4 5810dbusinessmarketingbook PDF
4 5810dbusinessmarketingbook PDF
4 5810dbusinessmarketingbook PDF
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.
1.2.1 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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BUSINESS-TO-BUSINESS MARKETING
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.
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. +
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BUSINESS-TO-BUSINESS MARKETING
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.
* A fictitious company
Relative size of buyer and seller Often similar Seller much larger
Buying process complexity Often complex: multiple steps - ually s rnple: a single step •
7
BUSINESS-TO-BUSINESS MARKETING
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.
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
BUSINESS-TO-BUSINESS MARKETING
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.
11
BUSINESS-TO-BUSINESS MARKETING
• 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.
13
/
BUSINESS-TO-BUSINESS MARKETING
- 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.
15
BUSINESS-TO-BUSINESS MARKETING
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)
17
BUSINESS-TO-BUSINESS MARKETING
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
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.
21
BUSINESS-TO-BUSINESS MARKETING
r l
Suppliers of Manufacturing Retailers/
Distributors
raw materials
1 companies
I I
wholesalers
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.
23
BUSINESS-TO-BUSINESS MARKETING
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.
25
BUSINESS-TO-BUSINESS MARKETING
• 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.
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
BUSINESS-TO-BUSINESS MARKETING
Company ABC herewith requests suitably qualified persons, companies or consortia to bid for the
followtng:
"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.
29
BUSINESS-TO-BUSINESS MARKETING
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: [email protected].
Parliament urges everyone to please report all fraud-related activities to 0800204573.
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 [email protected] 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.
31
BUSINESS-TO-BUSINESS MARKETING
33
BUSINESS-TO-BUSINESS MARKETING
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
BUSINESS-TO-BUSINESS MARKETING
_..,,_.,...z..,.,..;_,., ...,,..11("'+ · +,..,._...,co·•·•u·v...t,..tln.., l""nctc nlll"f"''h'=lc,::t. nrirP tYrilPrind rnc.tc.
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
BUSINESS-TO-BUSINESS MARKETING
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.
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
BUSINESS-TO-BUSINESS MARKETING
used in the manufacturing of a car. Due to the importance of these products to
1• .uuyc.r-uuuunuu.. u .:>L!:JIIH..... n£.:>. .Lll\.... 1\....lf.U.II\....111\....IIL IVI lll\.... \.... }IIVUU\....l ai\....
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
BUSINESS-TO-BUSINESS MARKETING
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.
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.
39
BUSINESS-TO-BUSINESS MARKETING
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
BUSINESS-TO-BUSINESS MARKETING
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.
41
BUSINESS-TO-BUSINESS MARKETING
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.
Self-assessment questions
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
BUSINESS-TO-BUSINESS MARKETING
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
Learning outcomes
After studying this chapter, you should be able to:
• 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.
BUSINESS-TO-BUSINESS MARKETING
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.
46
,.
CHAPTER 3: CONCEPTS AND CONTEXT OF BUSINESS STRATEGY
Corporate strategy
Business-level strategy
Functional 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
BUSINESS-TO-BUSINESS MARKETING
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
..
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.
49
BUSINESS-TO-BUSINESS MARKETING
Figure 3.2: Steps in the strategic planning process (adapted from Hough et a/,
2011:23; Jooste eta/, 2012:170)
50
CHAPTER 3: CONCEPTS AND CONTEXT OF BUSINESS STRATEGY
Table 3.2: Examples of financial and strategic objectives (adapted from Hough eta/,
2011 :34)
Increasing annual dividend payouts to Achieving lower costs throughout the organisation
shareholders
Ensuring sufficient cash flow within the Strengthening brand name and position I
'
organisation
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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.
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.
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.
53
BUSINESS-TO-BUSINESS MARKETING
• 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
Organisational culture
Internal marketing
54
BUSINESS-TO-BUSINESS MARKETING
,.
*'
Organisational structure
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.
