Ray Wright Business To Business Marketing PDF

Wright
Business-to-Business Marketing
A Step-by-Step Guide Ray Wright
Business-to-Business
A Step-by-Step Guide
Business-to-Business Marketing: A Step-by-Step Guide offers the reader a clear, cogent
understanding of this newly-emerging and rapidly evolving sub-discipline. Ideal for college
students, undergraduates and non-specialised post-graduates, as well as marketing practitioners,
this book is designed specifically to explain the nuances of B2B marketing. With a wealth of local
and global case studies, comparisons between B2B and B2C marketing and material linked
questions, Business-to-Business Marketing: A Step-by-Step Guide, provides a comprehensive
Marketing A Step-by-Step Guide
overview of an expansive sector to inspire the reader with confidence.
Ray Wright
Features include:
• Comparisons between B2B and B2C marketing

• Up-to-date examples reflecting national and international marketing needs
• Case studies in each chapter based on local and global B2B examples
• End-of-chapter questions linked to chapter material (available on the website)
Instructor and Student Resources
To enhance your learning, go to www.booksites.net/wright where you will find an instructor’s

manual, case studies, Internet exercises, a chapter on Understanding Organisational Behaviour
and more!
Ray Wright is Lecturer in Marketing at the Ashcroft International Business School at Anglia
Polytechnic University. He is an experienced marketing author and consultant.
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Business-to-Business
Marketing
A Step-by-Step Guide
Ray Wright
Pearson Education Limited
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England
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First edition 2004
© Pearson Education Limited 2004
The right of Ray Wright to be identified as the author of this work has been asserted by
him in accordance with the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without either the prior written permission of the
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Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP.
ISBN 0 273 64647 8
British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data

Wright, Ray, 1942—
Business-to-business marketing / Ray Wright. — 1st ed.
p. cm.
Includes bibliographical references and index.
ISBN 0–273–64647–8
1. Industrial marketing. I. Title: B2B marketing. II. Title.
HF5415.1263.W75 2004
658.8′04—dc21
2003048260
10 9 8 7 6 5 4 3 2 1
08 07 06 05 04
Typeset in 9.25/12pt Stone Serif by 35

Printed and bound by Bell & Bain Ltd, Glasgow
The publisher’s policy is to use paper manufactured from sustainable forests.

I would like to dedicate this book to my wife Barbara for showing, despite
little understanding, intermittent tolerance and patience for the many hours
I spent working alone on the word processor. Anything else would have been
de-stabilising.
Contents Preface xiii
Chapter 1 The business marketing environment in the

modern world 1
Aims and objectives 1
Part 1: What is the business market? 1
Introduction 1
What is the business-to-business market? 2
Why business-to-business marketing? 5
Marketing definitions 6
Growth of business-to-business markets 9
Part 2: Characteristics of business markets 15
Harmonisation of laws in business markets 15
Barriers to trade 20
Economic systems 24
Part 3: Market classification 32
Regional markets for industrial goods and services 33
National markets for industrial goods and services 33
Global markets for industrial goods and services 33
Marketing trading types 35
B2B trading forms: organisational types 40
B2B selling in the not-for-profit sector 51
The need to understand the behaviour of organisations 53
Summary 55
Discussion questions 55
Bibliography 56
Chapter 2 Understanding environment influences affecting

organisational behaviour and markets 58
Part 1: Macro-environmental factors influencing B2B
organisational behaviour 58
Introduction 58
Wider environmental forces 59
Part 2: Immediate environmental factors influencing
organisational behaviour 73
viii CONTENTS
Competitive influences 73
Customers and markets 81
Part 3: Demand and supply in the economy 85
Managing demand 86
Derived demand 86
Other demand categories 88
Trends and shifts in demand 90
Measuring the level of demand 93
Demand potential and analysis 94
Market potential 95
Industry and market life cycles 97
Summary 98
Bibliography 100
Chapter 3 Understanding business marketing environments 101

Part 1: Information for understanding strategic and
tactical decision making 101
Introduction 101
Information is power 102
Information-gathering process 108
Marketing information system 109
The MkIS process 110
Part 2: The B2B marketing research process 118
Clear marketing objectives 118
Secondary research (desk research) 119
B2B primary research 127
B2B research in international markets 139
Strategic concerns with marketing research 141
Forecasting in B2B marketing 142
Summary 143
Bibliography 144
Chapter 4 Decision making and segmenting business markets 145

Part 1: Decision making in B2B organisations 145
Introduction 145
Ethics in business 146
Choosing a supplier 149
The decision-making unit (DMU) 151
The B2B decision-making process (DMP) 156
The buying decision difficulty (BDD) 161
Part 2: Business-to-business segmentation 165
Why segment business markets? 165
CONTENTS ix
Market segmentation 166

Information, marketing research and segmentation 166
Viability of segmentation 168
Part 3: Segmentation methods in business-to-business markets 173
Macro and micro segmentation 173
Macro segmentation 173
Micro segmentation 182
Changing importance of segmentation factors 190
Part 4: Market segmentation process 192
Identify the basis for market segmentation 192
Determine the important characteristics of each segment 193
Evaluate the market attractiveness of each segment 194
Segment selection 196
B2B corporate/product positioning 198
Develop a marketing mix strategy for each targeted segment 200
Summary 201
Bibliography 202
Chapter 5 Managing business products/services for strategic

advantage in business-to-business markets 204
Part 1: Organisations, products and services 204
Introduction 204
B2B product definition 205
Types of business goods and services 206
Major product/service categories 206
Other B2B product categories 213
Importance of product/service purchase to buying company 217
Market research 222
Part 2: Adding value to the products 225
Basic Benefits demanded in B2C and B2B markets 225
The value added process 227
Unique selling Propsition (USP) 229
New Product Development in B2B marketing 231
Part 3: Branding 237
What is a brand? 237
Corporate and product branding strategies 239
Advantages associated with branding 242
Packaging 245
Summary 249
Bibliography 251
Chapter 6 Managing business marketing channels 253

Part 1: Evaluating strategic channel alternatives 253
x CONTENTS
Introduction 253
Channels of distribution in B2B markets 254
Direct channels of distribution 255
Methods used in direct channels of distribution 258
Indirect B2B channels of distribution 261
Disintermediation 266
The internet in the supply chain 267
Combination of direct and indirect distribution 268
Strategic channel selection 270
Strategic channel selection factors 273
Part 2: Managing the supply chain relationship 275
B2B supply chain structures 275
The B2B supply chain 280
The value chain 280
Outsourcing 289
Leasing 292
Other business relationship forms 293
Part 3: Management of logistics in B2B markets 296
Reverse logistics 296
B2B physical distribution 296
Other transport issues 310
Summary 312
Bibliography 314
Chapter 7 Pricing strategies for business markets 316

Part 1: The meaning of price and marketing in business markets 316
Introduction 316
The business-to-business pricing process 317
Price and the B2B marketing mix 318
Part 2: Strategic factors determining price 326
Price objectives and strategies 326
Costs 336
Customers and prices 341
Market structures and price 343
Price and levels of demand 345
Competitor response to pricing 346
Price and role of legislation in B2B markets 346
Part 3: Other aspects of price in B2B marketing 348
Price and the concept of elasticity 348
Price negotiation 349
The internet and its effect on pricing 351
Price and global markets 353
Strategic and tactical methods for determining price 354
Tactical or secondary pricing methods 356
CONTENTS xi
Summary 360
Bibliography 361
Chapter 8 Business-to-business strategic communications 363

Part 1: Corporate and marketing communications 363
Introduction 363
Corporate and marketing communications 366
Internal marketing communications 372
Part 2: Managing business-to-business marketing communications 375
Marketing, communications and corporate brand 375
Marketing communication strategies 376
Communication and promotional methods 378
Advertising 382
Point-of-purchase and merchandising in B2B 396
Public relations and publicity 399
Part 3: The strategic role of personal selling in B2B markets 403
Differences in personal selling in B2B and B2C markets 403
Managing the sales force 408
Personal selling and other elements of the communication mix 411
Marketing communications and promotional campaigns 412
Summary 420
Bibliography 421
Chapter 9 Formulating business-to-business marketing strategy 423

Part 1: The need for business marketing strategy 423
Introduction 423
Importance of strategic thinking 424
Involvement of managers and all company functions 428
Levels of strategic decision making 431
CRM and customer retention schemes 433
Assessing competitive advantage 436
Strategic role of marketing 438
Part 2: The B2B marketing planning process 439
Scope of strategic planning 440
Strategic situation analysis: Where are we now? 440
Strategic choice: Where do we want to go? 449
Strategic implementation: How are we going to get there? 462
Summary 469
Bibliography 471
xii CONTENTS
Chapter 10 Strategic business approaches to different and

changing market conditions 473
Part 1: Future of national and international B2B marketing 473
Business strengths 474
Market challenges and future of global and business markets 477
Environmental concerns 478
Part 2: Use of technology in the growth and maintenance of
business strength 481
Business-to-business and new technology 481
Internet uses in both B2B and B2C markets 486
Strategic options on internet applications 491
Summary 494
Bibliography 495
Index 497
Preface
Business-to-business marketing involves one business marketing products and

services to another for its own use. Abbreviated to B2B marketing, this newly
emerging market and discipline has not received as much attention as business
marketing to end consumers, known as B2C marketing. The appeal of everyday
consumer goods such as cars, perfumes, chocolate, and fashion clothes plays a
more integral role in our everyday lives; whereas we, as consumers, don’t tend to
think about products such as chemicals, component parts, aggregates and capital
equipment in quite the same way.
Business marketing, however, has enormous hidden depths covering many
more industrial and commercial transactions along the supply chain than many
students and practitioners might imagine. If all interactions were considered –
from raw material suppliers, agents, distributors, manufacturers, wholesalers and
business buyers – then we would see that B2B markets are substantially larger and
often more valuable than B2C markets and, surprisingly enough, they can be just
as interesting. Since a large percentage of business and marketing students will
land careers in the industrial and commercial sector, this book was written with
them in mind.
o A book with a global approach

While books on B2B marketing have started to emerge, most texts provide a US-
centric approach. This book is structured so that it appeals to the global audience,
with special emphasis on the UK and Europe. The book is presented in a straight-
forward, step-by-step manner that is suited to the needs of both marketing
students and business and marketing practitioners. The book gives examples that
constantly compare B2B and B2C marketing.
o Structure of the book

The book is divided into 10 chapters. Each chapter opens with Aims and Object-
ives and then launches into core content. Within each chapter the reader will
find real-world examples, definitions and B2B and B2C comparisons. Each time the
reader encounters the icon shown on the left, go to http://booksites.net/wright
for further discussion and valuable supplementary resources.
xiv PREFACE
Supplement download site

As an added bonus available to both lecturers and students, access http://
booksites.net/wright to find rich and diverse case studies, questions on the case
studies, Internet exercises and a full hyperlinked list of the Internet sites listed in
each chapter. In addition, five key points of the text will refer the reader to the
website to explore in detail key aspects of B2B marketing.
Chapter 11 (Understanding Organisational Behaviour – the theory) can be
downloaded from this site. This is a comprehensive and invaluable theoretical
discussion of this complex and challenging area.
In addition, the supplement download site offers an Instructor’s Manual,
written by the author, to help facilitate learning. The guide offers teaching tips
and suggestions.
o Acknowledgements
We are grateful to the following for permission to reproduce copyright material:
Figure 2.1, Porter’s Five Forces, adapted with permission of The Free Press, a divi-
sion of Simon & Schuster Adult Publishing Group, from Competitive Advantage:
Creating and Sustaining Superior Performance (Porter, M.E.), copyright © 1985, 1998
by Michael E. Porter; Fig. 9.14, Ansoff’s Matrix, reprinted by permission of
Harvard Business Review from ‘Strategies for diversification’ (Ansoff, H.I.),
September–October 1957, copyright © 1957 by the Harvard Business School
Corporation, all rights reserved; Fig. 10.1, adapted from ‘The world’s most
admired companies’, Fortune, 3 March 2003, © 2003 by Time, Inc., all rights
reserved; Fig. 11.4, Herzberg’s Theory of Motivation, adapted from Work and the
Nature of Man, World Publishing (Herzberg, F., 1966); Fig. 11.5, Maslow’s hierar-
chy of Needs, adapted from Motivation and Personality, Addison-Wesley (Maslow,
A.H., 1954); Fig. 11.9, Blake and Mouton’s Managerial Grid, adapted from The
Managerial Grid, Gulf Publishing (Blake, R.R. and Mouton, J.S., 1964). Harvard
Business School Publishing for extracts adapted from “What is strategy?” by
Michael E. Porter published in Harvard Business Review, November–December
1996, and The Balanced Scorecard by R. Kaplan and D. Norton, 1996; Pearson
Education Limited for an extract adapted from Human Resource Management:
Issues and Strategies by Roger Harrison published by Addison-Wesley Publishing
Company, 1993; and Telegraph Group Limited for an extract adapted from
“Proposals to stop ice cream giant freezing out rivals” by Robert Shrimsley pub-
lished in the Daily Telegraph 29 January 2000 © Telegraph Group Limited 2000.
In some instances, we have been unable to trace the owners of copyright material,
and we would appreciate any information that would enable us to do so.
01 The business marketing
environment in the modern world
If you ask managers what they do, they will most likely
Chapter
tell you that they plan, organize, coordinate and control.

Then watch what they do. Don’t be surprised if you can’t
relate what you see to those four words.
(Henry Mintzberg)
Aims and objectives

By the end of this chapter the student should be able to:
1. Identify the meaning of business-to-business marketing and demonstrate
the part it plays in both national and global markets.
2. Outline the factors that have contributed to the growth and development
of these markets.
3. Identify the different types of markets and the different types of
organisations that have played a part in the process.
Part 1 What is the business market?
o Introduction
Marketing theory and concepts were originally developed in the USA before
World War II and did not enter into business thinking as a compact and con-
sistent approach in the UK and the rest of the modern world until much later.
This marketing approach, however, was in the context of individuals and groups
within end consumer markets and, though highly successful and widespread, did
not apply to one company buying and selling to another. With the study of
organisations and organisational behaviour in the 1950s and 1960s came the
realisation that companies operate in significantly different ways when buying
products and services than do end consumers and thus demand different mar-
keting strategies. Of course many sales people, being at company buying level,
had seen that organisational purchase and supply methods demanded a different
approach and the more successful had quickly adapted, knowing that the right
2 CHAPTER 1 • THE BUSINESS MARKETING ENVIRONMENT IN THE MODERN WORLD
approach to customer satisfaction would lead to more sales and more commis-
sion. However, a consistent and integrated approach based on sound marketing
principles did not surface until much later. Even now, in the new millennium
decade, despite its size and importance, business-to-business marketing could still
be described as the poor neighbour of consumer marketing, although this is now
changing.
o What is the business-to-business market?

Business-to-business (B2B) markets operate at both a national and a global level.
They can best be described as markets where one business markets and sells prod-
ucts and services for an organisation’s own use or to sell on to other businesses
for their own use. They exist in the commercial, not-for-profit (NFP) and govern-
ment sectors. They are different from consumer markets in that the end customer
is either the owner or the employee of some type of organisation buying prod-
ucts and services for their company rather than for individual or private use.
Depending on how the market is measured, it can account for over 40 per cent
of all national, international and global transactions. In terms of the amount of
revenue collected, the end consumer price will be higher than intervening prices
between B2B companies but if value added is taken into account then it could
be three or four times larger in consumer markets. This is because for every
business-to-consumer (B2C) purchase there could be many more transactions
between raw material suppliers, producers, manufacturers, agents and whole-
salers back ‘upstream’ along the supply chain (Figure 1.1).
Business-to-business compared with business-to-consumer

There are slightly different definitions of B2B or industrial marketing (as it has
sometimes been known) depending on the approach taken. To save confusion we
intend to compare B2B marketing with business-to-consumer marketing and use
this as our definition.
Business-to-consumer
Business-to-consumer marketing can be defined as a market where organisations
market and sell already finished consumer products to the end consumer. This
might be direct, through a wholesaler, or as is much more likely through the
retail sector. It might involve products and services sold direct to the end consumer
through direct mail, door-to-door or through the internet or goods and services
sold through the huge retail sector. Building services such as double glazing,
clothing, financial services, farm produce and so on are all examples of products
Figure 1.1
Transactions
along the
supply chain
WHAT IS THE BUSINESS-TO-BUSINESS MARKET? 3
and services that are purchased direct. Much more likely, however, is for the end
consumers to purchase goods and services from an intermediary. The choice is
monumental. It might be from a department store, a supermarket, a chain store,
a convenience store or one of the many tens of thousands of independent stores.
It can be purchased from the high street, a shopping arcade, a retail park, a fac-
tory village or a regional shopping centre.
So we can take as an obvious and simple example branded and packaged fast-
moving consumer goods (FMCG) sold by the big supermarkets such as Tesco,
Sainsbury’s and Wal-Mart. These will be manufactured by a company such as Sara
Lee or P&G and sold to the intermediary who will then merchandise, display and
sell to the end consumer. The big brand manufacturers will in a sense thus have
two target markets, the retail buyer and the end consumer. Both will be the
target of an integrated marketing and promotional campaign often known as a
‘push’ and ‘pull’ approach, for the retailer, to stock and merchandise the prod-
uct, and for the end consumer to purchase and repurchase the product. The
important point to remember is that the marketing approaches used will be dif-
ferent for the two markets, a business approach to the retailer and an individual
approach to the end consumer, but both will be seen in the context of a B2C mar-
ket. This is because the end objective for both organisations is the sale of the
product for consumer use.
Example 1.1 Marketing in B2C markets

Sara Lee Corporation is a global manufacturer and marketer of high-quality, brand-
name products for consumers throughout the world. With headquarters in Chicago,
Sara Lee has operations in 55 countries and markets products in nearly 200
nations. The corporation employs 154,900 people worldwide.
Business-to-consumer marketing, B2C definition

Business-to-consumer marketing is where one business markets products and services
either to another business, i.e. a wholesaler or a retailer to sell on to the end consumer, or
to the end consumer direct.
Business-to-business market defined

Business-to-business products and services can be seen as quite different. These
are goods and services marketed and sold by one organisation to another organ-
isation for its own use in some way or to be sold on to another organisation for
its own use. A component part, for example a stainless steel washing drum, may
go into a consumer product but it will be bought by the domestic appliance
manufacturer, perhaps Whirlpool, for its own use. Similarly P&G will want to
buy such things as packaging, food flavouring, vegetables, tea and coffee for its
own use to go into its branded FMCG product. All can be identified as B2B prod-
ucts and services. In some markets suppliers sell these B2B products to other
intermediaries such as agents or wholesalers before they are bought by companies

such as P&G and Whirlpool. In these cases they are still seen as B2B products.
Business-to-business marketing, B2B definition

Business-to-business marketing is where one business markets products or services to
another business for use in that business or to sell on to other businesses for their own use.
Throughout the book we will be comparing B2B marketing with B2C marketing.
In this way we feel that the student will be better able to understand many of the
differences inherent in producing goods and services and marketing to a business
customer rather than the end consumer.
Example 1.2 Marketing in B2B

Suppliers closely connected to the Jeep markets factory will not make a vehicle’s
parts until it starts to move down the assembly line. Eight suppliers, including
seven with plants newly built or leased for this purpose near Toledo, are delivering
parts and subassemblies not only just in time but also exactly in production line
sequence, with each item bearing the vehicle identification number (VIN) of the
Jeep for which it was built. Half of those suppliers don’t start building parts until
they get electronic notification that the painted body of the Jeep for which they’re
intended is heading into the first assembly line workstation.
Business-to-business and business-to-consumer markets

The differences between B2B and B2C marketing will be highlighted through-
out the book but it is important at this stage to clearly identify the basic differ-
ences for the sake of a clear B2B definition. As we saw earlier, our definition of
B2B marketing was one organisation selling to another organisation products
and/or services for own use or to sell on to other organisations for own use. So
this definition will exclude selling products into retailers for onward sales to the
end consumer but it will include selling products or services into the retailer for
the running of that business. So selling soups into Tesco for onward sale to the
end consumer is B2C but selling shelving is B2B. Selling cars into the showroom
for the end consumer is B2C and selling fleet cars is B2B.
Example 1.3 B2B and B2C in retail markets

B2B marketing B2C marketing
Electronic tills to Curry’s Refrigerators to Curry’s
Shelving to Tesco Confectionery to Tesco
Computer systems for own use to Computers to PC World to sell on to
PC World consumers
Display racks to Next Fashion clothes to Next
WHY BUSINESS-TO-BUSINESS MARKETING? 5
Marketing to retail
Although a business selling finished products into the retailer to sell on to the
end consumer is not classified as B2B under our definition, it should be recog-
nised that in B2C marketing benefits wanted by the retail buyer will not neces-
sarily be those wanted by the end consumer. For example, the retailer wants
bottles of orange juice to stack onto pallets, sell well and make a decent profit,
whereas the end consumer wants a bottle of orange juice to taste like oranges, be
energising and contribute to a healthy lifestyle. The retailer will want to know
that if a seller’s products are to be stocked they will sell out within a reason-
able time to the end customer. Similarly the retail buyer will want to know that
products will be delivered promptly when wanted, stock taken back if found to
be faulty in some way, and after-sales service undertaken efficiently if this is part
of the agreement. Other factors will be different and will more readily mirror B2B
than B2C. Marketing mix concerns covering price and promotion will be more
like marketing mix concerns in B2B.
o Why business-to-business marketing?

B2B markets are clearly identified because it is important for students and practi-
tioners to understand that the markets and customers are very different from
those of B2C markets in very many ways and marketing strategies and tactics to
be used will have to be different. If this fact is not realised the wrong methods
might be taken and so customers and markets lost. For example, B2B markets
could be said to be more complex, the buying process more intricate, the prod-
ucts and services offered often of a strategic nature and the sales value of each
order much larger than in consumer markets. This means that an alternative
approach will more often than not be needed.
Having said this there are still basic concepts that remain the same in both
B2B and B2C markets. Concern for ultimate customer satisfaction, knowing the
market, understanding the customer needs, realising that customers will want
differing benefits, and monitoring and controlling buyer concerns will not be
altered. The imperative to have a knowledge of the market and the marketing
tools and techniques employed will still be used but in ways that reflect the spe-
cial needs of B2B markets.
So B2B marketers will still use both primary and secondary marketing research,
still need an understanding of customer behaviour and still need to develop
innovative product and services, to price in an attractive manner, to match cus-
tomer wants, and so on. They will still need to identify channels of distribution
and to communicate and promote using realistic techniques that reach identified
audiences. Similarly planning and control processes must be discussed, strategic
choices made, resources garnered and programmes implemented. The whole
strategic approach taken and the programmes selected and managed, however,
will be different in that they must match the clearly identified needs, wants and
demands of buyers and buying organisations in B2B industries.
As with B2C markets, but at a much higher level, the more demanding the
customer becomes, the more sophisticated must be the marketing response if
sustainable competitive advantage is to be maintained. Markets in B2B are now
more likely to be international and global with suppliers expected to market and
sell products and services around the world if they are to keep pace with market
developments. This all calls for a detailed understanding by marketers of both the
importance and the workings of B2B markets and the clear differences from B2C
markets.
o Marketing definitions
It is felt to be important at this early stage to establish clearly what we mean by

marketing as there still tends to be some confusion among both students and
practitioners (more enlightened readers can skip this part if they wish). In terms
of fundamentals marketing is more or less the same in both consumer and busi-
ness markets. This is working on the concept that making the customer con-
tinuously happy with the value and benefits offered by the company’s products
and services will lead to healthy business and through this to satisfactory profits.
How these benefit satisfactions are achieved will differ according to the type of
customer, the type of organisation and the type of market. In some markets after-
sales service is important, in others innovative products, in others the use of
technology, and so on. What is crucial is that the supplier keeps pace with envi-
ronmental and market changes, matches or beats the competition and always
keeps close to and listens to the customers’ needs and wants.
Marketing is now used in every conceivable B2B and B2C market and market
sector across commercial, industrial, not-for-profit and governmental markets.
Charities buy B2B computer services to help organise their revenue gathering
activities and they have set up charity shops to sell in B2C markets. Government
departments such as social services have B2C marketing training courses on how
to treat unemployment claimants and purchase office equipment from a B2B
organisation. Banking corporations buy in advice from B2B consultants and sell
financial retail services to the end consumer.
Of course across all these examples there are many important differences and
these will be discussed again and again throughout the book. Below are some
basic definitions that will be at the heart of marketing whatever the type and will
be used to underpin the discussion on B2B marketing as we move from chapter
to chapter.
Management definition of marketing

We can start by looking at a common definition used by, amongst others, the
Chartered Institute of Marketing (www.cim.co.uk). Here marketing is seen as a
management process:
Identifying, anticipating, satisfying (exceeding), customer needs and wants at a profit

(or cost effectively) on both a short and long term basis.
MARKETING DEFINITIONS 7
Marketing as a philosophy
There is, however, a broader way in which the concept of marketing can be
viewed and this is as an underlying business philosophy. Ultimately the enlight-
ened and dedicated marketer would want to see marketing, that is concern for
ultimate customer satisfaction, expressed throughout the organisation as a phi-
losophy of the heart as well as the mind. Much easier said than done, an obses-
sive concern for the welfare of the customer should be imbued in all employees
so that they truly believe this to be the correct approach and not just a mantra to
be forgotten as soon as interactive customer contact begins.
Marketing, an obsessive concern for the welfare of the customer, should permeate every
action of all within the organisation. Ray Wright
Strategic definition of marketing

There is yet another way that we can understand and use the marketing concept.
We can take the basic idea of achieving customer satisfaction and translate it into
a higher level management concept. It is now realised by successful companies
that if marketing is to be successful and concern for the customer is to permeate
all organisational functions it must be adopted, given support and driven by
senior management at the strategic level. Long-term customer satisfaction is too
important to be left solely to salespeople on the shop floor or the sales repres-
entative in the buyer’s office. Yes, it is important to smile at customers, to be
pleasant, helpful and friendly. For a sales manager to follow up complaints and
do what he or she says they will do is crucial to achieving buyer satisfaction,
but these tactical marketing issues alone are not enough. There must be strategic
support coming from the top of the organisation and this must be inherent in
the strategic planning process. Organisational strategies, systems and structures,
new product development, supply chain alliances, marketing research and so on
should all be driven by ultimate customer demand. Only if a thorough market
examination, looking at competition, markets, suppliers, publics, etc., is taken at
the strategic level when developing internal resources – the marketing mix – will
ultimate and lasting customer happiness be achieved. To this end we can now
identify marketing as a strategic ‘matching’ process.
A strategic definition sees marketing as a ‘matching’ process:

Matching the resources of the organisation to the demands of the market place.
Ray Wright
The internal and external environmental model

We can take the idea of strategic marketing being a ‘matching’ process by devel-
oping a simple model shown in Figure 1.2. The external environment can be
identified under the macro (PEST) environment and the micro (SPICC) environ-
ment. The internal resources can be identified under the eight Ss and the eight Ps.
The ‘matching’ process can then be shown in Figure 1.3.
Figure 1.2
o The macro-environment: Political/legal, Economic/demographic, Social/cultural,
The external Technical/physical (PEST)
environment
o The micro-environment: Suppliers, Publics, Intermediaries, Customers and markets,
can be defined
Competition (SPICC)
as PEST and
SPICC The resources of the organisation can be defined as the eight Ss and the eight Ps
o Strategy, Structure, Systems, Skills, Shared values (culture), Staffing, Style

(corporate image), Sustainable competitive advantage – the eight Ss.
The eight Ss back up the marketing mix:
o Product, Price, Place, Promotion, People, Processes, Profit, Physical evidence – the
eight Ps.
Figure 1.3
Model of
business-
to-business
marketing as
a matching
process
The use of models

All models are wrong but some are useful.
(Anon.)
It should be remembered that models are not a direct reflection of reality. They
are used to simplify very complex processes. They allow acronyms to be used for
both memory purposes (mnemonics) and to make as certain as possible that
important areas of concern are not overlooked. In the case of the model used
in Figure 1.2, each area and category identified has an important part to play in
the marketing process, internal resources being the eight Ss and the marketing
mix and the external resources being the micro and the macro environment.
In Figure 1.3 we see the model taken a step further in identifying the concept.
Of course these are not arbitrary, nor are they mutually exclusive. Students and
practitioners may want to develop their own acronyms and this is not a problem.
We will revisit this model when we look at the planning and control process in
a later chapter.
The role of the business marketing manager

Using the same type of model discussed above, we can identify the role of the
B2B marketing manager under the acronym PODC. This stands for:
GROWTH OF BUSINESS-TO-BUSINESS MARKETS 9
o Planning and forecasting – forecasting demand and planning the marketing

effort
o Organising and controlling – bringing together resources, material, people,
information, finance, etc. both within the marketing department and across
the whole organisation for optimal customer satisfaction
o Directing – leadership skills, motivating, empowering, communicating,
decision making; all those activities involving people
o Controlling and evaluating – making certain that what should happen does
happen.
All these factors will surface time and again as we move through the book. It is a
simple but nevertheless excellent way to remember the major responsibilities of
the manager and the B2B marketer (other theoretical ways of viewing an organ-
isation are discussed in detail in Chapter 11 on the website at http://booksites.net/
wright – understanding organisation behaviour).
Example 1.4 Brand management

Brand management is about motivating a team of individuals to see the product
almost as a close member of the family. It’s the need to understand business and
market trends and making sure that the brand remains relevant to the needs
of organisations today and into the foreseeable future. It is about organising and
coordinating everybody concerned so as to keep ahead of the game, benchmarking
themselves against the competition, developing the product and creating new ones.
All products have different market segments and needs and wants will change. The
brand manager must control and evaluate all strategic approaches, making certain
that what needs to happen happens.
o Growth of business-to-business markets

Most countries operating in modern developed markets (USA, Japan, Germany,
UK, France, Italy, Canada) have seen their gross national product (GNP) grow at
a steady rate year upon year since the turn of the century, fluctuating between
1 per cent and 10 per cent a year, giving a rough average of 2–3 per cent a year.
In this way these national economies are doubling their input and output every
30–40 years. We have also seen the growth of later developing nations such as
Malaysia, Thailand, Singapore, Korea and Taiwan. China is a sleeping giant with
a population of 1.3 billion still waiting in the wings ready to leap onto the world
stage at any time. As we embark on the new millennium, the world is increas-
ingly interconnected by trade and financial flows. Evidence can be seen as more
than US$1.5 trillion (more than the total GDP of the UK) is now exchanged in
the global currency markets each day, and nearly a fifth of the goods and services
produced are traded each year. This trade is valued at something like $15 trillion
a year in exports and imports. Of this over two-thirds is in business-to-business
value-added activities.
Throughout the book we will use the US definition of both a billion = a thousand million and
a trillion = a thousand billion. These measures have now become common parlance across
the world. Both UK and US measures of currency will be used despite the fact that the euro
may well be in place across the EU by the time the book is published.
Example 1.5 China joins the World Trade Organisation

The European Commission has agreed to settle trade differences with China fol-
lowing the US–China breakthrough agreement over the weekend. This agreement
has allowed China accession to the World Trade Organisation this year. China, the
world’s biggest trading nation outside the WTO, and the United States finally
settled outstanding trading issues on Saturday making their entry now a certainty
after 15 years of haggling. This should open up China’s vast market of almost 1.3 bil-
lion consumers to the rest of the world.
Role of governments
We cannot discuss industry growth and business-to-business marketing and
not be aware of the political dimensions involved. Politics is about the use (and
misuse) of power in the governance of a country. In democratic countries politi-
cians are elected to run a country for the benefit of all and will thus concern
themselves with social, legal and economic matters in attempting to create the
best possible environment for all to flourish. Areas of political and government
involvement can have far-reaching, enormous effects on both industries and
individual businesses and many of these areas will surface again and again and
will be discussed in this and later chapters. In the UK, business organisations
have to be aware of political intentions at national, European and international
levels, as decisions made in all arenas can cause great change in both home and
international markets that will have an effect on business activities.
Government ministers and business people working together

Prime ministers, presidents and department ministers will often consult
with industry senior directors about both short-term and long-term economic
matters. Ministers will also use the power of a particular industry regulator to try
to force regulated companies to act in one way rather than another. It is not
unusual for high-flying business people to be seconded to top political posi-
tions or to take part in government committees that need practical business
experience.
Probably the most important decision that politicians can make is deciding on
the type of economic system that would be most effective in achieving long-term
peace, stability and increasing wealth for all, and the arguments for different
macro-economic approaches are rehearsed below.
Example 1.6 During the UK petrol blockade in 2000 by transport owners angry at high petrol
prices, many press reports appeared about Prime Minister Blair in consultation with
the CEOs of the big oil companies looking for ways together to resolve the crisis.
Similarly there were reports about President-elect George Bush spending time with
powerful captains of US industry including the heads of General Motors, General
Electric and Wal-Mart to discuss the US economy before taking office.
National governments working together

National governments now come together on a regular basis through groups like
the Organisation for Economic Cooperation and Development (OECD) to work
to break down barriers and increase trade with one another. Trading blocs such
as the European Union (EU) and the North American Free Trade Agreement
(NAFTA) have been formed to facilitate and increase business activity. Large
multinational companies meet through world bodies such as the World Trade
Organisation (WTO) in the hope of persuading countries around the world to
ease import and export restrictions and so encourage more and more trade.
Example 1.7 Macro-economic control

Interest rates are one of the major ways in which a government attempts to con-
trol economic development and gain national competitive advantage. In the UK the
setting of interest rates has been taken away from the politicians and given to a
committee headed by the governor of the Bank of England, bringing the UK in line
with the USA. In this way it is hoped that decisions here will be made on sound mar-
ket economic judgements rather than political expediency. Across the European
Union national currencies have, in most member countries, been made redundant
and a single currency, the euro, installed. Monetary and interest rate measures on
the euro are now decided by the European bank, again (hopefully) according to
market needs and not because of political exigencies. At the time of writing all
interest rates are low around the world and this helps business investment and
encourages retail spending. However, at the time of writing interest rates are com-
paratively high in the UK. This and a healthy economy means that the pound is highly
valued compared with other currencies, making exports high and imports low.
Anti-competitive legislation
Governments and supra-governments are bringing forth legislation at a con-
tinuous rate to restrain and eliminate anti-competitive behaviour on the part of
big business and to beef up the workings of the free market economy. They are
also improving and building up the ability of the customer to be the final arbiter
on what constitutes product value and what products and services should and
should not be produced.
The whole thrust of national, international and global political, social and
economic action is geared towards ever more economic growth and B2B market-
ing operates within this world paradigm. All the issues identified above will be
discussed in more detail as we move through the chapter.
Example 1.8 International trade

UK
Population: 60,094,648 (2003 est.)
GDP: Purchasing power parity – $1.52 trillion (2002 est.)
GDP – per capita: Purchasing power parity – $25,300 (2002 est.)
GDP – composition by sector: Agriculture 1.7 per cent producing 60 per cent of
need; industry 25.3 per cent; services 73 per cent (2000)
Exports: $286 billion (FOB 2002). Exports – commodities: manufactured goods,
fuels, chemicals, food, beverages, tobacco
Export partners: EU 58 per cent (Germany 12 per cent, France 10 per cent, Nether-
lands 8 per cent), USA 13 per cent (2002)
Imports: $330 billion (FOB 2002). Imports – commodities: manufactured goods,
machinery, fuels, foodstuffs
Import partners: EU 53 per cent (Germany 13 per cent, France 9 per cent, Nether-
lands 7 per cent, Italy 5 per cent), USA 14 per cent (1998)
USA
Population: 290,342,554 (2003 est.)
GDP – composition by sector: Agriculture 2 per cent; industry 18 per cent; services
80 per cent (2002)
Exports: $687 billion (FOB 2002 est.). Exports – commodities: capital goods, auto-
mobiles, industrial supplies and raw materials, consumer goods, agricultural
products (7.5 per cent of GDP)
Exports – partners: Canada 23 per cent, Mexico 12 per cent, Japan 8 per cent, UK
6 per cent, Germany 4 per cent, France 3 per cent, Netherlands 3 per cent (2002)
Imports: $1.165 trillion (FOB 2002 est.). Imports – commodities: crude oil and
refined petroleum products, machinery, automobiles, consumer goods, industrial
raw materials, food and beverages (11.3 per cent of GDP)
Imports – partners: Canada 19 per cent, Japan 13 per cent, Mexico 10 per cent,
China 8 per cent, Germany 5 per cent, UK 4 per cent, Taiwan 4 per cent (2002)
China
Population: 1,286,975,468 (2003 est.)
GDP – composition by sector: Agriculture 15 per cent; industry 51 per cent; services
33.6 per cent (2001)
Exports: $325.6 billion (FOB 2002 est.). Exports – commodities: machinery and
equipment, textiles and clothing, footwear, toys and sporting goods, mineral
fuels, chemicals
Exports – partners: USA 22 per cent, Hong Kong 19 per cent, Japan 17 per cent, Ger-
many, South Korea, Netherlands, UK, Singapore, Taiwan (2001)
Imports: $295 billion (FOB 2002 est.). Imports – commodities: machinery and equip-
ment, plastics, chemicals, iron and steel, mineral fuels
Imports – partners: Japan 20 per cent, USA 12 per cent, Taiwan 12 per cent, South
Korea 10 per cent, Germany, Hong Kong, Russia, Singapore (2001).
Source: CIA Factbook with permission
The pace of technology

One of the greatest challenges facing industrial organisations is the pace of new
technological development. Because it seems to grow at an exponential rate it is
difficult for companies to keep abreast of current usage as well as attempting to
speculate what technology might and might not be crucial to maintain future
competitive advantage. Mistakes now could well lead to loss of market share in
later years. A huge problem facing senior managers in the modern world, that
perhaps others didn’t have to face to such a degree in the past, is the difficulty
they might have in understanding much of the new technology. This means that
they must put themselves into the hands of others (the so-called ‘knowledge
workers’) to come up with solutions to problems. This can cause more problems
as the consultants used might not understand client needs and/or might
(unscrupulously?) sell unsuitable systems.
The rush into building intricate computer systems in the early 1990s, with
many subsequent failures (some identified below), was repeated in early 2000 by
the so-called dot.com failures. A host of businesses rapidly embraced the internet,
pouring money into both their own sites and the sites of others, many without
having clear, researched objectives. The list of lay-offs, liquidations and asset
write-downs is now growing ever longer at the time of writing. These include
Boo.com, eToys.com, Letsallbuyit.com, listen.com and beenz.com. It is reported
by Webmaster.com that at least 210 large dot.com companies folded in 2000. An
important lesson for marketers constantly to remember is that just because the
technology is available does not mean that it will be embraced wholeheartedly
by business buyers or end consumers. Going back to marketing basics, ‘first ask
and re-ask the customer if they would like a product or service that will incorpo-
rate the new technology’. Despite this catalogue of disasters, the need to embrace
new technology in both internal and external operations in a meaningful way is
paramount if competitive advantage is to be maintained.
The role and importance of technology in B2B marketing will permeate every chapter
throughout the book.
Example 1.9 Technology gone wrong

In 1992 the London Ambulance Service installed new systems to speed response
times which failed to work and 999 callers found themselves listening to an answer-
ing machine; millions of pounds were lost. The Department of Health lost up to £100
million on a plan to computerise hospitals and the Wessex Regional Health Author-
ity lost up to £63m on its own computer plans. The UK public spending watchdog, the
National Audit Office (www.nao.gov.uk), concluded in 1996 that expenditure of £106
million on the Hospital Information Support Systems initiative (Hiss) had yielded
savings of just £3.3 million, less than the £3.7 million cost of administering the scheme.
The Ministry of Defence lost about £800 million when computers for the Nimrod
air defence early warning aircraft could not tell a Ferrari from a Russian MiG fighter.
At the Department of Social Security, a project to computerise the handling and
Example 1.9 continued
payment of welfare benefits was nearly four times over budget and ended up cost-
ing £2.6 billion. Recently large sums were lost because of a failure of a £25 million
Analytical Services Statistical Information System (Assist).
It is little different in the private sector. Problems with British Gas’s new £150
million billing system led to thousands of customers receiving threatening final
demands before they had been sent their bills. The company’s switchboards were
jammed with complaints. In 1993 the Stock Exchange abandoned Taurus, its pro-
posed paperless settlement system, after spending £75 million on development.
The wider cost to the City may have been as much as £400 million. Book distri-
bution specialist Tiptree lost its position as the British Book Awards Distributor of
the Year in 1992 after installing a new warehousing system that was supposed to
improve services but didn’t. The Performing Rights Society, which collects royalties
on behalf of publishers, record producers and bands such as Dire Straits and U2,
lost more than £5 million when a new system, which was designed to save admin-
istrative costs, was aborted.
It is not just UK organisations that are accident prone. In the USA $81 billion was
lost in 1993 alone on failed computer schemes, according to market researchers
the Standish Group. The Department of Defense, for example, introduced a faulty
accounting system that sent out billions of dollars to suppliers by mistake. The
department would not have known of the problem but for the fact that the bewil-
dered recipients returned most of the money.
Technology adoption
However, despite the failures and the difficulties involved, both business-to-
business and business-to-consumer marketing companies have adopted new
technology and now use it in so many successful ways. In fact it would be impos-
sible to compete at any level without the use of many of the technological
innovations that have come to the market over the last decade. It is important
that organisations in both B2B and B2C are very clear about the objectives of new
technology adoption. All employees that might be affected in some way should
discuss strategic needs. Objectives can then be agreed and suppliers approached.
If there is lack of knowledge and understanding on the part of the buyer, inde-
pendent expert consultants can be used to discuss with both supplier and buyer
the problems that exist and the benefit solutions that are wanted. In this way,
hopefully the buyer will not end up with expensive technology that seems unable
to fulfil wanted needs. (The difference in usage of new technology between B2B
and B2C markets is discussed in detail in the final chapter.)
New technology adoption strengths and weaknesses

The adoption of new technology can help organisations in the following ways:
o Improve both internal and external company performance
o Give added value across the whole distribution chain
o Reduce costs and increase profits
HARMONISATION OF LAWS IN BUSINESS MARKETS 15
o Maintain or enhance competitive advantage

o Offer greater customer satisfaction.
It can fail to fulfil its promise because of the following:
o No clear objectives
o The danger of adoption without full understanding
o Technology seems unable to fulfil solutions wanted
o No clear cost/benefit analysis; little or no added value
o Failure to coordinate and to communicate benefits
o Technological potential put before customer needs.
Part 2 Characteristics of business markets

Business-to-business markets are characterised by the imperative to break down
trade barriers, open all markets in the modern world to the full force of unfettered
competition and by this free market paradigm increase productivity for all. At
the same time there is the wish, held more strongly by some decision formers
than others, that justice and environmental concerns are an inviolate part of the
process. All this is happening, albeit at a slower pace than many politicians and
business people would like, not only in western economies but also around the
world. There is no doubt, however, that the political will is there to see that this
happens, despite the backsliding by some organisations and some countries.
Laws have been passed, alliances instigated and organisations formed (with more
to come) at both a national and an international level, to facilitate this national,
international and world vision. This is now discussed below.
o Harmonisation of laws in business markets

Whatever the level of government control of the economy, there will always be
laws and regulations, as well as accepted codes of conduct, that companies will be
expected to obey when interacting with one another. By the very nature of envir-
onmental change, laws will also alter and adapt to meet changing circumstances.
To complicate matters much further companies must now be aware of laws and
acceptable ways of behaving at national (UK), supranational (EU) and global level
(the world). In fact the movement on a world platform is to try to standardise
trading laws so that all companies work from the same legal agenda. Although it
still has a long way to go, the advent of the internet, which crosses all national
boundaries, has caused participants to focus on the urgency of the problem.
There is also a move across the EU, across other trading blocs and, in a more
limited way, across the world to harmonise laws. The reasons here are twofold:
first, because of humanitarian reasons; second, so that one country will not gain
advantage by such things as longer working hours, no minimum wage level, no
paternity leave, and so on. Below we can see a shortened version of the European
Charter of Fundamental Human Rights now incorporated into UK law.
Example 1.10 European Charter of Fundamental Human Rights

The European Charter of Fundamental Human Rights seeks to give every worker
the right to working conditions which respect his or her health, safety and dignity.
‘Every worker has the right to limitation of maximum working hours, to daily and
weekly rest periods and to an annual period of paid leave’, it adds. It guarantees
workers and their representatives ‘information and consultation’ in accordance
with EU law and national law, especially worker consultation over redundancies and
factory closures. The law also says that gay weddings might have to be recognised.
Article 21, which bans discrimination on religious grounds, among others, is seen as
a potential threat to religious schools. The Charter also prohibits reproductive
cloning of human beings and making the human body and its parts a source of
financial gain after an attempt to make it binding on EU member states.
National business laws

