Business-to- Business Marketing and Supply Chain
The purpose of this paper is to highlight understanding of the subject of buyer behaviour in business markets, which provides strategist with the necessary insights required to successfully manage the marketing and purchasing interface between organisations.
As the sales Manager of Unilever Limited, an effort has been made to explain the basic theory of organizational buying, an understanding of which is fundamental to business-to-business marketing. It begins by looking at the organizational buying process and a number of models of the process. It then investigates the theory of risk and uncertainty and identifies the key factors that influence behavior and concludes with a discussion of the role of purchasing which is seen as a key area in the competitiveness of the modern industrial firm.
The research aims to establish the extent of the divide between academics and practitioners in terms of relevance of teaching content and the vehicles for disseminating academic research. It examines the use of marketing tools, techniques and research within the business-to-business (B2B) marketing context and identifies sector differences in the application of marketing knowledge disseminated by academics and to enlighten a new recruit in the firm of its significance.
2. Literary Review
The differences between consumer and B2B marketing are well documented (Simkin, 2000). Traditionally, the contrasts revolve around: market structure and demand; the nature of the buying unit; and the types of decisions and the decision process involved (Kotler et al., 2001).
B2B organisations are typified as having a large number of customers that have to be handled individually (Hakansson et al., 1976), and also require relationship development, frequently long term, between the selling and the buying organisations and its principal officers (Ford, 2003).
Fletcher and Hart (1990), identified that B2B organizations, have a tendency not to employ marketing directors, nor have people in senior positions with a responsibility for marketing. In contrast, consumer market organisations have a high level of marketing, and senior managers with a responsibility for marketing are heavily involved in strategic planning procedures. Their suggestion is that the B2B sector has not embraced the concept of marketing in the same way as the fast moving consumer goods (fmcg) sector with a lower level of priority given to marketing within the organisational power structure.
Much of marketing practice is based around common principles. In B2B marketing theory, organisational buyer behaviour concepts are also undifferentiated between industrial sectors. In public and private sector organisations, final organizational objectives may well vary, which could lead to different aspects being emphasised as important. Therefore, the difference between these sectors is also explored in this research.
B2B is the marketing of goods and services that businesses and other organizations buy for purposes other than personal consumption, of themselves. These business-to-business markets or organizational markets include manufacturers, wholesalers, retailers, and a variety of other organizations, such as hospitals, universities, and government agencies.
Marketing in the modern sense covers a vast range of activities including advertising, public relations, promotion, all types of sales, and aspects of distributionincluding also specialties within this field such as market research, strategy, and planning. In those corporations predominantly engaged in selling to the consumer, marketing and sales are typically separate functions, but with sales subordinated to and managed by the more prestigious marketing function. Marketing thus represents the overall strategic, intelligence, and communications function whereas sales are detail-oriented implementations obeying and carrying out a general marketing strategy.
The chief difference between business-to-business and business-to-consumer marketing is that the roles of marketing and sales are largely reversed. A business dealing with another business relies much less on image-based forms of mass persuasion and heavily on technical and commercial communications, product demonstrations, and cultivation of relationships through industrial channels. The basic reason for this is that B-to-B sales are in their very nature much more influenced by price, by product performance, by timely and reliable deliveries, and effective and swift services, than by perceptions or emotions. Image marketing in B-to-B plays a definite but subordinated role; occasionally it uses mass media, but generally the message is channeled through magazines, journals, and newspapers, i.e. Wall Street Journal, intended to reach decision makers in business.
Virtually all businesses selling to the ultimate consumer also sell to the "channel," namely distributors and retailers. Thus their sales have a multi-tiered aspect. In these situations the broad marketing aimed at the ultimate consumer is, of course, of great interest to the business buyer too. The retailer is much more likely to stock a heavily and effectively advertised consumer product for which the producer also provides lucrative incentives for joint advertising at the local level, than the retailer is likely to stock a brand with low recognition value. In such contexts marketing in the traditional sense also plays a major role in selling to the business customer.
In theory, the same basic marketing principles hold in both consumer and business markets-firms identify customer needs and develop a marketing mix to satisfy those needs. However, there are differences that make business-to-business marketing more complex.
In business markets, products often have to do more than satisfy an individual's needs. They must meet the requirements of everyone involved in the company's purchase decision i.e. Multiple Buyers. Organizational customers are few and far between compared to end consumers. This means that business marketing strategies may be quite different from consumer markets i.e. Number of Customers.
