MM050. Marketing. Management. B2B Marketing. Nick Ellis. Open School of Management

Transcription

1 MM050 Marketing Management B2B Marketing Nick Ellis Open School

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3 Marketing B2B Marketing Nick Ellis

4 Contents Introduction Introduction to B2B marketing The importance of B2B marketing _ Defining B2B marketing _ B2B marketing management The importance of supply/demand and value chains _ Supply/demand chains _ Value chains Some characteristics of organizational markets The importance of relationships and networks Summary and reflection Organizational purchasing Types of organizational markets _ Commercial customers _ Institutional and governmental customers Comparing organizational and consumer buyer behavior Influences on organizational demand _ External influences _ Internal influences _ Social influences Organizational decision-making _ The buying center or decision-making unit (DMU) _ The decision-making process Summary and reflection Interfirm relationships From market transactions to relational exchange Customer relationship management Challenges in managing IFRs Summary and reflection Channels, supply chains, and networks Structure and role of marketing channels _ Channel management _ Types of intermediary _ Channel structure Flows and blockages in channels _ Channel flows _ Conflict in marketing channels From channels to chains... 31

5 Marketing 4.4 From channels and chains to networks _ Types of industrial networks _ Network stakeholder relationships Summary and reflection Strategic planning in B2B marketing The planning process and demand chain management Information sources _ Maintaining an MKIS _ B2B market research B2B market segmentation B2B market positioning _ Positioning by value proposition _ Repositioning B2B branding strategy Strategic decisions in networks Summary and reflection Business products and services Classifying business products Managing business products _ Categorizing product lines _ The product life cycle Classifying business services Managing business services Summary and reflection B2B value and pricing Notions of value in business markets Making B2B pricing decisions Competitive bidding Electronic marketplaces Summary and reflection B2B marketing communications Communication strategies Elements of the communications mix Relative effectiveness of B2B media Personal selling in B2B markets Key account management Summary and reflection Solutions for Exercises Bibliography About the author Open School

6 6 Marketing Introduction This study material provides an overview of the main theoretical and managerial issues in the area of B2B marketing. From the outset it stresses that for every consumer market there are typically several upstream organizations that must deal with each other in products and services. The guide aims to show that B2B marketing is about trying to manage the network of buying and selling relationships between these organizations. The rationale behind the chapter structure we shall be following is to ensure your understanding of B2B markets from the outset (as well as organizational buying in Chapters 1 and 2). We then explore relationships (Chapter 3), introducing them as the crucial links that bind channels, chains, and networks (Chapter 4). These topics inform the B2B planning issues covered in Chapter 5, before we move on to look at more specific activities in Chapters 6, 7, and 8. The guide assumes that the subject of B2B marketing will appeal to both management generalists and marketing students, believing that many of you recognize the employment potential in this field. It will also be useful for prospective managers with a more scientific/engineering background who are seeking to move into marketing-related jobs.

7 B2B Marketing 7 General learning outcomes After you have worked through this study material, you will be able to: Understand the significance of B2B markets and marketing in the global economy. Appreciate the complex processes underpinning organizational buyer behavior. Acknowledge the implications of having to manage the relationships that link firms in channels, chains, and networks. Identify how these issues inform the B2B strategic planning process. Recognize ways of classifying and managing business products and services. Understand value perceptions in B2B marketing and how these can affect pricing. Identify appropriate communication and personal selling strategies for B2B markets. Relate theory to practice via a wide range of case-study examples from a series of international contexts. Appreciate some of the day-to-day challenges faced by B2B marketing and purchasing managers. Open School

8 8 Marketing Chapter 1: Introduction to B2B marketing Introduction and learning outcomes You might ask why a whole course on business-to-business (B2B) marketing is needed isn t it just another version of business-to-consumer (B2C) marketing? Well, just consider that purchases by organizations account for well over half the economic activity in industrialized countries, with individual companies such as General Motors spending billions of dollars annually on goods and services. After completing this chapter, you should be able to: Understand the significance of B2B marketing in the global economy. Explain the relevance of the supply/demand chain and value chain concepts for B2B marketers. Recognize some key characteristics of business markets. Appreciate the importance of interfirm relationships and networks in B2B marketing. 1.1 The importance of B2B marketing There are many reasons why B2B marketing knowledge should be significant for students of management, not least of which is the fact that the majority of you will go on to work in firms whose primary customers are other organizations. The importance of B2B marketing is also recognized by key business thinkers and practitioners. Leading management guru Martha Rogers states: With the rise of customer focus, the B2C world has borrowed a lot from B2B. Now you can do for thousands of people what B2B has done for years (The Marketer 2008). Consider also the profound shift in corporate mindset necessary when IBM recently sold its personal computer division to the Chinese company Lenovo, allowing one of their marketing directors to announce, We are a B2B company (Green 2008).