Although in many cases European law takes precedence over national law, there
are far more national laws that business organisations have to operate within.
Generally accepted national laws are also more likely to be tested in light of cases
that have succeeded under EU law. Similarly cases might be settled in the UK
courts because of the threat of long, drawn-out and expensive cases being taken
to the European Courts. All the areas of law identified below will impose expens-
ive resource implications on both B2C and B2B organisations and it is of the
highest importance that managers are aware of what is happening under the legis-
lation both at the present time and into the future. Legislation will affect every
member along the supply chain, sometimes immediately and sometimes vicari-
ously as cost and other resource implications of particular law judgements rever-
berate backwards and forwards from retailer to original supplier and back again.
It is also important for both organisation and industry representatives to parti-
cipate, in some way or other, when new legislation is being discussed or imple-
mented. In this way they will be able to have input into the framing of new laws
and so prevent or encourage aspects of the law that will have a good or bad effect
on the business. The growth in laws and rules and regulations has been enorm-
ous, leading constantly to complaints by businesses about bureaucratic restric-
tions and red tape that have to be overcome in order to successfully run the
business. It is argued that it can add highly to costs in terms of time, effort and
product alterations and limitations, leading to competitive advantage being lost.
Categories of the law that affect the running of the business in both B2B and B2C
can all be seen in detail on the B2B Marketing website at www.booksites.net/wright.
European law
Individual member countries, industries and companies now have to accept not
only national laws but European law as well. In many cases the EU will override
UK law and may even become the last court of appeal in many industrial and
other disputes. It seems inevitable that national law will merge ever closer to EU
law as more and more individuals, groups and trade unions take cases to the
European Court.
The European Economic Community (EEC) originally came into being in 1950
on the idea of creating a marketplace where member countries could trade with
one another on a free and equal basis. This would be a market free from trade
barriers such as government subsidies, different employee conditions, different
trading methods, large amounts of bureaucratic red tape and so on. It was thus
agreed that many national trading laws, regulations and market conditions
should be harmonised so as to create ‘a level playing field’ where all businesses
could compete on purely product and service advantages. With the development
of time, more countries have joined, more difficulties have arisen and more prob-
lems have been exposed demanding more political and legal interference. This
has caused much controversy within the now renamed European Union (EU),
with some politicians (notably in the UK) fearful that a market federation is
turning into a political ‘European superstate’ giving European judges more scope
to intervene in British law with the subsequent loss of national sovereignty.
European law associated bodies include:
o European Parliament – our elected representatives meet here; it seems not
to have great power yet (http://www.europarl.eu.int)
o Council of the European Union – 15 prime ministers meet to decide strate-
gic direction (http://ue.eu.int/en/summ.htm)
o European Commission – this is where the real power lies; 20 commissioners
decide the detail of EU law (http://europa.eu.int/comm)
o European Court of Justice – this court is in Luxembourg with 15 judges
upholding European Community law (http://curia.eu.int/eu/index.htm)
o European Court of Human Rights – this court is in Strasbourg. Signed in
Rome on 4 November 1950, the European Convention protects the individual
rights of 800 million people in 41 countries. Anyone residing in a Council of
Europe member state can appeal to the European Court of Human Rights
(1959) if fundamental rights are violated (http://www.echr.coe.int).
World law
There is the hope that eventually there will be political and trading law at an
international level that all countries will be prepared to abide by. This is difficult
enough at trading bloc level and in some cases it becomes seemingly impossible
at the world level. Both politicians and practitioners alike argue that unless
nations are prepared to create mutually advantageous trading arrangements,
break down barriers and honour trade agreements, realistic movement will not
be possible. Until countries refuse to allow irresponsible ways of working, respect
patents and licences, stop piracy of all kinds and standardise ways of working
together, global B2B growth will be curtailed. It is also argued that there is a
moral dimension that includes treating workers in a humane way, not employ-
ing child labour and respecting the environment in the ways of working. Some
commentators argue that this will never happen because when necessity demands
countries will always put national interest before world interest. For whatever
reasons some countries, notably the USA and China, have refused to sign up to
international protocols such as the Kyoto agreements on environmental and
pollution reductions and until all large influential countries agree progress will be
stalled.
World law associated bodies

Most international organisations set up to help with international trading laws
have been created through the offices of the United Nations (UN). The UN has
its head office in New York and is concerned with world political, social, envir-
onmental and economic issues. It has representatives from 191 countries and is
the only major international body that has any widespread power. Many feel that
this so-called ‘power’ is limited and eventually contingent on the goodwill
of each country occasionally to subsume individual benefits to the benefits of
others. Others argue that the UN has made a real difference and countries will
abide by international legislation the more the benefits become apparent.
Example 1.11 United Nations (UN)

The UN trade organisation includes the following:
o United Nations – details of its activities and member states can be found on
www.un.org
o United Nations System of Organisations is the web portal to all the UN sites
and can be seen on www.systems.org
Selections of organisations that have been set up by the UN to help encourage B2B
marketing between countries include:
o United Nations Commission on International Trade (UNCITRAL) – concerned
with international law (http://www.un.or.at/uncitral)
o United Nations Conference on Trade and Development (UNCTAD) – as its
name suggests this body works with the International Trade Centre to help
developing countries achieve their economic potential (http://www.unctad.org)
o International Court of Justice (ICJ) – set up in 1946, United Nations; 15 judges
settle disputes between nation states in the Peace Palace in the Hague
(http://www.icj-cij.org)
o International Trade Centre (ITC) – jointly created by the UN and WTO to help
developing countries in international trade (http://www.intracen.org)
o World Intellectual Property Organisation (WIPO) – set up to establish pro-
tocols when dealing in intellectual property and service rights such as music,
writings, drawings and designs (www.wipo.org).
Other world trade bodies

Other important world trade bodies that have been set up to encourage free trade
around the world include the following.
World Trade Organisation (WTO)

Formerly known as the General Agreement on Tariffs and Trade (GATT), the
World Trade Organisation (WTO) is the global international organisation dealing
with the rules and procedures of trade between nations. WTO agreements are
negotiated and agreed by the majority of the world’s trading nations and ratified
in their parliaments. Its aims are to encourage member countries to reduce and
eliminate both formal and informal barriers to trade and to help producers of
goods and services, exporters and importers conduct and improve their business.
At the end of 2002 it had 146 member countries that meet and negotiate on a
regular basis, the last ‘round’ being in Cancun in Mexico in 2003 (it ended in
acrimony and disagreement). Website: www.wto.org.
Organisation for Economic Cooperation and Development (OECD)

Involving the richest countries in the world, the OECD brings together 29 coun-
tries sharing the principles of the market economy, pluralist democracy and
respect for human rights. The original 20 members are located in western coun-
tries of Europe and North America. Next came Japan, Australia, New Zealand and
Finland. More recently, Mexico, the Czech Republic, Hungary, Poland and Korea
have joined. The OECD vocation has been to build strong economies in its mem-
ber countries, improve efficiency, hone market systems, expand free trade and
contribute to development in industrialised as well as developing countries. After
more than three decades, the OECD is moving beyond a focus on its own coun-
tries and setting its analytical sights on those countries that embrace the market
economy across the whole globe. Website: www.oecd.org.
Pressure group dissenters

Both the OECD and the WTO have their pressure group dissenters who argue
that these types of organisations are manipulative and exploitative of both poor
people and the environment. In the past, pressure groups such as Friends of the
Earth and Greenpeace have severely disrupted negotiating meetings. Interested
readers can see the arguments for and against its objectives on related websites
including that of the WTO.
Example 1.12 EU and US in trade dispute

Europe and the USA have settled their long-running dispute over banana imports,
lifting the threat of sanctions against a wide range of European luxury goods includ-
ing Scottish cashmere.
Pascal Lamy, the European Union trade commissioner, said yesterday that
Washington had accepted a compromise formula to end the acrimonious tit-for-tat
trade argument. ‘After many years and many difficulties, we struck a balance
between all parties’, he said. The EU has been in a weak position on the issue since
the World Trade Organisation ruled in 1999 that Brussels was discriminating against
the United States fruit companies operating in Latin America by giving favoured
treatment to banana producers in Europe’s old colonies in Africa, the Caribbean,
and the Pacific. The WTO ruling allowed Washington to impose retaliatory tariffs of
£140 million a year on luxury goods imported from Europe. Washington threatened
to hit a range of products from Scottish cashmere to lead batteries and French
fashion handbags under a ‘carousel’ system aimed at causing maximum uncertainty
and political pressure. Under the deal, the sanctions will be dropped on 1 July.
The G7–G8 group of countries

G7 started as an informal forum for leaders of the world’s leading industrial
democracies to discuss major economic issues. It does not have a constitution, a
founding charter, a treaty or even a headquarters. It is more of a private members’
club than other international bodies. Members may join only by invitation and
must be a democracies and reliable major powers with a global perspective. They
include the UK, France, Germany, Italy, Japan, Canada and the USA. Since 1994,
Russia has been allowed to sit at the table for political discussions, thus making
G8. The key difference between the G8 and other international bodies is that it
is relatively small and informal. Together the G8 countries make up more than
half of the world’s economy, but the group is still small enough to make quick
decisions. During the past decade the G7 led the transformation of Russia into a
market-oriented democracy, pushed to complete the Uruguay round of multilat-
eral trade liberalisation and create the WTO. It also made proposals to alleviate
the debt of the poorest nations and has helped broker the major international
conventions on climate change, biodiversity and high seas overfishing.
The G16 and G22

Set up in 2000, the G22 is a new summit of finance ministers of the G7 plus 15
other Asian, African, eastern European and Latin American nations. The G16 is the
group of 16 developing countries that was set up in 1990 to build stronger links
between developing countries and to address imbalances in international trade.
(These types of groups are constantly evolving to meet changing global demands.)
International Monetary Fund (IMF)

The International Monetary Fund (IMF) has members from over 182 countries.
Its purpose is to facilitate international trade and it is involved with exchange
rates. It issues so-called special drawing rights (SDR) to help countries with bal-
ance of payment problems. It offers a wealth of information and reports about
economic activity from around the world. Website: www.imf.org.
World Bank Group

The World Bank Group has members from over 180 countries. It was set up in
1945 to help distressed countries and lends capital for projects in developing
countries. Website: www.worldbank.org.
o Barriers to trade
Barriers to trade between nations can take many forms and most are now seen as
a brake on the successful growth of market economies. The political will across
the modern world is to work together to improve market access for industry
through the breaking down of these barriers to trade and facilitation of interna-
tional trade so that markets can operate more effectively and efficiently. Tariff
and non-tariff barriers include the following:
o Import quotas, restrictive licensing systems, export and domestic production
subsidies, e.g. a country supporting its own aircraft industry with heavy sub-
sidies. Different tax amounts, e.g. VAT and excise duties, causing products to
be cheaper in one country rather than another, e.g. alcohol and cigarettes.
o Employee protection, e.g. it is easier for a firm to make employees redundant
in the UK than in Germany.
BARRIERS TO TRADE 21
o Exchange rates, e.g. fluctuating exchange rates, often because of speculation

motives, can make trading between companies problematic. The euro has
now replaced 12 EU currencies and more will follow.
o Bureaucracy and red tape, e.g. France forcing all video-recorder imports to be
channelled through one town in France causing deliberate hold-ups; cultural
custom and practice, e.g. refusing to buy from organisations that are not part
of a known network; varying technical regulations and industrial standards,
e.g. clean air car emission regulations different in Japan; fraud and corruption
– standardising EU criminal law.
Example 1.13 Trade agreements to break down barriers

Recent trade agreements – notably the 1993 North American Free Trade Agree-
ment (NAFTA) with Canada and Mexico, and the 1994 World Trade Organisation-
Uruguay Round (WTO-UR) multilateral agreements – include commitments by
member countries to eliminate or reduce their barriers to trade in agricultural and
other goods. Trade barriers include tariffs (taxes on imported products), as well as
many non-tariff measures that can restrict trade, including import quotas, restrict-
ive licensing systems, export and domestic production subsidies. Prior to the
NAFTA and WTO-UR agreements, these types of tariff and non-tariff barriers
(NTBs) were at the centre of major disputes between countries regarding access to
each other’s market.
International standardisation
There is a worldwide move to attempt to standardise the ways that B2B organ-
isations operate with one another and with governments so as to improve the
activity. Different levels of technology, economic development, cultural traits,
market environments and industrial policies in nations have led to disparities
and inconsistencies in the development of standards. Thus, we frequently
witness varying standards in different countries for the same product. Having too
many different standards makes life difficult for producers and exporters. The
existence of these non-harmonised standards can contribute to the so-called
‘technical barriers to trade’ which can partially impede the international trade
flows. Therefore, there is a pressing need for the world community to agree upon
the same world standards in order to help facilitate the international trading
process.
Agreements on Technical Barriers to Trade tries to ensure that regulations,
standards, testing and certification procedures are not used as an excuse for
protectionism and do not create unnecessary obstacles. With industrial products
representing an increasingly larger share of the world’s total export volume, qual-
ity control to meet international standards has become a critical issue. As more
developing countries are integrated into the world market, their success will
depend on their ability to conform to the standards under the multilateral dis-
ciplines and internationally recognised measurement system.
International standards bodies

The International Organisation for Standardisation (ISO) (www.iso.ch) is a
non-governmental organisation founded in 1947 to promote the development
of standardisation in business activities. The ISO is a worldwide federation of
national standards bodies with representatives from 130 countries. Its mission
is ‘to promote the development of standardisation and related activities in the
world with a view to facilitating the international exchange of goods and ser-
vices, and to developing cooperation in the spheres of intellectual, scientific,
technological and economic activity’.
Standards are documented agreements containing technical specifications or
other precise criteria to be used consistently as rules, guidelines, or definitions
of characteristics, to ensure that materials, products, processes and services are fit
for their purpose. For example, the format of the credit cards, phone cards and
‘smart’ cards that have become commonplace is derived from an ISO inter-
national standard. Adhering to the standard, which defines such features as an
optimal thickness (0.76 mm), means that the cards can be used around the world.
International standards thus contribute to making life simpler and to increasing
the reliability and effectiveness of the goods and services we use. More details can
be seen on the ISO website.
Trading blocs and the European Union

Trading blocs, groups of countries coming together to form mutually beneficial
economic trading partnerships, have come into being around the world. Non-
membership of a trading bloc will harm a country’s development because mem-
bership infers beneficial trading conditions. The European Union has 15 member
countries with a total market of over 370 million people. Of all UK imports and
exports 60 per cent are now channelled through the EU and for UK organisations
its existence is a fact of everyday life. For many B2B businesses the challenges
associated with membership of the European Union now hold greatest sway. This
is especially so if a company imports and exports with any of the present 15
member countries (projected to increase to 24 member countries over the next
decade). Difficulties for the UK associated with membership are manifold and
political argument is never out of the media. Problems include, among others,
whether the UK would be better off, economically, trading as a non-member
outside the EU; the loss of sovereignty over UK law-making and policy decisions;
and whether to banish the pound and take on the euro (at the time of writing
already adopted by 12 countries as the national currency).
Example 1.14 European Union

The EU was set up with the ultimate idea of having a single set of trade rules, a
single tariff, and a single set of administrative procedures that would apply across
one single market.
Present members: Austria, Belgium, Denmark, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, UK
Population: 375.9 million (1999)
BARRIERS TO TRADE 23
GDP: $8458.3 billion (1999)

World trade as a percentage of GDP: Imports 9.7 per cent. Exports 9.5 per cent
(1999)
Imports: $818.9 billion, 18.2 per cent. Exports $804.0 billion, 19.2 per cent
EU enlargement
In March 1998 the EU formally launched the process that will make enlargement
possible. It embraces the following 13 applicant countries: Bulgaria, Cyprus, Czech
Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovak
Republic, Slovenia, Turkey. This will increase the population by 105 million as well
as creating a need to incorporate a wealth of different histories and cultures. They
are expected to be members by 2006.
European legislation
Membership of a trading bloc imposes an obligation to accept EU law and this
will on occasion override national law. The laws passed will reflect both the mis-
sion of the EU to break down barriers to trade and increase economic activity and
also laws that improve social and moral well-being.
B2B advantages and disadvantages of EU membership

Membership of a trading bloc can be controversial with some organisations for
and some against. Some of the pros and cons are outlined below.
Advantages
o One single market with over 370 million customers
o Possibilities for scale, learning and experience economies
o The removal of both formal and informal barriers to trade
o Flexibility and free movement for goods, services, people and businesses
across the whole EU
o A single currency (the euro) allowing easy cost and price comparisons to be
made and payment transfers to be economically expedited.
Disadvantages
o Loss of national sovereignty over political, legal, economic and social issues
o Macro-economic decisions such as interest rate movements made centrally,
not allowing individual country circumstances to be taken into account
o Restriction on trade with countries outside the EU such as the USA
o A single EU currency will not be able to reflect national needs
o Individual countries have economic and social needs that require different
governmental approaches.
o Economic systems
All countries use resources to produce products and services for ultimate con-
sumption by their citizens in both the private and the public sector. Economists,
however, recognise that these resources are finite while citizen consumption of
these resources tends to be infinite. This has lead to extreme political differences
with regard to the best possible method for a country effectively and efficiently
to allocate its resources in the interest of all. These differences are described
below:
1. Planned economies
2. Market economies
3. Mixed economies.
Planned economy
With a planned economic approach there is some form of governmental control
where macro-economic resource allocation and decisions about the products and
services to produce are decided by centralised bodies. It tends to be associated
with the writings of Karl Marx, the growth of Communism and authoritarian
political regimes. Predictions about future supply and demand for both busi-
ness and consumer products and services are translated into forward planning
covering periods of five to ten years. Politicians and civil servants will attempt to
forecast the country’s future need for both industrial products and services (e.g.
capital equipment, energy, communication services) and consumer products and
services (e.g. food, automobiles, TVs) over a set period and then organise and
coordinate organisations to work together to achieve forecasted targets.
Empirical evidence from around the world, however, seems to demonstrate
that this planned, centralised macro-economic approach lacks the effectiveness
and efficiency associated with a market economic approach where the ultimate
demand and supply of products is decided by the end consumer. When the Berlin
Wall was broken down and western Germany (market economy) reunited with
eastern Germany (planned economy) the west German economy was shown to
be ten times more productive than the east.
It can be argued that business-to-business marketing is unnecessary in a
planned economy as the demand and supply of products and services is not ultim-
ately decided by the customer (although their views might very well be taken
into account) but by the decisions of the political class. Although industrial pro-
ductivity might be demanded for a business to succeed, it must ultimately ingra-
tiate itself with powerful political decision makers. Since the fall of the Russian
empire at the end of the 1980s, enthusiasm for total centralised economic plan-
ning has declined and is practised by fewer and fewer countries. So we see former
eastern bloc countries such as Poland, Czech Republic, Hungary, Slovenia,
Estonia, Latvia, etc. rejecting planned economics and turning towards the system
adopted by the so-called ‘free world’. Even China, the last and most powerful of
the old Communist countries, has successfully adopted free market economics
in many areas of this vast and populous country, e.g. especially in Shenzhen
province.
ECONOMIC SYSTEMS 25
Example 1.15 China gives private sector its blessing

China, where private business was once illegal and even fatal, has given its con-
stitutional blessing to the private sector, calling it ‘an important component’ of the
socialist market economy. The constitution previously permitted the private sector
to exist only as ‘a complement to the socialist public economy’. From the mid-1950s
until the reform process begun 20 years ago by Chinese Prime Minister Deng, cap-
italism was essentially illegal. Even after private businesses began to reappear in
the late 1970s, entrepreneurs risked being jailed as ‘profiteers’ for some years. As
with many reforms, businesses developed not so much because they were officially
encouraged, but because they ceased to be forbidden. Until constitutional amend-
ment in 1988, employing more than eight people was seen as criminal exploitation.
The private sector has grown rapidly and now contributes 15 per cent of the gross
domestic product, according to government statistics. Allowing for China’s vast
black and grey economies, the true figure is probably very much higher.
Planned economy pros and cons

o Allows for a balanced approach to the needs of all parts of the economy
including such areas as industry, retail, health and social welfare.
o Market economies are not always effective at catering for population social
needs.
o Political expediency can cause decisions to be made for short-term political
gains.
o Can allow bribery and corruption to fester as contracts can be decided not
on need but on the decision of a bureaucratic functionary.
o Government department bureaucracy and red tape can lead to delays.
o Economy is unable to react quickly to demand and supply alterations.
o Demand forecasting, by its very nature, can be unreliable causing unwanted
products and services to be produced.
Market economy
Supporters of a market economic approach argue that a planned economic
approach leads to too much national and local government interference and
decisions are often made for political, bureaucratic and corrupt reasons rather
than public need. Decisions about what should and should not be produced are
made on long-term demand forecasts which (because forecasting is looking into
an uncertain future) are often unreliable in their outcomes, causing shortages of
some goods and an overabundance of others. They insist that markets will oper-
ate more effectively and efficiently if left to businesses and managers operating
in the private sector and where there are many competing companies. The inter-
play between the demand and supply of products and services (known as
the laws of supply and demand) are dictated by the needs of the consumer in a
free populous marketplace where there is little or no government public sector
interference (see Adam Smith, The Wealth of Nations, www.adamsmith.org).
So if enough consumers want digital televisions and are prepared to pay,

private companies wanting to make a profit will supply at a competitive price.
Conversely, if consumer demand falls for digital televisions then the market will
dry up and the TV companies will either have to switch production to new
researched customer needs and wants or go out of business. Similarly the same
logic will apply across the production of all goods and services with end con-
sumer needs and wants being the final arbiter on which products and services
(brands) will be produced. In this way there is little waste and only goods that are
needed will ultimately be produced. The theory of the free market underpins the
need for marketing at all levels in business-to-business operations.
Example 1.16 The dominant concept

‘Capitalism’ and the idea of ‘free markets’ now dominates economic thinking across
all developed economies. Organisations such as the G7, the World Trade Organ-
isation (WTO) and the Organisation for Economic Cooperation and Development
(OECD) now meet on a regular basis to bring down market barriers and to encour-
age unfettered trade between member countries.
Market economy pros and cons

o Allows supply and demand to be decided by end consumer needs and wants.
o Encourages competition to act as the driving force for efficiency, productivity
and choice.
o Minimises economic waste, drives down costs and prices and stimulates mass
demand.
o Business must react quickly to changing consumer needs if sales and profits
are to be achieved.
o Short-term organisational needs can cause long-term environmental
problems.
o It can marginalise the poor, the needy, the infirm and the less able lacking
the money to purchase basic products.
o Goods and services can be produced for short-term customer demand and
not for long-term wider social needs.
o A ‘laissez-faire’ approach (leaving well alone) can allow bribery, corruption
and other self-seeking anti-competitive and anti-customer activities to
flourish.
Mixed economies
In practice all market economies are mixed economies and have a combination
of both planned and market driven components and in reality the differences
between a planned and market economy are not as stark as described above.
Government involvement in the market economy, through laws, regulations and
codes of practice, has been found necessary:
ECONOMIC SYSTEMS 27
1. To restrict the seemingly natural capitalistic monopoly tendency of organisa-

tions in a free market to grow ever larger by organic growth and mergers and
acquisitions and in doing so lose the productivity associated with competition.
2. To protect consumers from unfair exploitation from powerful and better
informed business organisations.
Mixed economy pros and cons

o Has the advantages inherent in a market economy whilst allowing for its
excesses to be controlled by government legislation.
o There might be temptation for too much political interference leading to
market inefficiencies.
Government involvement
The amount and level of government involvement in the free running of the
market economy will vary from country to country usually depending on political
considerations. Many countries now have less and less say in economic matters
as they become members of large economic trading unions such as the EU,
NAFTA and ASEAN and accept some form of centralised planning.
Example 1.17 Public asset sell-off

Prior to 1979, the UK possessed one of the largest public enterprise sectors in
Europe. The Conservative government then undertook an extensive privatisation
programme. Between 1979 and 1995 over £50 billion of state assets, companies in
the public market sector, were sold off to the private sector because, it was argued,
they would function more productively under private ownership. Organisations
included British Airways, British Telecom, British Steel, Electricity, Water and Gas
utilities and British Railways, as well as many administration functions. The share of
employment accounted for by publicly owned industries fell from 7.2 per cent to
under 2 per cent. Even goods and services in the public non-market sector such as
health care, prisons, etc. could be considered marketable even if they are not at
present marketed to any large extent.
Governments will also be involved, to a lesser or greater extent, in regulat-

ing the framework of the economy so that unfair advantage is not given to one
over another because of some form of monopolistic situation or to ensure that
customers are not manipulated or exploited. Many government and quasi-
government bodies (known as quangos) such as the Competition Commission
(www.competition-commission.org.uk) and the Office of Fair Trading
(www.oft.org.uk) exist to regulate and oversee fair play in the marketplace. (Some
of these bodies can be seen in more detail below.)
Governments also involve themselves in market activity through the amount
of money they spend on such things as social welfare, health, defence, police,
highways and waste management. So we see the approximate levels of govern-
ment spend as a percentage of GDP at an average of 45 per cent throughout the
developed countries. However, this spend can be as high as approximately 55 per

cent of GDP in Sweden, 40 per cent in the UK and as low as 33 per cent in the
USA. (With a projected GDP of over £900 billion in the year 2002 in the UK this
amounts to approximately £360 billion.) Over the last 20 years the movement
has been downward with less and less government involvement. We will discuss
later in the book the importance of governments as customers as much of their
spending is on purchasing business-to-business products and services.
Free market regulatory bodies

Most countries now understand the need to have regulations and have set up
statutory bodies to monitor and control the interplay of supply and demand to
make certain (as far as possible) that markets function in the most effective and
efficient way. Below are examples of UK, EU and US statutory bodies.
Competition Commission
The Competition Commission (www.competition-commission.org.uk) is an
independent public body established by the Competition Act 1998. The Com-
mission replaced the Monopolies and Mergers Commission (MMC) on 1 April
1999. It has two basic roles:
1. It carries out inquiries into matters referred to it by the other UK competition
authorities (OFT and Department of Trade and Industry) concerning mono-
polies, mergers and the economic regulation of utility companies. It has the
power to stop activity it considers to be anti-competitive and/or abuse of a
dominant marketplace position and issue fines and/or imprisonment.
2. It also has an Appeals Tribunal that hears appeals against decisions of the
Director General of Fair Trading and the regulators of utilities in respect of
infringements of the prohibitions contained in the Act concerning anti-
competitive agreements and abuse of a dominant position.
Example 1.18 Interbrew – Competition Commission at work

Interbrew, the Belgian brewer of Stella Artois, lost a quarter of its value on the
European exchanges yesterday after the government blocked its unconditional
£2.3 billion acquisition of the Bass brewing business. Upholding the findings of the
Competition Commission, Stephen Byers, the trade secretary, ruled that the
merger with Bass Brewers ‘may be expected to operate against the public interest’.
The Commission said the merger gives Interbrew ‘between 33pc and 38pc’ of the
market, making it Britain’s biggest brewer, leading to ‘an effective duopoly’ with
Scottish & Newcastle.
The government said Interbrew, which argued that its market share was 32pc,
must now sell Bass Brewers ‘to a buyer approved by the Director General of Fair
Trading [John Vickers]’. The shares, trading at Eu37.30 before the decision, imme-
diately fell more than 20pc to Eu29, below the Eu33 float price. Most analysts
believe that Mr Powell will be forced to sell, possibly at a substantial loss. One said:
‘They’re unlikely to get more than £1.8 billion for it. Hugo Powell has basically blown
£500m and a lot of management credibility within a month of this float.’
ECONOMIC SYSTEMS 29
Office of Fair Trading (OFT)

The OFT (www.oft.org.uk) exists to encourage competition, protect consumers
and promote their interests. Anybody can apply direct to the OFT if they feel that
an organisation is acting against the law. Its activities cover the following:
o Monitoring markets and offering advice
o Consumer information, raising standards of consumer care, unfair terms in
consumer contracts
o Consumer credit, credit licensing
o Estate agents, misleading advertisements, problem traders
o International representation, monopolies, mergers, anti-competitive practices,
resale price maintenance, restrictive trading agreements
o Consulting on new competition legislation, European competition law and
other international liaison
o Other competition responsibilities as they might arise.
Example 1.19 OFT in action

A Scottish newspaper group has been fined more than £1.3m by the Office of Fair
Trading (OFT) for trying to force a rival newspaper out of business. The OFT said
Aberdeen Journals, which publishes the Press & Journal and Evening Express
newspapers, deliberately incurred losses on advertising rates in an attempt to force
the Aberdeen & District Independent from the market. It upheld a complaint from
the Aberdeen and District Independent free newspaper that Aberdeen Journals had
‘engaged in a persistent campaign of predatory conduct’.
Federal Trade Commission (FTC)

The Federal Trade Commission (FTC) (www.ftc.gov) is the US equivalent of the
UK Competition Commission. It says it is working for ‘consumer protection and
a competitive marketplace’ and again it has similar responsibilities to UK bodies
with the power to fine and imprison for illegal transgressions. The FTC is fierce
in its protection of free trade and in the prosecution of wrongdoers. There are,
however, commentators that argue that it is selective in its judgements and has
failed at times to stop violation of the competition law.
Example 1.20 FTC powers

The Federal Trade Commission has voted unanimously in favour of a merger
between Phillips Petroleum and Conoco. The planned merger worth $15.1bn (£9.8bn)
will create the third largest oil and gas company in the US. However, the approval
from the US regulator was granted on condition that the two energy giants would
sell refineries in Utah and Colorado and some of their operations in Missouri, Illinois,
New Mexico, Texas and Washington state.
The US Federal Trade Commission (FTC) is reported to be looking into price fix-
ing allegations made against the world’s two largest commercial plane manufacturers,
Boeing and Airbus. Suspicion was aroused when both increased prices at the same
time and by similar amounts. Large fines could result if the case is proven.
The US Federal Trade Commission has decided to prosecute the world’s largest
computer chip manufacturer, Intel, for allegedly abusing its microprocessor mono-
poly. Intel makes the microprocessors that power four out of five PCs. It has been
accused of, on the one hand, forcing its suppliers and its customers into sharing
technical information and, on the other hand, withholding other technical informa-
tion that might affect its monopoly market position. The company is one of two
dominant companies on the PC market. The other is Microsoft, which is already
facing charges of anti-competitive behaviour.
European Competition Commission

The competition law of the European Union applies within the UK although
there has to be a potential effect on trade between member states before EC
competition rules apply. The European Commission has primary responsibility
for enforcing competition rules at this level, although private parties can rely on
European law in legal proceedings in the courts in this country.
Other UK market regulatory bodies

o Financial Services Authority (formerly the SIB) (www.fsa.org.uk) – this
authority will eventually be the only overall regulator of the financial ser-
vices markets, absorbing all others (including IMRO, PIA and SFA).
o Food Standards Agency (UK) – an independent quango set up in 2000 to
protect the consumer and to make certain that food offered for sale is of the
highest standard (www.foodstandards.gov.uk).
o Data Protection UK – individuals have rights on which information can and
cannot be stored in both ‘hard’ and ‘soft’ forms and all organisations must
abide by legislation relating to both usage and the rights to public access
(www.dataprotection.gov.uk).
o National Audit Office – the public spending watchdog that monitors all UK
government body spending (www.nao.gov.uk).
Government regulators
The privatisation of former large public sector utilities and other organisations
has often meant privatisation moving natural monopolies such as electricity,
water, gas, telecommunications, etc. from the public to the private sector. In
many cases governments will still be giving large amounts of money in the form
of subsidies to these companies. In an attempt to prevent abuse of this monopoly
power and avoid customer price exploitation and to bring competition into these
markets, governments set up powerful regulatory bodies to oversee all relevant
industries. The regulating bodies have, among other things, the power to control
ECONOMIC SYSTEMS 31
many areas of business activity. Examples are dictating the amount of a price
increase (in some cases they can insist on price decreases), insisting on multiple
company usage of distribution assets such as pipelines and cables (thus allowing
companies such as Dixons and Sainsbury’s to sell gas and electricity), and restrict-
ing access to certain markets. In many cases effective implementation has not
been easy as these now privately owned PLCs fight to maintain market power.
Many argue, however, that this now puts too much regulatory power into the
hands of too few people and there should be more political involvement.
Regulatory bodies
In the UK these bodies include the following:
o OFTEL is the regulator or ‘watchdog’ for the UK telecoms industry. It is also

responsible for broadcast transmission. Its stated aim is ‘for customers to get
the best possible deal in terms of quality, choice and value for money’.
OFTEL is a government department but independent of ministerial con-
trol. It is headed by the Director General of Telecommunications, who is
appointed by the Secretary of State for Trade and Industry (www.oftel.org).
o OFGEM is the Office of the Gas and Electricity Markets, regulating the gas
and electricity industries in Great Britain. OFGEM’s stated aim is ‘to bring
choice and value to all gas and electricity customers by promoting competi-
tion and regulating monopolies’ (www.ofgem.gov.uk).
o OFWAT regulates the water and sewage industry, overseeing quality, pro-
tecting customers’ interests and proscribing the rate of return on capital
invested by the industry companies (www.ofwat.gov.uk).
o ORR is the Office of the Rail Regulator (ORR), the independent government
department responsible for the regulation of the railways in Great Britain
(www.rail-reg.gov.uk).
o Postcomm – The Post Office Commissioner (www.postcomm.gov.uk).
o OFCOM is a new body that now regulates UK TV and radio, the Office of
Communications. The five organisations that have merged to form OFCOM
are OFTEL, the Radiocommunications Agency, the Radio Authority, the
Independent Television Commission and the Broadcasting Standards
Commission (www.ofcom.org.uk).
Example 1.21 Powerful new government regulator

There is a powerful new regulator on the block. The new Office of Communications,
OFCOM, has been set up to replace five existing regulators, including the
Independent Television Commission, the Broadcasting Standards Commission and
the telecoms watchdog OFTEL. It has the enormous task of regulating broadcast-
ing, telecoms and the internet in the UK. Questions are being asked as to whether
the task is too large for one body and whether its regulatory powers will really be
strong enough to control such a diverse and powerful industry.
The strengths and weaknesses of the role of the regulator will include the
following:
Strengths
o Stops company abuse of a monopoly market position
o Protects the consumer
o Controls price and quality
o Limits excessive profits.
Weaknesses
o Reacts to short-term political and populist pressure
o Will not allow managers to manage according to market principles
o Restricts profit being ploughed back into longer term capital investment.
Ombudsman
As well as regulators many countries have a so-called Ombudsman given the
power to investigate grievances that individuals and groups might have with
government bodies. An example is the UK Parliamentary and Health Service
Ombudsman (www.ombudsman.org.uk) who will investigate complaints free of
charge with the power to award compensation where there is justification.
(All the websites identified above can be explored further for more detailed
explanation on the role of the regulator and current activity.)
Part 3 Market classification

It seems that the whole world is now a potential market in which to buy and sell
business products and services. The accelerated demand for industrial products
and services is coming from every corner of the globe, fuelled by the increased
needs of the developed, the developing, and the underdeveloped nations, the
determination of governments to open up markets and the technological know-
how to make it happen. Actual and potential markets have moved from regional
to national and now to global markets at a rapidly increasing pace. All business-
to-business companies, regardless of size, must now consider sources of supply,
customers, markets and competition on a worldwide scale or risk losing compet-
itive advantage.
For ease of understanding it is possible to classify markets by size and geo-
graphical area and this categorisation is attempted below. This process is prob-
ably more useful in B2C rather than B2B markets because it more readily reflects
demographic spread and customer segments and is a useful way for retailers to
break down and attack markets. In B2B, however, market boundaries are more
likely to be seen as artificial by the competing participants because buyers and
suppliers in a particular industry (often small in number and widely dispersed)
will buy and sell one-off or repeat orders for products and services from any
organisation they deem appropriate, wherever it might be. The growth in technology
GLOBAL MARKETS FOR INDUSTRIAL GOODS AND SERVICES 33
is enabling this to happen with increased regularity. There are differences in

markets, however, and these are discussed below under the following headings:
regional markets; national markets; global markets.
o Regional markets for industrial goods and services

Regional markets are markets that are localised within particular areas. This can
be classified in terms of particular towns, counties, states, areas or regions. Small
companies might only market products in regional markets, sometimes selling to
only one customer. Larger companies might market products and services in
regional markets as well as national or international markets. Regional markets
will have particular characteristics that must be considered if business-to-business
marketing is to be successful.
o Regional markets within countries and from country to country might well
differ from one another with regard to culture and business needs, although
with more uniformity these differences tend to diminish. So we find that a
business in the north of England demands a different approach from one
in the south.
o Industries sometimes have a tendency to cluster into area zones, such as
shoes in Northampton, cars in Luton, electronics in Silicon Valley, etc.
o Government and supra-government grants, subsidies, tax breaks, etc. are
sometimes available to encourage industry movements to particular areas.
o National markets for industrial goods and services

Most organisations start their businesses within national boundaries and as they
grow and spread many expand into international and global markets. The suc-
cessful company going abroad is the company that has a strong market position
in the home market. This can give it associated strengths to compete when mov-
ing outside national boundaries. In the past many industries tended to stay
within national boundaries because markets were more accessible and more
understood, language, culture and methods of purchasing behaviour were common-
place (allowing for regional differences) and logistically problems were relatively
easy to overcome.
o Global markets for industrial goods and services

In many cases B2B organisations have to learn to compete on the world stage if
they are to gain the scale advantages associated with size and the experiences that
come through competing with the best in the market. There is no doubt that the
most significant trend over the last 15 to 20 years has been the development of
a truly global economy. The desire of one country to trade with others has
increased apace over the last five years with the realisation of the added value
that this brings to national economies. There is a now a political commitment by
most national governments to the encouragement of free markets and interna-

tional trade encapsulated by the work of such international bodies as the World
Trade Organisation, the Organisation for Economic Cooperation and Develop-
ment and the World Bank (discussed above under Market Economy). Most of the
top Fortune 500 world companies (www.fortune.com/fortune/fortune500)
indulge in some form of international trade, either exporting products or import-
ing and sourcing from abroad.
Global markets and trading blocs

Trading blocs were briefly touched on above when we discussed the EU. Groups
of countries have found it advantageous for economic growth to come together,
form an economic union and dramatically increase the size of the overall market.
Within the EU trade barriers are gradually reduced, scale savings made and the
law of comparative advantage used to increase productivity for all members. We
have discussed the EU in some detail above but other trading blocs exist and
these are identified below.
North American Free Trade Agreement (NAFTA)

NAFTA was set up in December 1994 to create a Free Trade Area of the Americans
(FTAA) by the year 2005, bringing down trade barriers, bureaucracy and red tape
and encouraging the free movement of goods and services between member
countries. These comprise, the USA, Canada and Mexico. It will create a total
market of over 400 million consumers. There is, however, some imbalance in the
power relationship between members with the USA dominating with a popula-
tion of 275.56 million and a GDP of some $9.255 trillion (1999). In comparison
Canada has a population of 31.28 million and a GDP of $722 million (1999) and
Mexico has a population of 100.35 million and a GDP of $865.5 million (1999).
Association of Southeast Asian Nations (ASEAN)

The founders of ASEAN were Indonesia, Malaysia, the Philippines, Singapore and
Thailand. They came together in 1967 with the aim of cooperating in ‘securing
the region’s peace, stability and development’. The overarching objectives were
eventually to eliminate barriers between one another and encourage trade. By the
year 2000 ASEAN encompassed all ten countries of Southeast Asia including
Brunei Darussalam (1984), Vietnam (1995), Laos and Myanmar (1997) and
Cambodia (1999).
The Asia-Pacific Economic Cooperation (APEC)

Since its inception in November 1989, the Asia-Pacific Economic Cooperation
(APEC) forum has grown from an informal dialogue of 12 Pacific Rim economies
to become a major regional institution that coordinates and facilitates the grow-
ing interdependence of the Asia-Pacific region. It now works to sustain and
MARKETING TRADING TYPES 35
improve economic growth and the general overall well-being of the area. Today,
APEC has 21 members: Australia, Brunei Darussalam, Canada, Chile, China,
Hong Kong, Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand,
Papua New Guinea, Peru, Philippines, Russia, Singapore, Chinese Taipei,
Thailand, USA and Vietnam. Annual meetings of ministers have taken place since
1989 in Canberra, Singapore, Seoul, Bangkok, Seattle, Jakarta, Osaka, Manila,
Vancouver, Kuala Lumpur and Auckland.
o Marketing trading types

Business markets can be further classified under the type of market trading
conditions:
1. Monopolies or monopsonies
2. Controlled monopoly/monopsony markets
3. Oligopoly or oligopsony markets
4. Free competition
5. Adulterated competition.
1. Market monopoly or monopsony

A market can be seen as monopolistic where one organisation in either the pub-
lic or private sector dominates buying and/or selling of products and services
because of market share. In the UK the definition of a market monopoly is where
one company has more than 25 per cent of a particular market (a monopsony is
where there is one dominant buyer). A true monopoly is where an organisation
has total control of the whole market usually because of the following reasons.
Government legislation
In some cases, legislation allows no other organisation to enter, e.g. the UK pub-
lic sector Post Office (www.royalmail.co.uk) is the only company allowed to dis-
tribute letters below a certain weight across Great Britain (although at the time
of writing there is a lobby attempting to get this altered).
Patents, copyright, intellectual property rights

Governments will grant patents and copyright to encourage research and
development and the marketing of innovative products/services/processes. This
is usually for a set period of time, e.g. 20 years, to allow development costs to be
recuperated. During this period no other company can copy or use the patented
or copyright concept (see UK Patent Office on www.ukpats.org.uk). In some cir-
cumstances the patent owner will have built up such an enormous market share
that even when others can enter the market they will be uncompetitive because
of factors associated with the idea of market size, discussed below.
Example 1.22 Microsoft accused of running a monopoly

The US Federal Trade Commission (www.ftc.org) is fighting to break up Microsoft
(the biggest computer software company in the world) as it now holds over 90 per
cent of the world market in patented computer software. This is considered to be
anti-competitive and against the interests of the consumer.
Access to restricted or limited supplies

There might be occasions where the supply of a particular product or service is
limited because of a skill shortage, e.g. computer programmers, or the needed
raw material, component or service is unobtainable, e.g. uranium or computer
chips. One of the main reasons given for why the Ionica Group, a British tele-
communications company, went out of business in 1999 with a loss of hundreds
of millions of pounds was its inability to receive scarce component supplies for
its portable telephones.
Access or control of limited distribution channels

In some cases distribution channels in markets are dominated by large com-
panies (in both the public and private sectors) that are able to dictate which
products will have market access and which will not. Large supermarkets will
often only stock the number one or number two brand in the market as well as
their own label. As the top five supermarkets account for over 70 per cent of
the UK grocery market this policy can severely restrict manufacturer access to
widespread distribution.
Market size
Large organisations with large market share are able to gain economies of scale
advantages such that no other company can possibly compete on cost and price.
Learning and experience curve advantages will also increase as time passes,
making the situation even more impossible. If left unchecked this can encourage
horizontal integration through mergers and acquisitions leading eventually to
one dominant market player, no competition, a rise in prices and an eventual
falling off of overall productivity (a central Marxist argument for communism
and the inevitable downfall of capitalism). To prevent this situation happening
governments set up such bodies as the Competition Commission and the Federal
Trade Commission with the power to deny mergers and acquisitions or to
demand a company break-up.
Cartels
Although now illegal in many countries and trading groups under international
trading law, organisations will still collude to create monopoly (or monopsony)
market conditions by restricting supply, raising prices or channelling all products
through one source. In 1998 the European Competition Commission fined four
British sugar companies 50 million ecu (£35.8 million) for attempting to fix sugar
prices during the late 1980s. Probably the most infamous example of a cartel is the
Organisation of Petroleum Exporting Countries (OPEC), so powerful that it can
cause great disruption in national and world economies (www.opec.org).
Example 1.23 OPEC

OPEC states that it is ‘an intergovernmental organisation dedicated to the stability
and prosperity of the petroleum market’. There are 11 member countries currently
selling more than 40 per cent of the world’s oil and they possess about 78 per cent
of the world’s total proven crude oil reserves. This gives them the ability to restrict
oil supplies or to increase prices at any given moment and in doing so severely
influence world economies.
The natural monopoly model

A natural monopoly exists in an industry where a single firm can produce
output such as to supply the market at a lower per unit cost than can two or more
firms. The telephone industry, electricity and water supply are often cited as
examples of natural monopolies. These industries face relatively high fixed cost
structures. The costs necessary to produce even a small amount are high. In turn,
once the initial investment has been made, the average costs decline with every
unit produced. Competition in these industries is deemed socially undesirable
because the existence of a large number of firms would result in needless
duplication of capital equipment. The classic example might be that of two sep-
arate companies providing local water supplies, each constructing its own under-
ground pipelines.
Theory of natural monopoly

In undergraduate textbooks you will most likely find the natural monopoly condition linked
to the issue of economies of scale. Traditionally, natural monopoly is often described as
a situation where one firm may realise such economies of scale that it can produce the
market’s desired output at an average cost which is lower than that of two firms operating
smaller-scale processes.
2. Controlled monopoly/monopsony markets

As discussed above, many erstwhile state utilities in western countries have now
been privatised but many are still in some form of monopolistic market position.
In an attempt to limit this monopoly power governments set up overseeing regu-
lators, in many cases with enormous power, to cause these companies to restrict
price rises and improve quality with the ability to impose fines for poor or inad-
equate performance. These companies argue that they will not abuse monopoly
power and that the regulator has too much power – basing pricing and product
decisions on short-term, often populist, demands. UK examples were discussed

above under OFTEL, OFWAT, OFGEM, ORR and Postcomm.
Vertical integration (or vertical marketing systems)

Some organisations attempt to control their markets across the whole distribu-
tion chain, from raw resource producer to end consumer presentation. In this
way they hope to guarantee continuity and speed of supply, product and service
quality, freely available distribution channels, economies of scale and their own
customer franchise. Critics argue that this movement into disparate industries
can expose management diseconomies of scale due to skill inadequacies. In many
cases vertical integration might not cause the authorities anti-competitive con-
cerns if the overall result is a distribution chain that adds real economic and cus-
tomer value. But if it is felt that a monopoly situation is developing, it might well
investigate. Examples of vertically integrated industries include Q8 owning
oilfields, refineries, distribution and retail forecourts, and Thomson’s Holiday
Travel (now part of Preussag.com) owning travel agents, Lunn Poly, Britannia
Airways and the Holiday Cottage Group (among many others). Thomson’s has
been investigated by the old Monopolies and Mergers Commission and given a
clean bill of health.
3. Oligopoly or oligopsony markets