Business-to-business products can dwarf consumer purchases both in the quantity of items ordered and in the price of individual purchases i.e. Size of Purchase. Recognizing such differences in the size of purchases allows marketers to develop effective marketing strategies. Business customers are located in small geographic areas rather than being spread out across the country.
3.1 B2B Context
It is important to study the context of the B2B marketing within, which the decision making unit (DMU) operates. The company that I am working for Unilever Limited manufactures a large number of products and product categories. Part of these products is sold to the large supermarket chains, with around 300 outlets operating in the country. Our company Unilever deals with the corporate buying departments of these large supermarket chains.
Unilever, which is a multi-national company, is very well established in Sri Lanka, manufactures consumer products for island-wide distribution of which the B2B is only an important part of their business strategy.
The B2B partner of Unilever in the fast moving consumer goods (FMCG) field is the supermarket industry. The supermarket industry consists of five major players in Sri Lanka.
Unilever's keep a direct contact with the market7both distributors and consumers, in order to monitor the movement of their products and to respond depending on the feedback. They are also involved in creating a demand for their products through promotions and advertising. The supermarket companies stock and sells their products and use merchandising tools to enhance their sales.
3.2 Significance of Decision Marking Unit to the provider of services and goods.
Traditionally it was recognized that the sellers should keep a working relationship with the chief buyer. This thinking has considerably changed due to the very complex nature of buying and distribution.
Thede are many stake holders, direct and indirect who can influence the buying decisions t both products and companies. It is in this context that a proper understanding of the DMU is very important to the vendor company and those who are in the business of servicing the organizational selling process.
3.3 Key members of the Organisational Decision-Making Unit
While the B2C buying process can certainly be fairly complex over the purchase of goods like a family car, B2B organisational buying processes typically involve more people than B2C purchases, in what is known as the 'buying centre' or decision-making unit (DMU).
Key members of this group can include managers not directly involved with using the goods or materials, but who have a strategic or financial perspective of the organisation as a whole.
Trained professional buyers typically carry out buying in B2B markets. These people typically have titles such as purchasing agents, procurement officer, or directors of materials management. Professional purchasers shop all day, every day. They are responsible for selecting quality products and ensuring their timely delivery.
The group of people in the organization who participate in the decision-making process is referred to as the buying center. A buying-center is a cross-functional team of decision makers. Generally, the members of a buying center have some expertise or interest in the particular decision, and as a group they are able to make the best decision.
In reference to DMU, Fill and Fill confirm that there are often a large number of people involved in a business purchase decision, with the actual purchasing department performing a relatively insignificant role. You should note the different parties, which can include; initiators, influencers, deciders, gatekeepers, users, decision-makers.
Depending on the complexity of the purchase and the size of the buying center a participant may assume one, several, or all of the following roles:
Initiator: begins the buying process by first recognizing that the firm needs to make a purchase. The requests for the goods come from the supermarket managers, product managers, stores managers of the supermarkets. It is necessary for us to keep in touch with them and constantly promote our products. If not they can request from the chief buyer, to buy products from our competitors, giving reasons to his mind valid or even without any valid reason.
User: a member of the buying center who actually needs the product. Success of a supermarket store depends on the users and their buying habits, are the ultimate judges. The vendor company, for example Unilever's has to interact with this important stake holder in varied ways, in order to monitor their responses and to design strategies that influence their buying habits.
Influencer: the person(s) who affects the buying decision by dispensing advice or sharing expertise. This is very much common in technically oriented buying departments. Even in consumer products the supermarkets have in-house quality control staff. This has become very important because of government regulations and consumers awareness of quality standards. Interacting with these officers is of much use to the vendor companies, in order to rectify these own shortcomings, thereby improving its competitive edge for the company's products.
1 Decider: the member of the buying center who makes the final decision. It is. importance for the senior staffers of the vendor company to keep in touch with those who are responsible for financial disbursement over a certain limit. It is not unusual that a bigger payment has to be sanctioned by higher management. Very specifically whenever new authorization of the purchase order as well as the issuing of the cheque has to be scrutinized and approved by persons higher than the buyer. Even though these occurrences are not routine it is worthwhile for the higher management of the vendor company to keep continuous relationship with such people.
Buyer: the person who has responsibility for executing the purchase. Buyers are responsible to select suppliers based on a tender system or alternatively a system that is currently in practice. The vendor must be mindful that this is not an automatic choice of the existing supplier but an annual review and evaluation of many suppliers. A good relationship on a consistent basis is a must to win the absolute confidence of the buyer. It is a fact that quality products, timely delivery, quick response for complaints can enhance the good name of the vendor in the eyes of the buyer and his staff.