9 14 Marketing Chapter 2: Organizational purchasing Introduction and learning outcomes If you are a B2B marketer then you have to know how your customers (and indeed your own firm s buyers) make their buying decisions, especially as organizational purchasing is a key element of the relationships that a firm develops. For instance, Danieli SpA is a world leader in the design and construction of industrial systems for the iron and steel industries. In order to ensure high levels of reliability and quick response times, the purchasing department of Danieli is constantly searching for suitably qualified suppliers, spending almost 500 million euros a year. After studying this chapter, you should be able to: Recognize some key characteristics of organizational markets and customers. Compare and contrast consumer and organizational buyer behavior. Appreciate the many influences on industrial purchasing decisions. Understand the processes involved in organizational decision-making. 2.1 Types of organizational markets _ Commercial customers Distributors are also known as intermediaries (see Chapter 3). As their name suggests, they function in order to transfer products through the supply chain or channel, adding value as they do so. Distributors customers include both end-user business customers and OEMs (see below). Original equipment manufacturers (OEMs) are firms that purchase materials or parts which they then make into products that are marketed, often with the manufacturer s brand name, to their customers. They are, in many ways, the classic business customer, for example, computer manufacturers like Hewlett-Packard and Fujitsu Siemens.

10 22 Marketing Chapter 3 Interfirm relationships Introduction and learning outcomes Now that you know something about business markets and buying decisions, this chapter will show why supplier firms should be asking how they can build relationships with their customers. For instance, the director of global marketing communications agency Gyro International says that loyalty tends to come from the work done by the firm s account managers, who understand their clients issues and resolve them quickly. After completing this chapter, you should be able to: Contrast market and relational exchange in interfirm relationships (IFRs). Appreciate the significance of trust and commitment in relationship marketing. Recognize the elements of successful customer relationship management Understand some key reasons for the formation of partnerships and alliances. 3.1 From market transactions to relational exchange Of course, a purely market- (or transactional-) based approach can be legitimate for certain situations, as happens sometimes in spot markets for commodities, such as gravel in the construction industry, where interaction between parties is minimal. However, as we saw in Chapter 1, it is now generally accepted that good, long-term interfirm relations are something that B2B marketing and purchasing managers should strive for. Key elements of relationship marketing A core part of relationship marketing (RM) is an emphasis on long-term relationships via strategies that aim to retain customers, and thus improve their profitability. This is because it is thought to cost more to attract a new customer than it does to persuade existing customers to repeatedly spend more with you. This can be seen in the way Boeing looks after one of its key customers, the UK Ministry of Defence (MoD). The company runs what it

11 B2B Marketing 27 Chapter 4: Channels, supply chains, and networks Introduction and learning outcomes We shall now explore how relationships link firms together in marketing channels, supply chains, and networks. The importance of relationships in the supply chain is shown by manufacturer De-Ta SpA. This Italian firm is the second-largest producer of office chairs in Europe. It purchases suspensions from companies in China. The price, quantity, and delivery times for these components are negotiated with a Taiwanese intermediary. The intermediary then deals with the Chinese suppliers to ensure deliveries arrive according to agreed schedules and technical specifications. After completing this chapter, you should be able to: Identify the contribution of marketing channels to B2B marketing strategy. Analyze key channel participants, activities, and flows. Recognize upstream and downstream supply chain issues. Appreciate how the metaphor of channels/chains can be extended to one of networks. Explain the broadening of RM thinking to a network stakeholder perspective. 4.1 Structure and role of marketing channels Some of the following B2B-oriented discussion of channels will be familiar to those of you who have studied the place P of the marketing mix, although it is likely that you will have discussed it from the point of view of a brand producer marketing to consumers. Although it is an old model, the marketing mix (or 4Ps ) (McCarthy 1960) is still widely seen in marketing management theory as the basic tool box of tactics for marketers, comprising Product, Price, Promotion (or communication) and Place (or distribution). Open School

12 B2B Marketing 35 X Exercise 7 What might be the best distribution strategy for a manufacturer of (a) office stationery and (b) machine tools such as industrial lathes? How would you design the channels for each of these firms? X Exercise 8 Please identify the key stakeholders involved with a manufacturer of grocery products seeking to trade in foreign markets. Open School