Oligopoly markets exist where two or more companies dominate the market for
particular products (an oligopsony is where there are a few large buyers). This lack
of widespread competition can cause the advantages and disadvantages discussed
above under the heading of monopoly market share. Oligopoly strength will con-
cern the competition authorities and they will investigate wherever necessary.
It is however very difficult to prove collusion as many market practices, such as
buying or selling at the same price, demanding the same credit terms, etc. come
about through an unspoken sense of mutual self-advantage. In the past few years
in the UK there have been investigations into brewing and pubs, oil and petrol
distribution, music and CDs, supermarkets and the car industry (under the emot-
ive heading ‘Rip-off Britain’). Brewers were made to sell off either the manufac-
turing or the distribution side of their business and the jury is still out on the car
industry. All others were given a clean bill of health.
Example 1.24 Monopoly and oligopoly practices – the ice cream market
Birds Eye Wall’s was last night fighting to keep its hold on the ice cream market
after the Government announced measures to stop it freezing out competition.
Stephen Byers, the Trade and Industry Secretary, yesterday unveiled proposals to
end what he believes is the unfair grip which the company has on the £600 million
market for ‘impulse’ ice creams – those purchased for immediate consumption. He
has told Birds Eye Wall’s to stop demanding shops sell only its products and to stop
supplying specially designated freezer cabinets from which all rival ice creams are
banned. He has also promised to clamp down on the bonus discount system and
sophisticated distribution network the company uses to stave off competition. Birds
Eye Wall’s, Mars and Nestlé comprise 86 per cent of the market and Mr Byers
believes they are using their strength to crowd out independent competition. He
has banned all three from negotiating new deals which prevent retailers from sell-
ing rival brands. Existing agreements would not be affected. Mr Byers said: ‘These
types of agreement tie the retailer to a manufacturer and restrict competition and
consumer choice.’ Birds Eye Wall’s controls around two-thirds of the market in
wrapped impulse ice cream, selling 18 of the 20 brand leaders and 45 per cent of
the tub and cone market.
The commission had recommended that Birds Eye Wall’s be banned from dis-
tributing impulse ice creams to all but its major national accounts, such as super-
markets. This would mean that the company would not be able to use its Wall’s
Direct network of telesales operators and delivery vans to distribute ice creams to
retailers. Direct distribution currently accounts for around a third of Wall’s sales.
Critics claim that Wall’s Direct is trying to kill off independent distributors and make
it more difficult for rival companies to get their products to the shops. Mr Byers has
also acted to end Birds Eye Wall’s practice of giving discounts and bonuses and has
also ordered the company to supply independent wholesalers on terms that offer a
minimum discount of no less that 22.5 per cent of the retail sales value of the order.
(Daily Telegraph, October 1999)
4. Free competition
In economic terms perfect or free competition is the market situation where
there are hundreds of small companies, all producing products and services that
are identical or very similar and all able to leave and enter the market at will.
Customers have perfect information and are able to move from company to com-
pany seeking the best value for money. In this way no one company is able to
dominate, profits are minimal, and prices and terms and conditions are set by the
interplay of supply and demand.
5. Adulterated or imperfect competition

Of course, in reality perfect competition will only exist (if at all) in a small
amount of minority markets or for a short amount of time. Companies will
always be continually looking for ways of increasing market share and company
profits associated with organic growth, mergers and acquisitions, vertical integ-
ration and corporate and product differentiation (by branding, for example) and
productivity efficiencies. Successful companies will always be looking to improve
performance by minimising competition and they will use every possible accept-
able method (and some not so acceptable) to achieve market control (often with
state backing). It is the realisation that markets will not remain competitive on
their own that motivates national and supranational organisations such as the
Competition Commission and World Trade Organisation to attempt to regulate
and negotiate to keep national and global markets open and free from stultifying
anti-competitive encumbrances.
o B2B trading forms: organisational types

We classify organisations into different category types so as to help in under-
standing both the different benefits wanted and the marketing approach
demanded. Six general types in three basic sectors can be identified. The differ-
ing marketing approaches will be discussed in more detail later in the book.
1. Commercial enterprises or the private sector
o Overseer regulated industry (ORI)
2. National and local government
o Quasi-autonomous, non-governmental organisations (quangos)
3. Not-for-profit organisations (NFP)
o Non-governmental agencies (NGA).
1. Commercial enterprises or the private sector

Different kinds of organisations exist in the private sector. They include public
liability companies (PLCs), private companies, partnerships and single owners. It
is not the intention to go into the legal definition of the different types but just
to outline the basic differences between the organisations.
Public liability company (PLC)

Both business groups and individual shareholders can own public liability com-
panies and they are set up in order to give a return to the shareholders on the
capital they have invested. Shareholders are able to buy and sell their ownership
shares on stock exchanges around the world. Senior managers, the chairperson
or president of the company, the chief executive officer and the board of directors
are employed on behalf of the shareholders to run the company in order to earn
the shareholders an acceptable return on the money they have invested. In most
cases they will be concerned with low costs, an acceptable profit and an accept-
able return on investment for the shareholders.
Example 1.25 World stock exchanges

Stocks and shares in PLCs are bought and sold by institutions, commercial organ-
isations and individuals on stock markets around the world. The hope is that in
doing this money can be made. Poor performing companies will find that as their
shares are sold, the price will fall, confidence will evaporate and they might find that
a competitor will purchase or they might even go out of business. The following are
some stock markets around the world:
o London Stock Exchange (www.londonstockex.co.uk)
o Alternative Investment Market, AIM, a global market for young and growing
companies from all over the world (www.stockex.co.uk/aim)
o New York Stock Exchange (www.nyse.com)
o Japanese Stock Exchange (www.tse.or.jp/english)
o German Stock Exchange (www.exchange.de/) Gruppe Deutscher Borse.
B2B TRADING FORMS: ORGANISATIONAL TYPES 41
Private company
A private company is similar to a PLC, as it has shareholders that put money into
the company and expect some kind of financial reward in return. The main
difference is that the private company’s shares will not be available for sale on
the stock exchange and can only be bought directly from individual or group
shareholders.
Partnership
A partnership is a business in which two or more individuals carry on a continuing
business for profit as co-owners. Legally, a partnership is regarded as a group of
individuals rather than a single entity, although each of the partners shows their
share of the profits on their individual tax returns.
A limited partnership is a partnership that is a business arrangement whereby
the operation is administered by one or more general partners and funded by
limited or silent partners who are legally responsible for losses based only on the
amount of their investment.
The Sole trader

The Sole Trader is the simplest business form consisting of just the owner of the
business. There are very few legal formalities, obligations or constraints attached
to this type of ownership and only the tax man and contributions agency be
notified when trading starts.
Overseer regulated industry (ORI)

Many public sector industries around the world have been privatised and sold
into the private sector over the last 20 years. These include steel, water, electricity,
gas, coal, airlines, railways, telecommunications, and many more. In theory they
can buy and sell products in the market free from government interference. In
reality this is not always the case. In most of the industries identified above an
office of an independent regulator was set up at the same time as privatisation
with the power to influence strategic management and marketing purchasing
decisions in certain areas and at certain times.
This power to intervene varies from industry to industry depending on the
terms and conditions set down at the time of inception. In many cases the regu-
lator has the power to prevent price rises or to limit price increases within set
limits. In a few cases they have the power to limit market expansion into par-
ticular business areas and/or to force the sales of strategic business units (SBU)
so as to restrict and reduce monopoly power and to encourage the growth of
competition. As well as statutory power the regulator can also use (and they do)
both political pressure and the power of the media to get these types of compan-
ies to conduct their business activities in ways that conform. Regulating bodies
were identified earlier.
Selling into the commercial sector

The overt and ultimate reason for all companies operating in the commercial B2B
market is to make money for the owners of the business. This has to be the over-
riding concern and will affect most purchasing decisions. Buying and selling
decisions in the commercial market will be based ultimately on making both
short- and long-term acceptable returns for the owners and the shareholders in
the business. Increasing sales and making a profit are an obvious contribution
to this happening and most commercial organisations set corporate and mar-
keting objectives in these terms. This means that organisations will be buying
products and services that enable them effectively, efficiently and economically
to produce the products and services that will make this happen. So the driving
force behind selling in this sector is the need eventually to satisfy customers with
products and services that offer better solutions to problems than do the many
competitors which will undoubtedly exist, the level depending on the particular
market type.
Thus relationships between buyer and seller can take many forms (discussed
in greater detail later), but the overriding concern will normally be eventually to
make a profit and please the owners of the business. To effect this aim, commer-
cial companies will want the following kinds of benefits from their suppliers:
o Solution benefits to identified problems

o Continuous knowledge and help on the right products and services
o Advice on future product and service developments
o Quickness of service
o Continuity of service
o Loyalty of service
o Flexibility of service
o After-sales service
o Guarantee of quality
o Price/cost/value.
It should also be recognised that more and more organisations want to operate
within a moral and socially acceptable framework. This will usually be made
apparent by the company vision/mission statement. It should therefore go
without saying that the supplier must be aware of these conditions and not risk
buyer wrath and cancellation of orders and contracts by, say, using child labour,
paying so-called ‘slave wages’, or working in countries that could embarrass the
business customer.
Selling into overseer regulated markets (ORM)

In theory commercial businesses operating in these markets (former public utilit-
ies, railways, etc.) have the same freedom to buy and sell products as other non-
overseer regulated businesses. However, in some cases purchase decisions might
have to take into account the same factors which sometimes face government
departments in areas that might involve political pressure, regulator pressure,
media pressure and public pressure. As with all B2B marketing activity, knowl-
edge and understanding of the customer buying and selling environment is
paramount if relationships are to be successful. In this case there must be seller
sensitivity to this aspect of the business on top of normal commercial pressures.
Example 1.26 Railtrack

The Strategic Rail Authority (SRA, www.opraf.gov.uk) document outlines plans for
a safer, more punctual service and a 50 per cent increase in passengers. But the
commercial company Railtrack is not capable of managing the necessary invest-
ment and should stick to the day-to-day running of the rail network, it says. The
authority also calls for a more streamlined rail structure with fewer than the cur-
rent 25 train operating franchises. The government has since forced Railtrack into
administration and there is a debate on whether it should be returned to the private
sector or run as a not-for-profit organisation.
2. National and local government

Governments purchase enormous amounts of B2B goods and services around the
world and are usually the single biggest buyer. This will be at local, regional and
national levels. The amount of spending can range from as little as 25 per cent
of GDP to as much as 55 per cent of GDP depending on the country and its
government policies. In monetary terms this could run into trillions of dollars
depending on the level of GDP. For example, in the USA with an estimated GDP
in 2000 of nearly $10 trillion, 30 per cent, nearly $3.4 trillion, is spent by the
government. In the UK, with an estimated GDP in 2000 of $1.36 trillion, approx-
imately 40 per cent, over $500 billion, is spent by the government.
Example 1.27 Purchasing power parity

There are difficulties when trying to compare the wealth and standard of living
between one country and another. Exchange rates may seem to be the obvious and
the simplest method but problems arise with currency demand and currency specu-
lation. The simplest way to calculate purchasing power parity between two coun-
tries is to compare the price of a ‘standard’ good that is in fact identical across
countries. Every year The Economist magazine publishes a lighthearted version of
PPP: its ‘Hamburger Index’ compares the price of a McDonald’s hamburger around
the world and the number of hours that a person might have to work to achieve that
hamburger. More sophisticated versions of PPP look at a large number of goods
and services. One of the key problems is that people in different countries consume
very different sets of goods and services, making it difficult to compare the pur-
chasing power between countries.
At national level governments buy B2B goods and services for defence, social
welfare, administration, education, hospitals, transport and so on. At the local
level they purchase goods and services for police, ambulance and fire services,
waste management, schools, road maintenance and so on according to the

national/local responsibility mix. Unlike the PLC these organisations are not in
business to make a profit but to provide a service to the general public.
Quasi-autonomous, non-governmental organisations

(quangos)
The word quango was coined to describe quasi-autonomous, non-governmental

organisations. Quangos spend taxpayers’ money, are ultimately responsible to
central government and are unelected. They can be local or national bodies, advi-
sory bodies or responsible for delivering services. They operate at arm’s length
from government and are therefore more independent of central government
than, for example, civil servants. They will still have some sort of public function
but remain at arm’s length from any political interference. Their purpose is to
perform a non-profit-making public task with a certain level of independence.
Depending on how you define the term, quangos might include the National
Consumer Council, NHS trusts, some ‘Next Steps’ agencies such as the Benefit
Agency and Child Support Agency, or even grant maintained schools. The regu-
lators identified above fall into this category. Spending by quangos in the UK
could be as high as £50 billion depending on the definition used.
Selling into national and local government
All governments, by their very nature, have dozens of stakeholders interested in

the state buying process. This will include people and organisations that use gov-
ernment services as well as companies that buy and sell them products and ser-
vices. Government departments face different problems and different challenges
from companies operating in the commercial sector, which affect the purchasing
function.
National government
All government organisations and departments, whether at local, regional or
national level, are under pressure from many stakeholders to behave in particu-
lar ways. Any government money spent on goods and services must be seen to
be spent efficiently and effectively. At the national level ministers can (though
not always) be held responsible for the action of civil servants in their depart-
ment. In the UK, the minister in charge of the health service would be questioned
if hospitals were buying products and/or services from a country or a company
that had some sort of unpleasant reputation. Similarly, if millions of pounds were
seen to be wasted by the Ministry of Defence on computer consultants, then
politicians might well be in for a roasting. There can also be a temptation for
politicians to interfere with purchasing decisions for political and personal
benefit. It is important for suppliers to be aware that government policy might
change with one political party leaving and another coming to power.
Example 1.28 Governments make huge purchases

The Indian government says it has agreed a price for the purchase of 66 Hawk
trainer jets from Britain in a controversial deal that’s believed to be worth $1.5b. A
defence ministry official confirmed to the BBC that a price negotiating committee
has now completed its work and that the matter will soon go before a Cabinet com-
mittee for final approval. There had been suggestions that India was considering
buying a less costly Czech-built warplane. Britain has the largest trade in arma-
ments after the USA and sells around the world (sometimes under a great deal of
controversy). The UK will interfere if it feels that principles are at stake.
Government at local level

Revenue needed to run local government services is obtained both from national
government revenue and through local taxation. Amounts given from the
national coffers are subject to parliamentary departmental rules and pressure at
local level will come from the national government passing laws and issuing
orders that buying activity be performed under well-defined terms and condi-
tions. This will include what goods and services they are allowed to buy, under
which terms and conditions and from which suppliers. Suppliers might have to
apply to be put on an acceptable supplier approval list before being allowed to
bid for contracts. Standardised procedures are often set down covering product
quality, delivery, prices and costs. In some cases a government department will
define for its many buying agencies what products and services can be bought
and in what numbers, and which cannot. An example here would be the health
service where doctors are told what drugs they can prescribe to patients and those
outside buying limits (usually branded drugs considered too expensive).
Example 1.29 Local government buying online

A Scottish council believes it will become the first local authority in Europe to buy
all of its goods and services online. Highland Council said its education service
would pioneer a new internet procurement system which will eventually be rolled
out to the entire authority. Officials predict that all council goods and services will
be bought electronically by 2005.
Bidding for contracts in the public sector

There are many factors to consider when bidding for contracts in the public
sector. Public money is at stake and when this is the case many stakeholders have
to be considered. This imposes the need for extreme vigilance on the bidding
process, manifesting itself through strict rules and procedures that in most
circumstances must be open to full pubic scrutiny.
Corruption
There have been examples of corruption and collusion in the giving and pricing
of contracts in the public sector and the temptation will always be there when a
buyer has thousands or millions of pounds to spend on government contracts.

The problem of corruption is greater in some countries than in others but the
move in the UK over the last 20 years has been to make the process as transpar-
ent as possible.
Example 1.30 South African corruption case

BAE Systems, the UK’s largest defence contractor, has become the focus of allega-
tions of bribery and corruption at a South African public inquiry into arms deals
worth £3.9bn ($5.5bn). BAE is among a number of firms caught up in an inquiry into
claims that senior officials in the South African government siphoned off millions of
pounds from a £1.5 billion deal to supply planes to the country’s airforce. The com-
pany maintains it abides by the law in whatever country it does business.
Optimum buying value

Many buying functions have been moved from an internal government func-
tion to some sort of outside agency. This might be an agency still under public
ownership but given the freedom to act in an independent and autonomous
manner (known as a non-governmental agency, NGA), or an agency that is sold
off to private ownership. Both types of agency will have financial objectives and
operate in more or less the way described above when commercial behaviour was
discussed (with the NGA it will depend on the amount of autonomy given).
Another option becoming as popular with government departments as with
the commercial sector is to outsource particular buying functions to organisa-
tions with specialised skills in specific areas. The argument for moving many
purchasing functions to agencies outside government is to gain management
skills that are developed in the commercial sector but are not developed in the
public sector. It also removes politicians from having to be involved in embar-
rassing situations if problems arise with purchasing decisions that could affect
their integrity or political position.
Compulsory competitive tendering

To overcome many of the problems identified above, pricing for UK government
contracts is now mainly by compulsory competitive tendering. Every govern-
ment request for products and services has to be offered to a list of preferred sup-
plier bidders on a contracted basis. In some cases internal departments can bid
against commercial contenders, but only on the same terms. The bids are usually
sealed bids from suppliers setting out benefit offerings in reply to the standards
set down by the civil services department. The best value for money will win the
contract, often but not always the lowest price.
Private–public partnership (PPP) or private finance initiative (PFI)

In the UK over the last few years there has been the controversial (in political
terms) development of the private–public partnership. This government policy
invites private companies in to bid, involving anything from the building of
roads, bridges and tunnels to hospitals, prisons and schools. Private suppliers put
up some or all of the money and in return get the contract to run the capital pro-
ject. They are either allowed to charge money for public use of the project, e.g. a
tunnel or bridge toll, and/or the government pays them back as they would with
a conventional loan. This could become an enormous source of work for the B2B
market.
Example 1.31 Private finance initiative (PFI)

Two arguments are typically put forward in favour of the PFI: first, that it is a good
way of financing expensive projects that might otherwise not be undertaken; sec-
ond, that it offers better value for money than purely publicly funded endeavours.
The theory is that private money brings with it better management plus greater
incentives to finish projects on time and within budget. Some also argue that it
is well worth it to bring capital into public projects which otherwise might not be
available because of constraints on the public purse. However, others dispute that
logic, arguing that it is just an accounting device. The government asks the private
sector to put up the money and then pays it back through annual charges. The tax-
payer still pays the bill and the government could borrow the money more cheaply
on private capital markets itself.
Public–private partnerships take many forms:

o Design build finance (DBF) – a company will design and pay for a project such
as a hospital or prison, but not run it.
o Design build finance operate (DBFO) – the most common form of PPP in which
a private company will design and finance the project and be involved in the
day-to-day running of the completed project.
o Design build guarantee operate (DBGO) – PFI model in which a financial institu-
tion will guarantee the completion of a project on time and to budget.
o Local strategic partnership (LSP) – a single body that brings together public and
private bodies to tackle local issues such as housing, crime or education.
Political policies
All political parties have an agenda with some parts that are similar to and
others different from those of other political parties. This will then affect economic
policies and legal considerations when one government is voted out of office and
another voted in, which in turn percolates down and eventually has an effect on
both national and local government departmental purchasing policies. So in the
extreme a company may have a large government contract one moment only to
find that it is not to be renewed the next. In some cases this can mean the end of
the selling company, depending on the contribution of the contract to its revenue.
Social policies
Governments also have social policies that will affect services such as health and
social security. Again, any change in policy for whatever reason can have cata-
strophic effects on the level and source of purchases. Governments also often
insist that suppliers operate and behave in socially acceptable ways if they are
deemed fit to do business with. This will cover the supplier’s internal and ex-
ternal ways of behaving in the production of products and services. The issues
might concern internal organisational areas such as health and safety, pay levels
and hygiene and external concerns such as how the supplier treats the physical
environment and interacts with the local community. These ways of behaving
will be set out in some kind of guidelines and regulations that the supplier has to
sign up to when applying for supplier status.
Example 1.32 Government stakeholders influencing the buying process

There will always be stakeholder groups with more influence than others and
the power to influence purchasing decisions will be based on this level of power.
Stakeholders include the following: politicians, pressure groups, service providers,
general public, policymakers, interest groups, financiers, trade unions, adminis-
trators or civil servants, service users, and media.
Departmental and administrative policies

Because of all the stakeholders with an interest in how government purchasing
departments do business they tend to operate in very formal and bureaucratic
ways, following clear, rigorous codes of conduct and rules of business. This is
because they must be seen to be effective and efficient and not be open to any
charge of wasting public money. Political and social pressures will always affect
the purchase of goods and services by government departments and this might
well vary from department to department. So there might be one policy and
procedure in the defence department and another in social security. Individual
buyers might well interpret the policies differently, which puts the onus on the
supplier to learn and understand the thinking behind all purchase decisions in
the public sector.
Example 1.33 A matter of policy

French chickenburgers were withdrawn from school meals in a local education
authority. Devon County Council took the chickenburgers off the menu until repres-
entatives could meet local farmers to discuss the council’s purchasing policy. The
decision follows a demonstration by local farmers in Exeter against the importation
of French meats and their use by the local authority in school meals. ‘We want all
government and local authority food tendering applications to specify that pro-
duction techniques meet British standards before the supplier is even considered,
no matter how competitive the price,’ said the deputy chairman of the National
Farmers’ Union in Devon.
B2B marketing in the government sector

Marketing and selling in the government sector are similar to those in the com-
mercial sector in that they have to be more professional than they were in the
past. Apart from this, civil service buying activities are different in many ways
including the following:
o There are many stakeholders able to influence the buying decisions.

o Openness and accountability for all to see and comment on decisions.
o The need for purchasing decisions to be seen to be scrupulously fair, with no
hint of corruption.
o There should be meritocratic systems for internal employee and external
buyer appointment and performance evaluation.
o Governance and functional structures in ministries and agencies constantly
reviewed by the Public Audit office as well as other independent bodies.
o Complex decision-making unit.
o There are often bureaucratic processes and procedures to overcome.
o Policies and procedures can alter with change of government policies and
laws or change of government.
o Some functions now decentralised, quasi-autonomous or put into the private
sector.
o Must first become a preferred buyer.
o Supplier must be able to demonstrate integrity in the way it undertakes its
business.
o Products and services offered should have laid-down quality standards.
o Usually involves a sealed bidding process.
3. Not-for-profit organisations (NFP)

Not-for-profit (NFP) organisations are, as the term suggests, in business for
reasons other than making a profit. Of course that will not mean that they can-
not garner a return on investments but as the NFP organisation does not have
any shareholders, this will not be returned to shareholders as a dividend but used
to reinvest or spent to achieve its not-for-profit goals.
Example 1.34 Not-for-profit

Most not-for-profit organisations, provident and mutual groups, associations, founda-
tions and trusts, schools, medical centres, etc. will register for charitable status
if they can. In the UK at the end of the year 2000 there were over 160,000 main
charities registered with the Charity Commission with a total annual income of
£24.5 billion. Two-thirds of registered charities have an income of under £10,000,
less than 2 per cent of the total, whilst the largest 5 per cent have 90 per cent of
the income. The largest 336 charities (only 0.21 per cent of those on the register)
attract approximately 42 per cent of the total annual income. Any organisation can
register for charitable status (and they do at the rate of a thousand a month) as
long as its objectives are not to make a profit for shareholders or owners but to
plough resources into work considered to benefit the community, or some section
of it, through: ‘the relief of poverty or sickness or the needs of the aged, the
advancement of education, the advancement of religion, or other purposes bene-
ficial to the community’ (UK Charities Act 1993).
Organisations register for charitable status because of the tax benefits available
on income earned and monies spent. Organisations involved in social, cultural,
environmental, animal welfare, religious, artistic, sporting, education, health,
youth and community activities are all examples of registered charities. NFP
organisation classifications include:
o Charities, most NFP organisations can apply

o Member associations such as trade unions
o Member trade associations such as Institute of Practitioners in Advertising
(IPA)
o Single issue representative pressure groups such as Greenpeace
o Interest groups such as NCPCC and RSPCA
o Mutual societies such as Nationwide Building Society
o Trusts and foundations such as BUPA and Welcome.
Non-government agencies (NGA)

Increasingly we have seen the use of the ‘non-governmental agency’ or NGA to
describe a certain kind of not-for-profit organisation. The World Bank defines
non-government organisations (NGOs) as ‘private organisations that pursue
activities to relieve suffering, promote the interests of the poor, protect the envir-
onment, provide basic social services, or undertake community development’. In
wider usage, the term NGO can be applied to any non-profit organisation which
is independent from government. NGOs are typically value-based organisations
that depend, in whole or in part, on charitable donations and voluntary service.
Although the NGO sector has become increasingly professionalised over the
last two decades, principles of altruism and voluntarism remain key defining
characteristics.
It is now estimated that over 15 per cent of total overseas development aid is
channelled through NGOs. While statistics about global numbers of NGOs are
notoriously incomplete, it is currently estimated that there are somewhere
between 6000 and 30,000 national NGOs in developing countries.
Building relationships
The B2B sector is also characterised by organisations cooperatively working
together, especially when marketing internationally. Alliances, joint ventures
and short-term working agreements share the risks and benefit all contributing
members. Commercial companies work with other commercial companies back
and forth along the supply chain. The private sector works in harness with the
public sector, and not-for-profit organisations work with profit organisations, all
finding that this symbiotic relationship adds value to their operations. Similarly
B2B suppliers and buyers are more liable to build long-term interactive back and
forth relationships than the B2C seller and end consumer. All these different
relationships will be discussed in much more detail as we move through the
chapters.
B2B SELLING IN THE NOT-FOR-PROFIT SECTOR 51
o B2B selling in the not-for-profit sector

The not-for-profit (NFP) sector is huge around the world and includes charitable,
educational, quasi-governmental and volunteer organisations. There are over
185,000 registered charities in England and Wales alone. But charities are only
part of a much wider not-for-profit sector, which includes hundreds of thousands
of community organisations pursuing social objectives, such as sports and recre-
ational clubs, and mutual bodies concerned with the interests of their members,
such as self-help groups, friendly societies and cooperatives. Overall, there is a
demand for businesslike management of non-profit organisations. At the same
time there is resistance to equating non-profit operations with business and
applying business procedures to non-profit organisations. Financial gain is not
the object of charitable, educational, volunteer or even governmental agencies,
and this will affect the approach taken to the buying of business goods and
services.
Influences on buying behaviour in NFP

NFP organisations do not all have the same objectives but they do have the one
overriding factor in common in that they are not being run to make a profit,
for either the shareholders or the individual owners. They do differ, however,
in that some are operated to attempt to bring in as much revenue as they can,
which they then use to help good causes, while others come into being to pro-
vide help in some kind of meaningful way. They buy both services and products
in the B2B market and there is a move to contract and outsource many of the
functions that were once performed in-house. The real difficulty for the B2B
supplying into this market is in understanding the mission and objectives of the
particular NFP segment they wish to be working with. As with all marketing rela-
tionships, if the seller fails to appreciate the business of the buyer and fails to see
the pressure it experiences from its customers and stakeholders, then it will find
it is at a disadvantage in the competitive marketplace.
Example 1.35 The UK’s first not-for-profit bank

The UK’s first not-for-profit bank, which will use savers’ money to offer affordable
loans to charities, is set to be launched later this year. The Charity Bank, instigated
by the Charities Aid Foundation (www.cafonline.org), opened in September 2002.
The new bank is both a registered charity and will also be regulated as a bank by
the Financial Services Authority (www.fsa.gov.uk), the UK’s financial regulator.
Diverse range of organisations

Such a diverse range of organisations highlights the difficulties when marketing
in these sectors. Buying pressures and needs in a school will not necessarily be
the same as the buying pressures and needs in a children’s protection association.
Similarly an interest group like the National Society for the Prevention of Cruelty
to Children (NCPCC) will have different priorities from the Royal Society for the
Prevention of Cruelty to Animals (RSPCA). Member associations such as trade
unions and the Automobile Association will be run on dissimilar lines to the
BUPA health foundation and so on. It is therefore crucial for the supplier to have
a clear idea of its target market segment and the needs and objectives that drive
that segment.
Influences on buying behaviour in NFP sector

As with the government sector, NFP organisations have a range of stakeholders
interested and reporting on the effective operation of the business. Many now
work with partners such as the Royal Bank of Scotland and Royal National
Lifeboat Institution, Co-operative Bank, Save the Children and Frizzell Bank and
the Cancer Research Campaign. If stakeholders become disillusioned or upset
with NFP buying behaviour they can and do switch allegiances. The competition
in this sector is almost as fierce as it is in the commercial sector.
Transparent operating procedures

There are growing public demands for greater openness and accountability. In
addition, the fact that many voluntary organisations receive public subsidies in
one form or another such as tax relief and grants makes it all the more important
that they operate in a transparent manner. NFP are not only expected to help
good causes in some sort of way, but are also expected to be seen to do it with-
out wasting money given to them by donations, contributions, grants and other
revenue-raising activities. This has caused problems in the past where a charity
has been condemned by sections of the public for wasting money given by vol-
unteers by hiring a marketing consultant at a high price to increase its revenue.
It seems to matter not that the exercise was shown to be a cost effective means
of raising more money than would otherwise have been the case. Like govern-
ment departments, NFPs must also be seen as ‘whiter than white’ in their deal-
ings with suppliers, only buying from companies that have a good track record
in areas such as employee safety, product development and environmental pro-
tection. It would not go down well with clients if an animal welfare foundation
were seen to be working with a company involved with testing products on
animals.
NFP stakeholders affecting the buying process include:
o Charity Commission (www.charity-commission.com)

o Government and other regulatory bodies
o Local and national government grants
o Grant-giving bodies like the National Lottery
o Marketing and promotional partners in the commercial sector
o Members
o Volunteers, collectors and carers
B2B SELLING IN THE NOT-FOR-PROFIT SECTOR 53
o Legacy and deed of covenant givers

o Corporate, group and individual revenue givers
o Other charities
o Associated pressure groups
o The media.
B2B marketing in the not-for-profit sector

B2B marketers in the NFP sector will encounter some of the problems endured by
buyers in both the commercial sector and governmental markets. For example,
there is the need for a level of red tape and bureaucracy perhaps being the
condition of grant giving, but it will not be of the same magnitude as in the gov-
ernment market. Likewise a charity will be allowed to make a ‘profit’ (i.e. a level
of revenue over costs), but will be criticised if it attacks the process as aggressively
as do those in the profit-making market. Overall marketing factors to be consid-
ered will take in the following:
o The not-for-profit organisation type, its mission and its objectives
o An understanding of the differences between NFP and commercial markets
o The range of products and services offered by the NFP
o The NFP stakeholders’ needs and concerns
o The pressure on the NFP to behave and work in proscribed ways
o Supplier credentials to be within acceptable limits.
Products and services bought in the NFP markets include:
o Fundraising products
o Promotional products
o Event management products
o Marketing and advertising consultancy
o Recruitment advertising
o Direct marketing/direct response
o Telemarketing/telefundraising.
Whatever kind of market an organisation may operate in, failure to meet customer needs
better than the competitors will eventually result in sales decline and failure. The centrality
of the customer is as relevant in the B2B market as it is in the consumer goods market.
o The need to understand the behaviour of

organisations
Organisational theory is based on the concept that there are many organisational
forms and this will cause differing purchase behaviours in the marketplace. In
many situations B2B companies will not operate like B2C companies and private
companies will not operate like public companies. Similarly large, medium and
small companies all have particular ways of functioning when buying B2B and
B2C products and services. Understanding the way that organisations are struc-
tured and operate is much more important in B2B markets than in B2C, as all
activities will involve marketing and selling to other businesses. However, B2C
operations are aimed at consumers and, although the initial sale will probably be
to a retailer, priority will be given to an understanding of the customer segments
and the end consumer. The successful business supplier needs to understand
what is going on if sales and relationships are to be initiated, grow and then be
maintained on a continuous profitable basis. Every organisation, whether buying
or selling, will also need to know how to use an understanding of organisational
behaviour so as to maintain and improve efficiency, effectiveness and economy
in all activities if competitive advantage is to be maintained. Although more
problematic, this ‘need to know and understand’ will apply across the whole of
the supply chain, especially as strategic alliances become more the norm and an
important part of the business.
Understanding why people and groups do things in organisations will not
change the fact that they do them, but it may enable how to understand and
react in a way that modifies the behaviour. The behavioural sciences have not
yet reached the predictive level of the physical sciences. However, with the
help of many theories developed over the last century, we can now under-
stand many aspects of organisational behaviour and very often explain what is
happening, change what is happening and control events to the level of prac-
tical need.
Understanding the way that organisations are structured and operate is much more
important in B2B markets than in B2C as all activities will involve marketing and selling to
other businesses rather than the end consumer.
An overview of these theories can be found on the B2B Marketing website

www.booksites.net/wright.chapter 11.
Understanding organisation behaviour

An understanding of the development of organisational buyer behaviour can
lead to the following advantages:
Internally
o Helps predict how individuals and groups might behave.
o Helps senior executives and managers get the best out of people.
o Saves time and energy by demonstrating logically what might and might not
work.
DISCUSSION QUESTIONS 55
o Alternative approaches can be evaluated and implemented.

o Helps to improve internal efficiency and productivity.
Externally
o Allows different business cultures, at both a national and international level,
to talk to one another.
o Enhances relationships along the whole supply chain.
o Enables suppliers and supply sales staff to develop customised approaches to
buyers that have differing ways of behaving and operating.
o Encourages an all-round more professional approach to understanding
internal and external environments.
o Summary
In this introductory chapter we discussed what is meant by business-to-business
markets and and the part that they play in the economy at both national and
international level, and gave definitions of both marketing and business-to-
business marketing. The growth of B2B markets around the world was equated
with businesses and governments working together to create circumstances that
lead to the breaking down of trade barriers and the promotion of free trade
among nations. The part that politicians and political issues have to play in the
process was recognised, including the passing of supportive laws at national and
supranational level, and the creation of the right terms and conditions and the
attempt to create a ‘level playing field’ through standardisation.
National, supranational and world bodies were identified and the part they
have to play evaluated. The growth in trading unions – European Union, North
American Free Trade Agreement, and Association of Southeast Asian Nations –
was examined and their functions outlined. The differences between planned,
free and mixed economies were scrutinised and evaluated, leading to the con-
clusion that the mixed market model had been adopted by all modern
economies. Market types, monopolies, oligopolies and free competition were dis-
cussed and their existence across all markets recognised. It was also recognised
that markets have to be policed to ensure that organisations do not distort the
free interplay of supply and demand so crucial in the success of the economy.
Bodies that undertake this overseeing role were described. Finally the three indus-
try types, commercial, public sector and not-for-profit, were identified and the
basic differences highlighted.
Discussion questions
1. Outline the differences between a business-to-business market and a business-to-
consumer market. What might be the reason for the growth in B2B markets over
the last 25 years?
2. Discuss why you think there is a need for government to be involved in the
running of the economy. What forms do you think that this might take?
3. Discuss the main global challenges facing companies that operate in B2B markets
as we move into the third millennium.
4. Discuss the relative merits of a planned market economy and a free market
economy. Which methods do you think work the most effectively? Why do you
think the concept of a market economy holds supreme?
5. Why might governments be forced to intervene in the running of so-called ‘free
markets’? Give contemporary examples of this happening.
6. Identify and discuss the different market types. Give real-life examples of each
and explain why you think this is so.
7. Discuss the premise that ‘marketing is less useful in B2B markets than in B2C
markets’.
8. Identify the roles of the following:
(a) The World Trade Organisation, WTO (www.wto.org)
(b) The UK Competition Commission (www.competition-commission.org)
(c) OFGEM, Office of the Gas and Electricity Markets (www.ofgem.gov.uk).
9. Identify the major trading blocs across the world. What is their purpose and what
are the implications for B2B companies?
10. Give examples of how new technology has enabled B2B organisations to become
more productive.
11. Identify the different category types of organisation that exist in the B2B market
and outline the different major approaches demanded by each when selling in
business-to-business products.
12. Discuss how B2B marketing might differ around the world. Give examples where
problems have arisen because of the wrong approach taken.
Visit the B2B Marketing website at www.booksites.net/wright for a Case Study,

Questions, and an Internet Exercise for this chapter. Chapter 11 on understand-
ing organisational behavioural theory can also be found there.
o Bibliography
Books
Brierty, E.G., Eckles, R.W. and Reeder, R.R. (1998) Business Marketing, 3rd edn. New Jersey:
Simon and Schuster.
Brooks, I. and Weatherston, J. (2000) The Business Environment – Challenges and Changes,
2nd edn, Harlow: Pearson Education.
Chisnall, P.M. (1995) Strategic Business Marketing, 3rd edn. Harlow: Prentice Hall.
Ferguson, P.R. and Ferguson, G.J. (2000) Organisations – A Strategic Perspective. London:
Macmillan.
Ford, D. (ed.) (1999) Understanding Business Markets. London: Academic Press.
Gross, A.C. and Banting, P.M. (1993) Business Marketing. Boston: Houghton Mifflin.
Gross, A.C., Banting, P.M., Meredith, L.N. and Ford, I.D. (1993) Business Marketing. London:
Dryden Press.
BIBLIOGRAPHY 57
Hutt, M.D. and Speh, T.W. (1998) Business Marketing Management, 6th edn. London:
Dryden Press.
Lindgreen, L. (1996) The World of B2B Marketing. Harmondsworth: Penguin.
Mankiw, N.G. (1998) Principles of Economics. London: Dryden Press.
Moller, K. and Wilson, D. (eds) (1995) Business Marketing: An Interaction and Network
Perspective. Boston: Kluwer. pp. 10–11.
Sloman, J. and Sutcliffe, M. (1998) Economics for Business. Harlow: Prentice Hall.
Turnball, P.W. (1986) Strategies for International Industrial Marketing. Buckingham: Croom
Helm.
Wilson, D. (1999) Organizational Marketing. London: Thomson.
Wright, R. (2001) Marketing: Origins, Concepts, Environment. London: Thomson.
Journals
Appiah-Adu, K. and Blankson, C. (1998) ‘Business strategy, organisational culture and mar-
ket orientation’, Thunderbird International Review, 40: 235–57.
Day, G.S. (1998) ‘What does it mean to be market-driven?’, Business Strategy Review, 9:
155–64.
Deng, G.S. and Dart, J. (1999) ‘The market orientation of Chinese enterprises during a time
of transition’, European Journal of Marketing, 33: 631–55.
Deshpande, R. and Farley, J.U. (1999) ‘Corporate culture and market orientation: compar-
ing Indian and Japanese firms’, Journal of International Marketing, 7: 111–27.
European Journal of Marketing, MCB Press, Bradford, England (www.mcb.co.uk/ejm.htm).
Industrial Marketing Management, Elsevier Science (www.elsevier.nl/homepage).
Mullich, J. and Welch, M. (1995) ‘Government’s buying power remains strong’, Business
Marketing July, 21–2.
Visit www.booksites.net/wright for the Internet references for this chapter.