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
BUSINESS-TO-BUSINESS MARKETING
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
CHAPTER 3: CONCEPTS AND CONTEXT OF BUSINESS STRATEGY
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
BUSINESS-TO-BUSINESS MARKETING
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
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
learning outcomes
After studying this chapter, you should be able to:
• 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.
61
BUSINESS-TO-BUSINESS MARKETING
63
BUSINESS-TO-BUSINESS MARKETING
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.
No further research is
conducted-compile a
research report.
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.
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BUSINESS-TO-BUSINESS MARKETING
67
BUSINESS-TO-BUSINESS MARKETING
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.
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BUSINESS-TO-BUSINESS MARKETING
• 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.
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BUSINESS-TO-BUSINESS MARKETING
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?
BUSINESS-TO-BUSINESS MARKETING
11 12 13 14 Is I
2. Who is currently supplying you with glue?
Pattex
Melton
Pratley
3M
73
BUSINESS-TO-BUSINESS MARKETING
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.
BUSINESS-TO-BUSINESS MARKETING
• 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.
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BUSINESS-TO-BUSINESS MARKETING
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.
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
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BUSINESS-TO-BUSINESS MARKETING
generalisation outside the group of sample units and can only be evaluated
subjectively.
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
BUSINESS-TO-BUSINESS MARKETING
or interpreted incorrectly.
U '"""' """"'"!J IH.. ..:ll..:ll .._I IV I o3 V'-..'-..U.J.. YV J..I.'-..J...I. l.J..I.'-.. .1. '-...>f-'V.l.lU'-...l.ll .1 .l.lV l YY .1.1.1.1.1.15 LV a.l.lVV \....1
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.
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BusiNESS-TO-BUSINESS MARKETING
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.
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BUSINESS-TO-BUSINESS MARKETING
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BUSINESS-TO-BUSINESS MARKETING
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.
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.
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BUSINESS-TO-BUSINESS MARKETING
Internal marketing
Special purpose research
data for ad hoc
requests External marketing
research
UJ\....>L \....VUlJ:..IVll\..Ul.:l.
Figure 4.4: An extensive marketing information system (adapted from Tustin et a!,
2005:69)
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BUSINESS-TO-BUSINESS MARKETING
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).
Table 4.2: Sources of marketing intelligence (adapted from Strydom, 2011 :85)
Source Examples
Customer or client Queries from customers, buyers or clients
Other sources Consultants, print media, broadcast media, websites, research agencies,
other information and specialised organisations
----- - -
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.
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BUSINESS-TO-BUSINESS MARKETING
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.
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.
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BUSINESS-TO-BUSINESS MARKETING
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
BUSINESS-TO-BUSINESS MARKETING
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.
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BUSINESS-TO-BUSINESS MARKETING
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.
Self-assessment questions
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.
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BusiNESS-TO-BUSINESS MARKETING
References
AMA (American Marketing Association). 2016. About AMA. Available: http://
www.marketingpower.com/ AboutAMA/Pages/DefinitionotMarketing.aspx
(Accessed 17 July 2012).
Boundless.com. 2016. B2B vs consumer marketing: Similarities and differences.
Available: https:/ /www.boundless.com/marketing/textbooks/boundless-
marketing-textbook/business-to-business-marketing-5/business-markets-44/
b2b-vs-consumer-marketing-similarities-and-differences-221-4828 (Accessed 7
September 2016).
Cant, MC (ed), Gerber-Nel, C, Nel, D Et Kotze, T. 2005. Marketing research. 2nd ed.
Cape Town: New Africa Education.
Cant, MC, Strydom, JW, Jooste, CJ Et Du Plessis, PJ. 2006. Marketing management.
5th ed. Cape Town: Juta.
Churchill, GA. 1999. Marketing research: methodological foundations. 7th ed.
Orlando: The Dryden Press.
Churchill, GA, Brown, TJ Et Suter, TA. 2009. Basic marketing research. 7th ed.
Mason, OH: South-Western: Cengage Learning.
Circle Research. nd. B2B and B2C research: Spot the difference. Available: https:/ I
www.circle-research.com/wp-content/uploads/B2B-versus-B2C_Spot-the-
Difference.pdf (Accessed 7 September 2016).