13 36 Marketing Chapter 5: Strategic planning in B2B marketing Introduction and learning outcomes The foregoing chapters have suggested there are some concepts of which every B2B marketer needs to be aware, and this chapter shows you how to apply them in making strategic decisions; but note that we shall not be discussing all the elements of the traditional marketing planning cycle in this chapter, as these will be covered on other courses. After studying this chapter, you should be able to: Appreciate the need for strategic planning in B2B marketing and S/DCM. Evaluate the role of market research regarding the development of forecasts in business markets. Recognize the main bases for B2B market segmentation. Consider some of the alternatives for strategic positioning. Assess the potential significance of branding in industrial marketing. Understand some of the network issues facing B2B marketing managers in designing appropriate strategies. 5.1 The planning process and demand chain management An effective marketing strategy is likely to be dependent on the distribution issues associated with S/DCM. Firms should be able to achieve a sustainable competitive advantage if they can offer superior customer value and have the business system to support it. This view is captured in what the marketing director of a UK office furniture manufacturer has to say about the relationships necessary for his products to reach his business clients, who tend to buy from furniture dealers: Without the connection between the dealer and the end user, we don t exist because we re not selling direct. It s as simple as that. So you need to make the middle-man choose you first (Ellis 2008).

14 B2B Marketing 45 Chapter 6: Business products and services Introduction and learning outcomes Over the next three chapters we discuss B2B marketing mix programs in greater detail. You should note that, by exploring the concepts of channels and chains in Chapter 4 instead of as part of a place discussion, you have gained a holistic picture of IFR issues up-front. Thus it is the remaining 3 P s of product, price and promotion that follow. In this chapter we look at the management of what is probably the best known P of the marketing mix, the product itself, although business services will also be discussed in addition to tangible goods. This is important, since as many B2B marketers now work for service providers as for manufacturers. After completing this chapter, you should be able to: Recognize ways of classifying business products. Appreciate how to manage business products. Identify ways of categorizing business services. Understand some service management issues in organizational markets. 6.1 Classifying business products A helpful way of classifying offerings for the business market is in terms of how they are used by customers. Offerings that are integral to the manufacturing production process, such as raw materials and manufactured parts or components, can be classed as input products. This represents the flow of these goods into the firm from upstream suppliers. Foundation products tend to be used to perform the manufacturing process, as well as being utilized in administrative tasks. An example of a foundation product is the printing machinery sold by firms like Duoyuan Digital Press Technology. This Beijing-based company makes presses for customer organizations printing leaflets, newspapers, and packaging materials (Dekkers 2009). Open School

15 B2B Marketing 53 Chapter 7: B2B value and pricing Introduction and learning outcomes In continuing our look at marketing mix programs, this chapter covers one of the classic P s, price, but moves beyond the sometimes rather restrictive notions of pricing and costs to discuss value in B2B markets in more detail. After completing this chapter, you should be able to: Recognize the significance of value perceptions in B2B marketing. Understand how a number of internal and external factors can affect. price-setting in organizational markets. Appreciate aspects of pricing that are different for B2B markets compared to B2C. 7.1 Notions of value in business markets Pricing in B2B marketing is inextricably linked to notions of value. Value is determined by the net satisfaction derived from any transaction, and not simply the costs of obtaining the goods or services concerned. It is thus important for marketers to be aware of how customers might perceive the costs and benefits associated with a particular purchase. For the purchase of a large piece of machinery, for example, there can be many further costs that occur well after the initial purchase price has been paid, ranging from the costs of maintaining the equipment to the cost of training the firm s staff how to operate it. Benefits to the customer organization in such a situation may include the functional and operational gains offered by the physical aspects of the product or the reliability of any attendant service; financial benefits such as a convenient payback period; and the personal benefits gained by the purchasing manager who is recognized for making a good decision. Open School