02 Understanding environment
influences affecting
organisational behaviour
and markets
Chapter
We are continually faced by great opportunities bril-

liantly disguised as insoluble problems.
(Anon.)
Aims and objectives

1. Identify and examine the wider external factors that might affect the
management of the B2B organisation including the political, economic,
cultural and technical factors.
2. Identify, examine and evaluate the more immediate influences on the
running of a B2B organisation.
3. Examine and evaluate the nature of demand for business products and
services on both a national and a global level.
Part 1 Macro-environmental factors influencing B2B

o Introduction
All buying and selling behaviour, whether in consumer or in business-to-business
markets, will be affected by environmental forces. We only have to turn on the
TV or open the newspaper to see stories about environmental factors that have
caused people and organisations to alter their buying and selling patterns in
some way or other. Whether these be changes in the law that now make some-
thing or other illegal that had been legal in the past, or a company hit by falling
share prices, all will shape and alter the way that customers and buyers act in the
marketplace. We looked at the background of B2B markets in the preceding chap-
ter and we now explore in detail more of these forces that affect the B2B market.
WIDER ENVIRONMENTAL FORCES 59
o Wider environmental forces

Political influences
In the first chapter we outlined the role that political theory and politicians play
in shaping the economic market structure. In modern economies the overriding
paradigm is to free up markets and give the interplay between supplies and
demand ever greater freedom. Company bosses now expect government policy
makers to create favourable business frameworks that will allow them the free-
dom to run their businesses, with little or no government interference, in the
most efficient and productive way, arguing with some justification that their
success underpins the success of the whole economy. On the other hand small
businesses and end consumer champions recognise that large global businesses
have many unfair advantages because of superior power and argue for rules and
regulations to redress this imbalance. Politicians at national and international
level have the task of creating a framework that tries to balance out the demands
of competing forces in a way that is best suited for the economic well-being of all
citizens.
The growth in the European Community

We saw in Chapter 1 that a growing amount of this political control of the eco-
nomy has moved from the UK to the bodies that govern and control the European
Union (EU), the European Parliament, Council of Ministers and European
Commission. It can be argued that more influence over the economy from EU
agencies is inevitable if the stated objectives of a free trade area and a level play-
ing field for all businesses across all countries is to be achieved. Many more chal-
lenges and opportunities will be presented to all business sectors with the
expected growth in the number of countries eventually doubling the size of the
380 million market.
The growth in world bodies

Political intervention in the economy now operates at a world level as well as at
a national and supranational level, through both formal and informal discussion
at the highest level and modern communication methods which allow instant
contact to be maintained. Although there is not yet a world parliament oversee-
ing a world economy, the leaders of the G7 group of the world’s richest countries
meet on a regular basis to discuss and argue over the best ways to improve world
trade and the world economy. The United Nations has agencies such as the UN
Commission on International Trading Laws (UNCITRAL) that are concerned with
the proper working of trade and industry. An international court for the protec-
tion of human rights was set up under the auspices of the UN, which is begin-
ning to consider abuses by companies of human rights as part of its remit. The
World Trade Organisation (WTO) meets on a regular basis to vet new member-
ship applications (at the time of writing Vietnam is under consideration) and to
discuss ways of improving world trade. As well as world bodies identified earlier,
there are myriad other governmental, quasi-governmental and private groups
that meet on an ad hoc and regular basis which B2B companies are able to access.
60 CHAPTER 2 • UNDERSTANDING ENVIRONMENT INFLUENCES
Example 2.1 International Criminal Court

The USA, Russia, China and Israel have refused to recognise the International
Criminal Court, despite the fact that it has been ratified by 69 countries. The
USA argues that it could be used against them in their role of international
peacekeepers.
Laws, rules and regulations

Political control of the economy becomes apparent through formal laws and for-
mal rules and regulations identified in Chapter 1. These spell out what organisa-
tions can and cannot do in the pursuit of revenue and profit. This will apply to
organisations in both the public and private sectors. Areas discussed earlier
include taxes to be paid, subsidies on offer, environmental protection demanded,
employee and consumer safeguards and, recently taken into UK law, basic
human rights. Companies that fall foul of the law can now expect to be tried in
any number of courts at national, European and possibly world level. The real
problem that businesses still face, however, is the different interpretations that
still exist around the world. So what might be illegal in Sweden will still be legal
in Saudi Arabia; an infringement in Thailand could be considered of small con-
cern while the same infringement in the USA could be seen as extremely serious.
The internet has compounded the problem as different countries’ law courts
seem able to pass judgements that could affect enterprises on the other side of
the world.
Example 2.2 Libel ruling could affect free speech

Australia’s High Court has ruled that the financial publishers Dow Jones can be
sued in the Australian state of Victoria over an article that appeared on their
website in the USA. Media organisations fear the ruling could unleash a flood of
litigation around the world and will force them to review the content of their inter-
net sites.
Example 2.3 Breach of international law

The refusal of the Court of Appeal to act on a European ruling that the Guinness
Four’s convictions were unfair puts the UK in breach of international law, law lords
have heard. Lawyers acting for the men convicted of the Guinness shares fraud said
that if the House of Lords fails to act a complaint will be made to the European
Court of Human Rights. Ernest Saunders, Gerald Ronson, Anthony Parnes and Jack
Lyons were convicted in 1990 of illegally boosting the price of Guinness shares four
years earlier.
Political intervention
Politicians will always be tempted to intervene in the running of the economy
for short-term political reasons, rather than for long-term economic success,
especially at election times. So interest rates are moved up and down, taxes
increased and decreased and there is more or less public spending. This can cause
violent fluctuations in the economy, leading to the economic condition known
as boom and bust. Economic uncertainty can cause real difficulties for businesses,
creating the call for more independent agencies to take control of some of the
important levers in the economy.
Independent controlling agencies

There is a realisation by many independent observers that politicians should
stand back from some of these decisions and allow independent or quasi-
independent agencies the right to take on responsibilities for controlling some of
the factors that can influence the proper running of the economy. It is felt that
certain decisions can be taken away from government and so be made for sound,
long-term economic reasons rather than for short-term political gain. The Bank
of England and the US Federal Reserve Bank are examples of these types of
agencies that, working through a committee of experts, have the power to make
decisions on interest rate changes and monetary and inflation rate control.
Increasingly, the European Bank is expected to take on similar responsibilities
across the EU. This is especially so since the adoption by many countries within
the EU of the European currency, the euro, and the ending of own-country cur-
rencies. At the time of writing it is still uncertain whether the UK parliament will
take up the euro and do away with the pound.
Example 2.4 One of the most powerful men in the world

Alan Greenspan, head of the US central bank the Federal Reserve which sets US
interest rates, is considered by many to be one of the most powerful men in the
world. His decisions impact on the biggest marketplace in the world, the New York
Stock Exchange. This then reverberates around the world affecting every other
stock exchange in whatever country it might be.
Pressure and interest groups

Pressure and interest group growth is the predictable result of having so many
different political and administration agencies with the power to affect the well-
being of so many organisations operating in the business-to-business market.
Trade associations are created to take on the role of pressure groups to promote
the wishes and the welfare of their members, seeking to persuade policymakers
to act in ways that will be beneficial to their particular industry. Other pressure
groups have come into being to counter the power of big business and in many
cases they are prepared to take their protest onto the streets. They may dissem-
inate bad publicity and encourage widespread boycotts of firms and products
they consider harmful to the environment in some way. These groups can also
cause pressure to be brought to companies that buy from or sell to organisations

under attack.
Example 2.5 Pressure group protest

Pressure groups, including Greenpeace, Oxfam, Friends of the Earth and the World
Wildlife Fund, have condemned the world summit in Johannesburg on sustainable
development as a failure that will do little for the environment or the world’s poor.
Protest action is planned against organisations that continue to exploit these prob-
lems in some way or other.
Trade unions
The power of the trade union movement varies from industry to industry and
from country to country, but there is no doubt that in the UK membership and
power have diminished over the last 25 years (from over a half to less than a third
of the workforce). As economic well-being increases, so trade union membership
tends to decrease as workers feel that they have less need for group protection
against employer and business exploitation. Many free trade supporters argue
that strong trade union membership can act as a restraint on industry and com-
pany flexibility to react to changing economic and market circumstances. Many
governments have enacted trade union legislation restricting what they can and
cannot do. On the other hand, where workers are in vulnerable situations, laws
have been introduced to give individuals and trade unions more rights in how
they might behave. In many countries around the world ethically questionable
methods are still used to prevent or discourage workers banding together to pre-
sent a stronger unified front.
Example 2.6 Trade union repression

Although some countries had done more to protect workers’ rights, trade union
members around the world continue to be harassed, sacked or even murdered,
according to a report by the International Confederation of Free Trade Unions.
Below are just a few of the cases identified in the 233-page report in 2002.
o There were 223 cases of murdered or ‘disappeared’ trade unionists in 2001, 201
of them in Colombia.
o In China, any attempt to create a free trade union can be rewarded with huge
prison sentences and even life imprisonment.
o In Zimbabwe, striking trade unionists were shot at. Three steelworkers were killed.
o In Malawi, unionists appeared to be singled out for the sack, with the state
apparently unable to intervene.
o In Costa Rica, workers were dismissed if they tried to form a union.
o In the USA, it was estimated that 80 per cent of employers used consultants in
anti-union campaigning.
o In South Korea, riot police using helicopters and bulldozers attacked strikers.
o In Oman, Qatar and the United Arab Emirates, all trade unions remained banned.
Business trade associations

Governments and business associations also work together to develop economic
policy, sitting on joint committees and taking part in economic forums.
Ministers often meet the leaders of business trade associations such as the
Confederation of British Industry, CBI (www.cbi.org.uk), the Institute of
Directors, IOD (www.iod.co.uk) and the International Chamber of Commerce,
ICC (www.iccwbo.org) to consult on business policies. The power of business
trade associations varies according to their level of political and economic
influence and many now employ PR and lobbying consultants to maximise this
influence. This is discussed in more detail below.
Example 2.7 Investment guidance will reach more poor countries

A working partnership between business and the United Nations Conference on
Trade and Development to promote foreign direct investment in the world’s poor-
est countries is to be extended after successfully completing its first stage. The first
least developed countries (LDCs) to benefit from a joint ICC–UNCTAD programme
are Bangladesh, Ethiopia, Mali, Mozambique and Uganda. Eight more countries are
now being selected for the programme’s second phase, over three years.
Investment guides to the five countries were backed by workshops in their
respective capitals at which business and government experts make critical exam-
inations of investment policy and potential. Private brainstorming sessions between
business executives and government officials form part of the programme. The
investment guides are directed at potential investors while the workshops are
designed to increase the capacity of LDCs to bring in investors and provide them
with the right conditions in which to operate. (International Chamber of Commerce
website, www.iccwbo.org)
International Chamber of Commerce (ICC)

ICC is the world business organisation, the only representative body that speaks
with authority on behalf of enterprises from all sectors in every part of the world.
Because its member companies and associations are themselves engaged in inter-
national business, ICC has unrivalled authority in making rules that govern the
conduct of business across borders. Although these rules are voluntary, they are
observed in countless thousands of transactions every day and have become
part of the fabric of international trade. Business leaders and experts drawn from
the ICC membership establish the business stance on broad issues of trade and
investment policy as well as on vital technical and sectoral subjects. These
include financial services, information technologies, telecommunications, mar-
keting ethics, the environment, transportation, competition law and intellectual
property, among others.
Lobbying
The lobbying business has grown in leaps and bounds as organisations and trade
associations realise how serious is the need to have people and organisations
that will represent company and industry interests, either in positions of power
or able to have some influence on people in positions of power. This has caused
something of a stir in the UK where members of parliament and government
ministers have been accused of a conflict of interests, on the one hand by repres-
enting constituents and on the other by being paid ambassadors for an industry
or company.
Many specialised lobbying consultants exist to help in the process of lobby-
ing and for a fee they will advise industries and/or companies about the best
methods to use in achieving beneficial results. All trade associations and indi-
vidual businesses will want to be involved when politicians and civil servants are
developing new industrial laws and policies if there is the possibility that their
industry, company or markets might be affected in some way. In many cases this
involvement will be welcome as industry knowledge and possible reaction to new
legislation could aid the process.
Increased need for lobbying

For many companies and trade associations, membership of the European Union
(EU) has increased the need for lobbying because of the reams of new legislation
emanating from both Strasbourg and Brussels. The Council of Ministers, the
European Parliament and the European Commission all have powers to initiate,
legislate or implement new laws, rules, regulations and codes of practice for
businesses. There are hundreds of industry and other pressure group lobbyists
permanently based in Strasbourg and Brussels making certain that their or their
clients’ interests are protected.
Example 2.8 EU legislation and the role of the lobbyist

Lobbying is especially active in Brussels where the European Commission sets
down detail of any legislation and to coin a phrase, the ‘devil could well be in the
detail’. Without lobbying, companies might find themselves stuck with laws that
might cause loss of competitive advantage. In 1999 after three years of lobbying,
Cadbury’s avoided having to call its milk chocolate ‘Vegelate Milk’ because of the
high content of non-cocoa butter vegetable fats. It will now have to bear the name
‘family chocolate’ or ‘household chocolate’ when sold on the continent. Brewers
managed to keep beer in pints despite all other retailers being forced to go metric.
Similarly we have an official size of the condom (minimum length is to be 170 mm
and the width should be 44–56 mm). ‘Curly-Wurly’ bars, ‘Mini Eggs’ and ‘Strollers’
were all banned from export by the EU because of gelatine content and the risk of
a link between BSE and CJD.
Example 2.9 Role of the Association of Electrical Producers (AEP)

The association’s main tasks are lobbying, responding to consultations, publicising
issues, identifying problems, pursuing solutions and taking steps to increase its
members’ business. The funding comes from members’ annual subscriptions. The
AEP involves itself in parliamentary and industry organisations that take an inter-
est in energy issues, including, for example, the Parliamentary Group for Renewable
and Sustainable Energy (PRASEG). When government, opposition parties or the
industry regulator are considering policy changes, they usually consult the asso-
ciation. Where appropriate, of course, the association initiates proposals of its own.
Either way, this means there is more chance that members’ interests will be taken
into account by decision makers. (www.oepuk.com)
Example 2.10 APCO Public Relations Consultants

APCO (www.apco.co.uk) monitors issues and develops and implements strategic
lobbying campaigns that effectively influence policymakers. Armed with know-
ledge and in-depth experience with government institutions, it builds support for a
client’s cause inside the halls of Congress, parliaments, the EU, or any other gov-
erning entity. Similarly, it represents governments around the world by strategic
counselling and public relations assistance.
Economic influences
The economy
Although political parties and government ministers have enormous power
when running the economy of a country and dictating what moves might be
good or bad for economic health, some commentators complain that too much
of this power has shifted to international market speculators, global companies
and supra-governmental bodies such as the EU, making total control by national
government increasingly problematic. It is argued by political pundits that
this is the most important area of government policy and success or failure here
can decide whether people will vote for the ruling party the next time around.
This can lead to short-term economic management and unhelpful periods
of growth and decline as politicians manipulate the economy to try to ensure
election.
The state of the economy also plays the biggest part in the success or failure
of business-to-business companies and most would like to have a stable and
growing economy with low inflation, low interest rates and constant exchange
rates. Attempts to plan ahead when these factors are uncertain can be fraught
with difficulty and at times almost impossible. Although economic growth will
fluctuate by quite large amounts from country to country, on average economies
(measured by GDP growth) have increased by 2 to 3 per cent a year over the last
50 years due mainly to productivity improvements and the continuous growth
in new technology.
Example 2.11 Economic problems hit UK manufacturing

British manufacturing output registered its most serious slump since the Winter of
Discontent in 1979 when figures issued by the Office for National Statistics showed
that manufacturing output in June 2002 dropped 5.3 per cent compared to May
2002. Though partly explained by the World Cup and the Queen’s Jubilee weekend,
when many factories were shut, many economists said the underlying problem
was deeper. The UK Trade and Industry Secretary admitted that the government
was wrong to court dot.com companies during its first term of office and ignore the
producers. She went on to say that manufacturing, as well as the new economy,
should be treated as an integral part of the future if economic stability is to be
maintained.
Interest rates and inflation

Imagine trying to purchase or sell products up to a year ahead when interest rates
and inflation are moving in one direction or another at very high rates. In the
1980s house prices were increasing at up to 15 per cent a year and then at the
end of the 1980s they plummeted, in some cases by as much as 25 per cent. Many
companies went from being very successful to bankruptcy almost overnight.
Even a mild recession will cut deeply into some industries, while leaving others
virtually untouched. In 2003 house price inflation is once again on the move
although overall price deflation could be the order of the day.
Example 2.12 The menace of deflation

Central banks are facing a new economic menace – deflation or constant falling
prices. Although it sounds like great news for consumers, there are dangers for the
economy. It has arrived in Japan, where the price of goods and services has fallen
0.8 per cent a year since 1994. When prices keep falling then income will fall and
less money will be available to pay debts. The debts remain the same so extra
income will be needed to pay off the debt and will not therefore be spent on con-
sumer goods, causing a downturn in the economy.
Exchange rates
For companies that buy and sell in Europe and the rest of the world, rising
or falling exchange rates can make the difference between eventual success and
failure. In the UK, a strong pound will help companies that import goods and ser-
vices but will be crippling for those needing to export. Similarly, a weak pound
will cause the converse effect with cheaper prices for exports but more expensive
imports. Although there are financial tools and techniques that enable compa-
nies to insure against heavy fluctuations in currency movements and inflation,
they tend to be expensive and are only worthwhile for large companies able to
buy ahead at lower rates, or companies that work on a large mark-up profit. Some
B2B companies get round the problem by guaranteeing price rates for the term of
the contract or by reciprocal trading and barter. Many businesses in Europe now
see the solution to the problem with the coming of the single currency, with
prices now being quoted in the euro rather than 15 different currencies. However
the introduction of a single currency, with the loss of the home currency, still
causes political problems in some countries, particularly the UK.
Example 2.13 Exchange rate fluctuations

Joining the euro would be strongly against Britain’s economic interests, a thinktank
said yesterday. While joining the currency would eliminate exchange rate fluctu-
ations between the pound and the euro, fluctuations between the euro and the
dollar could be considerable. As a global trading country, Britain carries out more
than 50 per cent of its trade in the dollar area. The effect on output, employment
and prices in response to exchange rate shocks could be immense. Others argue
that costs of being outside the euro in terms of constant price volatility and
exchange rate costs would be worse.
External cultural influences

Successful companies selling in consumer markets have long ago recognised that
consumers in various parts of the world have dissimilar preferences and likes and
dislikes because of social and cultural differences. They might manufacture,
brand, package and promote products and services differently in Malaysia from
how they would in Australia. Similarly, retailers in one country might present
their merchandise in a different way from similar retailers in another because of
consumer expectations.
Cultural conformity in B2C markets

Many social commentators now argue that cultural differences across the world
are becoming blurred and even decreasing in some countries, especially among
the young. This seems to have come about because of widespread communica-
tions, entertainment, the sale of universal products and brands, and retailers
moving abroad. TV, videos, films and the internet all project common cultures
and values (often western and American), common ways of behaving, living,
dressing, eating and listening to the same sorts of music. You can now go to any
major city in the world and order a ‘Big Mac’ in McDonald’s, and get the same
product and eat it in more or less the same ambience.
Although the degree of cultural diversity has never been so important in B2B
markets as in B2C, it has nevertheless still been a necessary concern. The business
world is no different and to a certain extent is even more vulnerable to pressure
on conformity and standardisation. English is now accepted as a common means
of business communication in many markets, as are western ways of dressing and
behaving. The moves to standardise and internationalise all ways of undertaking
B2B relationships, including common efficiency systems, international contract
law, supply chain management, shared use of information through EDI, the
internet and so on, all add to the seemingly irreversible thrust for business same-
ness in world marketplaces. As companies expand by joint ventures, mergers and
acquisitions of foreign companies, they bring universal ways of working as well
as giving employees the opportunities to live and work in company divisions

elsewhere in the world. Perhaps one day there will be one general way of running
a business that has been proven to be the most effective, efficient and economic
and this way (with a few minor adjustments) is accepted by all businesses oper-
ating in the global market economy.
Cultural differences
Many academics and practitioners argue that cultural differences in the B2B
market still exist and are important when serving different markets. For
marketing managers to use their own cultural values and priorities as a frame of
reference can lead to misunderstandings, confusion and lost contracts. A good
example is that of Japan. As the second largest economy in the world after the
USA, it is a market that many companies have wanted to enter but they have
been thwarted by, among other things, the Japanese business culture.
Example 2.14 Japanese culture

Many Japanese cultural ways of behaving have entered the lexicon of the business
world. Kaisen or ‘continuous improvement’, nemawashi or ‘behind the scenes
consensus-building’ and kaban or ‘producing to order, not capacity’ are rooted in
Zen and social and cultural ways of living inculcated since birth. Still today,
Japanese people work harder and spend more hours on the job because they iden-
tify more closely with their companies than they do with their own families or them-
selves. They have been conditioned from ancient times to believe that being
self-centred and individualistic is one of the worst of all sins, which in the west is
praised as a sign of strength. They tend to act more slowly through group decision
and ‘nemawashi’. Foreign businessmen and politicians are often frustrated because
they do not and cannot get ‘straight answers’, not understanding that Japanese
communications operate in ways that are subtly different.
Example 2.15 Chinese culture

China, the biggest potential market in the world with nearly 1.3 billion people, has a
culture still largely unknown to most western business people. The majority of the
population speaks Mandarin, making it the most spoken language in the world. In
Chinese business culture, the communist, collectivist way of thinking still prevails,
even in sectors experimenting with free enterprise. Presentation materials of any
kind should be only in black and white. Colours are attributed special meanings in
this culture, many of them negative. Smiling is not as noticeable in China, since
there is a heavy emphasis on repressing emotion. A person’s reputation and social
standing rests on the concept of ‘saving face’. Causing embarrassment or loss of
composure, even unintentionally, can be disastrous for business negotiations.
The Chinese, especially those who are older and in positions of authority, dislike
being touched by strangers. Chinese will assume that the first foreigner to enter
the room is head of the delegation. In Chinese business culture, humility is a virtue.
Exaggerated claims are regarded with suspicion and, in most instances, will be
investigated.
B2B cultural differences around the world

In Malaysia businesswomen should be sensitive to Muslim and Hindu beliefs.
Consequently they should wear blouses that cover at least their upper arms with
skirts that are knee length or longer. They should avoid wearing yellow because
it is the colour reserved for Malaysian royalty.
South Americans generally converse in closer proximity than North Americans
and the English, and it may be taken personally if you back away from someone.
In India wearing leather (including items such as belts and purses) may be con-
sidered offensive, particularly in temples. Hindus revere cows and do not use
leather products. When refreshments are offered, it is customary to refuse the first
offer, but to accept the second or third. To refuse any beverage will only be per-
ceived as insult.
In Russia do not expect Russians to work after hours at weekends or during
vacation periods.
Arabic is a language of hyperbole; for example, when an Egyptian says yes he
may actually mean possibly.
In Thai business culture, the present is often considered more important than
the distant future.
In South Africa time concepts also differ: to whites ‘time is money’; to blacks
‘time is what’s happening’.
Technical influences
The first rule of any technology used in a business is that automation

applied to an efficient operation will magnify the efficiency. The second
is that automation applied to an inefficient operation will magnify the
inefficiency.
(Bill Gates, quoted in Manes and Andrews, 1994)
Nobody can over-emphasise the influence that technology has had on the B2B
market and organisational and individual buying behaviour. Improved techno-
logies in telecommunications, information technology, transportation, storage
and inventory handling, distribution management and financial services mean
that virtually all producers, no matter what size, are now able to consider supply
sources from around the world. In fact competitive advantage will be lost if this
option is not taken up. Information on choice, availability and where to buy a
range of products and services is now readily accessible online at the click of a
mouse. In the past buyers might have spent days, weeks and months searching
though catalogues, seeing manufacturers’ reps, or going to trade shows around
the country or around the world and still not been able to see the most suitable
products at the best prices. As more information comes onto the internet, less
time will need to be spent on these buying tasks. Yet better products and services
will be available. Depending on the products needed sellers might now be
contacted anywhere in the world. Technological developments are discussed
throughout the book and in much more detail in the final chapter.
Example 2.16 Cars of the future – the ‘Coulomb’

A high-mileage, low-pollution car built by students at the University of California
will drive from Germany to Paris between September 22 and 25 as part of a com-
petition run by tyre manufacturer Michelin to promote new technology in automo-
biles. The vehicle is a Mercury Sable converted to a gas-electric hybrid engine with
a continuously variable transmission. An electric motor drives the wheels at lower
speeds for city driving. On the highway, a 660cc gas engine provides extra power
and also maintains battery charge. The batteries can also be recharged from a
domestic power supply. It has an aluminium body to reduce weight with additional
streamlining to reduce wind resistance. Coulomb is designed to achieve fuel eco-
nomy of over 50 miles per gallon and acceleration of zero to 60 miles per hour in
11 seconds while meeting California’s Super Ultra Low Emissions Vehicle (SULEV)
standards. (www.Globaltechnoscan.com)
IT and closer partnerships

We discussed above how culture is changing and standardising as companies
create partnerships and close ways of working together. Much of this has
come about through the development of technology. We will see continuously
throughout the book how technology is used in so many areas of business activ-
ity to improve performance and develop competitive advantage. For example,
information technology (IT) can now make ‘real time’ information instantly
available to all companies involved in the supply chain relationships.
The internet has been adapted to become the extranet, a closed and private inter-
net system where all supply chain members are able to have instant access to such
things as buyer inventory movements, sales figures and individual product needs.
Software security firewalls are created to permit only vetted companies access to
the information system, allowing immediate reaction to all types of customer needs
and even allowing the seller access to buyer financial accounts so that money can
be deducted at source to pay for products purchased. This development of IT has,
however, brought its own problems, demanding a heavy strategic resource commit-
ment from channel supply partners through the acquisition of expensive, stand-
ardised computer software and hardware, known as electronic data interchange
(EDI), as well as standardised processes and systems. In this way the purchase and
supply of products and services becomes an almost seamless way of working with
little distinction between the boundaries of one company and another.
Example 2.17 Supply chain collaborative planning software

programs offered
The amount of business and marketing software programs available grows in
sophistication year by year. The question that might be asked is whether they have
become so sophisticated that employees find difficulty in making them work effec-
tively. Below are examples of program software now offered by companies:
o collaborative product introduction
o collaborative product change management
o collaborative planning forecasting and replenishment (CPFR)

o collaborative planning and forecasting
o collaborative promotions and event management
o collaborative inventory issues management
o collaborative distribution and transport issues management
o collaborative product returns management
o collaborative retail actuals management and planning.
Technology and the negotiating situation

The use of technology has also irreversibly changed the relationship between
buyer and seller, making the actual sales procedure and sales presentation much
more professional than in the past. Both salesperson and buyer can have instant
access, through the use of portable computers, to information needed (past sales
trends, costs and profit mark-up, availability of products, competitors’ figures and
so on) to make the sales negotiations more meaningful. There can be instant
communications between head office and the salesperson if advice is needed. The
product portfolio presentation can be made more dramatic and exciting through
a PowerPoint-type computer display. Sales teams need not physically visit the
buyer as e-mail, internet video cameras and video conferencing can all be used to
make communications simpler and more cost effective.
Company websites
In some cases the salesperson can even be eliminated by the use of interactive
company websites. Only time and the ability to concentrate now limit the
amount of information that could be made available to buyers around the world
on company webpages. Intricate product portfolio details with pictures can be
offered at the click of a button; feature and benefit demonstrations can be given
with instant question and answer sessions and purchase, availability and delivery
details instantly processed. Product spares catalogues can also be put online,
making access to hundreds of thousands of spare parts and spare part numbers
easy. The customers can search and browse to their heart’s content (universal
standardisation will enhance the attraction of the service). This also cuts out the
need to employ costly spare parts personnel. Financial terms and conditions,
costs, pricing policies, discounts, special offers, payment methods, etc. can all be
shown safely behind internet security barriers.
Partnership websites
Many companies have taken advantage of IT by joining together with other
like-minded supply chain members. They have set up both B2B and B2C internet
sites that act as online marketplaces and exchanges, functioning as intermediaries
between buyers and sellers. The first exchanges to be set up were founded in
many cases by third parties to facilitate the automation of the purchase process.
Using the website as a type of auction platform, buyers would jointly post the
types of products wanted and the quantities needed on the site and invite
prospective suppliers from around the world to bid for the contract. The problem
with auctions of this kind is that they can only really be used for basic com-
modity products, not for the more strategic. These partnership sites are now
beginning to offer many more collaborative services, including product devel-
opment, product identification, and other supply chain hardware and software
tools and techniques that are able to give members and customers the ability to
reduce costs and bring efficiencies to their business operations.
Example 2.18 Covisint

Covisint (www.covisint.com) is a global, independent e-business exchange providing
the automotive industry with leading collaborative product development, procure-
ment and supply chain. Developed by DaimlerChrysler, Ford, General Motors,
Nissan, Renault, Commerce One and Oracle, Covisint will create a business com-
munity of buyers, sellers, designers, engineers and third parties affiliated with the
global automotive industry. Covisint will be different from existing exchanges in
that sellers of goods and services will be able to buy goods and services from their
own suppliers. What’s more, programme managers and logistics specialists will
benefit from the tools that Covisint will supply in areas such as asset utilisation, col-
laborative planning and supply chain management. Marketplaces are beginning to
evolve beyond providing singular functionalities. Covisint will integrate the best
application services, making new and emerging technology available for all levels of
the industry. Current Covisint members include:
o DaimlerChrysler (www.daimlerchrysler.com)
o Ford Motor Company (www.ford.com)
o General Motors (www.gm.com)
o Nissan (www.nissan-us.com)
o PSA Peugeot Citroën (www.psa-peugeot-citroen.com)
o Renault (www.renault.com)
o AK Steel Corporation (www.aksteel.com)
o ArvinMeritor (www.arvinmeritor.com)
o BASF (www.basf.com)
o BorgWarner (www.bwauto.com)
o DENSO International America (www.denso-int.com).
Other marketplace exchanges

WorldWide Retail Exchange (www.worldwideretailexchange.com) has over 50
members, including M&S, Dixons, Boots, John Lewis, Auchan, Gap, Kingfisher
and Safeway.
Transora (www.transora.com) includes as members P&G, Unilever, Coca-Cola
and Heinz.
COMPETITIVE INFLUENCES 73
Other technological influences

External technological advances will have a greater or lesser effect on an organ-
isation depending on many factors, including the size of the company, the oper-
ating marketplace, the amount of competition and the types of products and
services offered. Three main areas where technology has a significant effect in
B2B marketing are:
o Products and services – product testing, product upgrades, new product
development.
o Processes, both internal and external – productivity improvements, cus-
tomer relationships, distribution and supply chain relationships.
o Management techniques – involved with the marketing and administration
of the business and internal and external communications.
The effects of technology can be seen across all areas of business activity and its
pervasive influences will be discussed time and again throughout the book. No
organisation, no matter what its circumstances, can ignore technology. More can
be seen on technology in Chapter 10.
Part 2 Immediate environmental factors influencing

o Competitive influences
We discussed earlier the international political and commercial movements
across the world concerned with breaking down trade barriers and encouraging
the free market global economy. Add to this the growth in technology and we
have (in theory and increasingly in practice) a dynamic marketplace allowing the
freedom for competitors to enter from almost anywhere in the world. This drives
the successful company to build competitive intelligence systems (CIM) and
obsessively research its markets so as to offer strategic products and services with
the sustainable competitive advantage that is crucial if they are to survive and
prosper. The competitive environment in B2B markets includes primarily those
firms in the industry that offer the same or similar products and services to
one another. The more similar are products and services, the easier will it be for
competition to take away customers.
Competitive B2B market structures

Competition in B2B markets will be influenced by a number of factors including
the market structures at both national and international level. The broad market
types identified in Chapter 1 and shown again here will all determine the level
of competition. By definition there will no competition in a monopoly market
and a lot of competition in a competitive market. It should be understood,
however, that a company might have a monopoly market at home but have a
competitive market on a global level. In fact many monopoly companies argue
this case when criticised about unfair home market dominance.
Market structures discussed in Chapter 1

o Monopolies and monopsonies (one buyer and/or one seller)
o Oligopolies and oligopsonies (a few buyers and/or a few sellers)
o Full competitive (‘infinite’ number of small buyers and/or small sellers)
o Adulterated/imperfect competitive (many buyers and sellers, some collaboration).
Knowledge of the competitor

It is crucial that any B2B organisation is aware of the strengths and weaknesses
of the competition in every market where it has a presence or is likely to have a
presence. Information can come from many sources such as public statements,
annual reports or professional researchers. In this way the organisation will be in
a strong position to predict the response that competitors might make to its mar-
keting strategies. Factors to consider about the competition include:
o The nature of the competition, market share, market growth
o Existing and potential competitors
o Competitors’ strengths and weaknesses and likely reaction to competitor
activity
o Corporate image and longevity, brands and unique selling propositions
o Present and future strategic direction
o Core competencies, e.g. skilled employees, technology, information, innovation
o Access to distribution channels
o Learning curve and experience curve scale advantages
o Organisational buyer base
o Product portfolio, value added and unique selling propositions, patents
o Cost and price structures and strategies.
Example 2.19 Expect competition from unexpected quarters

The block exemption by the EU that allowed car manufacturers the right to dictate
who could and could not sell their cars has now ended. Any company can now enter
the market and one of the first is entrepreneur Richard Branson. His company,
Virgin Cars, intends to operate via the internet, both in the UK and across Europe,
selling vehicles from manufacturers including Ford, Vauxhall and Rover. He has
promised big savings to customers, claiming prices will be up to 40 per cent lower
than those currently on offer. Both B2B and B2C markets will be affected. The big
supermarkets have said that they intend to follow soon so expect to see new vehi-
cles on Tesco and Asda forecourts.
Market leaders and followers, major and minor players

Big fleas have little fleas
Upon their backs to bite them
And little fleas have smaller fleas
And so ad infinitum.
We discuss strategic approaches to markets in more detail when we look at stra-

tegic planning in Chapter 9. It is important at this stage, however, to understand
that not all suppliers are of the same type. Some will be huge B2B players selling
across the whole market and able to dictate price and value, while others will be
extremely small suppliers perhaps having only a few customers and selling a very
restricted range of products. Some suppliers will sell component parts to larger
suppliers and so be dependent on their sales for sales of their own, while other
suppliers may specialise in a very small niche area and sell in small amounts to
many different buyers. Some companies will take pride in having a reputation for
innovative and technological core competence advantages, bringing in a con-
stant flow of new products before any other competitor. Others will wait for the
ground to be prepared and enter the market with solid products that are slightly
better value than the market innovator.
Other companies will develop skills that will enable them to differentiate and
specialise in particular niche areas, often working with other companies on long-
term contracts. For example, it would be impossible for Boeing to make every
part needed to build the 747 Jumbo. So it concentrates on its core skills of aircraft
design, logistics and assembly as well as marketing and selling the plane around
the world while outsourcing the hundreds of manufacturing jobs, body, wings, tail
construction, engines, electronics, interior design, etc. to many small, medium-
sized and large specialist manufacturers around the world. In cases such as these
price becomes a secondary consideration to quality and delivery specification.
There are many hundreds of thousands of small, medium-sized and large B2B
manufacturers around the world that offer commodity component products at
rock-bottom prices to any buyer in the market. Some of these products will be
unashamedly me-too copies of branded manufacturers’ spare parts such as car fan
belts, ball joints, battery earth straps, electronic connectors and gaskets. Other
products will have been commissioned by the manufacturer and then sold under
the branded name. Depending on the industry and the business, it will be more
than likely that any large B2B producer will have hundreds of other small pro-
ducers ‘hanging on to their shirt tails’, which in turn will have even smaller firms
dependent on them. Some of the smallest operators even end up working from
home. When one large manufacturer decides to close down or move its operation
abroad (where labour is cheaper), the job loss reverberations can be immense.
Example 2.20 Leading through innovation

3M is a $16 billion diversified technology company with leading positions in health-
care, safety, electronics, telecommunications, industrial, consumer and office, and
other markets. For nearly a century 3M’s culture has fostered creativity and given
employees the freedom to take risks and try new ideas. It has a mission statement
which states that a third of its products will have been new to the market within the
preceding five years. 3M has many programmes that encourage employees, includ-
ing the 15 per cent rule, which allows employees to spend part of their work time
exploring experiments. This culture has led to a steady stream of products. With no
boundaries to imagination and no barriers to cooperation, one good idea swiftly
leads to another. So far there have been more than 50,000 innovative products
that help make our world better. (www.3m.com)
Competitive intensity
The competitive intensity of any market segment will depend on both the present
levels of demand and whether the market is growing or declining. It will also
depend on those factors identified by Porter – ease of entry, power relationships
between customers and buyers and the availability of substitute goods and ser-
vices – and on such things as access to distribution channels. Ultimately, how-
ever, firms in most markets need to sell products, make profits and ensure an
adequate return for the shareholders on the capital employed in the running of
the business. This may not necessarily be for the short term so that companies
will move into markets if research shows that there is potential to make money
in the long run. They might even stay in low profit markets for tactical reasons
associated with product portfolio integration and customer service. Taking all
this into account, the overriding concern for business market entry and the com-
petitive intensity of any market will be its attractiveness in sales and profits.
Example 2.21 Forcing competition into the public sector

In the 1980s public sector local authorities were forced to open up in-house ser-
vices such as administration, road maintenance and waste collection to private
competition in an effort to cut costs and improve value for money. It was argued
that competition increases the overall management effectiveness and efficiency in
the spending of public money. However, it was felt that insisting that many projects
had to be offered to outside contractors put too much emphasis on cost cutting at
the expense of quality and so this policy has largely been replaced by ‘best value’.
Although still inviting competition it attempts to balance the need for both cost
reductions and value.
Dynamic market conditions

Ease of entry, barriers to trade, power relationships and the availability of substi-
tute products and processes have the possibility of changing as markets develop
and change. Life cycles cause industries, markets and products to reach maturity
and die out. Technology brings new knowledge, new processes and new ways of
working. New products supersede old, patents end, trading agreements finish and
new legislation causes old ways of working to become illegal. Some industries,
Figure 2.1
Porter’s
Five Forces
Source: Adapted
from Porter,
1998c
especially those involving new technology, will change more quickly, but no
market can have barriers to entry for ever and the advent of more competition is
inevitable (Figure 2.1).
Sources of competitive advantage
There are only three basic ways to gain competitive advantage: make your product
cheaper, different or of better value.
A business-to-business firm can gain competitive advantage in many different ways

by taking advantage of its superior skills, resources and core competencies. Superior
skills are the distinct capabilities of staff that make them different from those
employed by competing organisations. A company like 3M, identified above, has
been able to attract creative people over the years by building a culture and climate
where innovation is encouraged, respected and rewarded. Other organisations like
Microsoft have been able to attract the brightest and the best IT-driven individ-
uals wanting to work with other like-minded people in the very forefront of com-
puter technology. Other skills result from systems and organisational structures
(discussed in Chapter 11, on the B2B Marketing website) that enable a company
to adapt faster and move more responsively to changing market requirements.
Superior resources (or core competencies) are obviously a source of compet-
itive advantage as long as they are used and managed in the most productive
manner. There are many examples, however, of once wealthy and powerful com-
panies squandering superior resource potential through mismanagement and/or
lack of business acumen. Superior resources are more tangible than the skills out-
lined above. Here are just a few examples suggested by Porter and others, with
more to follow throughout the book:
o Strong and well-respected reputation encompassed in the corporate and
product brand.
o Strong financial backing allowing expenditure on R&D, marketing research,
product and customer development, and promotional and advertising support.
o Minimising costs by maximising economic, learning and experience curve

opportunities.
o Differentiating product/service offerings with clear segmentation.
o The latest technology, scale of manufacturing and the ability to flexibly cus-
tomise and change product offerings as customers demand.
o Product portfolio matching buyer needs and wants.
o Large and loyal distribution channels carrying the whole range of products.
o Experienced and productive sales force reaching all customers.
o Strong customer base with all buyers identified for contribution to profitability.
Other writers on core competencies which might lead to competitive advantage
and give a company the edge over its rivals identify the following problems:
o Obsessive attention to customers and markets.
o The speed with which management can adapt, adopt and permeate technology,
production skills and other innovations into an overall focused, collective,
cooperative approach.
o The failure of a company to recognise its own core competencies and so be
unable to develop and exploit areas of the business that could lead to market
growth.
o Inadequate business processes and capabilities that prevent the flexible
responses needed to choose and manage resources and so react to threats and
opportunities as they arise.
o Fear of risk leading to the failure to invest heavily enough in resources that
might allow the organisation to take advantage of scale and scope economies.
o Insufficient capacity to store and disseminate the right kind of information
and so achieve an easy flow of information both within and outside the
organisation.
Current competitive advantages should not be taken for granted as circumstances
might constantly be changing and products and services seen to be offering
superior value today could be overtaken by others tomorrow. Benchmarking,
constantly comparing and ranking benefit offering with the best in the market,
is used to try to prevent this happening and will be discussed in more detail in
later chapters.
Global competitiveness influences
The theory of comparative advantage

The idea here is simple and intuitive. If our country can produce some set
of goods at lower cost than a foreign country, and if the foreign country can
produce some other set of goods at a lower cost than we can produce them,
then clearly it would be best for us to trade our relatively cheaper goods for
their relatively cheaper goods. In this way both countries may gain from
trade and more goods and services will be produced overall.
(Smith, 1991)
When selling goods and services and attempting to compete internationally,

some B2B organisations will begin with competitive comparative advantages over
those operating from competing countries because of certain favourable factors
inherent in the home country. These favourable factors, known as ‘factor endow-
ments’, will include basic business inputs such as land, natural resources, labour
and the size of the local population. Michael Porter argues that a nation can work
together with businesses to create new advanced factor endowments such as an
educated, skilled and adaptable labour force, a strong technology and knowledge
base, government support, and a culture of free enterprise, entrepreneurial spirit
and betterment through hard work.
So, according to Porter, the exporting US firm has the tremendous advantage
of a strong, large home market (economies of scale to build a solid launch pad),
a pliable and supportive government (little interference, few employment restric-
tions), an able and willing workforce (motivated by the idea of the ‘American
dream’), the latest technology (driven by mind-boggling amounts of R&D in both
the public and private sectors), and access to natural resources (theirs or others).
This can be compared to large countries such as Russia and India that do not have
anywhere near the same factor endowments. Other erstwhile developing coun-
tries such as South Korea and Taiwan have managed to create some if not all of
the factor endowments identified above, thus increasing global competitive
influence.
Example 2.22 Illegal factor endowments

The United States has suffered a bitter blow in a long-running trade dispute with
the European Union and could now face sanctions worth more than $4 billion. The
World Trade Organisation (WTO) found that massive tax breaks for firms like GE,
Boeing and Microsoft amounted to illegal export subsidies. It was the fourth time in
five years that the WTO ruled the tax breaks illegal, and it has now paved the way
for the EU to impose punitive tariffs on imports from the USA.
A strong home market for global competitiveness includes the following:
o Government committed to free markets.

o Little government interference.
o Powerful pro-competitive, anti-corruption legislation.
o A strong, competitive home market for both buyers and suppliers.
o Favourable economic circumstances with strong home demand.
o The availability of resources and skills.
o A flexible motivated labour force.
o Adequate quality information.
o Firms encouraged, committed and motivated to innovate, invest and grow.
o Indoctrination of an entrepreneurial spirit welcoming interfirm rivalry, new
challenges and a ‘never-say-die’ approach.
Government power and competitiveness

The final power in controlling competitive activity will lie with the politicians
and government agencies. As Porter argues, they have the power to help create a
strong home base, a ‘national playing field’, for businesses to launch themselves
into foreign fields. We have already seen that governments inherently dislike
barriers to market entry because they distort trade and create monopolies and
oligopolies. This usually ends with overall higher prices and higher costs for the
economy as a whole. Organisations such as the UK Competition Commission,
European Competition Commission and US Federal Trade Commission have all
been set up to break down as far as possible barriers to trade so that as many mar-
kets as possible are open to all who might wish to participate.
Government agencies can also encourage companies to raise performance by
enforcing codes of practice, stimulating local rivalry and limiting direct government
involvement with such things as subsidies and tax breaks that might weaken man-
agement ability to grow strong through fighting and building businesses in the cut
and thrust of fair competitive markets. The government can also work with indus-
tries by ploughing money into R&D, offering grants for creativity and design, and
using its tremendous buying power to work with and encourage companies to
search for new innovative technological advanced products and services. Overall,
governments will need to manage the economy in a manner needed to stimulate
demand, encourage the development of an adequately skilled workforce and pro-
vide information, help and assistance for businesses wanting to sell abroad.
Example 2.23 Price fixing legislation

Company directors who set up price-fixing cartels will face imprisonment under a
comprehensive overhaul of competition legislation to be announced today by the
UK Chancellor of the Exchequer. It will make engaging in cartels (companies band-
ing together secretly to fix prices) a criminal offence. The new laws will be modelled
on the way monopolies and cartels are handled in the United States. He has been
frustrated by the lack of painful sanctions for those who seek to fix markets in
Britain. Anti-trust legislation in the US led to the break-up of the telephone giant
AT&T and more recently an attack on Microsoft. Under the change, rulings on mer-
gers, monopolies and cartels will be left to the commission. It will decide what
punishments to impose on companies and sectors – such as supermarkets or the
professions – that are found to be engaging in anti-competitive practices. Under the
1998 Competition Act it can levy fines of up to 10 per cent of a company’s turnover
in three successive years. A government source said: ‘The problem with fines is that
they get passed on to the shareholder and the consumer. We want to make directors
pay the price for criminal activity.’
Competition in B2B and in B2C markets
Competition brings out the best in products and the worst in people.
(David Sarnoff, www.draytonbird.com)
CUSTOMERS AND MARKETS 81
Competition in most B2B markets is as intense as competition in B2C markets,

but because consumers want different benefits from business buyers, it tends
to be of a different kind. Competition in B2C markets is just as likely to be on
product and service brands as it is on price, while in B2B it is more likely to be
on functional benefits offered and after-sales service than on the brand or the
price. Although price is important in the B2B market, functionality and reliab-
ility can be crucial as a dysfunction in some way could be catastrophic in terms
of lost production. There are liable to be more competitors in consumer markets
because of the possibility of millions of consumers and millions of different
kinds of consumer products. Competition can also come about through alternat-
ive, substitute choices, e.g. buying a car or a holiday (known as secondary com-
petition as opposed to primary competition). This is very rarely the case with
business markets where the product wanted must match a particular solution
sought. In many B2B industries competition will often come from only a few
players known by all market players, although it is increasing as world markets
shrink.
o Customers and markets

Markets and customers in both B2B and B2C are continually changing. Markets
grow and expand, reach maturity, decline and die out. One market closes and
another market opens up. Regional and national markets are suddenly inter-
national and global as organisations find that they are able to import and export
with increasing ease. Many B2B customers are discovering that new technology
is enabling them to search out and buy products and services from anywhere in
the world. This puts added pressure on company buyers to be diligent and pro-
fessional in examining existing purchases and identifying new sources from
which to obtain supplies. Failure to do this will lead to the acquisition of un-
satisfactory and non-competitive products and services, leading to the loss of
competitive advantage. Large companies will have personnel spending all their
time evaluating, benchmarking and seeking out suppliers on a continuous basis.
Suppliers need to employ ever more sophisticated customer satisfaction methods
to keep ahead of these technological developments.
Market and customer analysis

Questions to be asked about B2B markets and customers would normally include
the following:
o The existing and potential size of the market, growth, maturity or decline
o The nature of the competition (discussed in detail above)
o The number of buyers and suppliers in the market and where the power lies
o The organisational buyer segments, current and possible
o The types of buying organisations, benefits wanted, buying patterns
o The availability of distribution channels.
Customer and market types

The major types of markets in B2B are outlined here and we will look in more
detail across all these areas as we move through the book. These are producers or
manufacturers, intermediaries or resellers, retailers, service suppliers, raw material
suppliers, governments and not-for-profit. Influences from each type of market
sector are different because organisational objectives tend to be different. This
means that the approach used in marketing and selling will have to be shaped
and honed to meet the diverse needs across all sectors. Not understanding the
fact that government buying departments have to abide by very strict and for-
malised buying codes and so cannot perhaps be sold to in the same way as the
commercial firm will cause a failed sales and marketing programme. Similarly the
skills and experiences needed for marketing and selling in the financial services
sector are different in many ways from those needed in the mining and aggre-
gates market.
Raw material suppliers

Raw material supplies include everything from agriculture, fishing, energy,
forestry and water to aggregates, iron ore, chemicals, rubber and precious metals.
Much of this is imported and accounts for only a small amount of the GDP in
modern economies.
Example 2.24 Rise in raw material price

High oil prices continued to put UK manufacturers under pressure in May, as raw
materials are becoming more expensive. The Office for National Statistics (ONS)
said on Monday that the cost of raw materials and fuel for manufacturers rose by
2.2 per cent in May, compared with 0.5 per cent last month. The data indicate that
manufacturers’ profit margins are under pressure because the prices they paid for
their raw materials rose more quickly than output prices. Intense competition is
stopping them passing on the price rises. (www.statistics.gov)
Service suppliers
Service suppliers are by far the largest customer types in B2B markets and consist
of both buyers and sellers. The service industry accounts for nearly 75 per cent of
the UK GDP. Retailing, as shown below, is part of this sector.
Producers or manufacturers
Producers buy goods and services to use in the production of other goods and
services, hoping to generate a profit. In the UK manufacturing accounts for about
23 per cent of GDP.
Example 2.25 Manufacturers under pressure

According to the latest report from the Chartered Institute of Purchasing and
Supply (CIPS, www.cips.org) manufacturing output and orders have fallen to two-
year lows. This is putting tremendous pressure on producers to reduce costs and
make savings as in many cases they are unable to pass on the increases because of
competition. Similar manufacturing indices in France, Germany and Italy have also
fallen to two-year lows.
Intermediaries or resellers
Resellers are similar to wholesalers and retailers in B2C marketing. They buy
goods and services to resell on to other B2B organisations to use in the produc-
tion of goods and services either for other B2Bs or to B2Cs.
Retailers
Retailers are at the end of the supply chain offering a whole range of goods and
services for consumer use. The retail sector in modern economies will account for
about a quarter of GDP. Both B2B and B2C suppliers will sell into retailers: B2C
finished goods and services to sell on to the consumer and B2B goods and ser-
vices for the retailer’s own use in the running of the business.
Not-for-profit (NFP)
Not-for-profit organisations buy goods and services to help in providing other
goods and services based not on making a profit but on providing services that
help, aid and advise others with some kind of social need. The NFP organisation
will have many stakeholders, all with differing concerns about the way the organ-
isation is run and the types of goods and services bought.
Government
Governments, national, regional and local, are the single largest buyers of B2B,
purchasing goods and services for government usage across a range of areas
including social security, defence, health, roads and bridges, fire service and
ambulance services.
Global markets
It is possible that buyers and sellers of B2B goods can now come from anywhere
in the world; it is now truly a global marketplace. Although there is a huge move-
ment towards standardisation, there is still a very long way to go and B2B com-
panies must be aware of the different buying and selling influences and demands
in different countries across the world. The World Wide Web is proving invaluable
in helping suppliers and buyers to scour the world for the best products and
services.
Different types of external environment

Not all market environments will be the same and differences will depend on the
industry, products and services sold, geographical location and country and
global economic conditions. We have outlined possible categories below, bearing
in mind that a B2B company could face differing challenges depending on the
type of company and the number of its markets.
Dynamic vs. stable environments

Some markets are stable with very little changing from year to year, while others
are dynamic with constant movement and upheaval. Although all markets are
more dynamic than they used to be, the following factors designate the type of
B2B market.
Stable markets
o Monopoly, government, protected markets, legislation
o Strong brands, USPs, patents, ownership of distribution channels restricts access
o Unaffected by technological development
o Relatively unaffected by buyer fashion.
Dynamic markets
o Highly competitive, unprotected markets, access from around the world
o Many substitute products, technology constantly changing
o Little loyalty and customer will change as new and better offerings arise
o Information for buyers to change from supply to supply at will
o Multiple changes happening at the same time.
Complex vs. simple