Gatekeeper: the person who controls the flow of information to other members. 'Gatekeepers' can be key parties to a decision since they often control the flow of information to the rest of the DMU by "Using technology to reach gatekeepers". This above explains how industrial marketers attempt to build relationships with organisational gatekeepers, who, of course, are usually not literally guards at the factory gates. (Fill and Fill, 2006: 119-125)
Nature of Business Buying
4.1 The Buying Situation
Just like end consumers, business buyers spend more time and effort on some purchases than on others. Devoting such effort to a purchase decision usually depends on the complexity of the product and how often the decision has to be made. A buy class framework identifies the degree of effort required of the firm's personnel to collect information and make a purchase decision. A discussion of three classes related to the buying situation follows:
4.1.1 A straight re-buy is the routine purchase of items that a B2B customer regularly needs. The buyer has purchased the same items many times before and routinely reorders them when supplies are low, often from the same suppliers. This is similar to habitual purchases for end consumers.
4.1.2 A modified re-buy occurs when a firm wants to shop around for suppliers with better prices, quality, or delivery times. This situation also can occur when the organization has new needs for products it already buys. Modified re-buys require more time and effort than straight re-buys.
4.1.3 A first-time purchase is a new-task buy. Uncertainty and risk characterize buying decisions in this classification, and they need the most effort because the buyer has no previous experience on which to base a decision. A prospective customer's new-task buying situation represents both a challenge and an opportunity. Although a new-task buy can be significant in and of itself, many times the chosen supplier gains the added advantage of becoming an "in" supplier for more routine purchases that will follow.
4.2 The Business Buying Decision Process The following is a description of the five steps involved in the business buying decision process. Compare this with the process end consumers' use.
4.2.1 Problem Recognition
The first step occurs when someone sees that a purchase can solve a problem. Two events may occur in the problem recognition step. First a request or requisition, usually written, is made. Then, depending on the complexity of the purchase, a buying center may be formed.
4.2.2 Information Search
The buying center searches for information about products and suppliers in this second step. Members of the buying center may individually or collectively refer to reports in trade magazines and journals, seek advice from outside consultants, and pay close attention to marketing communications from different manufacturers and suppliers. The job of marketers is to make sure the information is available when and where business customers want it. Business buyers often develop product specifications, that is, a written description of the quality, size, weight, color, features, quantity, training, warranty, service terms, and delivery requirements for the purchase. The next step is to identify potential suppliers and obtain written or verbal proposals, or bids, from one or more of them.
4.2.3 Evaluation of Alternatives
The buying center assesses the proposals in this stage of the buying decision process. Total spending for goods and services can have a major impact on the firm's profitability, so all other things being equal, price is the primary consideration. Pricing evaluations must take into account discount policies for certain quantities, return-goods policies, the cost of repair and maintenance services, terms of payment, and the cost of financing large purchases. For capital equipment, cost criteria also include the life expectancy of the purchase, the expected resale value, and disposal cost for the old equipment. Although a bidder is often selected because it offers the lowest price, there are times when the buying decision is based on other factors. The more complex and costly the purchase, the more time buyers spend searching for the best supplierand the more marketers must do to win the order. In some cases, a company may even ask one or more of its current customers to participate in a reference program where they recommend products to others. Marketers often make formal presentations and product demonstrations to the buying center group.
4.2.4 Product and Supplier Selection
The next step in the buying process is the purchase decisionthe selection of the best product and supplier to meet the firm's needs. Although price is usually a factor, firms that have adopted a Total Quality Management approach, the quality, reliability, and durability of materials and component parts are paramount. For some purchases, warranties, repair service, and regular maintenance after the sale are important.
A supplier's ability to make on-time deliveries is the critical factor in the selection process for firms that have adopted an inventory management system called just in time (JIT). JIT systems reduce stock to very low levels or even zero and ensure a constant inventory through deliveries just when needed. The advantage of JIT systems is the reduced cost of warehousing. One of the most important decisions of a buyer is how many suppliers can best serve the firm's needs. Sometimes one supplier is more beneficial to the organization than multiple suppliers. Single sourcing, in which a buyer and seller work quite closely, is particularly important when a firm needs frequent deliveries or specialized products.
Multiple sourcing means buying a product from several different suppliers. Under this system, suppliers are more likely to remain price competitive. Outsourcing occurs when firms obtain outside vendors to provide goods or services that might otherwise be supplied in-house.