Cooper, DR Et Emory, CW. 1995. Business research methods. 5th ed. Boston: Irwin.
Kinnear, TC Et Taylor, JR. 1996. Marketing research: an applied approach. New
York: McGraw-Hill.
Malhotra, NK Et Birks, DF. 2007. Marketing research: An applied approach. Essex:
Pearson Education.
Marx, SEt Vander Walt, A. 1993. Marketing management. Cape Town: Juta
Pride, WM Et Ferrell, OC. 2010. Marketing. 6th ed. Mason, OH: South-Western
Cengage Learning.
Tustin, D, Ligthelm, AA, Martins, JH Et Van Wyk, H de J (eds). 2005. Marketing
research in practice. Pretoria: Unisa Press.
Strydom, JW (ed). 2011. Introduction to marketing. 4th ed. Cape Town: Juta.
Strydom, JW, Jooste, CJ Et Cant, MC (eds). 2002. Marketing management. Cape
Town: Juta.
West, DC. 1997. 'Managing sales forecasting'. Management Research News. 20(4):
1-10.
Wright, LT Et Crimp, M. 2000. The marketing research process. 5th ed. Harlow:
Prentice Hall.
Zikmund, WG, Ward, S, Lowe, B, Winzar, H Et Babin, BJ. 2011. Marketing research.
Chapter
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.
BUSINESS-TO-BUSINESS MARKETING
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.)
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})---{ Set 7 )
( Consumer 1 o )----(Sem
! et . 0J
Figure 5.1: Customer preference patterns (or demand profiles) (based on Baker &
Hart, 2008)
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BUSINESS-TO-BUSINESS MARKETING
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
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.
*A fictitious company
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(HAPTER 5: SEGMENTING BUSINESS MARKETS, CHOOSING TARGET MARKffi AND POSITIONING PRODUCTS
103
BUSINESS-TO-BUSINESS MARKETING
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.)
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(HAPTER 5: SEGMENTING BUSINESS MARKETS, CHOOSING TARGET MARKETS AND POSITIONING PRODUGS
• 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.
Organisational structure
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.)
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BUSINESS-TO-BUSINESS MARKETING
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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(HAPTER 5: SEGMENTING BUSINESS MARKETS, CHOOSING TARGET MARKffi AND POSITIONING PRODUCTS
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.
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BUSINESS-TO-BUSINESS MARKETING
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.
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.
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BUSINESS-TO-BUSINESS MARKETING
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).
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.
110
CHAPTER 5: SEGMENTING BUSINESS MARKETS, CHOOSING TARGET MARKETS AND POSITIONING PRODUCTS
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.)
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.
111
BUSINESS-TO-BUSINESS MARKETING
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
CHAPTER 5: SEGMENTING BUSINESS MARKETS, CHOOSING TARGET MARKETS AND POSITIONING PRODUCTS
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).
* A fictitious company
113
BUSINESS-TO-BUSINESS MARKETING
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
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.
115
BUSINESS-TO-BUSINESS MARKETING
product performance levels, market standing, product quality and labour skills.
Composite product benefits is an important concept to understand.
0
Trustworthiness Convenience
Permanence
116
.,
(HAPTER 5: SEGMENTING BUSINESS MARKffi, CHOOSING TARGET MARKETS AND POSITIONING PRODUaS
117
BUSINESS-TO-BUSINESS MARKETING
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
learning outcomes
After studying this chapter, you should be able to:
• 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.
121
BUSINESS-TO-BUSINESS MARKETING
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
BUSINESS-TO-BUSINESS MARKETING
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.
125
BUSINESS-TO-BUSINESS MARKETING
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.
127
BUSINESS-TO-BUSINESS MARKETING
BCG Matrix
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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
BUSINESS-TO-BUSINESS MARKETING
129
BusiNESS-TO-BUSINESS MARKETING
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2007:268)
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.
131
BusiNESS-TO-BUSINEss MARKETING
I
f
133
BUSINESS-TO-BUSINESS MARKETING
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.