Some B2B markets are less sophisticated than others and the following factors
apply.
Simple markets
o Uncomplicated product
o Short distribution chain
o Small, easily knowable decision making unit (DMU)
o In the home market or exporting on the back of others
o Products wanted integrate easily across the product portfolio.
Complex markets
o Technically complicated product or service with many benefit solutions
wanted
o Diverse customers demand customised benefit solutions
o Other suppliers/buyers involved
o Long-term contracts involving after-sales service
o Long or intricate distribution chain
o Complex, large DMU, areas of buying responsibility difficult to pin down
o Foreign remote market with difficult and different cultural factors.
Hostile vs. favourable environments

Opportunities can arise across a range of different markets, some more approach-
able than others.
Hostile markets
o Inadequate information available about the country, industry and market
o A history of political and social upheaval
o Many competitors withdrawn because of production and marketing difficulties
o Dictatorial market entry conditions
o Culturally different from home markets
o Corruption rife and legal processes suspect
o Geographically at a distance with long distribution channels.
Favourable markets
o Politically, economically and socially stable
o Culturally very similar to home markets
o Adequate information shows market growth and other encouraging indicators
o Products and services needed match existing benefit offerings.
Part 3 Demand and supply in the economy

In monitoring and forecasting demand, the business-to-business marketing man-
agers must be constantly aware of the many factors discussed in this and the
previous chapter that will affect demand in their particular industry and in indus-
tries that are closely related. Demand for most B2B products will depend eventu-
ally on the end demand for the product, often the end consumer. In markets that
do not have a clear consumer involvement, demand will be affected by a succession
of buying points between the supplier and the eventual consuming company.
A downturn in economic activity both at the national and the global level
will affect most industries. All B2B companies will be affected in some way or
other by what happens to the economy, but it is inevitable that there will some
industries and companies that will be hit harder than others depending on many
factors.
A recession (or boom) might be worldwide, it might only be in one country,
or it might be in one trading bloc and not in another. It might affect one indus-
try rather than another (the collapse of internet stocks at the time of writing
immediately comes to mind) or one industry sector rather than many sectors in
the same industry (retail sales slowdown in fashion but not in food). A fall-off
in demand might be in just a few companies and not in the rest or in just one
company and not others.
Example 2.26 Global economy

A new report from America’s Federal Reserve on 19 September said the American
economy remained sluggish even before the terrorist attacks last week. The news
came as world stock markets remained nervous, after a stream of corporate profit
warnings and job lay-offs in the wake of the attacks. Is a global recession inevitable?
o Managing demand
B2B organisations need to be aware of the demand situation across companies,
industry sectors, whole industries and national and international markets so
that appropriate strategic and tactical action can be taken. The issue might be
internal, with problems associated with management, systems or strategic direc-
tion. There might be marketing mix difficulties, wrong products, prices, delivery,
and so on. Or there might be problems associated with promotion, customers
and markets. In some cases the organisation may be able to do very little, but
in many cases appropriate action can be taken to safeguard shareholder value.
It is important that the nature of demand is understood and this is examined
below.
o Derived demand
Although organisations in B2B markets will service business markets, there must
be a realisation that many business markets are eventually affected by demand
further down the supply chain, from the end consumer. Many B2B organisations
in the commercial, government and not-for-profit sectors buy goods and services
to use to make other goods and services that will eventually be sold to end con-
sumers. This is known as derived demand. Depending on the type of product, the
B2B supplier will often be dependent ultimately on the end consumer buying
the product from his or her business customer. If we take for example a company
DERIVED DEMAND 87
Figure 2.2 selling paint to Fords to be used on new cars being produced, then a fall in
Derived demand demand for the cars will result in a fall in demand for more paint (Figure 2.2).
It must therefore be obvious that it would be beneficial for the B2B paint
supplier to understand and be able to forecast the eventual derived demand for
the end product. Having said this there are many cases where companies have
not even known what kind of product their product goes into, let alone who the
end consumer is.
Derived demand along the supply chain

Not all derived demand is for the end consumer. As shown in Figure 2.3, derived
demand can be happening in many places along the supply chain with ultimate
demand in this case coming from a government defence department. Suppliers
in this market must be aware of government plans on when to purchase new
defence equipment.
Marketing along the whole supply chain

Some B2B associations and organisations not only monitor the level of derived
demand but also develop marketing programmes in an attempt to promote and
increase this demand, knowing that an increase in consumer market sales will
flow back along the supply chain and increase industry and company sales.
An organisation may need to promote across the whole supply chain including the end
consumer.
Industry stimulation of derived demand

Business associations might run TV and newspaper campaigns to increases sales
for the industry as a whole and benefiting the supply chain from supplier
through to retailer. The Milk Marketing Association will pay for promotional
campaigns knowing that the more milk drunk, the more will be wanted at the
B2B end of the supply chain. Similarly Intel has managed to develop a brand
name known to both business and end-use buyers. In this way it is able both to
promote to its B2B computer manufacturer and to stimulate derived demand by
promoting to the end consumer.
Figure 2.3
Derived demand
along the
supply chain
Example 2.27 Food industry develops logo

The food production industry has developed its own quality label and it is now on
display in around 4000 supermarkets. It has as its logo a red and blue tractor in the
shape of an F to remind shoppers of the traditional image of farming. The label will
cover meat, poultry, fruit and vegetables and will be used across the whole supply
chain.
Example 2.28 Organisation stimulation of derived demand

Intel, the computer chip manufacturer, well appreciates the value of knowing and
understanding the wants and needs of the end consumer for computers
containing its silicon chips. Through researching the derived demand consumer
market it discovered that there would be a demand for computers that offered
added value benefits through branded components. So the company developed a
promotion campaign programme based on both a ‘push’ and a ‘pull’ approach. The
push approach was used to sell its newly branded Intel product into the computer
manufacturers, asking them to put the Intel logo on the machines. The pull
approach was to advertise to the end consumer the value of buying a computer
containing the branded Intel component.
Measuring derived demand

Information and marketing research should be gathered and the marketing
information system used incessantly to scrutinise demand along the whole sup-
ply chain. Leading economic indictors might give notice of imminent changes in
consumer sales demands. Bought-in consumer secondary research data can iden-
tify changes in patterns of demand, and so on. In this way a B2B company can
be prepared, anticipate changes before they happen, and so be able to take some
form of evasive action. It seems managerially indefensible for a brick manufac-
turer to be unaware of an expected fall in the sale of houses or an IT components
manufacturer in the communications industry to be surprised when the sale of
portable telephones declined.
o Other demand categories

Horizontal demand
Companies involved in some sort of cooperative alliance such as a joint ven-
ture or outsourcing arrangements will have the opportunity of feeding off one
another’s business activities. An organisation might not export directly but have
an arrangement with another company to top up with products when a large
order exceeds the exporting company’s current stock. Similarly, companies working
together might be able to gain economies of scale, reduce costs and so affect the
demand for their products by lowering the price (Figure 2.4).
OTHER DEMAND CATEGORIES 89
Figure 2.4
Horizontal
demand
Vertical demand
The vertical dimension is concerned with the demand backwards and forwards
vertically along the supply chain. This may include retailers (buying B2C prod-
ucts), manufacturers, component part suppliers, raw material suppliers, and so
on. The longer the chain of companies in the supply chain, the more difficult it
might be to forecast demand (Figure 2.5).
Joint demand
Figure 2.5
Vertical This will occur when two or more products are used in the final product, and is
demand linked to the concept of derived demand. So if there is a rise or fall in the demand
for bottles, there will be a rise or fall in the demand for glass to make the bottles.
Many B2B products are in joint demand in some way so it is important for man-
agers to be aware of the movement of related industries.
Example 2.29 Creating joint demand

Eastman Kodak Company and Sanyo Electric Co. Ltd announced the formation of a
global joint venture, the SK Display Corporation, to manufacture organic light-emit-
ting diode (OLED) displays for consumer devices such as cameras, PDAs and
portable entertainment machines. They are capitalising on demand for superior dis-
plays by combining Kodak technology and intellectual property with Sanyo manu-
facturing capabilities.
Inelastic demand
The demand for some B2B products, usually components of some kind, is relat-
ively inelastic. This means that an increase or decrease in the price of the prod-
uct or service will not significantly alter the demand for the product in the short
run. This is because the price of a particular component tends to be a small part
of the final price further down the supply chain, so price changes are either of a
small order or bought under some kind of fixed price contract. It is also a difficult
task for producers to make major changes in production operations in the short
run (although technology is increasing the speed at which production changes
can be made) to take account of cost and price changes and so have to absorb
price fluctuations. An example might be Ford not passing on a paint price
increase to its customers because it would be a small part of the overall price of
the car and market conditions might be too competitive.
Fluctuating demand
Demand for business-to-business products tends to fluctuate more than the
demand for consumer products as a small increase or decrease in consumer
demand will produce a much larger change in the demand for manufacturing
operations needed to produce the additional output. Consumer markets are
characterised by millions of customers and a fall-off in sales can take time, be
localised and compensated by finding new customers in other areas. On the other
hand, B2B markets are characterised by fewer customers, and just a handful (even
one!) not buying for some reason or other can have an immediate and disastrous
effect. Similarly, a B2C company is more likely to have the protection of a larger
and more diverse product portfolio than a B2B company, and is more able to
spread the risk if one product area slumps.
Demand for business-to-business products tends to fluctuate more than the demand for
consumer products.
Example 2.30 Using the web to cope with fluctuating demand

Increasingly, businesses that want to decrease costs and increase revenues are
turning to dynamic pricing applications to pave the way. More and more, businesses
are demanding a sophisticated web channel where goods and services are priced
instantly, fluctuating in response to supply and demand. The B2B marketplace
creates value by aggregating buyers and sellers to create marketplace liquidity
(a critical mass of buyers and sellers), reducing transaction costs (search costs,
information transfer costs) and delivering standardised liquidation and procure-
ment processes and systems.
Demand for new, improved products and services

There will always be a demand for new or improved products and services in B2B
as long as they offer clear benefits of some kind, as discussed above. To reiterate,
however, improved B2B products, services and processes that offer increased pro-
ductivity in terms of speed and timing improvements, better space utilisation
and value for money will always be sought after, as will new products, services
and processes that offer clear customer advantages over present offerings. With
the advent of benchmarking processes across the whole of the supply chain,
those organisations that do not keep abreast with new process and marketing
mix development will find that competitive advantage is lost.
o Trends and shifts in demand

The last 25 years have seen the virtual death of some industries and the creation
of others. A small part of this change has been brought about by government
policy, but most has happened because of shifts in demand and supply patterns
across Europe and worldwide. Heavy industry is a notable example. Ship-
building, once the cornerstone of the UK manufacturing sector, is now almost
non-existent as ship manufacturing has gone to other countries where labour is
cheaper and productivity better. Coal, steel manufacturing, clothing and textiles
TRENDS AND SHIFTS IN DEMAND 91
are all examples of industries that have moved from western countries to the Far
East because they can be produced at better value. New industries have taken
their place, including technology, banking, insurance and business services.
These types of shifts have had tremendous implications for the thousands of
firms that supplied business goods and services in these areas. As an industry
begins to decline, the more prepared organisations will be looking to move into
other markets or reinventing themselves to move into new business sectors. The
unprepared will go out of business.
Market and industry life cycles

This theory is linked to the concept of the product life cycle. It states that all
industries and markets will go through a continuous process of introduction,
growth, maturity and decline over a period of time. This is brought about by the
introduction of new technology, competition and changing customer demands
linked to economic growth and changing economic patterns around the world.
The industries highlighted above could be said to have gone through this pro-
cess. An industry will probably be at different stages of the life cycle in different
countries and different markets. Tobacco products are in decline in the west but
in the growth stage in the east. The mass market for horse transport products no
longer exists and there is a new market for digital entertainment products. It
could be argued that in some cases industry and market life cycles take off more
quickly and decline and die more quickly.
Business cycles
This is the tendency of economies to move over time through periods of boom
and slump. It occurs when real GDP moves away from its usual pattern. Although
not every economist is in agreement, it tends to happen every six to eight years.
Business cycles are a fact of business life and are brought about by the differences
between consumer and business-to-business purchases. They are linked to the
concept of the accelerator principle. This theory states that a given change in
demand for consumer goods will cause a greater percentage change in demand
for capital goods. Conversely, a fall in the demand for consumer goods will cause
a greater percentage change in the demand for capital goods. It is this ‘gap’
between consumer purchases and B2B purchases that causes the peaks and
troughs of the business cycle. Different economies around the world can be at
different stages of the business cycle at any one time.
Example 2.31 Electronic PLCs shorten

The fashion industry has been dealing with it for years, products with long lead
times but short life cycles with fickle and unpredictable consumer demand. It is
difficult to make money unless your supply chain has hair-trigger responsiveness
and flexibility. The semiconductor industry has awakened to a market with a sim-
ilar scenario. The explosion of applications for electronics means consumers are
now in control, not just electronic geeks. So semiconductor marketing managers
have to take a cue from the consumer world and realise that when you are trying
to sell cellphones to teenagers you can forget about forecast accuracy as life cycles
shorten and changes in product demand can happen overnight. Historically, the
industry has been driven by technological innovations, not supply chain effici-
ency, but this must all need to alter if electronics manufacturers want to stay ahead.
Demand in government markets

Demand in government markets is affected not only by the same factors but also
by other factors than those that affect demand in commercial markets. As in the
private sector, the state of the economy must influence the level of government
spending. A reduction in GDP will mean less income (tax, insurance, VAT) and
so less money to spend on such things as health, social security, road building
programmes and defence. Where this situation happens it might impinge on one
industry more than another as money is cut, for example, from the defence bud-
get while the health budget is left alone.
Government spending will also be a function of political and legislative com-
mitments, social priorities and pressure group lobbying. One political party
might come to power with the express mandate to reduce the level of govern-
ment spending as a percentage of GDP, while another party might have promised
to increase spending as a percentage of GDP. It might be socially acceptable to
cut back in one area but not in another. Pressure group lobbyists will be active at
this time, attempting to have spending maintained in their particular markets.
Demand in B2C and B2B markets

Demand in consumer markets is seen as a primary indicator of the state of the
economy and alarm bells will ring if it falls below a certain level over a prolonged
period. A fall in consumer confidence leading to a fall in consumer demand will
act more quickly on business sales than a fall in the demand for B2B products and
services. This is because it is direct and linked immediately to the sale of con-
sumer products and services. On the other hand a fall in the demand for B2B
products, although often linked eventually to consumer demand, will take longer
to filter back to the buying process. A fall in the demand for cars will not imme-
diately affect the demand for, say, paint (short-term investment) because the car
manufacturer will not slow down car production straight away, choosing to
stockpile cars as the more efficient option. Similarly it will not abandon new cap-
ital equipment orders, a long-term investment, unless the demand for its cars
continues to fall over a longer period of time (Figure 2.6).
Figure 2.6
Demand in
B2C and B2B
markets
MEASURING THE LEVEL OF DEMAND 93
Example 2.32 Fall in demand

Japan’s biggest computer maker Fujitsu has cut 9000 jobs and warned that it will
continue to make losses. There was more bad news from other electronic and tech
companies with Sanyo, Sharp and Mitsubishi Electronic warning of weak demand
continuing restructuring costs. The US is Japan’s largest export market, but US
demand for Japanese IT goods has been weak.
o Measuring the level of demand

An organisation will attempt to measure the level of demand for a product or an
industry over both the short and long term. If this information is not forthcom-
ing then forward planning becomes very problematic. The level of closeness with
the end user also affects demand. The closer the relationship, the easier it is to
forecast the level of need. Conversely, the further away the supplier is from the
end user, the more difficult it is to identify needs and so the more likely will be
the fluctuations in levels of demand. This factor highlights the need for good
macro and micro information about sales along the supply chain and the even-
tual needs of the end consumer. Only then can reliable and realistic forecasts
be made.
The economist’s view on demand

The economist’s view of supply and demand applies in B2B markets in just the
same way as in B2C markets. In simple terms the economist will argue that all
things being equal (they never are!), the higher the price, the lower will be the
demand, and the lower the price, the higher will be the demand. Similarly the
higher the price, the more will be supplied, and the lower the price, the less will
be supplied. A shortage or glut of products and the availability of substitute prod-
ucts will also have an effect on demand.
Forecasting demand
To be able to garner and allocate resources efficiently, develop and implement
strategies and plan ahead, the B2B marketing manager must be able to estimate
future growth, sales and profit potential. All estimates of future sales can be
fraught with difficulty because forecasting is looking into the future and nobody
can ever know with certainty what might or might not happen. Some business
markets are more volatile to circumstances than others and changes in single
factors can cause a ripple effect across an industry that can put companies out of
business, no matter how large.
Example 2.33 Oil and the effect on demand

Some possible changes that might happen in the market environment are more pre-
dictable than others and so contingency plans for different scenarios can be out-
lined. A rise in the price of oil instigated by OPEC can push up costs so high that
transport companies might at best be forced to cut back on staff and at worse go
out of business. This possibility can be allowed for as long as the upward (or down-
ward) movement in oil prices follows expected patterns. The difficulty arises when
the change is unexpected and/or of a magnitude not considered.
An example was the 1973 Arab oil embargo, which was the first oil supply dis-
ruption to cause major price increases and a worldwide energy crisis. The October
of that year brought an oil embargo by members of the Organisation of Petroleum
Exporting Countries, cutting the supply of oil and elevating prices to levels previ-
ously thought impossible. It seemed to catch politicians and business tycoons alike
totally by surprise and there was a global recession causing many organisations to
go out of business.
In 1998 oil prices fell to $10 a barrel from a high of $32 because of high oil stocks,
but this time companies were more prepared, knowing that OPEC, the oil exporting
cartel, would cut production by up to 2 million barrels a day. In the UK, however,
there were unexpected ramifications that again caught politicians and business
managers by surprise. The subsequent swift rise in petrol prices coincided with an
increase in taxation. This led to protests from transport companies who managed
to organise a blockade of all petrol distribution depots. For a while the blockade
threatened to bring the country to a halt.
The difficulties associated with forecasting demand should not dissuade man-
agers from attempting to make forecasts, but they should give a warning on the
limitations involved when trying to look into the future.
o Demand potential and analysis

B2B marketing management would be a simple matter if business markets were
not in a continual state of change, the pace of which has quickened in recent
years. The result of this constant change, however, is that business tasks are
becoming more complex and business decisions are becoming more long term in
nature. It is increasingly important and necessary for businesses to predict future
demand in terms of sales, costs and profits. The value of future sales is crucial as
it affects the resources needed as well as both costs and profits, so the prediction
of future sales is the logical starting point for all business planning. Under-
standing market potential, anticipating the needs and wants of the company’s
customers and their likely purchasing behaviour in both existing and new mar-
kets for a period of time to come are the starting points for business forecasting
and planning. This concept lies at the very heart of all marketing activity.
Demand analysis across the Ansoff Matrix

A demand analysis might need to be undertaken across all markets depending on
the present and future markets. This need can be identified under the Ansoff
Matrix. Demand analysis should be undertaken on:
MARKET POTENTIAL 95
o Existing products in existing markets

o Existing products in new markets
o New products in existing markets
o New products in new markets.
o Market potential
Market sales potential can be examined from the perspective of a country, a
particular industry, a particular market, and a specific organisation. These basic
categories are identified below.
1. Country demand potential
2. Industry demand potential
3. Market demand potential
4. Company demand potential.
1. Country demand potential

A B2B organisation wishing to estimate market potential in both existing and
new markets will probably begin the process by looking at the markets in its
home country. This will involve the undertaking of a macro-environmental ana-
lysis of the type used in the auditing and planning process to examine the future
growth of the economy, particularly as it might affect its own industry. Relevant
levels of government business cooperation, economic growth, rates of inflation,
retail sales trends, and so on will all give a good indication of the demand poten-
tial at this wider GNP level. The same process will apply, country by country, if
wishing to market abroad except that it will probably be more difficult as the
needed statistics might be more difficult to come by. At this level government
agencies will be only too willing to help with the needed information.
Country demand potential can be identified as overall level of sales and services that could
be achieved across the whole of the economy of a country.
2. Industry demand potential

Overall macro- and micro-environmental activity at both national and global
level will have some kind of effect on the level of industry demand and figures.
Figures collected in the first stage identified above can now by collated with more
specific industry information and the results analysed and evaluated.
More immediately industry demand potential will be affected by overall com-
mercial, not-for-profit and most especially government spending and cutbacks.
The pronouncement by the Ministry of Defence to spend more on warplanes,
ships or armaments can increase demand potential by billions of pounds. Trans-
port ministry decisions to cut back on road spending, social welfare departments
tendering for computer systems, and education ministers declaring that school
buildings must be improved will cause fluctuations in industry demand. The
intention of a large supermarket to open more outlets, the loss of 5000 jobs
announced by a major bank, or the merger of one multinational with another,
will all have an effect on B2B industry demand. Government’s, trade associ-
ations’ and market research companies’ economic and industry sector statistics
should be available, for both national and global markets, to help in building up
a picture of industry demand.
Industry demand potential can be defined as the maximum possible level of sales activity
that might be feasible from a given industry (e.g. over a specified time period).
3. Market demand potential

Because of the interconnection, figures identified from the overall industry
demand potential can then be used to help inform the various market demand
potentials. Industry sectors will consist of many different kinds of markets. The
defence industry will contain markets for a whole range of different products
from telecommunications, management training and health services to glass,
paint and nuts and bolts. Because of technological developments, an industry
and its markets can all be at different stages in the product life cycle. Whether
the market is a monopoly, an oligopoly, fully competitive, or a combination will
have some sort of effect on demand levels. Trade association and research com-
pany reports will be of help here.
Market demand potential can be seen as the maximum possible level of sales in a particular
market that can be achieved by all market participants.
4. Organisational demand potential

Existing market conditions and existing market players will dictate the market
demand potential for any one company’s product and services. If the market is a
monopoly, then any industry and market growth can be claimed by the mono-
polist. If the market is highly competitive, then all must fight to gain a share. The
successful company will be continually looking for demand potential from both
existing and new market segments. An individual company, unless new to the
market, will already have some level of market share. Any increase can only come
about if the market is growing or if one company can take sales from another.
Organisational sales demand potential can be estimated by using many of the
quantitative and qualitative methods discussed below. If the marketing manager
is uncertain in which market a particular product or service will operate, then
estimated potential demand will be almost impossible.
INDUSTRY AND MARKET LIFE CYCLES 97
Organisational demand potential relates to the level of products that any one company
might be able to sell in a market segment (or markets if in more than one segment) over a
given time period.
Demand potential by territory, customer and product

The company management will eventually need to break down the company
potential demand by sales territory, product category and customer. This will
then be used to plan and set targets for its marketing and sales force departments.
The demand potential process is as follows:
o Country demand potential
o Industry demand potential
o Market demand potential
o Organisational demand potential
o Territory–customer–product potential.
o Industry and market life cycles

As well as macro- and micro-environmental factors, demand potential in any one
industry will also depend on both business/industry life and market life cycles
that can vary around the world according to the particular industry and market.
So the level of demand potential might well be in the growth stage in one coun-
try, the maturity stage in another, and the decline stage in another. For large
multinational companies it is imperative that they are able to identify these dif-
fering demand potentials so that they able to take advantage and so forecast and
plan the need for future resources. An example might be the cigarette industry
that is declining in the west but growing in the east.
Example 2.34 Innovation or industry life cycle position

A study by McGahan and Silverman looked at patenting activity in the American
economy between 1981 and 1997. Their findings suggest that industry life cycle models
based on stages of maturity may not accurately describe innovative activity. Rather,
models based on the pace and kind of innovation may be more appropriate. The authors
argued that it was much more fruitful to see how open the industry was to absorb-
ing new technologies rather than at what stage the industry stood in the life cycle.
The sales forecast and demand potential

The identification of market potential will not mean that this is the level of sales
that a company will achieve as there are other factors that will have to be taken
into account. The organisation must have the resources available, or within easy
attainment, to take advantage of possible sales potential. This will include elements
across the whole marketing mix offering employee skills, technology, product
portfolio choice, new product development, necessary channels of distribution

and, last but not least, promotional methods. Any demand potential will also be of
interest to the competition from both national and international organisations.
The greater the sales and profit potential, the more intense will be the competition.
The secret for any company wishing to take full advantage of demand poten-
tial is to identify markets where it can best use any resource that might give it a
sustainable competitive advantage. Ultimately it is from the use of this demand
potential process that the B2B organisation will attempt to identify, select and
segment markets it might be interested in entering. Broad sales forecasts for each
segment will drive the process and from this the eventual markets to be covered
can be selected.
More detailed forecasting used in the strategic planning process can then be
undertaken. It is crucial that the market segments to be targeted are clearly
identified and that products and services are developed with benefits that satisfy
the needs of each selected segment. The sales forecast then becomes the overrid-
ing budget from which all other budgets will emanate (The process of segmenta-
tion selection and targeting is discussed at length in Chapter 4.)
Assessing the future needs for equipment, services, employees, finance, technology and so
on will be very difficult, if not impossible, if the future level of each market segment sales is
uncertain or unknown.
More can be seen on sales forecasting on the B2B Marketing website at www.
booksites.net/wright Ch 1.
o Summary
In this chapter we attempted to build on the background discussion presented
in Chapter 1 and began by examining the external environmental influences that
will have some kind of effect on B2B organisational buying decisions. The differ-
ences between B2B and B2C markets were compared throughout the chapter.
External factors discussed included political and legal, economic, cultural and tech-
nical. Political factors were considered from both a government and non-government
perspective, looking at the role of governments in setting out the legal and moral
frameworks of B2B markets at the national and transnational level as well as the
role of non-governmental organisations such as lobbyists and trade associations.
The importance of the economy to the well-being of organisations was then
discussed, highlighting among other things such concerns as levels of demand,
employment levels and exchange rates. The importance of cultural factors was
highlighted and examples of different business practices from around the world
were compared and discussed in trying to decide whether this importance was
stable or declining. Technology was shown to be pervasive and examples were
given where B2B organisations can both gain and lose competitive advantage if
its importance is not recognised and evaluated. We made it known that all these
areas would be revisited constantly as we move through the book.
We then examined the more immediate influences that will confront all
organisations both at home and abroad, concentrating first on competition and
then on customers and markets. The need for continuous information on the
competition was the first area identified and examples were given on the type
of questions that a B2B company should be asking. We then moved on to dis-
cuss competitive intensity, the existence of market leaders, followers, major and
minor players, sources of competitive advantage and the importance of having a
strong base to act as a springboard when marketing abroad.
Customers and markets were then brought up and we briefly looked at general
customer and market type differences across all markets.
Finally, we went on to examine the concept of supply and demand in the
economy and how it will affect the B2B market. Different types of demand were
identified, including derived, horizontal and vertical demand, and the market-
ing implications discussed. The process of investigating demand potential was
broken down by country, industry, market and company groups so that it might
be inspected more readily.
1. Identify political and economic factors that will affect the B2B marketing process.
Give examples for each area.
2. How important is it for governments to set the legal, social and moral framework
for the interplay of supply and demand in free markets? Do you think that
governments are doing too much or too little?
3. How much influence might culture have on business buyer behaviour around the world?
Give examples and discuss whether you think culture is getting more or less influential.
4. How might business organisations combat the growth of more competition from
around the world? Do you think that this is a good or bad thing? Give reasons and
examples.
5. Technology seems to permeate every area of business activity. Give examples of
its development and speculate on future developments.
6. Discuss the proposition posited by Michael Porter that a strong home market is
crucial for a strong global presence. Try to identify examples of real global
organisations to illustrate your comments.
7. Organisational corruption and cronyism are problems around the world and some
commentators argue that they cannot be stopped. What might your opinion be on
this problem?
8. Discuss the importance of understanding demand potential. How might it be
successfully undertaken by an organisation across all markets?
9. Identify and discuss the factors that influence the level of sales demand in any
one market.
10. Discuss the concept of horizontal and vertical demand. Why has it taken on added
importance over the last decade?
11. Many B2B organisations ignore the process of derived demand. Why might this be
foolish? Identify and evaluate sales demand forecasting methods.

Questions, and an Internet exercise for this chapter.
o Bibliography
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03 Understanding business
marketing environments
Errors using inadequate data are much less than those

Chapter
using no data at all.
Aims and objectives

1. Be aware of the importance of information about the business-to-business
market environment as a crucial aid in the management decision-making
process. This will be at both national and global level.
2. Appreciate the types of data needed and be able to analyse and evaluate
the importance of the information gathered when looking at and comparing
marketing in B2B and B2C markets.
3. Identify and evaluate both formal and informal organisational gathering
processes including the uses of the Marketing Information Process.
Part 1 Information for understanding strategic and

tactical decision making
o Introduction
In the preceding chapters we looked at the background to B2B marketing,
examining the different areas that influence the running of the business and
identifying factors in the external environment. In this chapter we examine the
role that information gathering plays in the whole process. No important deci-
sion should be made without first trying to obtain adequate information. It is
true that sometimes there is not enough available and when this is the case the
manager will have to move on the level of information available coupled with
experience, knowledge and intuition. In a sense it is ironic that the more impor-
tant decisions that could make or break organisations, seeking out market infor-
mation and choosing and planning strategies, have to anticipate future direction
and have to be made with the knowledge that the further we look into the future
the more uncertain and unreliable might be the information. Nevertheless
this should not stop marketing managers from trying. There are many agencies,
commercial companies and experts that can be consulted to help lessen the risk,
102 CHAPTER 3 • UNDERSTANDING BUSINESS MARKETING ENVIRONMENTS
but ultimately senior management executives are paid large amounts of money
(too much in many stakeholders’ eyes) to make important strategic decisions that
could sink or save the organisation.
o Information is power
Knowledge in the form of an informational commodity indispensable to pro-
ductive power is already, and will continue to be, a major – perhaps the
major – stake in the worldwide competition for power. It is conceivable that
the nation-states will one day fight for the control of information, just as
they battled in the past for control over territory, and afterwards for con-
trol over access to and exploitation of raw materials and cheap labour.
(Lyotard, 1984)
All politicians recognise the importance of having control over the dissemination
of information. To be able to decide what should and should not be known and
to be able to control the flow of this information has been at the heart of polit-
ical power for centuries. The democratic process itself depends on the population
having access to the right information so that both sides of the argument can be
weighed and votes cast accordingly. Similarly, the B2B organisation that has the
ability to gather the most realistic, up-to-date environmental information on a
continuous basis, and then to exploit and use this advantage wisely, is more
likely to be the one that has the most success.
Much has been written about consumer behaviour and new and updated
information is constantly coming into the public arena. Just as important for
many organisations is the need to have an understanding of how industries and
organisations might behave under differing marketing and environmental cir-
cumstances, although less information seems available. Anticipating buyer and
group and individual reactions, from both a theoretical and practical standpoint,
will enhance the supplier competitive marketing approach taken, as will an
understanding that there will most likely be differences from country to country.
From a wider perspective there must be the need for successful marketing man-
agers to have an overall understanding of human nature if they are to motivate
and get the best out of their staff, as well as diplomatically communicating and
interacting with staff across other company functions. They will most likely be
working with management and staff within other partnership companies where
relationships can be more fraught and the same imperative must apply.
Information and competitive advantage

The most successful working person is likely to be the one who is most know-
ledgeable and has the most information about the industry they have chosen as
a career. When we meet someone who truly seems to know the business they are
working in and can readily supply information requested, the results are impressive.
In consumer markets there are often salespeople who seem to know very little
about the products and services offered. This may engender frustration and dis-
INFORMATION IS POWER 103
appointment and encourage the prospective customer to go elsewhere. This may

not cause an immediate problem in B2C markets as there might be hundreds of
other potential customers looking for new or replacement products. On the other
hand the same outcome between seller and buyer has the potential for creating
a huge problem in the B2B sector. The busy business buyer might only offer a
supplier’s sales representative a small amount of time to put over the benefits of
working with his or her company. The B2B salesperson who can talk about all
aspects of a particular industry, offering a customer help and advice about relev-
ant products and services, who can discuss competitors in an objective compar-
ative manner and really demonstrate an understanding of the industry, will be
highly respected and has every chance of being invited back time and time again.
Example 3.1 Knowledge is power

The B2B organisation, the marketing and sales managers and sales staff (as well as
all other customer-facing employees) that have more current information about
present and future markets and needs than anybody else, know the opposition as
well as their own company, and can use this information in a professional manner
will have the foundation for an unbeatable competitive advantage over all others.
The imperative is to know more about your markets than the competition and know
more about the competition than they know about you.
Evolutionary markets require detailed information

In the past there was the need to have information about markets and environ-
ments, but not in the detail and degree demanded in the present climate. B2C
and B2B marketing in mass markets required participants to garner environmental
and industry knowledge and a broad understanding of consumer (in the case
of B2C) and industry (in the case of B2B) cultural needs and wants. This might
still be the situation when selling into developing markets such as China or
Indonesia. With the marketing evolution into broad segmentation, more infor-
mation was needed about targeted group needs: socio-economic, behaviour and
lifestyle in the case of consumer markets; public or private, industry sector and
type of organisation in the case of business markets.
The insatiable consumer appetite for ever more choice and the needs (driven
by competing business buyers) for state-of-the-art optimising benefits have
almost inevitably led to the development of products and services that more
readily meet the needs and wants of each individual customer, whether in the
B2B or B2C sector. Mass customisation, one-to-one marketing, customer rela-
tionship management, marketing relationship management, and so on are all
current examples of projects that now reflect the thinking of both marketing aca-
demics and business practitioners (and no doubt more will follow in the same
vein). The right sorts of information are now needed, interactively if possible, at
every stage of the buying process – before, during and after the sale (often along
the whole supply chain) – hopefully driving greater long-term mutually bene-
ficial exchange processes for both customer and seller (Figure 3.1).
Far better an approximate answer to the right question, which is often vague, than an exact
answer to the wrong question, which can always be made precise.
Figure 3.1
Level and
degree
of market
information Information for decision making is now of such importance in an ever more
needed competitive environment that the information collecting process must be imple-
mented, directed and supported at the highest strategic level. Without senior
management continuous support, information gathering can be seen from a
narrow departmental perspective, causing the wrong information to be collected,
dissemination restricted and/or the information to be offered in an unusable
form. History is replete with examples of expensive information systems that
have been constructed with software that does not work and/or are manned by
people who are not market and customer orientated. Information gathering has
to be customer and client driven and must always be presented in a client-
friendly manner, and the process must have feedback monitoring and control
systems built in. In this way the management and other users, at all levels in the
company, can be encouraged to comment constantly on the quality, reliabilite
and relevance of the data collected. If it is not helpful it should be dumped.
Information gathering in B2B markets will be carried out by both seller and
buyer organisations all along the supply chain and, depending on the partnerships
and working practices in place, shared so that ultimate customer satisfaction is
constantly assured. The quality and quantity of information is more important
to some organisations than others depending on organisational type, products
and services sold and markets served. A supplier making own-label products
under contract solely to one of the big supermarkets will not need as much infor-
mation as the company selling direct to many manufacturers in the continually
changing electronics market. Here are a few examples of strategic information
needed in B2B markets:
o Which market segments are the greatest in terms of sales, growth and profit?
o Which segments are growing, declining or static?
o Who are the major competitors in each segment and what are their strengths
and weaknesses?
o Should the company outsource any of its logistic activities, warehousing,
transportation and inventory management, or has the trend proved to be
short term?
o How threatening is the growth in strategic alliances and will it continue?
Information at the tactical level

It must be remembered that information is also needed for tactical decisions and
programme implementation. There has been a danger in the past that strategy
has become divorced from the tactical implementation with the two processes
seen as almost separate in some ways. While successful B2B organisations recog-
nise the need for long-term thinking, they will not neglect the information
needed in putting the idea of customer satisfaction into operation. Examples of
information needed at the tactical level include:
o Product benefits and level of service needed by each organisation
o Responsibilities allocated
o Performance indicators agreed
o Budgets agreed
o Number of sales calls needed and sales targets
o Support resources needed
o CRM systems in place and working
o Monitoring and control systems.
Why research industrial markets?

There is a need to research all markets whether B2B or B2C. In B2C the major
concern is making products and services to match the ever-changing consumer
demands. In B2B the pressure to get industrial products with the right benefits to
market ahead of the competition is the main concern. In both markets research
helps reduce the risk (which can never be completely eliminated) of promoting
the wrong benefits with existing products and services and of bringing the wrong
benefit packages to new markets. It can also forewarn organisations about im-
pending happenings in both the macro and the micro environments, allowing
the necessary strategic and tactical actions to be taken. It should be remembered
ultimately that all decisions must be made by managers based on knowledge and
experience and using research as an aid to the decision-making process, not as a
substitute.
Lack of information about the B2B sector

Some commentators have criticised marketing academics and others on the lack
of information available on the B2B industrial sector, at both the academic and
pragmatic levels. When searching for inspiration about this important side of
business, there appears to be a paucity of relevant material. It could be argued
that it has been sadly neglected and very little studied as a business subject. There
are those who argue that there are some aspects of academic marketing theory,
the use of models and so on, which seem to have little relevance to what goes on
in the real world and so are of small use to marketing practitioners.
Information about the B2C sector

Much has been written over the last 50 years about marketing, its origins, con-
cepts and practices, but most of it tends to be focused on the B2C and especially
retail fast-moving consumer goods (FMCG). In a way this is understandable be-
cause both basic marketing theory and marketing practice lend themselves more
readily to the idea of marketing to the domestic consumer, either in segmented
groups or as individuals. Empirical examples are everywhere. We are all con-

sumers and most of us are involved in seeking out, purchasing and using many
different products and services on a daily basis. Consumer marketing is all
around us constantly. Market researchers stop us on the street to ask questions
about behaviour. Outdoor billboards, retail outlets, corporate images, point-of-
purchase material and stock displays attempt to seduce us into spending our
money and adverts hit us every time we watch TV, listen to the radio or go to
the cinema. In many cases human behaviour, sociology, psychology, decision
making, purchasing processes, branding and advertising have more interest to
the researcher in consumer markets than in business-to-business markets and,
importantly, examples are readily available.
Information on the B2B sector

Conditions are different in B2B markets. Although individuals or groups are
involved, the purchase is being made for the well-being of the organisation. The
area of study is organisational behaviour rather than consumer behaviour and, to
many, not nearly so exciting. Decisions are made for rational rather than emo-
tional reasons. Products and services wanted could be considered prosaic and
mundane and communication strategies lack the drama and exhilaration of B2C
markets. Add to this the difficulty of obtaining the right sorts of information and
it can be seen why B2B marketing, despite the major part that it plays in the
world economy, might be considered the Cinderella of marketing disciplines.
Information needed when looking at B2B organisational behaviour

o History, economics, geography, culture
o Organisation structure and design, systems and decision-making process, the
management of technology
o Motivation, teamwork, stress and conflict, communications, power and pol-
itics, leadership and communication, culture and change
o Managing change, models of organisational change, the managerial and HR
aspects of globalisation, new ways of organising work and new managerial
systems and the management of innovation, organisational buying patterns.
Information needed when looking at consumer behaviour

o Sociology, social anthropology, social class, culture, subculture, personal
characteristics, group interaction, group buying patterns
o Perception, learning, attitude, motivation, individual and group psychology,
social/cognitive/dynamic/physiological psychology, personality, lifestyle.
Scarcity of information on B2B services

Another area of marketing literature that might be considered to be under-
represented in the amount of information available is that of services. Although ser-
vices have an important part to play in B2C markets, they might be considered
even more so in B2B marketing where so many benefits need critically to
incorporate a high level of service. A failure of after-sales service in the B2C

sector can result in the loss of one customer and perhaps some bad publicity. In
the B2B markets, however, it can be catastrophic, both for the buyer in terms of
lost production and/or loss of sales and for the seller in terms of the wrath and
loss of a major global customer.
Example 3.2 Expensive after-sales problems

Continental, the German tyre company, has recalled 600,000 tyres fitted on Ford
Expedition and Lincoln Navigator sport utility vehicles in the USA because some
tyres have been losing their threads. Continental’s recall is the largest since the
2000 recall of 6.5 million tyres by its competitor Bridgestone/Firestone after a
series of fatal accidents involving the Ford Explorer sport utility vehicle. Recalls of
all kinds have increased tenfold with 1.5 million taken back this year because of
faults of some kind. Both manufacturer and suppliers have been accused of bad
service practice of some kind.
Research should be used as an aid to the decision-making process, not as a substitute.
Information overload
One of the unhelpful side-effects of the information revolution has been the in-
crease in pressure on employees through different forms of information overload.
It should be recognised that just because the organisation, has the capability for
almost unlimited information collection and classification that is no reason for
gathering and hoarding data that will not be of use in the foreseeable future. The
availability of too much information can cause prospective users to be so over-
come by the quantity of information available that they cannot distinguish the
good from the bad and the relevant from the not so relevant. At best this can
cause frustration and withdrawal and at worst it can cause illness and time off
work. The answer must be some type of assistance and built-in filtering system
and/or skills training that helps the user to judge what is and is not usable data.
Example 3.3 Information overload

The Institute of Management and PPP Healthcare have just published a report that
shows that keeping up with hundreds of e-mails a day is one of the major causes of
workplace stress for managers. Office e-mail systems, leading to information over-
load, also contributed to the top two sources of workplace stress – constant inter-
ruptions and deadline pressures – which can damage performance at work as well
as putting personal lives at risk. A report by the Department of Trade and Industry
found that workers take an average of 49 minutes a day to sort out their inboxes
and many employees found that keeping up with office e-mails had become a logist-
ical nightmare. According to the DTI, sick days as a result of stress cost business
£7.11 million a week in the UK.
o Information-gathering process
The information-gathering process can be formal, informal or a mixture of the
two and will vary between organisations, depending on size, wealth, style, man-
agement inclination and the industry itself. It will also depend on the operating
climate. The more turbulent the environment and the more open to change and
competition the product or service, the greater will be the need for a continuous
stream of relevant up-to-date information.
Informal research
Much information gathering is done on an informal basis and tends not to
be seen as marketing research, but its value cannot be underestimated. It was
argued above that the successful person is the knowledgeable person who has
an inquisitive and enquiring mind, always asking questions about customers
and markets, competition and products and storing the data in their long-term
memory for later use. The wise B2B manager is the one who generates this
sort of culture, encouraging employees to seek out and report back any relevant
information that might have an influence on and be beneficial to the running
of the business. Using the whole workforce constantly to look at what is
happening locally, nationally and around the world will motivate all to feel that
they are part of the company set-up and, more importantly, provide marketing
strategists with a valuable source of informational supply. This process can
be semi-formalised by building in some sort of reward system for information
that proves to be the most useful. It does not make sense if a supplier is unaware
that a competitor is researching a new product range, talking to buyers about
partnerships, or thinking about moving out of a particular market segment when
a salesperson might have picked up useful information but found little manage-
ment interest.
Formal research
As well as informal information gathering, most modern companies recognise
how strategically important it is to have some type of formal, consistent and con-
stant information-gathering system based upon the need for clear business out-
comes. This formal information-gathering, classification and analysis system can
be identified under many different headings according to the academic or busi-
ness practitioner followed. It might be called a management information system
(MIS), business information system (BIS), marketing information system, and
so on. Many large organisations will develop subsystems to help the different
departmental functions. There could well be a ‘competitive analysis system’,
a ‘financial information-gathering system’, a ‘social auditing system’, and so on.
This should not cause any concern for the user as long as all agree on its usage
and title and the information system works. For the purpose here we will adopt
the term Marketing Information System (MkIS). This could well be seen as a sub-
set of the management or business information system.
MARKETING INFORMATION SYSTEM 109
For B2B marketing to function properly it needs constant information about all areas in the
internal and external environment. This will cover information on such things as the size,
depth, trends of markets, customers changing buying needs, competitor movements and
relevant political, economic, social and technical (PEST) factors.
o Marketing information system

Most CEOs still believe that it’s the chief information officer’s job to identify
the information he requires. This is, of course, a fallacy. The information
officer is a toolmaker; the CEO is the tool user.
(Drucker, 1986)
As discussed above, eventually the information-gathering process will need to

be viewed from a strategic perspective and put on a formal footing. This will
help communicate to all employees the importance that the company places on
using good information when making important decisions about customers and
markets. With the advent and development of information technology, any
organisation, whatever its size and financial situation, can now afford to have
access to information technology, data storage and analysis equipment and ser-
vices either by purchase or alternatively through leasing, rental, outsourcing and
sharing. If the latter options are chosen there is usually an option to buy in on
either a continuous or an ad hoc basis.
A strategic approach in setting up the MkIS

Whatever the approach taken, its long-term strategic importance to the well-
being of the organisation should be recognised and direction and support should
emanate from the very top, at director level. It should involve all potential users
(not only in the marketing department but also across all departments) in its
design and be tested and retested to make certain that information both in and
out is relevant to employee needs. Monitoring, feedback and control mechanisms
must be instituted to see that what needs to happen actually happens. The mon-
itoring process should be such that if user access is difficult, if the information
collected is of the wrong kind or if the data analysis is unhelpful, the process
must be changed. Marketing information systems must, in true marketing fash-
ion, be driven by the needs of the internal customers and not by the agenda and
objectives of the designers and operators.
Using outside consultants to set up the MkIS