Reverse marketing occurs when buyers try to find suppliers capable of producing specific needed products and then attempts to "sell" the idea to the suppliers. Thus, instead of suppliers looking for buyers, the buyers are the ones who look for suppliers and persuading them to produce the supplies for them. The seller aims to satisfy the buying firm's needs. Perdue, a large poultry producer, supplies baby chickens, chicken food, medications and everything else necessary for farmers
4.2.5 Post purchase Evaluation
An organizational buyer assesses whether the performance of the product and the supplier is living up to expectations. The buyer surveys the users to determine their satisfaction with the product as well as with the installation, delivery, and service provided by the supplier.
5. Comparing Organisational and Consumer Buyer Behaviour
You might ask why a whole section on organisational buying behaviour is needed - isn't it just another version of consumer buying behaviour? Well, although there are similarities between B2C and B2Bmarketing, there are major differences too.
For instance, consumer markets can consist of millions of individuals, whereas far fewer customers make up organisational markets. It is quite common for a small percentage of these customers to account for a large percentage of spending in a particular segment, giving them considerable purchasing power.
Moreover, in general, decisions are more rational in the business buying process than in B2C markets. They are also usually driven by technical specifications, as well as financial considerations.
It is clearly important for B2B marketers to understand how buyers in business markets tend to behave. Here, we see that while there are contrasts between consumer and OBB, there are also quite a number of similarities, especially when one realizes that the rationality associated with OBB is frequently misplaced: basically, buyers are people too and can make decisions based on misperceptions, emotions and peer pressure just as easily as consumers! (Fill and Fill, 2006:113-115).
Nevertheless, you should note that "A comparison of buying characteristics in organisational and consumer markets". This provides a helpful summary of some key OBB characteristics, although of course it does simplify things to quite a degree, especially, we would argue, in terms of evaluative criteria: for instance, industrial buyers may not always admit it, but they are susceptible to the social and ego-driven considerations of making the 'right' decision too. (Ibid: 114)
6. Nature of Risk and Uncertainty
The practical use of a theoretical model is that it helps to structure 'the world' and thereby the problems faced by a manager. Taking some of the above interaction model elements into consideration, for organizational marketing managers, we can identify two groups of problems: Limitation problems, concerning the extent of the firm's activities in certain relationships and the extent to which different customers should be treated differently need to be addressed.
Handling problems, in the long term over power-dependence and conflict-co-operation and in the short term over attaining an efficient way of handling the different exchange processes. For purchasing managers, we see the same set of handling problems as for marketing management, but also the problem of decisions over an appropriate structure of suppliers. There is a need for a balance between internal and external resources. Such considerations can affect purchasing managers' attitudes to the optimal number of firms with which the focal (buying) firm should deal. There are some contrasting considerations that a manager may have to ponder when debating whether to pursue a strategy of single or multiple sourcing, as there are a number of potential advantages with each approach. It would thus not be fair to say that one approach or the other is always 'right': much depends on the context facing the focal firm and the firm's attitude to risk.
All of this leads us to examine more closely the issues of risk and uncertainty in OBB. Note how such problems can affect the roles of managers in global supply chains, as captured in Fill and Fill (2006:129). "Managerial roles in global account supply management". Depending on the scope of the relationship and the prevailing environmental conditions, these roles can be classified as follows: traditional, monitoring, co-developmental, co-partnering. Fill and Fill (2006:134-138) explains how perceived risk in purchasing business products and services incorporates uncertainty, and how such perceptions can be reduced. Risk can be categorised. "Seven types of organisational decision-making risk". The table presents the sorts of questions buyers are likely to ask themselves in making key purchase decisions and note how personal and social issues are listed alongside more operational and economic issues.
The most important characteristics of business-to-business marketing are building relat candid technical interactions, intensive commercial negotiations, and close attention to a services. Individual transactions between businesses are typically larger as measured in and fewer in number than in business-to-consumer sales.
The contract or sale is more difficult to get, but once a relationship is established success repeat business is almost guaranteed if performance is acceptable, the seller being helped b buyer's desire to avoid the time, effort, and occasionally the hassle required to find a supplier. For this reason, establishing and building a good relationship with a business cliei vital. Ideally it will be established at all levels of the client, with its leaders, its management,; also with the working level using the product. Unhappiness at any of these levels can jeopard* the relationship. Periodic efforts to touch base with all of these levels are an important aspect marketing. Both marketing and sales take a direct form, face-to-face, rather than by advertising Advertising is used as a reminder of a relationship maintained by other means.