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 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.
135
BUSINESS-TO-BUSINESS MARKETING
137
BUSINESS-TO-BUSINESS MARKETING
Self-assessment questions
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
BUSINESS-TO-BUSINESS MARKETING
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
After studying this chapter, you should be able to:
• 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
BUSINESS-TO-BUSINESS MARKETING
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.
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)
143
BUSINESS-TO-BUSINESS MARKETING
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.
BUSINESS-TO-BUSINESS MARKETING
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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'.
145
BUSINESS-TO-BUSINESS MARKETING
147
BUSINESS-TO-BUSINESS MARKETING
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.
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equal amount of time. This approach allows for a more dynamic understanding
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149
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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.
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.
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).
---- --- I
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BUSINESS-TO-BUSINESS MARKETING
Paradigm
-Firm A ---Firm B
Figure 7.4: An example of firms focusing on different dimensions of innovation
155
BUSINESS-TO-BUSINESS MARKETING
Time
Figure 7.6: The innovation life cycle (Utterback, 1994:56)
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BUSINESS-TO-BUSINESS MARKETING
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
0
...
en
Specific stage Traditional hierarchical organisation
-
.c
1-
"'
Fluid stage
Transitional stage
Old technology, new entrants
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.
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BUSINESS-TO-BUSINESS MARKETING
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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.
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BUSINESS-TO-BUSINESS MARKETING
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.
New trajectory of
Trajectory of incremental innovations as a result of
innovations (to sustain the disruptive innovation
firms in the industry)
r--
Performance
Time
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.
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BUSINESS-TO-BUSINESS MARKETING
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.
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BUSINESS-TO-BUSINESS MARKETING
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?
Self-assessment questions
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.
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BUSINESS-TO-BUSINESS MARKETING
References
Abernathy, WJ a Utterback, JM. 1987. 'Patterns of innovation in technology'.
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
BUSINESS-TO-BUSINESS MARKETING
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
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BUSINESS-TO-BUSINESS MARKETING
171
Chapter
Learning outcomes
After studying this chapter, you should be able to:
• 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.
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BUSINESS-TO-BUSINESS MARKETING
f - - ----·--=......._
SETTING THE PRICE
175
BUSINESS-TO-BUSINESS MARKETING
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. '
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. +-
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BUSINESS-TO-BUSINESS MARKETING
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.
*A fictitious company
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
Derived demand
As most B2B organisations buy products to use in the production of their own
BUSINESS-TO-BUSINESS MARKETING
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.
Price Price
;
s
;
;
D Dl Dl
c Do
Demand Demand
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
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BUSINESS-TO-BUSINESS MARKETING
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.
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BUSINESS-TO-BUSINESS MARKETING
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.
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BUSINESS-TO-BUSINESS MARKETING
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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. •
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BUSINESS-TO-BUSINESS MARKETING
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.
Self-assessment questions
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
learning outcomes
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.
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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.
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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.
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BUSINESS-TO-BUSINESS MARKETING
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.
1. The process starts with the leadership of the firm articulatina vision and
L.. 1uc 1H<:U1agc1 unuty::>c::::> utc:: c::.nc::ntut urtu lrttc::mut c::nvlrunments to gain
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.
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BUSINESS-TO-BUSINESS MARKETING
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.
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.
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BusiNESS-TO-BUSINESS MARKETING
-'i
Strategic mar keting mandate
+
Strategic B2B markerng planning process
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.
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BUSINESS-TO-BUSINESS MARKETING
201
BUSINESS-TO-BUSINESS MARKETING
I
I
Strategy implementation
Strategy, structure, systems, skills, shared values, staff, style
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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
BUSINESS-TO-BUSINESS MARKETING
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.
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BUSINESS-TO-BUSINESS MARKETING
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
BUSINESS-TO-BUSINESS MARKETING
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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)
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BUSINESS-TO-BUSINESS MARKETING
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
BUSINESS-TO-BUSINESS MARKETING
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.
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BUSINESS-TO-BUSINESS MARKETING
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.