In many cases, organisations will use outside commercial consultants to set up
a marketing information system. This will probably be because the company
feels it lacks the skills and resources to set up the process in-house. This will
undoubtedly be expensive, sometimes costing tens of millions of pounds. A cost

benefit analysis will therefore need to be carried out. It is crucial that the system
operates in the desired way. In most cases if the difficulties experienced by the
buyer are only small then after-sales service can soon rectify the problems.
However, organisations can sometimes experience horrendous difficulties once
the system has been installed and taken over by the business users. Complaints
usually centre around problems such as computer systems not operating in the
functional manner wanted, or the information analysis being more simplistic
than was originally discussed, and so on. The faults can be laid at the door of
both the consultants and the buying managers. As with all customised and com-
plex systems, the sales consultant will rely on the needs and wants as given by
the customer when putting together the product. But if too many people are
involved, as is often the case, confusion can arise on prioritising what is and is
not wanted. Similarly the client may have a problem in articulating precisely
what processes are wanted and so fail to communicate this to the programme
designers. It can also be the case that the consultant sales team, wanting to earn
lots of money, will promise much more than the marketing information system
is capable of achieving for the money the customer wants to pay. Whatever the
reasons, buying organisations must take time to discuss objectives among them-
selves so that they are in no doubt about their needs. These needs should then
be clearly communicated to the supplying consultant. If there are any doubts,
because of the huge amount of resources that might be involved, independent
experts should be called in to advise on the whole project.
Example 3.4 Expensive computer failures

Trials on a new multimillion pound computer system for the Child Support Agency
have discovered that it will not yet provide the long-awaited reforms it was origin-
ally designed to introduce. The new set-up was needed to help speed up the calcu-
lation of payments as well as collection times but has been found not to work.
Critics have said that it is a classic example of how not to run an IT project, buying
an expensive new computer to run old processes. The contract to provide the new
technology was awarded to the Texas-based company EDS under a private finance
initiative (PFI), but it now looks as if the taxpayer will have to pay. This follows sim-
ilar computer systems disasters in the Inland Revenue, hospital trusts, Ambulance
Service, Stock Exchange and Air Traffic Control. The list seems endless.
o The MkIS process

The B2B formal information-gathering process, the MkIS, can be broken down
into the following four areas:
1. Internal information.
2. Marketing intelligence system.
3. Marketing research.
4. Information storage and analysis.
THE MKIS PROCESS 111
1. Internal information
An organisation will have a whole range of internal quantitative and qualitative
performance indicators within its many functions. This information is essential
to both the B2B and the B2C marketing managers (and others) in the successful
performance of their jobs. It is surprising how often this source of information
is not utilised as effectively as it should be. There are examples of marketing
managers seemingly unaware that certain markets are declining and others are
increasing, or uncertain about the financial contribution of one product over
another. There cannot be any excuse for not having this information at hand.
Types of information obtained internally

The financial department can supply figures on sales, costs and profitability across
the whole product/service portfolio, as well as figures on cash flow, accounts
receivable and accounts payable. They can supply costs on which customers are
the most profitable and which the most expensive, who is the highest risk and
who isn’t, which combination of products/services is the most profitable and
which the most expensive, and so on (the type of information invaluable to
activity based costing).
Production can supply figures on optimum production runs, inventory posi-
tions and future needs. Indispensable to the system are the sales force reports
coming into the company. The salesperson is in the unique position of being the
eyes and the ears of the company out in the marketplace. The information they
are able to collect on the customer, competition, suppliers, etc. must be given the
recognition it deserves. This is the major reason why the salesperson’s report
should never be used as a method of policing and control. All employee contri-
butions to the information-gathering process should be encouraged by the use of
some form of recognition and reward system.
Information needed on buyers and suppliers

The following are examples of information that can be obtained internally which
will help in maximising the relationships with buyers and suppliers.
Internal information on buyers

o Overall sales and profit figures
o Numbers of customers, who buys the most and the least
o Which customers buy across the whole range and which buy selectively and
why
o Which buyers make the company the most and the least amounts of profit
o Which customers offer the best and the least potential
o Which competitors buyers are using and why.
Internal information on suppliers

o Which suppliers deliver on time and which are often late
o Which suppliers are in or out of stock most often
o How supplier prices vary with value

o Which suppliers are the most cost effective
o Which suppliers also sell to the competitors and why.
The Pareto 80/20 rule tells us that 80 per cent of our business comes from 20 per cent of
our customers or 80 per cent of our profits are made from 20 per cent of our customers,
and so on.
Information coordination
The marketing department will need to set up a system for collecting and ana-
lysing reports from all the different internal areas. Yearly and monthly trends can
be monitored so as to identify how the markets are performing and how they
might perform into the future. Sales and pricing can be compared with the com-
petition and comparisons made between outlets and distribution channels. Qual-
itative observations and suggestions should also be encouraged and rewarded if
this is thought to be necessary.
Consultation across departments and divisions

Organisations wishing to set up an internal report system should interview the
various managers to ascertain their information needs. This can then be con-
verted into a formal system of internal reporting. Like the laying down of any
system, it is essential that clear objectives are set. It should then be monitored
and controlled to make certain that it is working and there is a flow of the right
information to the marketing department. Of course the flow should not just be
one way. Marketing information should be available through a well thought out
communications system to which every department should have access.
The value of internal information cannot be over-emphasised and it should be formalised,

monitored and controlled.
2. Marketing intelligence system

It was stated earlier that for an individual or a company to be a success, infor-
mation about the relevant industry must be collected in a systematic way. It was
argued that the superior performer would know more about markets than any
other participant. The marketing intelligence system is that part of the MkIS
where the environment is monitored on a 24/7/365 continuous basis for any infor-
mation that might have some bearing, present or future, on the company’s mar-
keting performance.
Intelligence unit
The size of the intelligence unit collecting information is relatively important
and will depend on the size of the organisation. It may be a whole department
or just one person working part time. What is important is the motivating thrust.
There should be an almost obsessional need to unearth and classify any snippet
of information, no matter how small, that might relate to the company’s par-
ticular industry and can be used immediately or stored for future use. As well as
those who work directly for the intelligence unit, all staff will need to be motiv-
ated and trained in intelligence-gathering techniques so that it becomes an essen-
tial part of the company culture. Because of the seemingly infinite amount of
information available, skills needed will include the ability to sort the wheat
from the chaff.
In a large organisation, whole departments will spend their time scouring
magazines, newspapers, trade press, the web and other relevant sources, pulling
out articles that might supply a vital insight into the workings of both the indus-
try and the business, so helping to improve performance. Trends in the market-
place can be analysed and compared over the months and years, looking for
significant changes that could affect environments and competitive advant-
age. Working in this way, a database of information can be built up and then used
to analyse and forecast movements in the immediate and wider environment.
External information gathering agencies

There exist commercial companies willing to offer a specific intelligence-gathering
service for most if not all B2B industries and businesses (for a price, of course).
This might be in the form of an article collecting service and/or a continuous
research programme that looks at markets, customers and competition in a par-
ticular industry. Much of this can be downloaded to the customer by the agency
on a daily basis.
Example 3.5 Datamonitor helps with intelligence research

Datamonitor plc is a premium business information company specialising in indus-
try analysis. It helps 5000 of the world’s leading companies, to address complex
strategic issues. Through their proprietary databases and wealth of expertise, they
provide clients with unbiased expert analysis and in-depth forecasts for six indus-
try sectors: Automotive, Consumer Markets, Energy, Financial Services, Healthcare
and Technology. Datamonitor maintains its headquarters in London and has
regional offices in New York, Frankfurt and Hong Kong.
Datamonitor’s reports provide a consummate mix of market data, market intel-
ligence and insightful analysis. Based on exclusive quantitative and qualitative
research, Datamonitor’s market reports combine insight derived from over ten
years of experience in all its key markets. Clients will immediately benefit from
Datamonitor’s unrivalled perception that comes from blending a thorough under-
standing of current and future market issues with genuine industry expertise. The
result is strategic market intelligence that is vital to market sizing, forecasting and
business decision making. (www.datamonitor.com)
3. Marketing research
The difference between marketing research and intelligence gathering is one of
degree and should not give the reader cause to insist that a method should be in
one category rather than another. The difference between marketing research and
intelligence gathering is that marketing research is done for a special purpose
while marketing intelligence gathering is something that goes on all the time.
Marketing research will be used where some kind of specific information seems
to be unavailable from marketing intelligence sources. Care will be taken in set-
ting up this kind or research because the costs can be extremely high. Depending
on both the scale and the objectives of the marketing research, it can be under-
taken in-house or, as is much more likely, contracted out to one of the large mar-
keting research companies such as BMRB or Mori that operate on both a national
and global scale.
Example 3.6 Pharmaceutical research

UK drugs companies are investing £8 million a day in research, according to new
figures. More than 560 medicines are in development, including new approaches to
treating cancer and heart disease. The pharmaceutical industry is footing the bill
for two-thirds of the research. The remaining funds come from medical charities,
academia and the government.
Benchmarking research for superior performance

Information will be needed so that the organisation can benchmark its processes
and systems with the best in the business so that optimum value is added as
resources are moved from purchase through the organisation and out to the busi-
ness customer. Many organisations will also want to implement the same pro-
cesses within their suppliers, aware that the whole supply chain must operate
effectively if competitive advantage is to be maintained. Information for bench-
marking can be obtained cooperatively from other companies not in direct com-
petition, from trade associations, governments and agencies that specialise in
supplying inter-firm comparison information.
So marketing research will be adopted if information is needed for a new prod-
uct development or launch or a new promotional campaign, if sales of a particu-
lar product are falling, or if a company is thinking of expanding into another
country. In all probability one of the hundreds of marketing research agencies
would be hired for the purpose. Information from marketing research might be
used for any the following purposes:
o Analysing new market segments at home and around the world

o Identifying new markets and/or customers
o Researching the existing market for a new product/service launch
o Talking to buying organisations about future wants and needs.
4. Information, storage and analysis
To err is human, but to really foul things up requires a computer.

(Anon.)
Information from all the sources identified above needs to be classified, stored,
analysed and, where necessary, cross-referenced for ease of use. In the distant past
this task would have been undertaken manually (probably through use of a
carded classification system), but now even the smallest of companies can have
access to more sophisticated information technology (IT) methods.
Information technology and the use of computers enable large amounts of
information to be stored in an information database, retrieved in moments,
cross-informational comparisons made, cross-fertilisation exercises undertaken
and statistical and computer models used to examine and test the scientific
validity of research undertaken or assumptions formulated. One database can be
compared with another so organisational spend might be evaluated against pro-
motional activity or buyer behaviour compared with level of personal contact
made. Networking and the internet allow this to be done on both a national and
an international scale.
Database marketing
The increasing number of uses for IT have led to the development of so-called
database marketing. The amount of data now available has allowed organisations
to build huge computer databases on their existing and potential customers and
markets, full of detailed information that can then be used accurately to market
products and services directly and personally to all B2B customers as and when
needed. A whole range of customer characteristics can be entered into the data-
base: size of potential order, buying cycle, benefits wanted, and so on, and then
cross-referenced so that individual company and buyer profile can be developed.
This will enable the seller to offer customised products and services when and
where needed that exactly match customer needs.
Relationship marketing
The enhanced capability offered by database marketing enables the producer to
develop an ever closer interactive relationship with existing or past customers on
a long-term continuous basis. Most B2B marketing relationships used to be based
on individual transactions, each meeting between salesperson and buyer being a
negotiated exercise where the seller would want the highest price and the buyer
the lowest. This is still the case in some industries. However, research has shown
that it is much more expensive and time consuming to gain new customers than
it is to hold on to the existing ones. The development of IT capabilities has
enabled constant, personalised, interactive contact to be built. In B2B, one
customer can account for a large proportion of the seller’s turnover and their loss
to a competitor can at best blow a large hole in company sales and at worst put
Figure 3.2
B2B
relationship
and transaction
marketing
the company out of business. So B2B buyers like Ford or GKN will be contacted
on a regular basis, either personally or by letter, e-mail, magazines, etc., with
information and advice about such things as new and existing products, special
offers or problems that might be happening. The concept underpinning this
form of ‘relationship marketing’ is the hope that the customer will be so satisfied
they are won and held for life (Figure 3.2).
Customer relationship management

Relationship marketing has spawned the development of so-called ‘customer
relationship management’ (CRM) programmes. These programmes might take
slightly different forms but the underpinning concept is the building of
computer-aided systems that promote good and continuous relationships across
every customer contact point. CRM programmes will be discussed in greater
detail in later chapters. If they work as hoped, a business can gain the following
advantages. At the strategic level:
o Understand and predict customer needs
o Build valued and long-term customer relationships
o Identify heavy and light users and manage customer profitability
o Improve branding and customer loyalty
o Market and sell across the whole product portfolio
o Contain delivery costs.
At the tactical level:
o Provide better customer service
o Make call centres more efficient
o Cross-sell products more effectively
o Help sales staff close deals faster
o Simplify marketing and sales processes
o Discover new customers
o Increase customer revenues.
Example 3.7 How much does CRM cost?

A survey (2001) of more than 1600 business and IT professionals conducted by
the Data Warehousing Institute found that close to 50 per cent had CRM project
budgets of less than $500,000. That would appear to indicate that CRM doesn’t
have to be a budget-buster. However, the same survey showed a handful of respon-
dents with CRM project budgets of over $10 million. Industries leading the way in
CRM implementations include most leading-edge technology implementations, the
financial services and telecommunications industries. Other industries on the CRM
bandwagon include consumer goods makers and retailers and high-tech firms.
Manufacturers seem to be falling far behind.
CRM in B2C markets compared to B2B

We must all be aware of the growth in loyalty programmes and customer rela-
tionship programmes in the B2C markets. The challenge is different in B2C than
in B2B. In the B2B sector, buyers and buying contact points are restricted and,
because of continuous consolidation, are becoming more limited. Sellers tend to
know the buyers, often from a personal perspective, and so circumstances are
more propitious to building interactive relationships. This is not the case in the
B2C sector. Retailers attempt to build CRM programmes with end consumers, but
with limited appeal. There are millions of individual shoppers and so contact
cannot be personal. Loyalty, if it exists in a meaningful way, is arguably super-
ficial and easily dissipated. Most consumers are now promiscuous shoppers. They
might hold many loyalty cards and will shop at different locations and different
stores as the mood dictates. The big retailers are aware of this and constantly
upgrade benefit offers and methods of contact. They might hold on to certain
customer segments for longer than others but, because of competition, choice,
and continuous product benefit upgrades, the loyalty demands will always be
one-way, from store to consumer, impersonal and under threat.
Figure 3.3
The B2B
marketing
information
system (MkIS)
Part 2 The B2B marketing research process

Copying an idea from an author is plagiarism. Copying many ideas from
many authors is research.
(Anon.)
We will now look in more detail specifically at the marketing research process. As
identified above, marketing research is undertaken for a special purpose and the
following factors need to be considered when using it to gather information.
o Clear marketing objectives

The beginning of the marketing research process, and arguably the most import-
ant stage, is to clearly identify what information is needed. This may sound sim-
ple but often this part of the process is the most difficult, frequently characterised
by confusion and ambiguity. If the real problem is not identified at the very
beginning, the whole process will be distorted. So the problem holder should
seek, in discussion with others, to be crystal clear about the marketing research
objectives. This will probably mean knowing the answers wanted before the
results programme begins.
Marketing researchers, whether working for their own organisation or for an
outside agency, must develop skills in getting to the heart of the problem. This
will involve talking to the client, going away and analysing the information and
then returning with the ‘brief’ that sets out the client’s needs as the researcher
understands them. This process will be repeated, back and forth if necessary,
until no one is in any doubt about the purpose of the marketing research.
The marketing research budget

All marketing projects will include some form of financial cost. Marketing
research is no different, so the budget will have to be decided upon. First, a cost
benefit analysis should be undertaken to decide whether the information needed
warrants the costs involved. Obviously if the costs, time and effort involved out-
weigh the value of the expected returns, then it would be better to choose
another option. There are many ways to decide the amount to spend on the mar-
keting research budget and more often than not it comes down to what the com-
pany can afford. As with any budget amount, there is ideally only one method
that should be used and that is by task and objective. Decide the informa-
tion that needs to be collected, set the objectives, and from this work out what
the costs might be. However, this can be an unrealistic approach as many organ-
isations have to work within certain financial resource constraints. Budget
research setting methods include:
o Task and objectives

o What the company can afford
o As a percentage of turnover
SECONDARY RESEARCH (DESK RESEARCH) 119
o Market average
o The same as the year before.
If the costs, time and effort involved in undertaking marketing research outweigh the value
of the expected returns, then it would be better to choose another option.
Secondary and primary research

There are two distinct types of research: secondary and primary research. The
marketing practitioner will probable use a combination of both. Secondary
research is probably used more, and primary research used less, in B2B marketing
when compared with B2C. This is because the B2B manager is concerned with
such things as long-term economic trends, industry norms and market growth
and decline, while the B2C manager, although concerned about these issues, will
also need detailed primary information about the changing attitudes, lifestyle
and behaviour of millions of consumers. We will look at each in turn, beginning
with secondary research.
The collection of information can be costly and time consuming, especially if
it means calling in an outside agency. Therefore it is important to appreciate that
there is a great deal of information that can be collected, at relatively little cost,
without the marketer ever leaving the office desk (hence it is sometimes called
‘desk research’).
o Secondary research (desk research)

Because of the nature of the markets, B2B organisations are heavily dependent on
quantitative secondary research on which to base planning activity. Business
confidence and business purchasing activity are based upon particular economic
and industrial trends that will probably affect all in the industry. Market size,
growth and potential tend to be the overriding concern, rather than the con-
sumer psychology associated with the B2C. So a variation in interest rates and
high value of the pound will affect everybody in manufacturing.
Companies that export products and services will suffer because prices will be
more expensive and so could be uncompetitive. Conversely, companies that
import will find that these goods and services are less expensive. Similarly a
change of market circumstances, e.g. a rise in the price of oil, an increase in the
minimum wage or higher steel prices, will probably affect all in the same indus-
try. This effect will probably be felt within a very short time as an increase in B2B
costs can often be passed on with the minimum of delay. This is especially so if
there are only a few buyers and sellers in the market.
These sorts of changes will impinge on the B2C market, but their effect will
probably be diluted, as the affected costs and prices will be spread across millions
of customers, possibly across several target markets. It also takes longer to filter
price increases through the supply chain to the end consumer, that is supposing
the lack of competition will allow this to happen.
Secondary research in B2B Markets

o B2B industries are more heavily dependent on secondary research than B2C.
o B2B industries are less dependent on primary research than B2C.
o More secondary macro information is available about B2B markets nationally
and around the world.
o Governments collect macro information for their own use and this then
becomes available to organisations.
o B2B organisations are likely to respond, often immediately, to macro envir-
onmental trends.
o Fewer buyers in B2B markets make secondary information often directly
applicable.
o Industries and organisations are likely to behave in ways identified by sec-
ondary research.
Secondary research in B2C markets

o B2C markets are more dependent on primary than on secondary research.
o Hundreds of millions of consumers make secondary information not imme-
diately applicable.
o Individuals’ motives are difficult to ascertain from secondary segmentation
information.
o Individuals and groups can take a long time to respond to changes in the
macro environment.
Information technology and the development of the

World Wide Web
There has been an explosion in the amount of secondary information now avail-
able to businesses at the touch of a keyboard. This is especially so since the
advent of the World Wide Web and internet. In fact there could be a case to argue
that there is too much information potentially available, creating the ‘not being
able to see the wood from the trees’ syndrome. This said, there is no doubt that
the development of IT and the internet have created a revolution in the almost
instantaneous availability of limitless data from around the world. A desk and a
computer modem linked to the internet now allow the B2B practitioner to seek
relevant information from every corner of the globe. Some of the information is
free and some has to be paid for. Some information is available to trade associ-
ation members and some available to all and sundry.
Industry and market reports from organisations around the world can now be
either directly downloaded from a website or sent by e-mail rather than having
to send a hard copy through the post or by fax machine. This has sped up and in
some cases reduced the costs of the whole information giving and receiving process.
Research organisations such as Mintel Information Services (www.mintel.co.uk)
make hundreds of industry and market research reports available online that can
be downloaded at the click of a button.
Other information collecting tools also include the telephone, fax and services
such as Prestel, Ceefax and Oracle that are delivered through the TV set or com-
puter modem. Information is now available online, or on CD-ROM, DVD and
magnetic tape.
B2B secondary information sources

Secondary research concerns B2B information that has already been collected by
others (hence it is also sometimes known as ‘secondhand’ research). It is available
from many sources and in a variety of forms as long as the marketer knows where
to look.
Internal sources
The first place to go for information will be within the organisation itself. This
might be from one company or, if global, from many divisions around the world.
If there is an MkIS, then it is here that the first approach should be made. There
might well be an intranet (internal internet) or an extranet (external private
internet available only to a selected group of companies) online system in opera-
tion. Again this resource should be the first port of call. The task for internal
providers is to make the right information immediately available when wanted
in a form that matches the requirements of the internal customer. This task has
sometimes turned out to be a problem because of the lack of presentation skills
shown by the computer technicians who put together the computer programs.
There should be a systematic approach to the collection, classification and dis-
semination of information based on the clearly agreed and identified needs of the
various internal and partnering information consumers with feedback, monitor-
ing, control and evaluation factors built in.
External sources of information

1. Government
2. Professional/trade associations
3. Commercial information gatherers and consultants.
1. Government sources
All countries operating in modern industrial markets will offer organisations
access to information about the workings of government departments, as well as
access to specially collected information that might help the individual company
in the more effective running of its business. This will include information on
political, social and economic matters on a national and global level, at both
macro and micro level. As discussed in Chapter 1, most power brokers are now
committed to the economic paradigm of the free market and politicians gener-
ally accept the need for easy access to all types of information if businesses are to
compete successfully in world markets.
Example 3.8 Government research spending

The Taiwan government has revealed plans to spend $1.43 billion in fresh loans to
help R&D projects in a bid to double the industrial output of key sectors. These
industrial development loans would benefit Taiwan’s hi-tech industries in particular
and would aid the development of products such as computer chips and TV screens,
as well as of digital content and of biotechnology. In all, 17 of Taiwan’s industries
stand to benefit. The government is predicting that colour displays and semicon-
ductor sales are set to soar. Communication technologies, including broadband and
wireless, would also benefit. There would also be money available for industries
producing precision instruments and for the hi-tech textile sector. Companies work-
ing on the production of electric cars and aircraft would also be eligible for support.
Open access to government information

Some of the information is made available because of legal obligation, but
increasingly over the last decade many departments have been encouraged to
make more available, both as a commercial exercise (to bring in revenue) and as
an aid to business effectiveness and efficiency, especially as markets become more
competitive. There has also been political pressure on government to become
more open in its activities and thus make more information available to the
public as a matter of course and as a right in a democratic society. The same
demands have been aimed at pan-European information. Whether in reality this
is happening is still open to conjecture, with some arguing that, because of vested
interests, it will never happen, while others maintain it is only a matter of time.
At present some countries allow more public access to information than others,
either through legislation or by general consent.
The growth of the internet has hastened the process and the amount of govern-
ment and quasi-government documents on the web seems to increase exponen-
tially every month. Government information sources which can be seen on the
government information website (www.open.gov.uk) include the following areas.
Office of National Statistics (ONS)

The ONS is a so-called next-steps executive agency, an independent government
department in its own right (supposedly free of government interference). It
is accountable directly to the Chancellor of the Exchequer. The ONS works in
partnership with statistical staff in other government departments, attempting to
give a rounded picture on the state and development of the UK economy as well
as an overview of international economies.
The amount of data produced by the ONS is enormous, covering many areas
of social, economic and business activity at both a macro and micro level:
o Economic data
o Product data
o General business statistics
o Labour markets, employment and unemployment statistics

o Gross domestic product (GDP) estimates on the movement of goods and ser-
vices in the UK
o Retail sales statistics
o General household statistics
o Retail Price Index (RPI), the measure of inflation used to indicate movements
and changes in consumer prices
o Social and lifestyle changes
o Demographic changes, movements, births, deaths, marriages
o The National Census which is carried out every 10 years, making public
demographic information available about all residents of the UK.
Government Statistical Service (GSS)

The Government Statistical Service (GSS) is the main publisher of official business
statistics in the UK. Most industrialised countries have similar services and, as dis-
cussed in Chapter 1, there is movement to standardise procedures and publica-
tions across all government statistics so that methods can be harmonised and
realistic comparisons made. The GSS publishes information in books, reports and
leaflets, as well as on audiotape and disk. In 1997 the Integrated Database (ID)
division of the ONS was formed with the task of setting up and maintaining a
central database of major economic, social and business statistics produced to
common classifications, definitions and standards. In its Digest Series it publishes
the Annual Abstract of Statistics, Monthly Digest of Statistics and Financial Statistics.
UK Official Publications (UKOP)

The UK Official Publications (UKOP) is the complete catalogue of all official pub-
lications. Many can be viewed both on CD-ROM and on the ONS website. UK
Online now contains records for over 360,000 official publications and is updated
and expanded on a monthly basis. As well as cataloguing and publishing UK par-
liamentary, departmental and agency publications, it also publishes works from
supranational bodies such as the EU, UN and WHO.
The Stationery Office/National Publishing Group

Formerly HMSO, the Stationery Office/National Publishing Group is the key dis-
tributor of government publications and is now a private company, having been
denationalised in 1996.
Other government information providers

All government departments will provide information on request, including
pamphlets, leaflets, circulars, brochures, books, videos, CDs, DVDs, maps, posters,
statistics, codes of practice, consultation documents and press releases. Much
information is free, while other information is marketed commercially and has
to be paid for. This might be either through the relevant department or through
the Stationery Office. The following departments offer information that is cov-
ered by Crown copyright:
o HM Customs & Excise: mainly customs tariffs and value added tax guidance.
o Ministry of Agriculture, Fisheries and Food (MAFF): food data and food advice.
o Defence Department: defence standards, expenditure plans and statistics,

manpower reviews.
o Education: expenditure, staffing levels, expected educational standards.
o Employment: numbers in and out of employment, skill levels.
o Environment, Transport and the Regions.
o Health Department: expenditure, annual reports, state of the nation’s health,
advice.
o Home Office: police, prison, crime statistics.
o HM Land Registry: ownership, applications, consultation documents.
o Government Actuary’s Department.
o Inland Revenue: corporate and consumer tax levels.
o National Audit Office: monitors income and expenditure figures for most
government departments.
o National Savings: savings statistics and trends.
o Office of National Lottery.
o Office of Fair Trading: press notices, leaflets and annual reports on possible
consumer abuse.
o Social Security: social income/expenditure, explanatory and legal documents,
discussion papers.
o Department of Trade and Industry: company, country searches, exports,
imports.
o Treasury: national income, national expenditure (GDP, GNP).
Most can be found on the UK government website (www.open.gov.uk).
Companies House
Companies House works under the auspices of the Department of Trade and
Industry (DTI) and is responsible for legal matters including the registration
of new companies, insolvency and deregistration of old companies, enforcing
legislation compliance, and supplying company information to the public. It
holds information on 1.4 million companies in the UK which is now available
on CD-ROM and soon to be available online. Official organisations that publish
documents not covered by Crown copyright include the following:
o Competition Commission: consultation and investigation documents on
possible mergers, alliances and take-overs.
o Bank of England: official monetary policy, financial markets, regulations and
codes of conduct (www.bankofengland.co.uk).
o British Tourist Authority: tourism, leisure, eating out.
o Civil Aviation Authority: airports, air transport, regulations.
o Gaming Board of Great Britain: gambling statistics, licensing.
o Sports Council: sports, leisure, fitness data.
Government electronic business gathering, storage, analysis and presentation

The UK government is committed to putting more information processes in elec-
tronic form on the internet. It is particularly concerned about small and medium
sized enterprises (SMEs) as they do not always have the resources to gain access
to information in the same way as larger companies.
In 1998 the UK government launched the Enterprise Zone website
(www.enterprisezone.org.uk) as an internet portal to monitoring the quality of
other business information sites and recommending the best.
Data protection
Many countries have now enforced certain legal obligations with regard to the
holding of information on individuals. This means that all business organisations
must now follow a strict code of conduct with regard to the collecting, storing,
analysing and disclosing of information. Failure to conform can lead to prosecu-
tion and compensation awards. Example 3.9 contains the UK rules with regard to
data protection, taken from the UK government website.
Example 3.9 Data Protection Act 1998, UK, came into force March 2000
The rules
Anyone processing personal data must comply with the eight enforceable principles
of good practice. They say that data must be fairly and lawfully processed, pro-
cessed for limited purposes, adequate, relevant and not excessive, accurate, not
kept longer than necessary, processed in accordance with the data subject’s rights,
secure, and not transferred to countries without adequate protection.
Personal data covers both facts and opinions about the individual. It also
includes information regarding the intentions of the data controller towards
the individual, although in some limited circumstances exemptions will apply. With
processing, the definition is far wider than before. For example, it incorporates the
concepts of ‘obtaining’, holding’ and ‘disclosing’. Failure to conform can lead to
court compensation awards to the injured party. (www.dataprotection.gov.uk)
Information Commissioner (UK)

The Information Commissioner enforces and oversees the Data Protection Act
1998 and the Freedom of Information Act 2000. The Commissioner is a UK inde-
pendent supervisory authority reporting directly to the UK parliament and has
an international role as well as a national one. In the UK, the Commissioner has
a range of duties including the promotion of good information handling and the
encouragement of codes of practice for data controllers, that is anyone who
decides how and why personal data (information about identifiable, living indi-
viduals) is processed.
Statistics Commissioner (UK)

The Statistics Commission was set up in response to concerns expressed by some
about the independence and use of government statistics, especially by politicians.
The independent Statistics Commissioner will have the responsibility of advising
on the quality, quality assurance and priority setting for national statistics, and
on the procedures designed to deliver statistical integrity, to help ensure national
statistics are trustworthy and responsive to public needs. The Statistics Commis-
sion is independent of both ministers and the producers of national statistics.
Figure 3.4
Standard Industry Classification Group A – Agriculture, Hunting and
Standard (SIC) codes Forestry
Industry Group A Agriculture, Hunting & Forestry 0111 Grow cereals & other crops
Classification Group B Fishing 0112 Grow vegetables & nursery products
(SIC) codes Group C Mining & Quarrying 0113 Grow fruit, nuts, beverage & spice
Group D Manufacturing crops
Group E Electricity, Gas & Water Supply 0121 Farming of cattle, dairy farming
Group F Construction 0122 Farming sheep, goats, horses, etc.
Group G Wholesale, Retail; Certain Repairs 0123 Farming of swine
Group H Hotels, Restaurants, Bars, Catering 0124 Farming of poultry
Group I Transport, Storage & 0125 Other farming of animals
Communication 0130 Crops combined with animals,
Group J Financial Intermediation mixed farms
Group K Real Estate, Renting & Business 0141 Agricultural service activities
Group L Public Administration & Defence 0142 Animal husbandry services, not vets
Group M Education 0150 Hunting & game rearing inc.
Group N Health & Social Work services
Group 0 Other Social & Personal Services 0201 Forestry & logging
Group P Private Households with Employees 0202 Forestry & logging related services
International official bodies

Organisations also have access to a wealth of information (now much more
accessible because of the development of IT) from national and supranational,
official and semi-official, ‘umbrella’ bodies. These bodies have many departments
offering information on a whole raft of business, government, NFP, group and
individual areas:
o The European Union: information, regulations, discussion documents, etc.,
on all EU member countries.
o International Trade Centre: set up to help companies to trade; information,
reports, import/export statistics.
o United Nations (UN).
o Organisation for Economic Cooperation and Development (OECD).
o International Monetary Fund (IMF): 182 members; facilitates international
trade; exchange rates; issues SDR (special drawing rates) to help countries
with balance of payments problems.
o World Bank: economic and industrial development data, country by country.
o World Trade Organisation (WTO): 134 member countries; set up in 1995;
facilitates world trade (GATT), etc.; a mass of information, reports and links
on world trade.
There have been moves across the UK, EU and the rest of the world to both
classify and standardise information so that red tape can be reduced, business
activities more easily undertaken and information made easier to collect and
understand. Figure 3.4 shows the standard industry classification codes (SIC) for
the UK. The US (NAICS) and EU methods are different, but there are moves afoot
to bring all in line with one another.
B2B PRIMARY RESEARCH 127
2. Professional trade associations

There are more than 200 trade associations in the UK and thousands around
the world. Some are more important than others and so have more power, often
consulting on a regular basis with national and transnational governments, col-
lecting information, offering advice and lobbying on behalf of members. Trade
association member opportunities include:
o Access to information about the industry and markets.

o Legal advice.
o Networking opportunities with other members.
o Access to government departments and ministers.
o Lobbying on behalf of members on a national and transnational level.
o A meeting place where members can come on a regular basis to discuss
problems of general interest, gather information on current issues, speculate
about future scenarios and listen to invited experts in relevant business areas.
o Library facilities both online and offline.
o Exhibitions and conferences.
3. Commercial information gatherers and consultants

There are also many hundreds of independent research companies working
around the world offering an enormous amount of information on every pos-
sible aspect of marketing. Example 3.10 presents just a small selection.
Example 3.10 The top five marketing research companies in the world
(both B2B and B2C)
1. ACNielsen Worldwide (US). Media research, monitors spending of advertisers
in main media, addresses worldwide; now owns Multi-Media Services MMS
(www.acnielsen.com).
2. IMS Health (US). Health research (www.imshealth.com).
3. Kantar Group (UK). Owns Research International, Millward Brown, BMRB,
Goldfarb, Kantar Media Research, IMRB (India). Part of WPP advertising group
(www.kantar.com).
4. TN (Taylor Nelson) Sofres (UK). Has quantitative research contract with BARB
(4425 modems on TVs in UK households) (www.tnsofres.com).
5. NFO Worldwide. Part of Interpublic Group (www.nfow.com).
o B2B primary research

Despite the amount of secondary research information available, there will always
be circumstances where information needed is not available. When this is the case
the company will have to instigate primary research. Primary research is new
research undertaken by an organisation to help solve a problem that existing
information cannot solve. It should never be undertaken lightly because of the
possible high cost involved. B2B primary research can be broken down into three
basic types:
1. Experimental research
2. Observation
3. Surveys.
1. Experimental research
In experimental research the researcher controls and manipulates elements of the
research environment to measure the impact of each variable. For example, a
group of test subjects might be shown several television commercials (in B2C
markets) or video presentations (in B2B markets). After each one the group is
asked questions designed to measure the likelihood that they will purchase the
product advertised. This tends to be used more in B2C than B2B markets. It might
be used to test the following in B2B markets:
o Effectiveness of new trade advertising, or competitors’ trade advertising

o Effect of various prices on sales of a product, service, or bundles of benefits
o Buyer acceptance of new products in trial and repeat purchase levels
o Effect of different package designs on product, protection and on sales.
2. Observation
Observational research is attractive because it is low in cost and can be carried out
by people or machines. In simple terms it involves observing some phenomena
and counting and recording so as to identify similarities and differences.
Non-human methods of observational research

Non-human, mechanical or computer methods are used for counting the num-
ber of vehicles on a particular highway or bridge, traffic on websites or use of
electronic point-of-sale (EPOS) computer equipment. For example, transport
information is crucial for organisations in the road, bridge and tunnel construc-
tion industries. It is especially important for construction companies that are
paid according to the amount of traffic using a particular road, bridge or tunnel
under the government’s Public–Private Finance Initiative (PPFI).
EPOS will identify all the products by name and price and, linked to the cus-
tomer loyalty card, will provide purchasing information on the customer. Video
cameras and electronic eyes are used to watch movement around the store that
can then be used to inform product and display layouts. This information is vital
in B2C retail markets where its uses are widespread and indispensable. It is also
useful for companies that market retail related products and services such as com-
puter systems, cameras, loyalty card technology, retail shelving, and so on. A
similar system is used in B2B markets where information can be kept on B2B
products and services bought along the supply chain.
B2B organisations can also monitor business website visits more easily than
consumer visits. This is because large businesses often have their own dedicated
server so that name can easily be trapped and visits monitored. This is not the
case with the non-business visitors as they tend to access through a large national
or international web server, making their visits more anonymous.
Human observation
Human methods of observational research will have people doing just that. Com-
petitors can be watched, both directly and by news and information emanating
from company documents and trade and popular media, to see what moves they
might make, what resources are being used and what new methods might be used
to gain better customer satisfaction. Salespeople should be able to observe the
competitors in action to see which suppliers, inventory holding, channel of
distribution and transport system is in use, as well as the competitive advan-
tage being gained overall. They can also look for new customers by observing the
addresses on sides of lorries, on display boards at industrial and business sites, etc.
Competitors’ products can be obtained and stripped down in a form of reverse
engineering, and information gleaned on innovation and design advancements.
Some suppliers have even found it profitable to wait outside an existing or
potential customer so as to observe which suppliers it does and does not use.
In some cases employees from one firm will spend days, weeks or even months
working with employees in another. In this way it is hoped that a real and mean-
ingful understanding and insight into both supplier and buyer needs can thus be
obtained. Informal observation can be important for many industries and man-
agement and staff are encouraged to keep a lookout for activity in the environ-
ment that could be a possible source of new business. This might be building
taking place, new offices opening or factories changing industry usage.
3. Surveys
The use of the B2C survey is probably the method most recognised by the profes-
sional and layperson alike. The image of the person in the high street holding a
clipboard and stopping passers-by is ubiquitous. Surveys are used in B2B but not to
the same extent as in B2C. Surveys in B2C are widespread and used on a grand scale
with interviews involving hundreds of thousands of individuals taking place con-
tinuously. Both governments and commercial organisations seek to get informa-
tion on such things as living standards, leisure pursuits, health, buying intentions,
and so on. Because sellers want to know about such things as buying intentions
and satisfaction levels from organisation personnel, surveys in B2B, although still
ongoing, are on a lesser scale than those carried in the consumer market.
Surveys in B2B markets

As with consumer markets there comes a time when the secondary information
available about an industry or a particular market is outdated or not relevant or
its integrity is suspect. Under these circumstances the company might have to
undertake some primary research in the form of a survey. This is much easier and
usually much less expensive than in B2C markets as it is possible to obtain the
information needed from relatively few people, as long as they are the right
people. This is because in B2B markets a few people can be responsible for
extremely large and important purchasing decisions.
Survey methods in B2B primary research

As with B2C there are different ways that surveys can be conducted in B2B mar-
kets. These can be carried out by:
o Post
o Telephone
o Internet
o Person-to-person.
Post
Postal research is often used to try to obtain information from business decision-
makers. It is quick, reasonably inexpensive and can be conducted over a wide
area. It is crucial that the right person is contacted by the correct name and title,
if at all possible. As with all postal questionnaires, response rates tend to be low
but are usually better in business than in consumer markets (they can be as low as
1 per cent in consumer markets and as high as 50 per cent in business markets).
This is because named contacts can be used. The questions asked should be
industry relevant with the respondent answering for the company rather than
himself. Response rates can be greatly increased if respondents are offered some
type of incentive and/or the letter is preceded or followed up with a phone call
or e-mail. Mail-outs can be used successfully with B2B and B2C respondents.
Direct mailing lists

Up-to-date business names and addresses can be obtained from specialist list
brokers, either to purchase or to rent. It is crucial that the information is current
and correct so the names, job positions and addresses should all have been
recently checked to make certain this is the case. In this way there is every chance
that the letter will be opened. A letter sent to a buyer who has retired or died five
years ago is an unprofessional introduction to a company wanted as a long-term
customer. Ideally the direct mailing list should have been audited by an outside
independent body such as the Audited Bureau of Circulation (ABC).
Telephone
This is one of the most favoured ways of contacting business decision-makers. It is
inexpensive, quick and, providing one can develop techniques to get past the gate-
keeper and voice-mail, a relatively successful way to talk to managers in authority.

It can be used successfully in conjunction with other methods such as a follow-
up letter or an e-mail, and in both B2B and B2C markets.
E-mail, websites, videoconferencing

There has been an exponential growth in the use of e-mail for marketing research
but its success or otherwise is still open to investigation. There is no doubt that it
is an easy (for both sender and respondent) and inexpensive way to get informa-
tion on customers if they are prepared to take the time to answer. As with the
other types of research methods discussed above, there is more likelihood of a
favoured response if personal contact is made beforehand or if the respondent
and sender are already known to one another.
If the respondent can be encouraged to the website, perhaps by a promotional
offer of some kind, then a simple questionnaire might be offered. The same
research process might be used with regular users of the website if they can be
persuaded about the mutual benefits involved.
In some cases companies have persuaded business opinion leaders to take part
in online and/or videoconferencing focus group research. All these methods have
been used in both B2B and B2C markets although success rates have yet to be
realistically measured.
Permission marketing
The growth in e-mail has seen the development of so-called permission market-
ing. The idea behind this concept is that buyers are asked if they would mind
suppliers and researchers contacting them on a regular basis with information on
new products and services as well as to ask research questions that would be of
value to both supplier and industry. In this way buyers are not offended and
there is every chance that the missives will be opened and read.
Person-to-person
This is a very expensive method to use in B2C markets where the need person-
ally to interview thousands of individual end consumers can be extremely costly.
Although potentially expensive, it is probably the most effective method for
research in B2B markets. If undertaken correctly, costs can be kept to a minimum
according to sample size, geographical spread and research objectives. Using
salespeople can be attractive as questions can be asked in the course of the sales
interview and presentation, but their lack of skill and focus may detract from
achieving quality results. The ability to ask questions face to face, to gauge reac-
tions and to help explain difficult questions is a powerful technique to use in
seeking out information on future intentions.
A combination
Many organisations use a combination of two or more of the above methods,
each reinforcing the other. Because sample sizes needed to get at the relevant
information in B2B are so much smaller than in B2C, survey research can be less
costly and much less time-consuming. It is possible to obtain valuable informa-
tion from samples as small as four or five. As with all forms of research, it is crucial,
however, that the sample interviewed is representative of the whole wanted

target market.
Omnibus edition
A relatively inexpensive way of getting a small amount of primary research is to
commission questions on a commercial agency’s omnibus research programme.
A general research survey covering a particular industry is set up and company or
trade association contributors are invited to purchase a number of questions to
be asked. These can be undertaken on both a national and international scale.
B2B survey methods

o Secondary research is more popular than primary research.
o All survey methods can be used successfully.
o Telephone, post and e-mail can be directly targeted to known and named
respondents.
o It is easy and straightforward to check integrity of business lists.
o Forewarning can be given that a survey will arrive, making response more
likely.
o Relatively few business respondents need to be contacted to make the survey
worthwhile.
o Personal interviewing is relatively inexpensive because of the number of
people involved.
o Known contacts vouch for the integrity of the sample and veracity of the
answers.
o Answers are based on rationale nearer the wanted truth.
B2C survey methods

o Primary research is more popular than secondary research.
o All survey methods can be used successfully.
o Telephone, post and e-mail cannot be targeted in a meaningful way at
known respondents.
o Respondent lists are often poor and lack integrity because of the number of
addresses involved.
o Tens of thousands of individuals must be contacted to make the survey
worthwhile.
o Poor response rates and uncertainty about the person responding.
o Personal interviewing is very expensive because of sample size.
o There are problems with bias, uncertainty about the veracity of the sample
and arguments over the interpretation.
o Answers often based on emotion can sometimes lead to misunderstandings
and a flawed research survey.
Quantitative and qualitative methods of research

It is possible to distinguish two distinct types of primary research methods:
1. Quantitative research
2. Qualitative research.
1. Quantitative research
Most questionnaire surveys use structured questions that have been rigorously
tested before use, and with answers that can be quantified into clearly defined,
coded compartments. This facilitates the collection, classification and analysis of
the data and allows computer and statistical techniques to be used. All questions
on the questionnaire are arranged so that any answer given can be coded and
recorded in mathematical form. Questions asked need to be ‘closed end’, ‘yes–no’
or ‘running choice’ type questions. This allows the statistics to be presented in
terms of percentages so that trends across all areas and past years can be compared.
The quantitative method is attractive because it allows researcher bias and sub-
jectivity to be minimised and the process to be undertaken in a quasi-scientific
manner, with results presented in a detached and objective statistical form. Most
government economic and trade statistics are collected and presented in this
way. Although all organisations carry out quantitative research, B2B companies
use it more than B2C companies because small numbers of answers based on
rational opinions can translate into reliable statistics which can then be meas-
ured alongside the quantitative data.
Quantitative research is used more in B2B than in B2C.
2. Qualitative research
There are disadvantages and limitations with quantitative research which are felt
more in consumer markets than in business markets. Understanding customers
also involves seeking out opinions, emotions, gut feelings and latent or subcon-
scious thoughts. To overcome the problem marketers have worked with sociolo-
gists and psychologists to develop a group of techniques known collectively as the
‘qualitative approach’. Through the use of these techniques, researchers hope to
get at customers’ innermost thoughts and feelings, often unobtainable in other
ways. Because end consumers buy products more for emotional reasons, while
businesses buy for rational reasons, qualitative research is used more in B2C than
in B2B. Qualitative research will lack the objectivity of quantitative research and
so great care should be taken in the interpretation of results. This is usually left
to the skills of an expert in this field because of this difficulty.
Qualitative research is used more in B2C than in B2B.