Technical interactions are ideally open and candid. The business client will always discover flaws or shortcomings in the product and is usually also able to accommodate awkward features if all else works well. The seller is wise both to discuss difficulties openly and yet not to overstate them. Such approaches are, of course, just as beneficial in all sales but businesses tend to be more distant and engage in more "games" with ordinary off-the-street clients than with the industrial buyer who is typically much more knowledgeable and less moved by emotions. A converse of this general rule is that the business owner encountering a game-playing industrial buyer should be prepared to walk. The relationship must be two-way. The client who behaves in bureaucratic ways is a special problem for the B-to-B seller. Such behavior can sometimes be exploited and sometimes neutralized by developing better relationships with higher levels.
Tie very openness ideal in reaching agreement on the product itself makes commercial ^gotiations difficult. Business buyers tend to be hard customers generally; they will tend to ow or be in a position to guess the real costs of the seller. They may also be under nagement pressure to push prices down. In price negotiations, therefore, games tend to be played unless a good relationship exists and the buyer is not under severe pressure. Here effective, flexible, and, if at all possible, open dealing is best. The buyer must sometimes yield but should do so while openly stating that this particular easing of the price is for this case only, in order to accommodate the buyer this time, and not to set a precedent. Living up to this assertion later, by refusing to continue to sell at the low price, is, of course, part of keeping the deal going.
Business-to-business sales have a tendency sometimes never to close. This is wrong, that is wrong. The seller must be prepared to service the product. Too much after-sale service, amounting to extra services, can be avoided in the future by negotiating more stringent contract terms. But, under the usual circumstances, the business buyer calls only when something is really wrong. In that case swift and effective corrective action is the right response to maintain the relationship and, in effect, to sell the next contract.
B-to-B can often be the best kind of business for any kind of company, large or small. Large transactions, low cost of selling, a reliable market, and often an attractive price are inherent aspects of this type of transaction. The biggest danger of B-to-B for the small business is to become reliant on one or two clients for which it is just a small supplier. B-to-B is best practiced by the small business by cultivating several such customers, the favor or disfavor of no one of which will threaten the company's own survival.
Business-to-business contexts have broad similarities with business-to-consumer settings, e.g., the buyer's desire to solve a problem or satisfy a want or need, an exchange of resources, "value" produced for buyer and seller, etc. But the detailed specifics of B2B often differ in marked ways. Unique characteristics exist for buyers, sellers, and the interactions between them. Important implications for loyalty research emerge from consideration of these characteristics. For B2B buyers, purchases may be for their own organizational use, for reselling, or for reprocessing and then reselling. This usually creates a more complex set of decision considerations than in a basic B2C purchase. Dollar amounts are often bigger in B2B than in B2C. Purchase decisions may be more technical in nature. More detailed considerations of specifications may be required. These factors substantially raise the purchaser's level of involvement. Often there is a competitive bid process, involving comparison of several potential suppliers. Multiple decision makers may be involved, requiring consensus and approval through multiple levels of organizational hierarchies. Finally, B2B buyers require highest-quality service elements, as their ability to succeed depends on the seller's delivery times, technical assistance, after-sale service, and so on.
For B2B sellers, there also are unique characteristics. For example, demand is sometimes "derived," not depending directly on the buyer, but on third parties who purchase from the buyer. Often the potential pool of B2B customers is smaller than in B2C situations. Multiple seller representatives may be required, bringing into play special interpersonal cross-functional dynamics and complexities. The buyer's competitive bid process and multiple levels of hierarchy and approval influence the seller's processes too. Finally, sales and marketing may be more technical, requiring special seller expertise in knowing and explaining the value proposition.
Then, beyond isolated buyer and seller elements, different interactive dynamics may exist in B2B exchanges (e.g., mutual dependencies). Buyers cannot succeed unless suppliers are able to deliver the right product/service at the right time for the right price to meet schedules and production. Sellers often come to depend heavily on a small proportion of largest/best customers who sustain the supplier's prosperity. Thus both parties are motivated to become partner-oriented, to engage in longer and more complex negotiations, to include reciprocal purchase agreements, to execute deals, and to act cooperatively and collaboratively.
These dynamics become even more unique in B2B services where exchanges are particularly social, personal, and "intangible." Key customer-facing employees shape the total offering and customer experience. Familiarity, personal recognition, friendship, individualized service, and special treatment are common. Some service exchanges are so relational that interpersonal terminologies are even borrowed to discuss the dynamics, i.e. "forgiveness" in response to service failures.