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.
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BUSINESS-TO-BUSINESS MARKETING
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-
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- -
I Revenue streams
-- -
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Figure 9.4: Osterwalder's business model canvas (Osterwalder eta!, 2011 :44)
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BUSINESS-TO-BUSINESS MARKETING
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.
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
BUSINESS-TO-BUSINESS MARKETING
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. +
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BUSINESS-TO-BUSINESS MARKETING
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.
* A fictitious company
(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.
Self-assessment questions
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.
References
Barrows, E. 2009. Four fatal flaws of strategic planning. Available: https:/ /hbr.
org/2009/03/four-fatal-flaws-of-strategic.html (Accessed 29 August 2016).
Chesbrough, H Et 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.
Hakala, H. 2011. 'Strategic orientations in management literature: Three approaches
to understanding the interaction between market, technology, entrepreneurial
and learning orientations'. International journal of management reviews 13(2):
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Hamel, GEt Prahalad, CK. 2005. 'Strategic intent'. Harvard Business Review 83(7/8):
148-161.
Kaplan, RS Et Norton, DP. 1992. 'The Balanced Scorecard: Measures that drive
performance'. Harvard Business Review (January-February): 71-79.
Kim, WC Et Mauborgne, R. 2016. What is blue ocean strategy? Available: https://
www.blueoceanstrategy.com/what-is-blue-ocean-strategy/ (Accessed 29 August
2016).
Lipschitz, D. 2015. Why Uber is important for South Africa. Available: http://www.
sabreakingnews.co.za/2015/09I 11/why-uber-is-important-for-south-africa/
(Accessed 27 September 2016).
Moss Kanter. R. 1999. An interview by Joel Kurtzman for strategy+business,
published on 1 July 1999 (3rd quarter, issue 16) by Booz Et Company.
Osterwalder, A, Pigneur, Y, Oliveira, MA-Y Et Ferreira, JJP. 2011. Business model
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New Jersey: John Wiley and Sons.
Porter, ME. 1996. 'What is Strategy?'. Harvard Business Review 74(6): 61-78.
Thetradebeat.com. 2012. Nakara CC. Available: http://www.thetradebeat.com/sadc-
business-case-studies/nakara-cc (Accessed 30 August 2016).
Tidd, J Et Bessant, J. 2013. Managing innovation: Integrating technological, market
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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
BUSINESS-TO-BUSINESS MARKETING
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
BUSINESS-TO-BUSINESS MARKETING
219
Chapter
10
Busines -to-busines: s selling
and mahaging the c:ustomer
Gert Human
l _l
learning outcomes
After studying this chapter, you should be able to:
• 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.
221
BUSINESS-TO-BUSINESS MARKETING
Atmosphere
Power/dependence
Co-operation
Closeness
Expectations
--------------------------
Long-term relationships
Institutionalisation, Adaptation
Individual
Short-term exchange Aims
episodes
Products/services
Information
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.
223
BUSINESS-TO-BUSINESS MARKETING
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
BUSINESS-TO-BUSINESS MARKETING
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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.
Figure 10.3: The sales process (Connet, Abratt & Cant, 2010:32)
225
BUSINESS-TO-BUSINESS MARKETING
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.
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
BUSINESS-TO-BUSINESS MARKETING
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BUSINESS-TO-BUSINESS MARKETING
229
BUSINESS-TO-BUSINESS MARKETING
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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)
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
BUSINESS-TO-BUSINESS MARKETING
233
BUSINESS-TO-BUSINESS MARKETING
235
BUSINESS-TO-BUSINESS MARKETING
-. - ------·------------·---
.
.
t
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I
!
I Relationship
.
t
breadth I
..
t
t
Relationship
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I
.
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Figure 10.6: Drivers of relational marketing effectiveness (adapted from Palmatier; 2008)
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
BUSINESS-TO-BUSINESS MARKETING
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
BUSINESS-TO-BUSINESS MARKETING
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.
Self-assessment questions
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.
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BUSINESS-TO-BUSINESS MARKETING
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.
