cd6813 business mkt

© Kotler, Keller, Ang, Leong & Tan

Marketing Management

An Asian Perspective7-1

CONNECTING CONNECTING

WITH CUSTOMERS

PART

3




ANALYZING ANALYZING

Business Markets

Chapter

7




1. What is the business market & how does it differ from the consumer market?

2. What buying situations do organizational buyers face?3. Who participates in the business-to-business buying

process?4. How do business buyers make their decisions?5. How can companies build strong relationships with

business customers?6. How is B2B relationship marketing conducted in the

Japanese keiretsu & the Korean chaebol?7. How do institutional buyers & government agencies

do their buying?

In this chapter, weaddress the

followingquestions:




German SAP: leading seller to business marketStrategy - focus on what customers want

“The best run businesses run SAP”• Software helps standardize processes & automate functions




What is Organizational What is Organizational Buying?Buying?

Organizational buyingOrganizational buying

decision making process where

formal organizations establish

need for purchased products & services

& identify, evaluate & choose

among alternative brands & suppliers




What is Organizational Buying?What is Organizational Buying?The Business Market versus the Consumer MarketThe Business Market versus the Consumer Market

Business market

All firms that acquire goods

used in production

of other products that are

sold, rented or supplied to others




What is Organizational Buying?What is Organizational Buying?The Business Market versus the Consumer MarketThe Business Market versus the Consumer Market

Business market characteristicsBusiness market characteristics 1. Fewer, larger buyers2. Close supplier-customer relationship3. Professional purchasing4. Several buying influences5. Multiple sales calls6. Derived demand7. Inelastic demand8. Fluctuating demand9. Geographically concentrated buyers10.Direct purchasing




What is Organizational Buying?What is Organizational Buying?Buying SituationsBuying Situations

Business buyer faces decisions – buying situation

3 types of buying situations:

1. STRAIGHT REBUY reorders on a routine basis

2. MODIFIED REBUY modify product, prices etc

3. NEW TASK buys product for the 1st time




What is Organizational Buying?What is Organizational Buying?Systems Buying & SellingSystems Buying & Selling

Systems buying

Buy total solution from 1 seller Systems selling

Key industrial marketing strategy - large-scale industrial projects

eg dams, utilities




What is Organizational Buying?What is Organizational Buying?Systems Buying & SellingSystems Buying & Selling

Systems contracting

1 supplier for entire MRO

(maintenance, repair, operating) supplies

– Supplier manages inventory - BENEFITS?

– Customer - reduce cost & protect price

– Seller - low operating costs - steady demand




Participants in the Business Buying Participants in the Business Buying Process – Process – The Buying CenterThe Buying Center

The buying center

decision making unit of a buying

organization

May include people outside

organization such as

government officials, consultants




Participants in the Business Buying Participants in the Business Buying Process – Process – The Buying CenterThe Buying Center

Buying center includes:

Initiators Users Influencers Deciders Approvers Buyers Gatekeepers




Participants in the Business Buying Participants in the Business Buying Process –Process –Buying Center InfluencesBuying Center Influences

Buying members - priority to different criteria

Respond to influences eg perception education

Different buying styles

Personal needs “motivate” person’s behavior but organizational needs “legitimize” buying decision

Industrial buying decisions serve both needs of organization & individual




Participants in the Business Buying Participants in the Business Buying Process –Process –Buying Center TargetingBuying Center Targeting

Who are major decision participants?

What decisions do they influence?

What is their level of influence?

What evaluation criteria do they use?

Small sellers- key buying influencers

Large sellers - multilevel in-depth selling





4 types of business customers

1.Price-oriented

2.Solution-oriented

3.Gold-standard

4.Strategic-value





Price-oriented buyers - lower price,

conditions

– Eg: No refunds

Risk & gain sharing - offset requested price

reductions from customers

Solution selling - alleviate price pressure -

enhance revenues, decrease risks & costs




A A Kodak adKodak ad targets hospital targets hospital administrators - administrators - offer servicesoffer services

that streamline that streamline processes, integrate processes, integrate

technologies & technologies & improveimprove

productivityproductivity

Business marketers Business marketers - periodically review- periodically reviewtheir assumptions their assumptions