Having said this, however, there are times when sellers want this kind of
information from business buyers and so this type of research might well be used.
Qualitative techniques include the following:
o Panel, focus or discussion groups
o In-depth interviews
o Shadowing
o Psychoanalytical techniques.
Panel, focus or discussion groups

With this method, groups of industry managers, workers, experts, etc. are brought
together to discuss particular problems. A recording in sound or video is taken and
analysed afterwards by a skilled interpreter. Exercises like these can be difficult in
setting up because of the time involved in bringing very busy people together. It
will make a difference if all participants feel that they might gain valuable informa-
tion from the process. Videoconferencing and internet ‘chat room’ type exercises
can also be set up and the same procedure performed and recorded. These can be
more attractive as less time and travel will be involved. So-called ‘quality circles’
are used throughout factories to get internal customers to talk to one another in
order to improve quality and effectiveness in business process methods.
Example 3.11 Videoconferencing focus groups

While most market research professionals will agree that watching focus groups via
videoconferencing is not as effective an experience as observing from behind a
one-way mirror, it is far better than listening to audio or videotapes after the event.
Videoconferencing does enable the client personnel to observe the proceedings
in real time, and therefore have the opportunity to provide input to the moder-
ator. However, there are problems that should be considered. The authority role of
the moderator is one of the most important reasons why traditional focus groups
are so important. It is virtually impossible to establish authority from behind a com-
puter screen. A good focus group also utilises interaction and body language to
explore topics in more detail, show stimuli and draw out the feelings of each of the
participants based on their reactions to what others in the room have said. It is also
impossible to address these issues with an online focus group.
In-depth interviews
In-depth interviews can be structured (as in quantitative research), semi-structured
or unstructured. These have the advantage in that industry-experienced and
knowledgeable people can be interrogated in a sympathetic one-to-one situation.
Qualitative interviews can also be conducted by telephone, internet and video-
conferencing with varying levels of depth information acquired. In contrast to
B2C, a great deal of information can be obtained from a small number of inter-
views in the B2B market because even one ‘captain’ of industry will be able (if
he or she wishes) to divulge an enormous amount of relevant and important
information.
Shadowing
In some circumstances a company researcher from a business partner or com-
mercial agency will spend time – days, weeks or even months – with a partner (or
potential partner) business, following managers and workers around (shadowing)
and collecting information about working practices. This information can then
be used in adding value and developing the buyer–seller relationship.
Because this kind of research lacks the objectivity of quantitative research, care should be
taken in its interpretation.
Quantitative and qualitative methods combined

A research programme will often include both quantitative and qualitative
research methods. A discussion panel, in-depth interview or shadowing exercise
might throw up a consistent factor needing more information, which can then
be best tested by a more extensive quantitative survey. The survey content can be
matched against known secondary information either before the project has
finished, so as to identify questions that might need to be asked, or afterwards,
to consolidate or develop the findings.
Quantitative and qualitative research in B2B

o Quantitative research is used extensively in B2B.
o Small sample sizes are needed and questions easily tested.
o Representative samples are easy to obtain.
o Individual named contacts can be reached.
o Answers are needed and given based on rational assumptions as people are
buying for the company and not for themselves.
o Very little qualitative research is done, as this is used to get at underlying
emotional wants and desires.
o Qualitative research is used to get at the feelings of employees when these
might be based on emotion rather than rationality.
Quantitative and qualitative research in B2C

o Quantitative research is used but large sample sizes are needed.
o Quantitative sampling can be a problem because of the need for large samples.
o Quantitative research answers based on large group averages and individual
beliefs can get lost at the margins.
o In quantitative research the tightness of the questions forces respondents
into boxes based on rationality, despite the fact that emotional reactions
dominate.
o Qualitative research is popular and growing because of the need for

researchers to get at emotional feelings and opinions sometimes repressed
below the surface.
o Qualitative research has developed many methods to get at the many different
individual feelings that consumers have when buying products and brands.
Use of information technology in marketing research

The growth in information technology has given the marketing research depart-
ment or agency a powerful weapon in collecting, classifying, analysing, holding
and presenting marketing information in both B2C and B2B. A laptop computer
can now store and use more effectively the same amount of information that 25
years ago would have need a computer the size of a small room. They can also be
used in research to collect buyer information that can be almost immediately
downloaded to head office for classification and analysis. This potential is multi-
plied an almost infinite amount of times through connection to the internet,
intranet and extranet. This information can be made available to company sales
representatives as a sales aid at the moment of presentation, allowing for a know-
ledgeable and more professional approach.
Companies now have access to billions of items of data about markets, com-
petitors and availability of products and services from around the world. The
speed of information access is increasing with mind-numbing persistency and
organisations can have access to company and customer information often
instantaneously from around the world. Even smaller companies can buy in, rent
or lease information storage and retrieval facilities on large-scale global networks.
E-mail, website and videoconferencing (and text messaging) are all now used as
research methods and these were discussed above.
Overall differences in researching B2B and B2C markets
B2B research
o Demand is more concentrated in B2B.
o Secondary research is used more in B2B than in B2C.
o Buying for rational reasons rather than symbolic and emotional.
o Market size and potential rather than psychology.
o Smaller samples.
o Complex industrial buying centres can make decision-makers difficult to
locate.
o More quantitative than qualitative research.
o Markets change more slowly than consumer markets.
o A small number of buyers changing demand can have a large effect on
purchase.
o Research programmes can be relatively inexpensive.
B2C research
o Demand can be spread across many millions of individual consumers.
o Demand can be spread geographically wide, regionally, nationally and
internationally.
o Samples often need to be large.
o Decision-making unit more easily identified compared with B2B.
o Buying more for symbolic and emotional rather than rational reasons.
o Qualitative research is as important as quantitative research.
o Markets, styles and fashion can change quickly.
o A small number of customers changing demand will have a small effect on
purchase.
o Research programmes are usually expensive.
o High degree of consumer data protection laws.
Working with a B2B research agency

B2B research agencies will help organisations collect primary and secondary
information both for research projects such as new product development and
for all the sales forecasting information identified above. The B2B organisation
will have the choice of undertaking the research in-house, contracting out or out-
sourcing through an outside research agency. This decision will ultimately rest
on whether the B2B organisation can afford to pay the asking price for the infor-
mation wanted. A full-scale research programme can be prohibitively expensive,
especially if primary research is involved. An agency might offer all the research
services needed at both local and global levels, or it might choose to specialise by
task or by country. The smaller firm may buy services on an ad-hoc basis, with a
market report perhaps costing as little as £500. The research contract agreed with
the agency may be continuous, lasting over many years, or it may be an agree-
ment for a one-off marketing research programme.
Example 3.12 Commercial research organisations

o BMRB commercial site. Lists and good descriptions of services offered; owns
Target Group Index (TGI), part of the Kantar group (www.bmrb.co.uk)
o CACI, Marketing Systems Databases. ACORN (classification of residential
neighbourhoods); range of technological business solutions particularly on
customers and markets (www.caci.com)
o Dun & Bradstreet (UK). UK business failures and expectations; credit ratings;
excellent free database of 1.8 million UK companies’ names and addresses, etc.
(www.dunandbrad.co.uk).
o Euroquest; European Research Co. Pan-European marketing and social
research (www.euroquestmrb.com).
o Forrester Research. Internet research (www.forrester.com).
o Geodemographic information systems. Computer-generated maps offered for
anywhere in the UK (www.geoweb.co.uk).
Many more can be seen on www.studentshout.com
Syndicated and customised research

Research organisations will offer clients the option of buying in customised
research or taking part in a syndicated programme. Customised research will be
research tailored to meet the exact needs agreed between agency staff and the
B2B organisation. The B2B company might also choose to join with others need-
ing the same or similar research information. This type of syndicated research
will involve much less cost than customised research, but it will not offer per-
sonalised, detailed information at the same level.
Specialist research agencies

As with all types of business agencies, some are multipurpose and offer every con-
ceivable service and others specialise in a particular type of research. There are
companies that offer both B2B and B2C, while others concentrate in one area
rather than the another. Some agencies specialise in B2B in the public sector and
others in B2B in charities. One agency might concentrate on retail research and
another on manufacturing. One might have skills linked to financial services,
another skills in telecommunications. An agency might undertake most of its
work on quantitative survey research, while another might work mainly using
more individual and group qualitative research. The choice to be made will
depend on the problem in hand and resources available.
Example 3.13 B2B research specialities
Automotives
Taylor Nelson’s position as a leading global supplier of automotive research is
based on more than three decades of industry experience. Today operating with a
team of over 100 skilled automotive research professionals based in 26 countries,
TNS Automotive specialises in both syndicated and customised research to address
the complex information needs of major automotive manufacturers and component
suppliers.
Healthcare
Taylor Nelson Sofres Healthcare is one of the world’s foremost specialists in most
aspects of healthcare research. With a large team of experienced executives in
offices throughout Europe, the US and Asia, TNS Healthcare service suits clients’
needs at both an international and a local level. Most of the leading companies mar-
keting ethical and OTC products are included among its clients.
Telecoms
Taylor Nelson Sofres Telecoms is a global provider of a comprehensive range
of strategic and tactical business analysis and information for telecoms service
providers, equipment manufacturers and government regulators. Its range of syn-
dicated solutions and custom capabilities allows TNS Telecoms to meet most tele-
coms business information or marketing research challenges. (www.tnsofres.com)
B2B RESEARCH IN INTERNATIONAL MARKETS 139
o B2B research in international markets

Research can be difficult enough in the home country with problems associated
with accuracy, cost, timings, security, sampling and so on, but such problems are
magnified when needing to research abroad. Secondary research may be non-
existent, scant or just untrustworthy or inaccurate. Information, if in existence,
may be difficult to find and difficult to get at. Primary research can cause even
greater problems. The wanted target respondent sample might be impossible to
put together because of language and cultural problems, as might be the actual
questionnaire. Implementation might be fraught with unforeseen, on-the-
ground troubles, culminating in end results that are unconvincing and suspect.
In these circumstances it would sensible to use a research agency of some kind
and, as identified above, many exist. The options open for consideration would
include the following:
o An international research company with offices and wholly owned sub-
sidiaries around the world. Customer client contact would be centralised and
the whole research programme, including objective setting and presentation
of results, administered from the home country.
o A research company resident in the home country with links to international
agency networks and research partners around the world. Work would be
subcontracted to agencies belonging to these networks on the basis of their
relative merit for a specific project. In this way the clients could be offered
the most appropriate and cost-effective international research solution.
o Contacting a research company totally resident in the country of investiga-
tion. Agencies can be hired that will undertake the selection task.
Costs will vary according to the agency chosen, the research objectives and the
scale of the project. Other factors to consider will be the experience and local
insight, understanding of cultural and linguistic issues, and experience on work-
ing in the particular country from where information is needed.
Choosing a research agency

Whether to choose a large agency, small agency, all-purpose or specialist, will
depend on many factors, including research objectives and task to be under-
taken, costs, in-house skills and the present level of management knowledge. If
the research needs to be undertaken in a foreign country, a choice will have to
be made between a global research company with offices around the world or a
research company resident in the country under consideration. There are pros
and cons between choosing either the larger or the smaller organisation, includ-
ing such things as scale economies available versus a more personal service and
global market experience versus local knowledge.
Having decided which type of B2B agency is needed, there is the problem of
deciding which particular agency to choose. Matters to be taken into considera-
tion would include the following:
o Senior management inclination
o Recommendations from others
o Examples of past and present work programmes

o Any specialist skills or knowledge that match company needs
o Experience of working in the region or country of choice
o A large or a small organisation
o Costs and perceived value.
There are organisations in existence with the sole purpose of helping companies
choose research agencies. They will interview the buying organisation, identify
needs and then draw up a shortlist of likely B2B research companies. The buyer
can then meet those selected and through presentation, discussion and negoti-
ation choose the most appropriate candidate. We will return in more detail to
this subject when we examine the role of marketing and advertising agencies in
Chapter 8.
Evaluating the B2B research agency

All reputable research agencies will build feedback monitoring and control mech-
anisms into the research programme to make certain that objectives are not only
met, but also seen to be met. Payment is sometimes linked into performance out-
comes in some way to motivate a quality programme.
Management consultants as competitors

Both marketing research and marketing agencies are now threatened by the man-
agement consultancy agency entering their market. Management consultants
offer a range of services at both strategic and tactical levels, covering areas at
corporate, divisional and departmental level. Help offered by the consultant will
be much more wide ranging than the B2B research agency, giving advice on how
information gathered can be analysed to inform the strategic planning and con-
trol process. Business information offered will include information to help organ-
isational direction on both internal and external areas. This will include, among
other things, information to help with corporate and marketing planning and
objective setting, strategic option discussion and choice, implementation, mon-
itoring and control.
Example 3.14 Management consultants

Management consultants offer a range of professional consultant business services
in both the private and public sector, including the following: e-business; corporate
strategy financial and administration systems; production and services manage-
ment; information, communication and technology; human resources; marketing
and corporate communications; project and programme management; and eco-
nomic and environmental studies. Some of the largest are identified below:
o PriceWaterhouseCoopers (www.pwcglobal.com/uk)
o Andersen Consulting (www.arthurandersen.com)
STRATEGIC CONCERNS WITH MARKETING RESEARCH 141
o Accenture. 75,000 people in 47 countries with extensive experience in 18

industry groups in key business areas, including customer relationship man-
agement, supply chain management, business strategy, technology and out-
sourcing (www.accenture.com).
o Deloitte, Touche & Tomatsu. 95,000 people around the world. A leading
global professional services organisation, delivering world-class assurance
and advisory, tax, and consulting services through its national practices
(www.deloitte.com).
o KPMG Consultants (KPMG.com)
o Management Consultancies Association. The UK trade association for busi-
ness consultants (www.mca.org.uk).
o Strategic concerns with marketing research

Information networks straddle the world. Nothing remains concealed. But
the sheer volume of information dissolves the information. We are unable
to take it all in.
(Gunter Grass, quoted in Preece, 2000)
Information and the use of marketing research should be viewed from a strategic
perspective because of the overall importance in B2B markets at both national
and global level. To plan with inadequate or wrong information is a recipe for
disaster and eventual failure and, because of the amount and quality of informa-
tion available, an unnecessary factor when attempting to manage a business. The
strategic factors to consider when looking at B2B research will include the
following.
Objectives
Managers must be clear about the information needed, why they need it and
what it will be used for. Possible objectives for the research should then be dis-
cussed with the agency, back and forth, until both agency and client are abso-
lutely clear on the purpose of the research programme. If objectives are confused,
the wrong information will be collected and all managers will suffer.
Costs
Research programmes can be extremely costly, perhaps running into millions of
pounds. Managers must undertake a cost benefit analysis so that the value of the
information wanted can be shown to be more than the cost of its collection –
otherwise it should not be done.
Time
The collection of information can be a very drawn-out process. If the time taken
to collect the desired information is going to be so long that the market has
moved on, then it may be necessary at some time to make decisions with less
information. Technology can, however, improve the situation and in certain sit-
uations information can be collected much more quickly than in the past. In fact
using the concept of ‘permission marketing’ research can be built into the agency
and respondent relationship.
Security
An organisation must always be aware that the competition will be watching its
every move and will no doubt know that research is underway. If a competing
company gains access to the reasons for the research and even the results, then
it can put spoiling plans into action.
Accuracy
The big worry with all kinds of research is its accuracy. If the methods used are
flawed and the wrong information is collected, decisions made might well end in
disaster. To this end a constant vigil must be kept so that evaluation, feedback,
monitoring and control mechanisms are forever in place and if errors are sus-
pected positive action can be taken.
o Forecasting in B2B marketing

Looking into the future implies some forecasting of impending conditions. In the
context of business management, forecasts can be used to support long-term
strategic decisions, operational decisions or short-term tactical decisions.
Marketing management requires forecasting information when making a wide
range of decisions. The sales forecast is particularly important as it is the founda-
tion, the major budget, upon which all company plans are built in terms of mar-
kets and revenue. Virtually every manufacturing or service company needs to
generate forecasts of their short to medium term sales. Once budgets and fore-
casts have been made, it is important to be able to track actual performance
against the plan. Many companies now use computer software for immediate
variance analysis (the difference between predicted performance and actual per-
formance) and outcome reporting. Decisions can then be made about any altera-
tions that might be needed.
Sales forecasting in B2B markets can be found in more detail on the B2B
Marketing website at www.booksites.net/wright.
o Summary
Marketing information is vital to the B2B marketing manager in making strategic
and operational decisions. Too often, such information is not available, comes
too late or is unreliable. Evidence that information gathering is happening in a
coordinated and systematic way in a company is the existence of a marketing
information system (MkIS). This can operate in a formal or informal way depend-
ing on the size and the wealth of the company. It was argued that more informa-
tion is needed in B2B markets.
The marketing information system consists of four parts: internal information,
marketing intelligence, marketing research, and storage and analysis. All four
parts coordinate so as to provide a constant supply of relevant up-to-date informa-
tion about the organisation’s markets to the interested managers.
We looked at the information process in some depth, including the differences
between secondary and primary research. The many sources of secondary research
were identified, including governments, trade associations and commercial agen-
cies. The problems associated with choosing and evaluating the research agency
were discussed. The use of primary research in B2B was examined and then both
methods were compared with usage in the B2C market.
1. Discuss the value of information to the B2B decision-making process. What are
the problems associated with information overload?
2. Describe the marketing information system. What are its many uses?
3. How might competitive advantage be gained by the use of marketing intelligence?
4. What information in B2B markets might qualitative research obtain that
quantitative research might not? Give examples.
5. What do you consider the value of secondary research to be? Why is so much
now available and what are the many sources?
6. How might a culture of information seeking be instilled into an organisation?
What problems might be encountered?
7. Discuss the proposition that the ‘research must be used as an aid to decision
making and not a substitute’. What are the criticisms levelled by many at the
value or otherwise of research information?
8. Identify and analyse the differences and similarities with information gathering
between B2B and B2C. Give examples.
9. Describe and evaluate the differences between quantitative and qualitative
forecasting. Discuss the different methods used in each category.
10. Discuss the differences between top-down and bottom-up ways of sales
forecasting. Do you think that sales forecasting can ever be accurate taking
into account the problems associated with looking into the future?
To answer questions 9 and 10 go to the B2B Marketing website at www.

booksites.net/wright. You will also find a Case Study, Questions, and an Internet
Exercise for this chapter.
o Bibliography
Books
Aaker, D.A., Kumar, V. and Day, G.S. (2001) Marketing Research, 7th edn. Chichester: Wiley.
Baker, M.J. (2000) Marketing Theory: A Student Text. London: Thomson.
Curwin, J. and Slater, R. (2000) Quantitative Methods for Business Decisions, 4th edn. London:
Thomson.
Drucker, P. (1986) The Practice of Management. New York: Harper.
Kent, R. (1999) Marketing Research: Measurement, Method and Application. London: Thomson.
Kumar, V. (2000) International Marketing Research. New York: Prentice-Hall.
Lyotard, J.-F. (1984) The Postmodern Condition. Manchester: Manchester University Press.
Peters, G. (1997) Beyond the Next Wave with Scenario Planning: Imagining the Next Generation
of Customers. New York: Prentice-Hall.
Preece, J. (2000) Gunter Grass: His Life and Work. London: Palgrave.
West, C. (2000) Marketing Research. Basingstoke: Palgrave.
Journals
Bunn, M.D. (1993) ‘Information search in industrial purchase decisions’, Journal of Business
to Business Marketing, 1 (2): 67–102.
Ghingold, M. and Wilson, D. (1998) ‘Buying centre research and business marketing prac-
tice: meeting the challenge of dynamic marketing’, Journal of Business and Industrial
Marketing, 13: 96–108.
Naude, P., Holland, C. and Sudbury, M. (2000) ‘The benefits of IT-based supply chains –
strategic or operational?’, Journal of Business-to-Business Marketing, 7 (1): 45–67.

04 Decision making and segmenting
business markets
The man who is denied the opportunity of taking deci-

Chapter
sions of importance begins to regard as important the

decisions he is allowed to take.
(C. Northcote Parkinson, author and historian, 1909–1993)
Aims and objectives

1. Identify and analyse all the factors involved in the process of decision-
making, including the decision-making unit, the decision-making process
and the decision-making difficulty.
2. Define business-to-business market segmentation and be able to evaluate
the reasons behind this need for selling companies to analyse and classify
organisations and markets.
3. Identify and evaluate the ways in which business markets can be
segmented and be able to describe why methods used are different from
those in consumer markets.
4. Examine the reasons behind segment selection and describe how products
and services can be positioned and targeted to meet identified segment
selection criteria.
Part 1 Decision making in B2B organisations
o Introduction
The purchase function
The purchasing process will be different in different types of B2B organisations
and in different markets and it can and usually will involve one or more persons.
It can take days, months or years, depending on the size, value and scope of the
products/services that are needed. For example, obtaining an order for nuts and
146 CHAPTER 4 • DECISION MAKING AND SEGMENTING BUSINESS MARKETS
bolts might take one visit by a van salesperson while an order for a new computer
system worth many millions of pounds might take years. It may involve one
person or very many people across the whole company. Finding the person or
persons that make the decision on whether to purchase or not can be straight-
forward and simple or mind-boggling and complex. It must be remembered that
the competition will be vigorously burrowing away at the same task and to be
successful the supplier and its sales force must take time to understand the pro-
cess involved.
Cultural influences on the buying process

Cultural concerns were discussed in Chapter 2 and ingrained ways of behaving
can have a profound effect on how buying decisions are made. Socio-cultural
patterns, customs and practices, attitudes and beliefs will all have a pervasive
influence when talking and negotiating with buyers and organisations in other
countries. Some marketers argue that English is becoming the language of busi-
ness and business people and buyers around the world now exposed to western
business approaches are acting in similar ways. Others argue that cultural differ-
ences are still apparent and the supplier will need to adopt different approaches
when talking to buyers from Japan, China, South America, and so on.
Buying procedures and policies could be different

It might be the case that formal buying and negotiations are different from
country to country. Decisions may take more time in one country than in
another. Decisions might be made by groups in Japan and by individuals in the
USA. Payments may be 30 days in one market and 90 days in another. A supplier
might even be expected to take some goods and services as part payment in one
country and the home currency in another. Ethical problems might also arise
where ‘slush’ money is demanded by the buyer, paid into a private account, as
commission for giving the supplier the sale. Success in foreign markets might
ultimately rest on an understanding of the country’s business ways and the
buyer’s particular needs.
o Ethics in business
I want to work for a company that contributes to and is part of the commun-
ity. I want something not just to invest in. I want something to believe in.
(Anita Roddick, www.anitaroddick.com)
Ethics in business have always bothered some commentators, but revelations at

the beginning of the decade forced more opinion leaders to become involved in
the debate. Stories about misdemeanours such as balance sheet manipulation,
price fixing, bribery and under-the-table payments were rife and news items
constantly appear in the media. Some of the largest organisations in the world,
Enron, Andersen Consultants, Sotheby’s and Christie’s, were accused and in
ETHICS IN BUSINESS 147
some cases condemned for misbehaviour and sharp practices that were reckoned
to have cost customers and shareholders billions of dollars in lost values. In fact
exposure of corporate fraud in the USA at the beginning of the new millennium
was so shocking and unexpected that many investors lost confidence in the stock
market and as a result share prices fell. Other organisations have been accused of
different unacceptable behaviour such as using under-age labour, paying intoler-
ably low wages, and exploiting sensitive environments.
Example 4.1 Mining ethics

Mining companies from around the world met in Toronto, Canada to discuss how
the industry can develop an ethical international mining code. On the agenda were
the mining, minerals and sustainable development (MMSD) project, which was com-
missioned by the Global Mining Initiative (GMI). The report looks at the most con-
troversial problems of mining, including its impact on poverty, the environment,
protected areas, corruption and the management of mining waste.
Companies often provide hospitals, schools and other facilities for local com-
munities, but they have also realised that environmental awareness makes good
business sense.
Moral and legal frameworks

Many politicians, industrialists, journalists, pressure groups and others were so
worried that demands were made to increase the power of appointed regulators
and decrease the ability of industries and associations to regulate themselves. It
used to be thought that in a free market business ethics, acceptable ways of cor-
porate behaving, were better left to companies and trade associations, otherwise
legal bureaucracy could stifle entrepreneurial effort. With the realisation that
organisations, no matter what the size and no matter the expressed codes of con-
duct, can act in self-centred ways (just like individuals) which can and do harm
the public, governments stepped in and constructed moral and legal operating
frameworks. The problem now is to try to get the balance right between too
much government interference, leading to accusations of being a ‘nanny state’,
and too little, allowing the weak to be exploited by the powerful. The problem
becomes more acute with the growth in supra-governmental bodies such as the
European Court and the World Court. As with many business dilemmas, there
probably isn’t an easy solution and perhaps there never will be an answer that
will suit everybody.
Example 4.2 The UK Stock Exchange now has an ethical fund where institutions and individuals
can invest in companies that have stated moral policies on how they run the busi-
ness. Eight major firms have backed a ten-point plan intended to ensure that eth-
ical considerations are taken into account in the pursuit of economic success. In a
report entitled A New Vision for Business, they call for firms to measure and report
regularly on how their activities affect communities and wider society.
Ethics in purchasing
The buying and selling of goods and services has always been a prime area where
unhealthy practices can take place. It has often been the custom in the past to
offer buyers inducements and gifts of some kind, especially at holiday times.
Prizes can also be given to buyers as part of trade sale promotions, for example
a raffle linked to the number of units that might be purchased. This practice is
now frowned upon and the Institute of Purchase and Supply has codes of con-
duct setting down what practices and gifts are and are not acceptable. One of the
biggest problems facing governments in developing countries has been the
instances of bribery where buyers and sellers demand extra payments (backhanders)
for placing the order or contract with one company rather than another. In some
countries this is so common and widespread that every person involved in the
passage of a government contract demands an extra payment of some kind to
push the deal through.
Extensive corruption of this kind can weaken economies and stultify growth
as money is wasted on the wrong projects and goods and services are overpriced.
Experience has shown that it can still be a problem for all companies around the
world. Buyers and others involved in price fixing, overcharging or undercharg-
ing, unlawfully taking money so as to gain personal pecuniary advantage, must
ultimately be to the detriment of the organisations. The problem can be seen as
worse when it happens in the public or NFP sector. Because public money is
involved in the public sector, fraud of any kind will cause concern among many
stakeholders and can even reverberate back to the government minister in charge
of the department. The Audit Committee is the regulator put in place to monitor
and control all public sector spending. Deceit in the NFP sector can cause almost
as much embarrassment for the management committee, again because it is seen
as public money being wasted. The Charity Commission is in place to try to pre-
vent bad practices happening.
Example 4.3 The Institute of Supply Management ethics in purchasing

(www.ism.ws)
The Institute of Supply Management in the US has a strict code on ethics in
purchasing and it has numerous references in its Principles and Standards of
Purchasing Practice. Below are just two such examples:
o ‘Avoid the intent and appearance of unethical or compromising practice in rela-
tionships, actions, and communications.’
o ‘Refrain from soliciting or accepting money, loans, credits, or prejudicial dis-
counts, and the acceptance of gifts, entertainment, favours, or services from
present or potential suppliers that might influence, or appear to influence, pur-
chasing decisions.’
Similarly the US Ethics in Government Act makes it illegal for a public official to
accept or solicit ‘anything of value . . . either [as] a reward for a past act, or [as] an
inducement for a future one’.
CHOOSING A SUPPLIER 149
o Choosing a supplier
There will come a time when organisations want to choose new suppliers for
many reasons. For example, it might be because they are starting a new business,
they want to buy new products and services, or they are discontented with their
present suppliers. Some companies insist that existing suppliers be benchmarked
against other suppliers in the industry at least once a year. This is to guard against
complacency, buying out of habit and therefore not obtaining the best value for
money. Buyers take both formal and informal approaches when looking for new
suppliers. Examples are shown below:
o Recommendations – probably the most successful and safest method, especi-
ally if the recommendation comes from a well-respected company.
o Building a shortlist – managers will shortlist maybe three or four known sup-
pliers and ask them to submit product or service specifications. This can then
be measured against weighted values such as benefit solutions, quality, price,
service levels, delivery times, exclusivity, and so on.
o Selecting from trade association sources – trade associations will usually have
codes of conduct and will also make recommendations. This will offer some
degree of safety.
o Using outside agencies – as with all business processes, supplier selection can
be given over to expert agencies. This is particularly apt when marketing
internationally.
o Managers’ experience and intuition – depending on the value of the product or
service needed, companies may rely on managers’ experience and intuition.
In many cases they might have little or no option if help is unavailable in
other ways. A list of existing and past clients can be asked for, products exam-
ined (if tangible) and supplier presentation made.
New suppliers will usually be given a period of probation during which perform-
ance indicators will be set. Unacceptable deviation will result in cancellation of
the business. This will of course depend on the amount of competition in the
market and the exclusiveness of the wanted products.
Centralised and decentralised buying

National, international and global organisations and centralised and decentral-
ised buying structures might determine the speed and complexity of the buying
process. Some organisations might insist all buying takes place at head office;
others might negotiate the prices and buying terms centrally and allow localised
ordering at these prices; yet others might allow almost total autonomy on prices
and products across divisions and companies. There is no point in wasting a
salesperson’s time by calling on satellite divisions if all buying decisions are made
at head office and no consulting takes place. There is a case, however, for con-
tinuous detailed checking because, although no ordering takes place, they might
be part of the Decision-Making Unit (DMU). In addition situations might change
and no power to order today could change into ordering power tomorrow.
Single or multi-source suppliers

The buyer will have the opportunity to source from single or multi-source sup-
pliers and there are advantages and disadvantages with both approaches. Single
sourcing occurs when a buyer decides that it will satisfy its needs in one or more
areas of the business by buying from only one supplier. The subsequent relation-
ship is bound to be close, whether it is cemented through a formal contract or
not. It might be used where supplies wanted need expensive set-up costs and
training (such as EDI or capital equipment investment), where supplies might be
prone to volatility or scarcity or where products are needed at a moment’s notice
(maybe as a part of a JIT programme). Single sourcing can be dangerous if the one
supplier has problems, such as a strike, and the supplies dry up. This is one of the
reasons why a company might decide to multi-source, buying the same supplies
from two, three or more different suppliers, as well as introducing a large amount
of competition into the equation. A buyer will often choose one or other of the
two methods, or a combination of both, depending on the product and market
circumstances. Advantages of single sourcing will include the following:
o Close, cooperative relationships can be formed, essential for developments
such as ECR (efficient consumer response) programmes.
o The supplier will offer the buyer the best attention and service.
o Useful where supplies are prone to scarcity or volatility.
o High set-up costs demand heavy strategic commitment on the part of the
supplier.
Advantages of multi-sourcing:
o If there are problems with one supplier others can be used.
o Introduces competition into the process so that all suppliers work harder.
o More opportunities to spot new product developments if using many
suppliers.
Knowledge attainment
As with all business processes there is an imperative to understand the market
and the needs of the customer. Once customers have been identified, more
research will need to be conducted by both the research department and sales-
persons in an attempt to understand the intricacies of the buyer decision-making
process. Although the subtleties of the decision-making process may differ from
company to company, there are enough common basic factors involved to make
simple classification possible. We can now discuss three major areas:
1. The decision-making unit (DMU)
2. The B2B decision-making process (DMP)
3. The buying decision difficulty (BDD)
THE DECISION-MAKING UNIT (DMU) 151
o 1. The decision-making unit (DMU)

The supplier will need to know who is involved in making the purchase decision,
known as the decision making unit (DMU) or the buying centre (TBC), what
motivates them and how their products and services are perceived. The DMU or
TBC is a way of describing all the people that might or might not be involved in
some way in the ultimate decision to buy the product. This could be one person,
e.g. a small business owner, or it could be many, e.g. buying for a large organisa-
tion. It could be argued that almost all buying decisions, whether large or small,
will involve more than one person. Even the autonomous entrepreneur will turn
to others, perhaps a solicitor or secretary, for advice when looking to make a pur-
chase of some kind. In organisational buying, several roles can be identified. The
different roles can be performed through one person or they can be separate roles
performed by many people:
(a) Suggester. The suggester or initiator is the person (or persons) who begins the
purchasing process by recognising that there is a need for a product or service
and makes a suggestion or request. This might be for an existing product or
service, a modified version, or something new.
(b) Purchaser. The purchaser or buyer is the person who makes the actual pur-
chase. As with many other factors, the role and power of the buyer will vary
quite considerably from situation to situation. In some companies the buyer
will have little power to initiate new orders and be told what to order and
what not to order, and from whom. In other companies buyers have full
autonomy to buy at their own discretion. The purchaser may or may not
reside in an actual purchasing department and could be played by many of
the roles within the DMU. Purchasing managers have had to become much
more professional in the way they conduct themselves because of the intens-
ity of the competitive environment. Most will now have access to copious
amounts of information to help in supplier and product selection. Computer
software enables buyers to calculate almost immediately intricate cost benefit
analysis where products and services are under consideration.
(c) Advisor. Advisors are those who have been brought in to help the buying
company in some way. This might be somebody that works in the buyer
organisation or it could be an agency outside the organisation such as a con-
sultant or marketing agency. Specialist advisors will be used if technical prod-
ucts or services are wanted. B2B buyers wanting to purchase complex and
highly technical services might use management consultants because of their
greater expertise, and also to safeguard their own position because of the
difficulties which might arise. Public sector organisations have been criticised
in the past for spending too much money on outside consulting agencies,
especially in circumstances where the advice given turns out to be both mis-
taken and costly.
Example 4.4 PriceWaterhouseCoopers

Management Consulting Services (MCS) provides a broad range of consulting
services to multinational and larger domestic public and private entities. The team
works in partnership with clients to help decide their strategic direction, re-
engineer business processes, enhance their competitiveness and deliver change
that transforms their performance, often through the implementation of informa-
tion technology systems (www.pwcglobal.com).
(d) Decision maker. The decision maker is the person or the committee that has
the power to make the actual decision to purchase. This might be one or
many in the buying centre depending on the power structure and delegation
of responsibility. Where strategic issues are involved, the board of directors,
particularly the chief executive officer, will probably be the ultimate decision
maker. In other cases it might the buyer or the end user.
(e) End user. Somebody and some department within the buying organisation
will eventually be the end user of the product or service under review for
possible purchase. Whether the user is consulted or not will depend on both
the culture and structure of the organisation and the type of service to be pur-
chased, but even if they are not part of the buying centre they will usually
influence the decision.
(f) Gatekeepers. Gatekeepers control access and information into and out of the
buying group. In some cases the gatekeeper can actively influence a buying
decision by filtering the kind of information made available. A gatekeeper
might be a secretary able to make appointments to see the buyer, an admin-
istrator controlling access to a preferred buyer status, a service engineer con-
sulted on all purchases in a specialised area, or the financial controller who
will monitor all purchases over a certain amount.
The DMU in B2B markets

o Complex structure
o Many people involved
o Long time to make decisions
o Buying for the organisation
o Mainly rational reasons for purchase
o Seller might know DMU members over a long period
o DMU members can change
o High value goods, services, projects
o End user will probably not be the decision maker.
The DMU in B2C markets

o Simple structure
o Few people involved
o Short time to make decisions
o Buying for self
o Mainly emotional reasons for purchase
o DMU members met at time of purchase
o DMU members stay the same
o Relatively low value products
o End user probably the decision maker.
Factors influencing the DMU or buying centre

The marketer and the salesperson will need to know and understand the power
and influence of all the B2B DMU members as well as the priority benefits
demanded. Only in this way can the right benefits be built, communicated and
offered. It should be understood that in some firms the power to persuade to
purchase from one company rather than another can rest in unexpected places
and with the most unlikely people. The wise salesperson is able to dig this out,
approach the right person, and so gain an advantage over the competition. As
with everything in life, nothing stands still, and buying centres are the same.
Over time the structure of the DMU will change and alter. Some are informal and
others formal. Power bases will shift and priorities will take on other values. In a
formal situation, authority to purchase will depend on the technical complexity
of the product, its overall costs, its importance to the company and the expert
knowledge level of the individual. The process can become fragmented as one
person leaves the DMU and another takes his or her place. All relevant informa-
tion pertaining to the DMU can now be stored and analysed in a computer
database and updated on a regular basis so that action can be taken when condi-
tions demand.
Vertical decision making

Buying centres will have both a vertical and a horizontal dimension. The vertical
dimension is concerned with how many layers of management are involved in
the buying process. In bureaucratic, tall structured organisations such as some
government departments, this could involve as many as six, seven or eight layers
of management, from director level down to factory floor level, which must be
consulted before decisions can be made. In flatter structures there might be only
one or two layers of management that need to be consulted and the task might
be significantly easier. The more widespread the company, the more problems
might arise (Figure 4.1).
Figure 4.1
Vertical
decision making
Figure 4.2
Horizontal DMU
Horizontal decision making

The horizontal dimension is concerned with how many other departments might
have an interest in the buying process as well as any bodies such as contractors
and outsourcing companies. Company type, size and structure will have a bear-
ing here. A company bidding for a long-term road building contract will need to
communicate and consult with every department – finance, administration, pro-
duction, human resource, transport, marketing etc. – and the process will need
to be organised and coordinated to perfection if slip-ups are not to occur. Outside
contractors will need to be included at an early stage if their input is important
(Figure 4.2).
Group influences on decision making

Purchase decisions in B2B will almost inevitably involve more than one person,
depending on the factors identified above, in the discussion on the decision-
making unit. There might be many people with the ability to influence the buy-
ing decision and in some cases purchase decisions come about through a form of
group consensus. A committee system can sometimes be used, especially in Govern-
ment purchasing. Group decisions can be influenced by the following factors:
o The power of any one or more members to influence the others
o Political differences and jealousies between group members
o The inclination to discuss, prevaricate and thus not make a decision
o The inclination to compromise and select the least risky option
o The inclination to minimise the risk and so go for the more risky option.
Individual influences on decision making

It is argued that end consumers buy products and services for emotional and
symbolic reasons while B2B buyers purchase for rational reasons. Research has
shown this to be true, but only up to a point. Consumer purchases will be based
on a varying element of rational reasons. Similarly a varying element of B2B pur-
chasing will be based on emotional reasons. Organisational buyers are subject to
the same personal motives or motivational forces as buyers in the consumer

market. However, the buying situation is different and so influences, although
similar in some cases, will differ in other ways from those on someone buying
products for personal consumption. The power of influence will vary according
to the organisation, but the following factors will affect the ability of any one
individual to influence the purchase of goods and services:
o Management position within the organisation
o Whether a prospective user of the product or service
o Being the ‘official’ buyer within the organisation for the category of products
o Being seen as an expert in the product/service area
o Having access to information not available to others
o Being a gatekeeper to the decision maker.
Example 4.5 The knowledge worker

In hi-tech markets, senior managers are finding it increasingly difficult (if not impos-
sible) to keep up with current developments and are often not able fully to under-
stand techniques and processes. Thus they become dependent on employees,
so-called ‘knowledge workers’, at a lower level within the organisation who have the
right skills and are able to understand the ins and outs of product benefit offerings.
Although not necessarily understanding the strategic ramifications, these individuals
must therefore be asked to use their superior knowledge and contribute to the
decision-making process. In some circumstances this can cause problems, with a
compromise between the needs of junior and senior personnel turning out not to be
best for overall effectiveness and productivity. Another problem caused by the dif-
ferences in knowledge attainment between managers is the difficulty of control. If
senior managers are unable to understand important tasks performed lower down,
there is always the possibility of inappropriate or fraudulent outcomes exemplified
by the loss of £800 million by Baring’s Bank caused by unfortunate and foolish
junior manager activity.
Managing risk
Individuals (and groups) will want to manage the risk involved in buying prod-
ucts. Purchasing the wrong products at the wrong prices could lead, at the very
least, to loss of reputation and job change, and at the very worst to loss of the
job. This can create a situation where a buyer, fearful of failure, will only use well-
known suppliers and will only buy tried and tested products (known as the ‘never
getting the sack for buying from IBM’ syndrome). New innovative products from
new companies will not be sampled and then perhaps bought. This could end in
the company losing competitive advantage because its marketing mix was dated
and unproductive. The sympathetic supplier, aware of this fear, should develop
mechanisms to help manage and minimise the difficulty. This might be through
the supply of good up-to-date information, expert advice and consultation, free
trial of new products/services, supply or return if product performance is sub-
standard, partnership agreements and sharing of the risks, costs spread over a
longer period, and so on. Sources of buyer perceived risk include:
o Performance risks – sale or return if product is substandard in some way, tech-

nological upgrades.
o Financial risks – partnership agreements, sharing the risk, spreading the costs,
rental and leasing.
o Informational risks – supply of good information, expert advice and consulting.
o Social (ego) risks – reassurance, seller corporate image building, loyalty building
measures.
And the trouble is, if you don’t risk anything, you risk even more.
(Jong, 1996)
Marketing to buying centres

Buying centres develop in both formal and informal ways. If the culture is one of
communication and consultation, then it will come naturally for all interested
parties to be asked about product and service preferences. Conversely, if the
structure is bureaucratic then maintenance of role power will keep decision
making firmly with the individual or within the group. If leadership is weak then
subordinates may take over the purchasing role. This might, however, switch
back as soon as a stronger manager takes over. The supplier can exploit all these
informal states of affairs so long as the situations are recognised.
Formal buying centres can be easier to manage if the supplier is an accepted
part of the set-up but will be notoriously difficult if the company is deemed un-
acceptable because of such things as size, quality or service offered. With the use
of IT, suppliers can now clearly identify the type and needs of the buying centre
and develop strategies and tactics that will lead to a successful outcome. The fol-
lowing factors should be taken into account when marketing to a buying centre:
o Identify the decision-making unit members.

o Recognise the different roles that are played out.
o Prioritise levels of importance and power to make the final decision.
o Appreciate both the group and individual pressures.
o Understand individual, group and company needs and wants.
o Understand buyer policies and procedures.
o Be able to trace product ordering information flows, both back and forth.
o Monitor and evaluate changes.
o Develop strategies and tactics to manage the whole process.
o Build in control mechanisms.
o 2. The B2B decision-making process (DMP)

It’s better to act too quickly than it is to wait too long.
(Welch, 2001)
THE B2B DECISION-MAKING PROCESS (DMP) 157
Figure 4.3
The decision-
making process
As with consumer buying, most organisational purchases are made in response to

a problem or need of some kind. This will then trigger a decision-making buying
process, taking the buying centre through to product or service purchase and,
hopefully, problem solution (Figure 4.3). Although the basic structure is the
same, there will be differences in the way companies approach the process. It will
also vary across the world. So sellers will need to work hard at understanding
cultural differences in whatever country the suppliers want to sell their products
and services in. It is important for the supplier to understand the processes and
the influences on them, so that this knowledge can be used in a productive and
profitable way. Many B2B decision-making process models exist (practitioners
will even develop their own). The following stages represent one such model.
For some companies the purchasing process would start before the need arises.
This stage could be identified as the preparation period.
The preparation period

For some companies and some classes of product it would seem foolish and
unprofessional to start the buying process only when a particular need arises,
especially if time, speed, repeat purchase or product complexity are major issues.
If issues like these are concerns, then it will be profitable for the buyer to install
contingency measures so that the organisation is prepared and can solve the
problem easily and quickly. This will include contacting relevant suppliers to
discuss quality, value and cost needs, as well as how much stock they are prepared
to hold and delivery times. It might be that at this stage prices are negotiated and
a contract written up for ordering throughout the year.
Problem recognition
In other circumstances the buying need arises in response to a particular prob-
lem. The size and difficulty associated with the problem will be determined by
the product/service needed. With simple, inexpensive repeat purchases for goods
such as paint, pins or paper, the process will be straightforward, especially if there
is a contract already negotiated with the supplier. If the purchase is a modified
rebuy or new purchase, then the problem becomes more difficult.
Information search procedures

This stage involves searching around for relevant information. It could be argued
that with the introduction and development of the internet the course of action
is much easier. Now almost the first stage in looking for information to solve a
problem is to go onto the web. Other sources of information will be trade asso-
ciations, existing dealer contacts, government sources, and so on. Probably the
most reliable source, depending on the problem, would be from suppliers already
used and recommendation from trusted sources. For B2B suppliers it is crucial
that they have information readily available in a customer friendly acceptable
form. This might be by inbound or outbound phone call, fax or e-mail request,
or on the company or organisational partner website, by pamphlet, booklet or
video, or by personal contact.
Companies wanting to sell into government departments will usually have to
get onto a preferred supplier list before their products and services will be con-
sidered for purchase. This may involve quite detailed procedures (e.g. obtaining
certain quality standards) that must be followed if they are to be considered as
suppliers.
Alternative valuation
Once the source of the product or services needed has been identified, both the
seller and the products on offer will have to be evaluated to measure good value
and correctness of fit against wanted benefits. In the case of the products, the
buyer will have some kind of criteria in terms of usage, value and price. This
might be informal and only exist in the mind of the purchaser or it could be for-
mal, written down and consisting of strict measurement and comparison criteria.
The DMU might consider competing products or services from information
gathered or, depending on the value of the order, prospective sellers will be
invited to demonstrate the goods and be measured against predetermined bench-
marks. This process might well be repeated at a given period, for example a year,
so that complacency doesn’t set in.
THE B2B DECISION-MAKING PROCESS (DMP) 159
Written tender
Again with some organisations, especially government departments, a selection
of interested suppliers will be invited to send in a written tender (now possible
online) spelling out value and costs. They will then be judged against one
another and the best value chosen (usually on price).
Negotiation
It is at this stage that some form of negotiation may take place. This might be
on such things as added benefits offered, costs and payment period, and so
on. Relationships between buyer and seller may be adversarial or cooperative.
Adversarial relationships occur where in negotiation the seller tries to sell at the
highest value (price?) and the buyer tries to buy at the lowest value (cost?). This
tends to happen with low value products or one-off purchases. Such competi-
tion is thought by some to lower the prices while increasing the level of the
service and attention paid to the buyer account. Others argue that the level and
amount of power held by the two participants will mean that advantage will be
taken by one side to the detriment of the other. Cooperative relationships
involve agreements to work together over the long term with both buyer and
seller concerns taken into consideration. We will discuss this further when we
talk about customer relationship management and long-term supplier chain
interaction.
Preferred buyer status

