right balance between the quantity and quality of leads.

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2) Suppliers that lack the required production capacity or suffer from a poor
reputation will be rejected.

Proposal Solicitation
The buyer invites qualified suppliers to submit proposals. If the item is complex or
expensive, the proposal will be written and detailed.

A) Business marketers must be skilled in researching, writing, and presenting

proposals.

Supplier Selection
Before selecting a supplier, the buying center will specify and rank desired supplier
attributes, often using a supplier-evaluation model.

Marketing Memo: Developing compelling customer value propositions

States that to command price premiums in competitive B-to-B markets, firms must create
compelling customer value propositions. Lists the top 8 ways to research the customer.

Overcoming Price Pressures

The buying center may attempt to negotiate with preferred suppliers for better prices and
terms before making the final selection.
A) Despite moves toward strategic sourcing, partnering, and participation in cross-
functional teams, buyers still spend a large chunk of their time haggling suppliers on
price.
a. Marketers can counter request for a lower price in a number of ways.
i. “total cost of ownership”
ii. “life-cycle cost”
B) Improving productivity helps alleviate price pressures.
C) Some companies handle price-oriented buyers by setting a lower price but
establishing restrictive conditions: (1) limited quantities, (2) no refunds, (3) no
adjustments, and (4) no services.

Number of Suppliers
Companies are increasing reducing the number of suppliers in order to cut costs.
A) These companies want their chosen suppliers to be responsible for a larger
component system, they want them to achieve continuous quality and
performance improvement, and at the same time they want them to lower prices
each year by a given percentage.
B) They expect their suppliers to work closely with them during product
development, and they value their suggestions.

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C) There is even a trend toward single sourcing, though companies that use multiple
sources often cite the threat of a labour strike as the biggest deterrent to single
sourcing.

Order-Routine Specifications
After selecting suppliers, the buyer negotiates the final order, listing the technical
specifications, the quantity needed, the expected time of delivery, return policies,
warranties, and so on.
A) The lessee gains a number of advantages: the latest products, better service, the
conservation of capital, and some tax advantages. The lessor often ends up with a
larger net income and the chance to sell to customers that could not afford outright
purchase.
B) In the case of maintenance, repair, and operating items, buyers are moving toward
blanket contracts rather than periodic purchase orders.
C) A blanket contract establishes a long-term relationship in which the supplier
promises to resupply the buyer as needed, at agreed-upon prices, over a specified
period of time.
D) Because the seller holds the stock, blanket contracts are sometimes called stockless
purchase plans.
E) Companies that fear a shortage of key materials are willing to buy and hold large
inventories.
F) They will sign long-term contracts with suppliers to ensure a steady flow of
materials. Some companies go further and shift the ordering responsibility to their
suppliers in systems called vendor-managed inventory (VMI).
G) These suppliers are privy to the customer’s inventory levels and take responsibility
for replenishing automatically through continuous replenishment programs.

Performance Review
A) The buyer periodically reviews the performance of the chosen supplier(s).
B) Many companies have set up incentive systems to reward purchasing managers for
good buying performance, in much the same way sales personnel receive bonuses for
good selling performance.

MANAGING BUSINESS-TO-BUSINESS CUSTOMER RELATIONSHIPS

To improve effectiveness and efficiency, business suppliers and customers are exploring
different ways to manage their relationships. Closer relationships are driven in part by
supply chain management, early supplier involvement, and purchasing alliances.
Business-to-business marketers are avoiding “spray and pray” approaches to attracting
and retaining customers in favour of honing in on their targets and developing one-to-one
marketing approaches. They are increasingly using online social media in the form of
company blogs, online press releases, and forums or discussion groups to communicate

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with existing as well as prospective customers.

The Benefits of Vertical Coordination

Much research has advocated greater vertical coordination between buying partners and
sellers, so they can transcend merely transacting and instead engage in activities that
create more value for both parties.

Marketing Insight: Establishing corporate trust and credibility

Defines the terms: corporate credibility, expertise, and trustworthiness.

Building trust is one prerequisite to healthy long-term relationships.

Trust is the willingness of a firm to rely on a business partner. It depends on a number of

interpersonal and inter-organizational factors, such as the firm’s perceived competence,
integrity, honesty, and benevolence.
Building trust can be especially tricky in online settings, and firms often impose more
stringent requirements on their online business partners than on others.

Knowledge that is specific and relevant to a relationship partner is also an important

factor in the strength of inter-firm ties.
A number of forces influence the development of a relationship between business
partners.
FFFour relevant factors are:
A) availability of alternatives,
B) importance of supply,
C) complexity of supply,
D) and supply market dynamism.
Based on these we can classify buyer-supplier relationships into eight categories:
A) Basic buying and selling
B) Bare bones
C) Contractual transactions
D) Customer supply
E) Cooperative systems
F) Collaborative
G) Mutually adaptive
H) Customer is King

Business Relationships: Risks and Opportunism

Researchers have noted that establishing a customer-supplier relationship creates tension
between safeguarding (ensuring predictable solutions) and adaptation (allowing for
flexibility for unanticipated events).

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Vertical coordination can facilitate stronger customer-seller ties but at the same time may
increase the risk to the customer and supplier’s specific investments.
A) Specific investments are those expenditures tailored to a particular company and value
chain partner.
B) Specific investments also entail considerable risk to both customer and supplier.
C) Opportunism is “some form of cheating or undersupply relative to an implicit or
explicit contract.”
D) A more passive form of opportunism might be a refusal or unwillingness to adapt to
changing circumstances.
E) Opportunism is a concern because firms must devote resources to control and
monitoring.
F) Their specific investments shift from expropriation (increased opportunism on the
receiver’s part) to bonding (reduced opportunism).
G) The presence of a significant future time horizon and/or strong solidarity norms
typically causes customers and suppliers to strive for joint benefits.

New Technology and Business Customers

Top firms are comfortable using technology to improve the way they do business with
their business-to-business customers.

INSTITUTIONAL AND GOVERNMENT MARKETS

The institutional market consists of schools, hospitals, nursing homes, prisons, and other
institutions that must provide goods and services to people in their care.
A) Many of these organizations are characterized by low budgets and captive
clienteles.
B) In most countries, government organizations are a major buyer of goods and
services.

C) A major complaint of multinationals operating in Europe was that each country

showed favouritism toward its nationals despite superior offers from foreign
firms.

D) Because their spending decisions are subject to public review, government

organizations require considerable paperwork from suppliers, who often complain
about bureaucracy, regulations, decision-making delays, and frequent shifts in
procurement staff.
But the fact remains that the Canadian government buys goods and services valued at $14
billion annually.

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A) Government decision makers often think vendors have not done their homework.
Different types of agencies—defence, civilian, intelligence—have different needs,
priorities, purchasing styles, and timeframes.

B) Just as companies provide government agencies with guidelines about how best to
purchase and use their products, governments provide would-be suppliers with
detailed guidelines describing how to sell to the government.

C) Several federal agencies that act as purchasing agents for the rest of the
government have launched Web-based catalogues that allow authorized defence and
civilian agencies to buy everything from medical and office supplies to clothing
online.

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