about buying center about buying center participantsparticipants




The Purchasing/Procurement The Purchasing/Procurement ProcessProcess

Business buyers -highest benefit for market offering’s costs

Incentive to purchase > in proportion to ratio of perceived benefits to costs

Construct profitable offering - superior customer value to target buyers





Buying Orientation –short-term, tactical

Procurement Orientation – seek to

improve quality & reduce cost

Supply Chain Management

Orientation – a more strategic, value-

adding operation





--Types of Purchasing ProcessesTypes of Purchasing Processes4 product-related purchasing

processes:1. Routine products

- low value & cost & little risk

2. Leverage products- high value, cost; little supply risk

3. Strategic products- high value, cost & risk

4. Bottleneck products- low value, cost some risk





- - Purchasing Organization & Purchasing Organization & AdministrationAdministration

Purchasing jobs - strategic, technical,

team-oriented

In MNCs – purchasing - separate divisions

Centralize purchasing

– Headquarters buys centrally

– Substantial savings

Business marketer - fewer & higher-level

buyer




Table 7.1Table 7.1 Buygrid Framework: Major Stages (Buyphases) of Industrial Buying Process in Relation to Major Buying Situations (Buyclasses)




Figure 7.1 Organizational Buying Behavior in Japan: Packaging-Machine Purchase Process




Stages in the Buying ProcessStages in the Buying Process- - Problem RecognitionProblem Recognition

Buying process - problem/need recognized - met by good/service

Trigger - internal or external stimuli Events lead to problem recognition Stimulate problem recognition -

direct mail, telemarketing & calling on prospects




Stages in the Buying Process - Stages in the Buying Process - General Need Description & Product General Need Description & Product

SpecificationSpecification

Buyer - item’s features & quantity

Complex items - buyer work with

others on reliability, durability or price

Business marketers - how their

products meet or exceed buyer’s

needs






Product value analysis (PVA)Product value analysis (PVA)Approach to cost reduction

where components are studied and redesigned or standardized

and/or produced with lower costs






Buyer - develops technical specifications

Examine high-cost components

Identify those - last longer than product

Tightly written specifications - buyer can

refuse if too expensive, below standards

Suppliers - PVA as tool to win account




Hewlett PackardHewlett Packard ads ads with theme with theme

“+ hp = everything is “+ hp = everything is possible”possible”

Focus - consulting & Focus - consulting & advisory capabilitiesadvisory capabilities

Joint venture with the Hong Joint venture with the Hong Kong Special Administrative Kong Special Administrative

Region governmentRegion government

- - created Web portalcreated Web portal - -

Hong Kong’s citizens Hong Kong’s citizens

24-hour access to 24-hour access to government servicesgovernment services




Stages in the Buying Process Stages in the Buying Process – – Supplier SearchSupplier Search

Buyer identify appropriate suppliers:– Trade directories– Contacts with companies– Trade advertisements & shows

Marketers put products, prices online Internet purchasing - future purchasing B2B marketing in Asia - learn from the

U.S.




The Business-to-Business (B2B)The Business-to-Business (B2B)Cyberbuying BazaarCyberbuying Bazaar

Electronic marketplacesElectronic marketplaces - several forms:

1) Catalog sites

2) Vertical markets

3) “Pure Play” auction sites

4) Spot (or exchange) markets

5) Private exchanges

6) Barter markets

7) Buying alliances




The Business-to-Business B2BThe Business-to-Business B2BCyberbuying BazaarCyberbuying Bazaar

Online business buyingOnline business buyingAdvantagesAdvantages:1. Low costs for both parties2. Reduces time: order-delivery3. Consolidate purchasing systems4. Close relationships5. In Asia, increased transparencyDownsideDownside:1. Erode supplier–buyer loyalty 2. Potential security problems




The Asian B2B EnvironmentThe Asian B2B Environment

Building B2B marketplaces in Asia - address & adapt to Asian business environment:

Manufacturing dominates

Less efficient supply chains

Less well developed infrastructure

Smaller markets




Stages in the Buying Process Stages in the Buying Process – – E-ProcurementE-Procurement