BUSINESS-TO-BUSINESS MARKETING
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
After studying this chapter, you should be able to:
• 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.
243
BUSINESS-TO-BUSINESS MARKETING
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.
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
245
BUSINESS-TO-BUSINESS MARKETING
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
BusiNESS-TO-BUSINEss MARKETING
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.
1. Make sure the whole business understands the brand and managing the
J,. U U l" '- JU.J.'-... v UHA.'-... J.J V J..:»UJJ.'-. l.V 0..1.1 .:JU1.l\..\..11VJ.U\..1;), \.:;)}l C\.....ld.llJ \....U;:)LU111C.l;:).
249
BUSINESS-TO-BUSINESS MARKETING
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:
BUSINESS-TO-BUSINESS MARKETING
• provides for easier product identification
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BUSINESS-TO-BUSINESS MARKETING
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.
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.
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BUSINESS-TO-BUSINESS MARKETING
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.
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Table 11.1: Differences between corporate branding and product branding (Hatch &
Schultz, 2008: 9)
The source of the Advertising and market The company's history, values, beliefs
brand identity communication and heritage
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
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
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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)
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BUSINESS-TO-BUSINESS MARKETING
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.
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
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retailer or wholesaler. Dealer brand products are only available at the dealer's
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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.
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BUSINESS-TO-BUSINESS MARKETING
Table 11.2: Factors leading to high or low brand relevance (adapted from Kotler &
?foertsch, 2006:49)
Do the customers understand the brand and Very visible Not very visible
what it does-is the value visible to the
customers?
Brand audits
Measure and interpret brand Brand tracking
performance · Brand equity management system
brand eouitv
Grow and sustain
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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.
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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.
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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.
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.
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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
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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. +-
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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.
Self-assessment questions
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
BusiNESS-TO-BUSINEss MARKETING
7 September 2016).
Supply !chains and channel
relationships
Mercy Makhitha
learning outcomes
After studying this chapter, you should be able to:
• 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 - - -
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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.
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
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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
BUSINESS-TO-BUSINESS MARKETING
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.
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BUSINESS-TO-BUSINESS MARKETING
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
BUSINESS-TO-BUSINESS MARKETING
tomatoes. After the farming of the tomatoes, the company may need to keep stock of tomatoes
company does not run out of stock.
J
Wholesale-
retail
I • Distribution centres
• Satellite produce markets
• Chains eg Fruit & Veg City
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)
-
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BUSINESS-TO-BUSINESS MARKETING
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.
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BUSINESS-TO-BUSINESS MARKETING
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.
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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).
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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.
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• 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.
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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.
Self-assessment questions
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.
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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
After studying this chapter, you should be able to:
• 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.
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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.
Sender's Receiver's
field of field of
experience exper.ience
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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.
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• 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.
BUSINESS-TO-BUSINESS MARKETING
• Response refers to the reactions of the receiver after he: rimr. sPPinP" or
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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.
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.
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BUSINESS-TO-BUSINESS MARKETING
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
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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.
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BUSINESS-TO-BUSINESS MARKETING
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BUSINESS-TO-BUSINESS MARKETING
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)
B2B buyers use company money. B2C buyers use their own money.
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.
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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
BUSINESS-TO-BUSINESS MARKETING
must be flexible and easily transferable from one medium to another -
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• 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.
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BUSINESS-TO-BUSINESS MARKETING
• 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.
Logic and information-based messages are used Emotions and imagery are used more.
more.
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.
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BUSINESS-TO-BUSINESS MARKETING
Table 13.4: Methods for evaluating the success of marketing communication tools
(Baines & Fill, 2014:408; Shimp & Andrews, 2013)
Public relations Press cuttings, content analysis, media evaluation, tracking studies,
recruitment levels
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.
Figure 13.4: The promotional mix (also referred to as the marketing communications
mix) (Shimp & Andrews, 2013:9)
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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.
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.)
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
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BUSINESS-TO-BUSINESS MARKETING
(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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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
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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
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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.
Self-assessment questions
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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