16 76 Marketing Journalistic Working Techniques Bibliography Anderson, J.C., Narus, J.A., and van Rossum, W. (2006) Customer value propositions in business markets. Harvard Business Review, March, BBC News (2009) General Motors expands in China. Available at: news.bbc.co.uk/1/hi/business/ stm (accessed September 22, 2014). Buttle, F. (2004) Customer Relationship Management: Concepts and Tools. Oxford: Elsevier Butterworth Heinemann. Carroll, R. (2009) Unblocking Panama s bottleneck. The Guardian, July 11, p. 35. De Man, A-P. (2004) The Network Economy: Strategy, Structure and Management. Cheltenham: Edward Elgar. Dekkers, R. (2009) Endogenous innovation in China: The case of the printer industry. Asia Pacific Business Review, 15 (2): Doctorow, D., Lippert, M., and Srivatsan, V.N. (2008) Rethinking high-tech distribution. The McKinsey Quarterly. Available at: tr/fikirler/mckinsey_quarterly/rethinking-high-tech-distribution.view (accessed September 22, 2014). Dwyer, F.R., Shurr, P.H., and Oh, S. (1987) Developing buyer seller relationships. Journal of Marketing, 51 (April): Ellis, N. (2008) Discursive tensions in collaboration: Stories of the marketplace. International Journal of Sociology and Social Policy, 28(1): Ford, D., Gadde, L-E., Håkansson., H., and Snehota, I. (2006) The Business Marketing Course: Managing in Complex Networks, 2nd edn. Chichester: John Wiley & Sons, Ltd. Fuchs, S, Pais, G & Shulman, J (2013) Building Superior Capabilities for Strategic Sourcing, McKinsey Insights. Gadde, L-E. and Håkansson, H. (2001) Supply Network Strategies. Chichester: John Wiley & Sons, Ltd.

17 E005 / Title of this Course is Written B2B Marketing Gray 77 Green, L. (2008) Innovation through collaboration at IBM. Keynote presentation at 15th Conference on Multi-Organizational Partnerships, Alliances and Networks. Boston, MA, June Gronroos, C. (2000) Service Management and Marketing, 2nd edn. Chichester: John Wiley & Sons, Ltd. Guenzi, P. (2002) Sales force activities and customer trust. Journal of Marketing Management, 18: Gummesson, E. (1991) Marketing orientation revisited: The crucial role of the part-time marketer. European Journal of Marketing, 25(2): Juttner, U., Christopher, M., and Baker, S. (2007) Demand chain management integrating marketing and supply chain management. Industrial Marketing Management, 36: Kotler, P. and Pfoertsch, W. (2007) Being known or being one of many: The need for brand management for B2B companies. Journal of Business and Industrial Marketing, 22(6): Lichtenthal, J.D. (2007) Advocating business marketing education: relevance and rigor. Journal of Business-to-Business Marketing, 14(1): Majewski, B.M. and Srinivas, S. (2003) The Services Challenge: Operationalizing Your Services Strategy. Somers, NY: IBM Business Consulting Services Executive Brief. Marketer, The (2008) Big Shot: Martha Rogers. Available at: themarketer.co.uk/archives/interviews/qa-interviews/martharogers/ (accessed September 22, 2014). McCarthy, JE (1960) Basic Marketing: A Managerial Approach, Homewood, Il; Irwin. McKee, S. (2010) Creative B2B Branding (No, Really): Building a Creative Brand in a Business World. Woodeaton: Goodfellow Publishers Ltd. Möller, K.K. and Halinen, A. (1999) Business relationships and networks: Managerial challenges of the network era. Industrial Marketing Management, 28: Open School

18 78 Marketing Journalistic Working Techniques Pressey, A.D. and Ashton, J.K. (2009) The antitrust implications of electronic business-to-business marketplaces. Industrial Marketing Management, 38: Robinson, P.J., Faris, C.W., and Wind, Y. (1967) Industrial Buying and Marketing. Boston, MA: Allyn & Bacon. Shapiro, B.P. (1977) Industrial Product Policy: Managing the Existing Product Line. Cambridge, MA: Marketing Science Institute. Times of India, Goa (2012) Pulse of Goa: Goa Int. Marine and Boat Expo begins today, December 14, p9. Webster, F.E. and Wind, Y. (1972) Organizational Buying Behavior. Engelwood Cliffs, NJ: Prentice Hall.

19 E005 / Title of this Course is Written B2B Marketing Gray 79 About the author Nick Ellis is Professor of Marketing Management at Durham University in the UK. He has been teaching business-to-business (B2B) marketing to students around the world for nearly 20 years. His work focuses on interorganizational relationships as he explores marketing and purchasing management in supply chains and industrial networks. Nick has managed a number of externally funded research projects advising large firms and SMEs on their marketing strategies. His broadly qualitative, case study-based research embraces marketing and organization studies, with publications in leading journals across both disciplines. Before becoming an academic, Nick worked in a business liaison role in the higher education sector, having spent several years previously in retail sales and procurement. Open School

20 Management MM050 Marketing B2B Marketing Nick Ellis Open School