Vertical hubs & Functional hubs Direct extranet links to major suppliers Buying alliances Company buying sites

e-procurement change purchasing strategy

Supplier - list in online catalogs, strong advertising & build good reputation




Stages in the Buying Process Stages in the Buying Process – – E-ProcurementE-Procurement

Benefits:

1. Aggregate purchase -volume discounts

2. Less buying of substandard goods

3. Smaller number of purchasing staff




Stages in the Buying Process Stages in the Buying Process – – Proposal SolicitationProposal Solicitation

Qualified suppliers - submit proposals

A few make formal presentations

Written proposals - marketing documents - describe value & benefits to customer

Oral presentations - confidence & position capabilities - stand out from competition




Stages in the Buying Process Stages in the Buying Process – – Proposal SolicitationProposal Solicitation

Eg: Hurdles Xerox set up to qualify

supplier– To qualify - ISO 9000– To win - Xerox Multinational Supplier

Quality Survey– Then, Xerox’s Continuous Supplier

Involvement process– Final- rigorous quality training &

evaluation– Only 176 suppliers worldwide get 95 %

rating required




Stages in the Buying Process Stages in the Buying Process – – Supplier SelectionSupplier Selection

Desired attributes & importance– Supplier-evaluation model

Marketers - how buyers get valuations 8 customer value assessment (CVA)

methods to assess customer value Buying centers to decide number of

suppliers




Table 7.2Table 7.2An Example of Vendor Analysis




Methods of Assessing Customer ValueMethods of Assessing Customer Value

1. Internal engineering assessment

2. Field value-in-use assessment

3. Focus-group value assessment

4. Direct survey question

5. Conjoint analysis

6. Benchmarks

7. Compositional approach

8. Importance ratings




Stages in the Buying Process Stages in the Buying Process – – Order-Routine SpecificationOrder-Routine Specification

After selection - negotiates final order Blanket contracts rather than periodic

purchase

Blanket contract - long-term relationship

– Supplier promises to resupply buyer as needed

– At agreed prices, over specified time




Stages in the Buying Process Stages in the Buying Process –– Order-Routine SpecificationOrder-Routine Specification

Vendor-managed inventory

– Some shift ordering responsibility

to suppliers

Suppliers replenish it automatically

through continuous replenishment

programs




Stages in the Buying Process Stages in the Buying Process –– Performance ReviewPerformance Review

Review supplier performance

3 methods:

1. Contact end users for evaluations

2. Rate on criteria - weighted score

3. Aggregate poor performance cost - get adjusted costs of purchase & price




Stages in the Buying Process Stages in the Buying Process –– Performance ReviewPerformance Review

Lead buyer to decide on supplier relationship

Reward managers for good buying performance

Increase pressure on sellers for best terms




Managing Business-to Business Managing Business-to Business Customer RelationshipsCustomer Relationships

- - The Benefits of Vertical CoordinationThe Benefits of Vertical Coordination

Vertical coordination - buying partners & sellers to engage in activities - create more value for both

Trust between parties - prerequisite to healthy long-term relationships




Managing Business-to Business Customer Managing Business-to Business Customer RelationshipsRelationships - - The Benefits of Vertical The Benefits of Vertical

CoordinationCoordination

Relationship between ad agencies & clients:

1)Formation stage - 1 partner big market growth

2) Information between partners – profit both

3)At least 1 - high barriers to entry

4)Dependence asymmetry - 1 influence the other

5)1 partner - economies of scale




Managing Business-to Business Managing Business-to Business Customer RelationshipsCustomer Relationships

- - The Benefits of Vertical CoordinationThe Benefits of Vertical Coordination

8 buyer-supplier 8 buyer-supplier relationships:relationships:

1) Basic buying & selling 2) Bare bones3) Contractual transaction4) Customer supply5) Cooperative systems6) Collaborative7) Mutually adaptive8) Customer is king




Establishing Corporate TrustEstablishing Corporate Trust& Credibility& Credibility

Corporate credibility - 3 factors:Corporate credibility - 3 factors:I. Corporate expertiseII. Corporate trustworthinessIII. Corporate likability

Factors affecting trust in B2B Factors affecting trust in B2B relationship:relationship:

I. Perceived competenceII. IntegrityIII. HonestyIV. Benevolence of firm




Trust in online settings, stringent requirements

Buyers worry - get products - right quality to right place at right time

Sellers worry - paid on time/at all - how much credit to extend

ToolsTools: automated credit-checking applications & online trust services - determine credibility of trade partner

Establishing Corporate TrustEstablishing Corporate Trust& Credibility& Credibility




Managing Business-to Business Managing Business-to Business Customer RelationshipsCustomer Relationships - - Business Business

Relationships: Risks & OpportunismRelationships: Risks & Opportunism

Customer-supplier relation, tension between to safeguard & to adapt

Vertical coordination – strong ties but increase risk

Specific investments - spending tailored to firm & value chain partner

Supplier not monitored- might not deliver expected value




Managing Business-to Business Customer Managing Business-to Business Customer RelationshipsRelationships - - Business Relationships: Risks Business Relationships: Risks

& Opportunism& Opportunism

Opportunism - cheating or undersupply relative to contract

Concern - resources to control - more productive elsewhere

Expropriation to bonding if:– Significant time horizon – Strong solidarity norms– Customer & supplier- joint benefit




Relationship Marketing in the Relationship Marketing in the Keiretsu & ChaebolKeiretsu & Chaebol

Japanese keiretsu & Korean chaebol Buy & sell among each other

Production keiretsu -vertical integration of manufacturers & suppliers

Procurement keiretsu

– “Buy group products” mentality

– Reciprocal purchasing prominent




Relationship Marketing in the Relationship Marketing in the Keiretsu & ChaebolKeiretsu & Chaebol

Long-term cooperative relationships developed

Interdependence, social ties & trust

Competition & downturn 1990s

– Keiretsu firms expand outside group

Convergence - supplier polices of Japanese & Western automakers




Institutional & Government Institutional & Government MarketsMarkets

Institutional market - provide for people in their care (schools, hospitals)

Low budgets & captive clienteles

GovernmentGovernment Major buyer goods & service Suppliers – take lowest bid Negotiated contract basis – complex

projects





Government spending - public review

– Considerable paperwork

– Justify cost - major consideration

– Show bottom-line of offerings

Suppliers - ways to cut through red tape





Government procurement - price

Win government contracts - revenue & spillover benefits - others may follow

– Eg Growth of Linux expected strong in key Asian markets

– Government endorsements boost visibility





In Asia - some governments favor local companies - award contracts

Government purchase – kickback,

bribery

Tie up with influential local business -

effective way to penetrate

government market




Government Procurement in KoreaGovernment Procurement in Korea

Procurement irregularitiesProcurement irregularities uncovered in

procedures:

1. Preferential treatment to firms when

establishing specifications & contract methods

2. Preferential access to tender information when

making order

3. Apply procedures to select successful bidders &

conduct private contract negotiations arbitrarily

4. Wrongdoings of contract officers




Government Procurement in KoreaGovernment Procurement in Korea

Improvements made:Improvements made:

1. Change specific procurement to general ones

2. Reduce private contract & restricted competition tenders

3. Actively publicize tender information

4. Establish contract procedures criteria to prevent arbitrary implementation

5. Online digitalizing of procurement process

6. Increase officials’ awareness on corruption





China - innovative market economy

PrinciplesPrinciples:

1) Interact with all government levels

2) Develop relations through organizations

3) Guanxi not enough for good relations

4) No one-size-fits-all solution

Form government marketing department




Marketing DebateHow Different is Business-to-Business Marketing?Many business-to-business marketing executives lament the challenges of business-to-business marketing, maintaining that many traditional marketing concepts & principles do not apply. For a number of reasons, they assert that selling products & services to a company is fundamentally different from selling to individuals. Others disagree, claiming that marketing theory is still valid & only involves some adaptation in the marketing tactics.

Take a position: Business-to-business marketing requires a special, unique set of marketing concepts & principles versus Business-to-business marketing is really not that different & the basic marketing concepts & principles apply.

Marketing DiscussionConsider some of the consumer behavior topics from Chapter 6. Howmight you apply them to business-to-business settings? For example, how might non-compensatory models of choice work?

Final discussion

cd6813 business mkt

Documents

buying influences

buying organization

buying centerthe

buying center decision

business buyers

marketing management

business buyingparticipants

process process