In some instances the buyer might have to be elected to ‘preferred buyer’ status
before any order can be given. This will probably mean that certain conditions
must be met, for example, achieving investment in people or industry quality
standards awards, as part of the process. This tends to be obligatory in some sec-
tions of the public sector. Buyers seek to place suppliers on a preferred status basis
so as to maximise the benefits that can come from such collaboration. Preferred
status relationships are more likely where the products are specialised, high volume
and/or of strategic importance or information and training is needed for the
buyer staff because of product or service complexity.
Trial
In some cases products or services will be taken on for a trial period to see if they
match the benefits promised. This will especially happen if the product is stra-
tegically important, a long-term contract, and/or is going to cost a great deal of
money. Sellers may not like this arrangement, as it can be costly if the product is
not taken up, but they might have to concur depending on the need for the
order. It may well be that the buyer will instigate trial from different companies
at the same time and it can be an expensive business for organisations whose
products and services are not accepted.
Choice
The choice will be eventually made and the order placed or the contract signed.
The deal might be for a one-off order, allowing the buyer to measure the level of
service before more orders are given, promises of a series of repeat purchases, or
a longer term contract of some kind. In some cases a probationary period might
be demanded so as to test out the promises of the new supplier.
Post-purchase evaluation
All suppliers will be judged on the promised level of service and some type of
post-purchase evaluation will be bound to take place. This might be by comparing
actual benefits to those that were promised or measurement against predeter-
mined standards. In the former case salespeople who over-promise on benefits,
or benefits that don’t match up to expectations, can cause customer loss of faith
and no more purchases, thus bringing the company into disrepute. In the latter
case, not meeting standards can lead to penalties and fines, depending on the
terms and conditions built into the contract. Whatever the situation, loss of a
customer can be disastrous in B2B where buyers might be few, whereas in B2C,
although unfortunate, the customer will be only one among millions.
DMP in B2B markets

o Complex and intense
o Often a long process
o Detailed multifaceted information needed
o Rational reasons driving the purchase
o Formal benchmarking suppliers
o Trial of the product or service
o Penalties for product malfunction or shortfall
o Product/service contracts
o Negotiations often part of the process
o Formal preferred supply list.
DMP in B2C markets

o Simple and straightforward process
o Emotional and rational benefits wanted
o Impulsive purchase
o Product trial the exception
o Guarantees but no penalty for breakdown
o Contracts not usual
o Negotiation not usual
o Informal preferred retailer/brand.
THE BUYING DECISION DIFFICULTY (BDD) 161
o 3. The buying decision difficulty (BDD)

Once we realize that imperfect understanding is the human condition, there
is no shame in being wrong, only in failing to correct our mistakes.
(George Soros, quoted in Kaufman, 2002)
All buying decisions, whether in B2B or B2C, have a certain level of difficulty that
will affect the intensity of the decision-making process. Time taken in coming to
a decision will vary from instantaneous through to months and even years,
depending on the strategic importance of the goods and services that are wanted.
Suppliers must be aware of all this and tailor the marketing approach accord-
ingly. The following categories are identified below.
Straightforward rebuy
A straightforward rebuy could be classified as routine problem-solving decision
making. The business product or service has been purchased before and all that
is required is for the product to be repurchased. Such products include compon-
ent parts and some services. Because these sorts of products are purchased on a
regular basis there is a danger of complacency, staying with the same supplier for
years and being unaware that better options exist in the marketplace. Many
organisations recognise this problem and implement control systems to make
certain that suppliers are regularly checked out for effectiveness and value for
money. It is more than likely that very few people will be involved in the
DMU reordering, which is sometimes performed automatically by computer. The
decision-making process will be more complex if a change of supplier is mooted.
An example might be a company wanting to change catering services because of
dissatisfaction. Examples in B2C would be habit buying in FMCG markets.
Modified rebuy
At the second level of importance we can identify products and services that need
to be purchased with some kind of modification added. This will incorporate a
limited amount of problem solving and probably mean more people to be con-
sulted in the DMU. Examples might be the need for chromium-plated bolts
instead of steel-plated ones or wanting a technological upgrade on a computer
system. The complexity of the decision-making process will depend on the
severity of the problem, the risks and cost involved and its importance to main-
taining competitive advantage. Suppliers need to be on hand with supporting
help and advice. The more progressive supplier will anticipate future buyer needs
and be proactive in its support. Examples in B2C markets might be a consumer
upgrading a television or a washing machine.
New purchase
Business products and services in this category are those that the company has
never purchased before and can cause complex, often extensive, problem solving.
In most cases more information will be needed to make a new buy than when
making a modified rebuy, and almost no information is needed for a straightfor-

ward rebuy. If the bundle of benefits wanted from the purchase is wide ranging,
the DMU will be large and may bring together interested people from across the
organisation that might not normally be concerned with purchasing. This will
include such employees as salespeople, financiers and engineers. The DMP will
be complex and intricate and the product/service search and investigation could
be wide ranging and intense, according to the level of strategic importance of the
decision. Again the supplier must be involved, if possible at the very beginning,
helping, advising and suggesting. Supplier–buyer rapport is important and a
trusting relationship at this stage could pay dividends when decision time arises.
Buyers will sometimes negotiate contracts with trusted suppliers and then rely
on their integrity in upgrading to new products because of the difficulties and
worries connected with the kind of purchase.
Mixture of decision difficulty

Many buying decisions will fall between the categories discussed above, depend-
ing on the industry, market, types of goods and services bought by the organisa-
tions and the skills and experience of the DMU. This is especially the case with
products and services that are technically complex and continually updated.
Even when managers are kept informed and updated, it can seem impossible to
keep abreast with what is happening around the world. On some occasions it
might be difficult to know how important and how necessary a particular prod-
uct update will be, even when a cost benefit analysis is undertaken. This may
mean relying on the potential suppliers for help and advice, which is a strong
argument for forming close ‘partnering’ relationships. On the downside this
reliance on the supplier can cause the wrong product or service to be recom-
mended because of supplier self-interest. Using outside consultants to help with
the decision might be a way of solving the problem.
Switching costs
There are costs incurred for a buyer in changing suppliers. Companies will some-
times be reluctant to change for this reason. The more intricate and complex the
product, the greater will be the uncertainty associated with change. Costs that
might be incurred will include the following:
(a) Financial costs. There is always the possibility of financial costs when changing
from one supplier to another. These will be costs associated with searching
out and evaluating possible alternative suppliers. Of course these extra costs
could well be offset by better prices offered by a new supplier.
(b) Resource costs. Sometimes there are buyer–seller resource commitments, e.g.
training, IT interchange facilities, transport and inventory equipment shar-
ing, and so on.
(c) Product costs. In a long-term buyer–seller relationship, product benefits offered
will have been well tried and tested over the years. Products from a new sup-
plier will have to be accepted on face value until usage provides a positive or
negative outcome.
THE BUYING DECISION DIFFICULTY (BDD) 163
(d) Service costs. The quality of service offered can only be tested out as the rela-
tionship develops. If the service offered turns out not to be of the level
required, it might be difficult to back out and change supplier.
(e) Individual risk. Individual buyers might develop close, often social, working
relationships with supplier personnel, building a helpful partnership based
on trust and loyalty. They might be loath to jeopardise and risk buying prod-
ucts on the new supplier recommendation and deemed not suitable.
(f ) Supplier risk. There is always a certain amount of trepidation when deciding
to move to and work with another organisation. This is based on the belief
that cultures are different, working practice will not be the same and there is
always the possibility that the new supplier might develop resource and
financial problems. Because of these concerns a buyer might choose the easy
way out and stay with existing suppliers.
Suppliers maximising switching costs

In the past B2B buyers would be reluctant to change supplier if a good relation-
ship had been built between supplier salesperson and the company buyer. In the
modern marketplace price and value are what count. In the end, buyers want
business relationships that are meaningful for their companies, not personal rela-
tionships that benefit them as individuals.
It is in the supplier’s interest to increase the buyer’s switching costs and so be
always thinking of ways to help the customer feel more invested in the supplier.
Co-location and transport, bundled services, customised products and services,
training and software at the company level could make a buyer think twice
before switching to another supplier. Switching costs can create a good buffer to
competition.
Because of the strategic commitment in many supply chain relationships, switching costs
incurred when moving from one supplier to another tend to be higher in B2B than in B2C.
Example 4.6 Switching costs in information technology markets

The most valuable asset in the new information technology economy is not manu-
facturing prowess or raw materials. It’s an installed base of customers, kept loyal
by switching costs that deter them from changing brands. Switching costs are more
important than ever before because information goods and services work in sys-
tems. Hardware requires software, videos require players, browsers require servers
and new technology requires learning time investment. Changing a single compon-
ent often requires changing other components, which can impose large switching
costs on users. Installing new software often means retraining employees, upgrad-
ing or converting historical data or maintaining incompatible systems. Developers
and vendors are acutely aware of these costs and are seeking ways to elevate busi-
ness buyers’ switching costs and thus lock them into the organisation.
BDD in B2B markets

o Routine purchases increasingly have to be questioned
o No impulse purchases
o All purchases questioned and measured by others
o Supplier contracts often given
o Heavy risk for wrong purchase
o Heavy switching costs
o Experts involved with difficult decisions
o Little legal protection against supplier duress
o Preferred suppliers sometimes used
o The more difficult the decision, the larger the DMU.
BDD in B2C markets

o Habitual purchasing seldom questioned
o Impulse purchases
o Personal disappointment for wrong purchase
o No switching costs
o No experts except consumer groups
o Consumer legal protection against supplier duress
o Simple DMU.
The buying process in B2C and B2B markets

o B2C decisions involve thousands or millions of individuals, friends and fam-
ilies buying for their own consumption while B2B decisions involve consid-
erably fewer people buying not for themselves but for the organisation.
o There are many suppliers and very many buyers in B2C but only relatively
few buyers and sellers in B2B.
o B2B purchases run into large amounts of money, often millions of pounds,
while B2C purchases usually involve relatively small amounts of money.
o B2B decisions can take days, weeks, months or sometimes years to come to
fruition. B2C decisions will usually be made much more quickly.
o One B2B decision can affect the very existence of an organisation, while this
will seldom be the case with most B2C decisions.
o B2B buyers are limited in number and usually clustered in small geo-
graphical areas, while B2C customers are widespread and can be found
anywhere.
o B2B buyers are now more professional than ever and a professional supplier
approach will be expected. B2C buyers, although more informed than in the
past, will generally be at a much lower level of awareness.
WHY SEGMENT BUSINESS MARKETS? 165
o B2B decisions tend, in the main, to be made on strictly rational criteria while
B2C decisions, although having an element of rationality about them, are
made more on symbolic and emotional criteria.
o The DMU in B2C markets is likely to consist mainly of individuals, friends,
acquaintances and family, although it might include professionals such as
solicitors, salespeople and accountants. The DMU in B2B will predominantly
consist of groups including directors, managers, knowledge workers, other
staff, buyers and professionals such as accountants, marketers, engineers, etc.
Part 2 Business-to-business segmentation
o Why segment business markets?

In the preceding chapter we looked in some detail at the many influences that
may affect the buying decisions of existing and potential customers. It was
argued that these influences will cause organisational customers to want to buy
different products and services to satisfy these needs. In this chapter it is argued
that only if these concepts are understood by all marketing personnel can clear
marketing strategies be planned and developed that will successfully exploit
these influences. This will be achieved by developing goods and services that
offer precise benefits to meet whatever may be the major driving need of each
particular customer.
Of course a company would like to market the same product to every organ-
isation around the world. In that way economies of scale can be made and higher
efficiency achieved. However, this option is open to only a few industries and
companies. Conversely, the marketing company would like to produce products
that meet the special individual need of each and every customer and organ-
isation. In many cases this is possible depending on the type and value of the
benefits demanded. In fact some organisations gain competitive advantage by
developing strategies of producing customised benefits for each and every cus-
tomer. This can happen and is happening in consumer markets, but is much
more prevalent in business markets. It can also be seen that with the develop-
ment of modern technology this ability to customise product offerings is becom-
ing more and more possible at both the strategic and tactical levels.
However, with many business products and services it would not be practica-
ble or profitable to alter the benefit offerings to meet the differing needs of each
organisation and in many cases it will not even be necessary. Many companies
want the same or very similar products and services and the successful company
needs to identify these similarities and group them into like-minded clusters. In
this way the groups can be closely researched and the products and services
offered can more closely match individual and group organisational needs. All
customers around the world are prepared to buy products and services from
others if these products and services satisfy some kind of need. This is true in
both B2B and B2C markets. Market segmentation is dividing the markets into
groups, or clusters, of customers based on realistic and meaningful criteria so as

to offer clear, targeted benefits to every customer.
o Market segmentation
The imperative to divide the market into different segments in order to offer
products that match differing needs is at the very heart of both B2B and B2C
marketing and is called market segmentation. The strength, width and depth of
the segmentation demands will vary from industry to industry and from country
to country depending on factors that often change, which will be discussed later
in the chapter. Only if the varying and diverse benefits demanded by different
industries and organisations are known can products and services be offered with
benefits that will satisfy these many disparate needs.
Strategic importance of segmentation

It should be self-evident that if the organisation is uncertain about its customers’
differing needs or believes it knows but doesn’t bother to keep up with every
changing circumstance, then it will not be able to offer products and services that
precisely meet those customer needs. If one company is unable to offer desired
benefits, then the competition will, and in many industries new technology is
making market entry much easier. There are, however, many examples of busi-
nesses losing contact with their customer base and market changes and continu-
ing to offer unsuitable or outdated products, even when market signals are
sending out warnings, leading inexorably to dissatisfaction and falling sales (e.g.
IBM, Xerox, British Steel).
The more forward-thinking marketing managers now realise the long-term
strategic importance in having detailed knowledge and understanding of dif-
fering customer buying needs and segmentation methods as one of the most
important factors in the planning process, affecting the marketing mix and all
company resources. This means that strategic support for an understanding of
the market and realistic and profitable segmentation must come from the very
top of the organisation, with senior managers committed to implementing sys-
tems that continually monitor the process with the flexibility to adapt as market
circumstances change.
o Information, marketing research and segmentation

At the very centre of the process is the need for a continuous supply of good, up-
to-date information on all aspects of the marketplace. As discussed in Chapter 3
the marketing information system (MkIS) must be used to collect and analyse
meaningful environmental information from all relevant sources to track and
monitor customer buying patterns, to find out competitors’ strategies and to
monitor market developments. The quality and type of information will vary
according to the strategic segmentation task to be undertaken. Above all the MkIS
must be seen by all as a ‘living’, important strategic tool that serves the needs of
INFORMATION, MARKETING RESEARCH AND SEGMENTATION 167
the marketing department (rather than its own needs), which aids the constant
update of segmentation factors.
Segmenting existing B2B markets

More will be known about a company’s existing markets and customers but
complacency must be avoided at all costs. Systems should be in place to gather
information about the viability of products and services that are offered to exist-
ing segments and customers. Questions should be asked (e.g. What products are
being bought? Where are they bought? Why are they bought?) and frequent
analysis made on market developments and changing customer needs. One
business may take over or merge with another, bringing about a reassessment of
suppliers. Business customer goals may change because of a strategic shift of
direction. Company buyers move on and new buyers, often with different prior-
ities, move in. Derived demand might shift and change along the supply chain,
requiring a different approach from suppliers, and new partnerships might signal
the end of old methods of working, and so on. Rich information must be avail-
able so that realistic predictions can be made and segmentation strategies altered,
often in very subtle ways, earlier rather than later.
Segmenting B2B new markets

When segmenting new markets a company will need to go back to basics –
identified in detail later when we discuss the segmentation process. This will
entail exploratory, descriptive and causal research used in attempting to really
understand the market. It will also involve internal resource and asset analysis
and revisiting the mission statement and marketing mix so that matching
of products with markets can take place and lead to realistic and profitable
segmentation.
Segmenting different B2B markets

Disparate organisations face different changing pressures. Government buying
policies often change from the election of one government to another and from
the appointment of one minister over another. Similarly in charitable organisa-
tions, stakeholder pressure can cause the reassessment of strategies and the sub-
sequent substitution of one strategy for another. All such changes might alter the
supplier approach wanted. The successful company is the one that has the infor-
mation and contingency plans prepared so that the segmentation style can be
altered to take account of new purchasing circumstances.
Why segment business-to-business markets?

o Clearly identify disparate customer needs.
o Plan strategic and tactical approaches that match each and every customer
need.
o Develop a portfolio of products and services that match customer needs.

o Focus management and worker attention across every department on cus-
tomers’ needs.
o Build and maintain competitive advantage.
o Give continuous superior customer satisfaction.
o Identify new opportunities in existing markets.
o Identify new opportunities in non-served markets.
o Help bring sales, profits and organisational success.
o Prepare all company members for the likelihood of change.
o Overall, make the company more competitive.
Having looked at the benefits of well-thought-through B2B segmentation, it is worth

remembering the alternative. If segmentation is not undertaken then clear, focused
organisational benefits will not be offered and the customers, demanding a personal service
and unhappy about what is on offer, might well decide to go to other suppliers who are
more accommodating.
o Viability of segmentation
Dig where the gold is . . . unless you just need some exercise.
(Capozzi, 2001)
Not all identified segments will be acceptable as marketing propositions for var-
ious different reasons.
Match the objectives of the organisation

All organisations will want to identify markets that match their mission and their
marketing objectives. Unless starting from scratch with no product or service
direction, they will want to find market segments that match products and ser-
vice capabilities already at some stage of definition. They might also want to
identify markets that fit marketing strengths in such areas as technology,
people skills, distribution capabilities, and sales and promotional potency.
Large enough to be profitable

To be attractive to an organisation, the identified market segment must be large
enough to be profitable. Market research could well identify a market for ‘left-
handed’ sprockets or for ‘ginger hair dye’, but this would not be profitable for
a large company to manufacture and sell if these markets only consisted of one
or two companies. Similarly there may be demand for a product or service but
insufficient money available to pay, e.g. computer equipment in an underdevel-
oped country.
VIABILITY OF SEGMENTATION 169
Niche markets
Notwithstanding, it should be mentioned that what might be unprofitable for
a large company such as Procter & Gamble or Whirlpool might be profitable for
a small company, leading to what has come to be known as a ‘niche’ market.
When Ford stopped producing a soft-top sports car because the market was too
small, it left a market niche for companies like Lotus and Morgan to step in. Small
new competitors are popping up to take on disgruntled customers who have
deserted companies that have been unwilling to change their ways.
Example 4.7 Targeting the ‘pink pound’

An outspoken gay businessman and political figure made his name and his fortune
by identifying a niche market and selling insurance to homosexuals, some of whom
were turned down by mainstream insurers due to concerns over HIV and AIDS.
Market measurement
When a company is looking at potential markets it must be able to measure the
size of the various customer groups and assess what the possible demand might
be in each segment. If it is unable to tell whether there are 1000 or 1,000,000
potential customers, then it will be unable to forecast levels of sales, costs and
profits and will not be able to put together a marketing plan.
Resource capabilities
An organisation will also have finite resources depending on its size and asset
base. Segment opportunities may be identified but the company be unable to
take advantage because of resource limitations. Research may indicate the pos-
sible demand for a more luxurious and expensive type of product which the firm
cannot produce because it does not have the financial resources to purchase the
more sophisticated capital equipment needed for its manufacture.
Ethical and moral perspective

An increasing constraint for many organisations is one that has some form of
moral dimension involved. The corporate mission statement or declaration may
spell out the manner in which the organisation intends to run its business and
so constrain it from expanding into selected areas. The Co-operative Bank ran a
series of adverts stating that it will not invest its clients’ money in areas that it
considers are politically and ethically suspect. The Body Shop undertakes PR, gen-
erates publicity and advertising campaigns through its outlets based on similar
moral principles. This would include not investing in companies that might
cause rainforest destruction or ozone layer damage, as well as countries that they
consider have undemocratic regimes.
Example 4.8 Ethically driven company

The Co-operative Bank in the UK makes a positive virtue out of its moral stance and
is at present running an advertising campaign where it claims that it will offer excel-
lent customer service. It then goes on to say that it will refuse to do business with
a company it considers to have morally dubious market and environmental policies.
Its copy platform states that it is ‘customer driven and ethically guided’.
Legal considerations
Similarly, legal considerations will always preclude market entry into certain
defined market segments, although what may be unlawful in one country may
be lawful in another (marijuana can be bought legally in the Netherlands, but
not in the UK; it can be advertised in neither). Ethical and legal constraints may
restrict marketing and advertising in other areas, including selling and advertis-
ing alcohol and cigarettes to children and drugs for other than medical or indus-
trial use, selling furniture or clothing that has a high combustibility level, and
trading where animals have been used for medical or combustibility purposes.
Moving into another market segment may lead to an investigation by the
Competition Commission because of fear of a monopoly market being built.
Example 4.9 A moral dilemma

The Animal Liberation Front has carried out hundreds of attacks on what it calls
‘legitimate targets’ since it was founded in 1976. Its methods have become increas-
ingly sophisticated and the violence against people has increased. In 1984 a raid on
a Unilever research station destroyed computer equipment and in 1989 a bomb was
used against Bristol University after allegations that research animals had been
mistreated. In late 1999 the campaign switched to Huntington Life Sciences labor-
atory, Cambridgeshire and since then there has been a concerted effort to put the
company out of business. The company argues that it uses animals for medical
experiments which will eventually reduce disease and prolong human life. The
ALF is not convinced and over 500 protestors have continued to demonstrate out-
side the building, names and addresses of employees have been published on the
internet, cars firebombed, and senior laboratory personnel have been personally
attacked. More menacingly, financial backers and customers of HLS have been
targeted, causing a downturn in business and numerous profit warnings. This has
forced the government to take supportive action and the unprecedented step of
setting up an account for the company at the Bank of England.
Basis for segmentation

There is no single way to segment the business-to-business market and the
methods available are diverse and many. Through the use of research, the mar-
VIABILITY OF SEGMENTATION 171
keting manager will try to identify how, where and why products and services
are purchased and base the segmentation on the method most likely to produce
the best results. This basis for segmentation will undoubtedly vary from industry
to industry, from product type to product type and from customer to customer.
With an ever-increasing demand by the organisation for choice, coupled with
growth in the ability of competing companies to provide more personalised offer-
ings to satisfy this choice, the basis for segmentation is continually fragmenting
and changing into ever more categories. Market fragmentation, however, is never
likely to reach the same level of intensity as consumer markets for reasons dis-
cussed below. Twenty years ago the market for financial services was divided into
three or four simple segments; now we can identify over 100.
More than one variable used
With very basic commodity-type products only one method will be used as
the basis for the segmentation. An example might be the business-to-business
market for coffee beans or raw rubber, which will probably be segmented by
geographical location, e.g. London, New York or Paris. A company manufactur-
ing nothing but industrial clothing such as donkey jackets or dungarees might
segment only by size, but companies are more likely to use other methods such
as the type of industry (e.g. the building trade, the car industry) and whether in
the private or public sector.
The more sophisticated the product, the market and the customer, the more
likely that two, three, four or more variables will be used in the segmentation
process. Depending on the business sector and the customer, one variable will
probably be more important than another. Using as an example the motor indus-
try, the market might well be segmented in the following ways: the industry
(service or manufacturing); the type of product (high or low value); and the level
of service demanded (a sales call once a week or once a month).
Example 4.10 Volvo

Volvo segments the B2B market in the following way: international fleet sales –
tourist, diplomatic, armoured, emergency, executive, police, service, taxi, ambu-
lance, hearse, limousine, and ‘special edition’/‘limited edition’ variants tailor-made
to meet individual customer requirements. (www.volvocars.com)
Segmenting in B2B and B2C

The concept of segmenting a B2B market differs quite radically from consumer
markets. B2B products tend to be categorised according to their use while B2C are
categorised on how they are purchased.
Although there are some superficial similarities, the basic reasons and meth-
ods for segmenting in B2B markets will usually differ quite significantly from
those of consumer markets and this is explored below.
Segmentation in consumer markets

Consumer markets consist of many millions of individual customers around the
world buying goods and services for domestic use either for personal consump-
tion or for consumption by relatives, friends or acquaintances. The consumer
product marketer is therefore concerned about first identifying the wants and
needs of all these individuals and dividing the served markets into profitable and
manageable segments and groups that reflect these needs. Research has shown
that over 70 per cent of the population buy products and brands mainly for emo-
tional and symbolic reasons rather than for functional reasons.
These differences make segmenting consumer markets quite different from
segmenting the business market in terms of the kind of research used, segmenta-
tion categories used and products and brands produced. Consumer markets can
be segmented under the following categories:
o Geographic – where people live.
o Demographic – the make-up and movement of the population.
o Socio-economic – age, sex, religion, social class, occupation, family life cycle,
etc.
o Behavioural – heavy users, brand switchers, past users, role-play users, etc.
o Psychographic – introverts/extroverts, power seekers, high/low achievers, etc.
o Lifestyle – grouping attitudes, interests and activities into life-style grouping.
Example 4.11 Volvo segmenting in the consumer market

Volvo offers the following models all aimed at different market segments in terms
of age, gender, income and lifestyle: S40, S60, S80, V40, V70, XC70, XC90, C70
convertible. Many hundreds of variations are offered across all the range.
Segmentation in B2B markets

B2B marketers market and sell products and services to organisations and organ-
isational buyers for business use and are interested in segmenting the markets in
terms of these needs and wants. It is true that individuals make the buying deci-
sions and are sometimes swayed by emotional reasons to buy one product rather
than another (e.g. they like the salesperson), but unlike the consumer market
most decisions to buy are made on objective professional needs. Many more dif-
ferences exist (some shown in previous chapters) and more will be identified as
we move through the book and discuss the unique nature of B2B marketing.
We now examine ways to segment B2B markets. Unlike B2C markets, B2B markets
will not usually be segmented in terms of individual or group needs and wants.
They are more likely to be segmented by industry and individual company need.
MACRO SEGMENTATION 173
Part 3 Segmentation methods in business-to-business

markets
Below we discuss the many different ways that B2B markets can be segmented
so as to achieve optimum effectiveness. Methods chosen will ultimately reflect
company objectives, company resources and market opportunities. Ways of evalu-
ating the segmentation methods looked at here will be discussed later in the
chapter.
o Macro and micro segmentation

Organisations tend to segment B2B markets according to macro and micro mar-
ket factors. Macro segmentation uses factors that distinguish one sector from
another, one industry from another and one type of organisation from another.
Micro segmentation looks at the process involved with the purchasing decision and
the behaviour of those involved in making these decisions. The overriding driv-
ing force when choosing across both approaches must be its use in providing the
supplier with added value to offer the business customer.
o Macro segmentation
It makes sense to identify the macro methods of market segmentation and once
the broader markets have been broken down, examined and high potential areas
selected, then to move into the micro, smaller areas. We begin by looking at the
macro environment. The macro segmentation process is as follows:
1. Industrial and/or consumer markets
2. Geographic segmentation
3. Manufacturing, service or agricultural industries
4. Segmenting by public, private or not-for-profit sector
5. Segmenting by small, medium or large company
6. Segmenting by products and services offered.
1. Industrial and/or consumer markets

Almost the first decision that has to be made is whether the organisation wants
to operate in both the consumer and business sectors. As we saw above, the mar-
kets are quite different and so demand different strategies and different resources.
Some companies operate in both markets while others choose to market in one
or the other. For example, IBM make computer systems for both B2B and retail;
Dulux markets paint for the building trade and to sell on to the end consumer.
When both markets are served the company will often keep each division separ-
ate and organise the business to take account of the needs of both B2B and B2C
markets. Care has to be taken to minimise any rivalry that might arise between
the customers served and so avoid harmful inter-channel conflict.
Standard industrial classifications

As discussed in Chapter 1, all countries with modern economies now classify
industries under a standard classification code to enable ease of identification and
understanding. This enables governments to undertake research and so build a
database of information on how different industries are managing and whether
they are growing or declining, under the direction of government economic and
social policy. It can look at past and present trends in specific industries and then
try to predict what might happen in future. There is an attempt now to stand-
ardise these classification codes across the world so that meaningful comparison
can be made between industries across different countries.
This information is invaluable to suppliers and with more information
brought from the private sector it helps them in segment selection and building
the right segmentation strategies for the future. Many companies specialise in
particular industries, for example construction, and would find it very difficult
to move to other industries if and when times are difficult. Other industries,
e.g. computer services, would be more easily able to move from one industry to
another when opportunities become apparent.
Example 4.12 North American Industrial Classification System

11 Agriculture, Forestry, Fishing, and Hunting
21 Mining
22 Utilities
23 Construction
31–33 Manufacturing
42 Wholesale Trade
44–45 Retail Trade
48–49 Transportation and Warehousing
51 Information
52 Finance and Insurance
53 Real Estate and Rental and Leasing
54 Professional, Scientific and Technical Services
55 Management of Companies and Enterprises
56 Administrative and Support and Waste Management and Remediation
Services
61 Educational Services
62 Health Care and Social Assistance
71 Arts, Entertainment and Recreation
72 Accommodation and Food Services
81 Other Services (except Public Administration)
2. Geographic segmentation
Geographic areas to serve will be discussed by senior marketing managers very
early in the segmentation process. In some cases the decision will be self-evident
where industries are concentrated in certain areas, e.g. Silicon Valley in
California or the car industry in Sunderland. Also whether the supplier has to be
near the customer will also depend on product logistics difficulties such as costs,
fragility or time. The size of the company will also have a bearing on the issue as
a small company will usually have a smaller market, perhaps regionally localised,
than a larger company with a world market.
Geographical segments
B2B suppliers might segment the market geographically in the following ways:
o Region (e.g. the North)
o Town or city (e.g. Manchester)
o International or global (e.g. working from home and selling abroad or setting
up operations abroad)
o Country (e.g. Japan)
o Trading bloc (e.g. European Union)
o Trading area (e.g. Pacific Rim) or continent (e.g. Africa)
o Developed or developing nations (e.g. Germany or Vietnam).
Size, industry sector and industry type will all influence geographical markets to
be chosen, as will company objectives and strategies, and economic and market
conditions. Of course, as with all methods of segmentation, a thorough environ-
mental audit would be necessary before choices can be made.
Density
Companies in the same industry often cluster together in a geographic area for
many reasons:
o The infrastructure favours the movement of goods and services; an example
is companies clustering around the M25 London ring road.
o A large company moves in and smaller companies follow, symbiotically feed-
ing off one another or buying and selling relevant goods and services made
easier because of the close proximity.
o Potential buyers will know where to look when wanting to buy in expertise
and particular types of products. The more companies cluster together, the
greater tendency there is to ‘niche’ and provide a unique product or service
to large multinational neighbours.
Example 4.13 Silicon Valley

In the 1990s, Silicon Valley, the nickname for the high-tech heartland of the US
economy, located between San Francisco and San Jose, California, was booming as
companies such as Apple, Intel, Oracle and Hewlett-Packard expanded rapidly. But
in 2001 Silicon Valley lost an estimated 25,000 jobs, the first net job loss in nine
years. In 2001, 537 internet companies folded, more than twice as many as in 2000.
However, with the development of new technologies the density of businesses is
expected to increase once more.
Geographical segmentation in B2B and B2C markets

Both B2B and B2C organisations will segment markets, but there will be differ-
ences according to the following factors. B2C markets have millions of customers
spread across the whole of the nation. Segmentation would usually be by demo-
graphic breakdown and population spread according to the target market and
products sold. This will therefore take into account town, city and region popula-
tion concentrations. B2B markets have far fewer customers and so segmentation
will be by industry density, individual company location and customer contact
point. The same differences will apply when marketing abroad.
3. Manufacturing, service or agricultural industries

There are some products and services wanted by both the manufacturing and ser-
vice sectors alike and some suppliers are able to offer customised products to both
sectors. There will, however, be many more organisations that will want different
offerings and many goods and services are produced specifically for manufactur-
ing or specifically for the service industries. For example, large amounts of steel
and primary metals, copper, wiring, rubber, glass, transistors, electrical machinery,
machine tools, food processing, radio and television receivers, communication
equipment, and so on are produced by suppliers and so they would naturally
need to sell into the manufacturing sector. Similarly, there are organisations that
produce such things as retail display shelving, retail lighting, sports and leisure
apparatus, restaurant products, alcohol-related equipment and so on which are
geared up to market into the service industries.
In both manufacturing and services, supplier skills, resources, product portfolio,
identified market opportunities, etc. will dictate which segments are eventually
chosen.
Segmenting by the service industries

Over 75 per cent of UK GDP comes from activity in the service industries and it
is increasing every year. In the USA over 80 per cent of GDP comes from activ-
ities in the service sector. Despite much manufacturing moving from the devel-
oped to the developing world, the services sector is still increasing its percentage
of GDP when compared with manufacturing, albeit at times from a very low base
(China 35 per cent, Thailand 31 per cent, Mexico 56 per cent). As the service
industry has grown and manufacturing has declined, more and more organisa-
tions now specialise in offering B2B products and services in the service sector.
Below are most of the main service sectors:
o Financial services
o Leisure services
o Legal services
o Travel services
o Communication services
o Entertainment services
o Hotels, restaurants, bars, catering services
o Electricity, gas and water services

o Real estate, renting and business
o Education services
o Consultants’ services
o Other social and personal services
o Transport and storage
o Repairs
o Public administration and defence
o Wholesale and retail
o Health and social work.
A supplier may sell in all, some, or just one of these sectors. Many organisations
specialise in any one of the above, perhaps in education, leisure and tourism,
transport, and so on. The marketing approach taken by the supplier will usually
vary according to the adopted sector.
Segmenting by the manufacturing industries

Although declining in comparison with the services, in 2001 UK manufacturing
still accounted for about 20 per cent of Britain’s economy (60 per cent of this is
exported to the EU) with about four million people employed in the sector. In
the USA the difference is even wider with only 18 per cent in manufacturing and
80 per cent in services. In Japan, however, there is still a strong manufacturing
sector, 35 per cent compared with 63 per cent in services. There are many sup-
pliers that produce products and services specifically related to manufacturing
and would automatically segment into these markets. As with services, there are
suppliers that are able to sell products in either sector and there are those that
specialise in any one.
Manufacturing industries can be identified under the following SIC codes:
Manufacturing (SIC Code 20-39)
o Food and Kindred Products
o Tobacco Manufacturing
o Textile Mill Products
o Apparel and Other Textile Products
o Lumber and Wood Products
o Furniture and Fixtures
o Paper and Allied Products
o Printing and Publishing
o Chemicals and Allied Products
o Petroleum and Coal Products
o Rubber/Miscellaneous Plastic Products
o Leather and Leather Products
o Stone, Clay, Glass and Concrete Products
o Primary Metal Industries

o Fabricated
o Metal Products
o Industrial and Commercial Machinery and Computer Equipment
o Electrical Equipment and Components
o Transportation Equipment Measurement.
As with B2B marketing in the services, different marketing approaches might well
be used according to the particular manufacturing industry selected.
Agriculture
Business in the agricultural sector in most developed countries is tiny in com-
parison with the two major sectors identified above. In the UK it is 1 per cent, in
the USA 2 per cent in Japan 2 per cent. In some countries, again developing
nations, it is much larger. In China 50 per cent of the population still work in
agriculture, although it only accounts for 15 per cent of GDP. In India 67 per cent
(25 per cent of GDP) of the population work in agriculture and 18 per cent in ser-
vices (1995 estimate).
Changes in industrial sectors

The last 50 years have seen a tremendous shift in working habits of people in
developed nations, moving from agriculture and manufacturing into the service
sector. In the USA 80 per cent of the population now works in the service sector.
In the UK it is nearly 70 per cent and the trend is set to continue. This has had
enormous implications for B2B suppliers over the years. Companies have had to
shift benefits offered or go out of business (allowing new firms to enter) as manu-
facturing has declined and services increased.
4. Segmenting by public, private or not-for-profit sectors

Some organisations supply goods and services across all business sectors selling
into the commercial, not-for-profit, institutional and government sectors. Others
specialise in only one area, perhaps selling medical equipment to hospitals or
consultant services to charities. Because organisational objectives, purchasing
polices and product benefits are often different across the public and private
sectors, the approach taken by the buyer will have to be tailored to meet these
differing needs.
As it is public money that is being spent in the public sector, buying processes
and procedures will almost always be more detailed, convoluted and bureaucratic
than in the private sector as there are many stakeholders and probity must be
transparent in all business activities. This can be the source of much supplier
frustration and anguish at the seemingly unlimited red tape that has to be
surmounted if sales are to be made. The same difficulties might also arise in the
not-for-profit sector because revenue donors hate to see monies given ‘wasted’ on
supplier services superficially seen as unnecessary.
In some countries there has been an increasing trend for organisations in the
public and private sectors to work in partnership with one another.
Segmenting by sector
o Public – government, institutions, departments, non-governmental agencies.
o Private – small, medium and large companies; PLCs, partnerships, sole traders.
o Not-for-profit – charities, associations, mutual societies.
The marketer will need to understand the buying pressure and motives in the private, public
and not-for-profit sectors as they will often be different.
Example 4.14 Public sector purchasing

Extra nurses, soldiers and council workers in the UK are to become Vodafone users
after the telecoms giant completed a deal to supply mobile phones to the govern-
ment. The government announced that it had signed its first strategic partnership
agreement, which could see more than 100,000 public sector workers equipped
with Vodafone phones. The deal is the first in a series of strategic partnership
agreements to be announced by the Office of Government Commerce.
5. Segmenting by small, medium or large company

There is no real definition of what we might mean by a small, medium or large
firm and this will vary from industry to industry and from business to business.
What might seem to be a large organisation to one supplier might be a small one
to another. Similarly how size might be measured will vary from the number of
employees and the number of skilled staff in a particular area to the amount of
sales volume, sales revenue and level of profit made. It could also be based on the
amount of purchases that the company might make over the year, the amount
of purchases made in particular product categories, or perhaps the average order
size. Ninety per cent of Britain’s businesses fall into the small and medium cat-
egory (SME, small and medium enterprises), but over 90 per cent of total business
turnover comes from the 10 per cent largest companies (Figures 4.4 and 4.5). Size
can be measured in the following ways.
Figure 4.4
EU definition of
micro, small,
medium
and large
organisations
Figure 4.5
$ millions Employees
Top ten 1. Exxon Mobil 210,392 123,000
companies in 2. Wal-Mart Stores 193,295 1,244,000
the world by 3. General Motors 184,632 386,000
revenues and 4. Ford Motors 180,598 345,991
number of 5. Daimler Chrysler 152,446 416,500
employees 6. Royal Dutch/Shell Group 149,146 90,000
7. General Electric 129,417 313,000
8. Mitsubishi 124,283 n/a
9. Itochu 109,068 n/a
10. Toyota Motors 106,952 214,630
o Small, medium, large organisations

o Number of employees, skill level of employees
o Sales volume, sales revenue, profit
o Balance sheet total
o Annual purchase
o Average order size, average order size in specific categories
o Value added by manufacturing
o Value added in services.
To be classed by the EU definition as an SME or a micro-enterprise, a company
has to satisfy the criteria for number of employees and one of two financial cri-
teria, i.e. either turnover total or balance sheet total. In addition, it must be inde-
pendent, which means that less than 25 per cent may be owned by one enterprise
(or jointly by several enterprises) falling outside the definition of an SME or a
micro-enterprise, whichever may apply. The thresholds for the turnover and
balance sheet totals are adjusted regularly to take account of changing economic
circumstances in Europe (normally every four years).
6. Segmenting by products and services offered

The commercial business can be further divided into three categories: users, ori-
ginal equipment manufactures, and dealers and distributors.
Users
User customers in the business or consumer market purchase such products as
automated manufacturing systems, computer systems, photocopiers, and so on.
Original equipment manufacturers

Original equipment manufacturers purchase industrial products to incorporate
into their products that are then sold on to business or consumer markets. In this
way Ford will purchase windscreens from Pilkington Glass, or light fittings from
Lucas.
Dealers or distributors
Dealers or distributors purchase industrial goods to sell on to users and OEM,
adding little or nothing to the basic product in the process. The distributor will
buy from all around the world, holding stock, assuming title, offering choice and
delivering to the place of business.
Types of supplier goods required

Having classified and segmented the customers that constitute the business
market, we must now ask what types of goods they require and how each type is
marketed.
Raw materials and manufactured material and parts

Raw materials and manufactured material and parts are those goods that become
part of the finished product. Raw materials might be coffee beans, peas, potatoes,
strawberries, apples, if a food manufacturer, or steel, rubber, leather, if in the car
industry. Manufactured material and parts might be tin cans, glass jars and
printed labels for the food industry, and batteries, nuts and bolts and brake pads
in the car industry.
Capital goods
Capital goods include the long-term investment items that support the manu-
facturing process such as factories, office buildings, fixed equipment and trans-
port. The value of these goods will be depreciated against production cost at the
end of the year.
Supplies and services

Supplies and services are goods that are purchased to support organisational opera-
tions. These will include such items as photocopier paper, administration forms,
maintenance and repair items such as paint and cleaning materials. They also
include the use of energy services such as heating and lighting, as well as services
such as computer support, logistics, payroll processing and food operations. In
the drive for greater efficiency and cost reduction, more and more companies are
now outsourcing many services once performed in-house.
Organisations in B2B and B2C segment markets according to products and services sold.
The practice of macro segmentation

We discussed above how it is impossible for all but a very few large organisations
to serve all sectors and all organisations in any one market. Therefore markets
must be segmented and choices made. So how will an organisation, when first
coming into a market, choose the organisation that it should first approach? To
begin with, a supplier will have resources, finance, skills, technology, products
and services that it already produces, unless it is starting from scratch. It will also
have corporate and marketing objectives that it must achieve. These will circum-
scribe the markets that it can consider for its B2B marketing operations. Of course
this should not inhibit a company from continually seeking out markets for
future strategic direction because if opportunities can be spotted then resources
can usually be obtained to take advantage of these opportunities, as long as time
is allowed for strategic planning.
Within these limitations, an organisation can look towards segmenting the
market according to the stages identified above. At each stage information will
need to be collected, market analysis undertaken and an attempt made to iden-
tify demand potential. The earlier the stage, the broader will be the investiga-
tion and analysis. It will also be less expensive in terms of costs associated with
the type of information gathering. This was discussed in some detail in the pre-
ceding chapter on forecasting demand.
o Micro segmentation
Once the macro segments have been identified, then the groups can be further
subdivided into smaller micro segments based upon organisation, group and
individual behaviour. The organisation might choose to micro segment at the
strategic level or leave it to the sales manager and sales team at the tactical level.
The decision will need to be based on the importance to the company of the cus-
tomer factors under consideration. What might be unimportant to one customer
might be of great importance and value to another.
Segmenting B2B by organisation buying behaviour

All organisations exhibit distinct ways of behaving and these will be discussed in
more detail in later chapters. Below are some of the major forms of business
behaviour that could have an important impact on the buying situation and the
needs of benefit segmentation:
1. Present, past, or non-user

2. Heavy, medium, or light user
3. Centralised or decentralised buying
4. Single source or multiple source user
5. National accounts
6. Partnering and non-partnering relationships
7. Reciprocal relationships
MICRO SEGMENTATION 183
8. Product benefits
9. One-off buyer
10. Repeat purchaser
11. Payment record.
Present, past or non-user

As well as customers in existing markets, there will always be businesses that
might have used products or services in the past but now no longer purchase.
There will also be those that, for one reason or another, have never purchased.
This can be a lucrative source for new segments and information systems and
software should be installed within the MIS to throw up instances when past
users might be in the market for products and services and targeted marketing
promotions might lead to sales.
Heavy, medium or light user

Most businesses will have heavy users (the Pareto 80/20 rule, i.e. 80 per cent of
the business comes from 20 per cent of the customers). It should be obvious that
loyal and large spending customers should be targeted through the use of some
form of customer relationship management scheme. Data mining should iden-
tify which customers are the most profitable and which the most costly.
Centralised or decentralised buying

Whether a customer has a centralised or decentralised approach to purchasing
will also dictate segmentation strategy. If it has a policy of centralised buying
then all sales approaches will have to be through head office. Conversely, if the
policy is one of decentralised buying then separate sales approaches will need to
be made to all purchasing divisions.
Single source or multiple source user

As matter of policy some firms will buy from more than one company while
others might only buy from one. A supplier will want to persuade the multiple
source customer always to buy from his or her organisation (by exemplary ser-
vice?), while the single source customer should be rewarded for continuous
loyalty.
National accounts
Many large companies buy for the whole company through a centralised head
office buying location. This might be for overall order placing or for price nego-
tiations and individual divisions ordering the products as and when needed.
Either way the buying business will expect national account status and
interaction with a senior marketing manager (often the sales or marketing direc-
tor depending on value).
Partnering and non-partnering relationships

Many associations along the supply chain revolve around cooperative relation-
ships. This may be by formal partnerships, joint ventures and strategic alliances
or through more informal verbal agreements based on nothing more than a
handshake. Many vertical supply partnership relationships are taking on heavy
strategic resource commitments involving joint management schemes such as
‘efficient consumer response’ and ‘electronic data interchange’. This will bring
added pressure to the segmentation process depending on the strategic import-
ance and the power of the relationship.
Reciprocal relationships
Unlike consumer markets, businesses are often both sellers as well as buyers of
products and services. This leads to the reciprocal arrangements where one com-
pany will buy from another on the understanding that the seller will then buy its
products. In some cases these can infringe competition law and be illegal.
One-off buyer
One-off buyers will usually purchase infrequently and each transaction will ter-
minate and only reactivate if a future need arises. This might be because a sup-
plier is only used when the main supplier is unable to supply or if the product or
service is seldom used. Again exemplary service might encourage more frequent
usage.
Repeat purchaser
While not necessarily on a contract, repeat purchasers will buy the same products
and services on a regular basis. Many companies buy out of habit and there is
always the danger of complacency setting in on the part of both supplier and
buyer. The danger for the supplier is that standards could fall and the business be
lost if the supplier suddenly instigates a supplier quality audit.
Payment record
Organisations will sometimes have different payment reputations, including
those that pay within the standard allocated time for the industry, e.g. 30 days,
those that demand extra payment time as part of the deal, those that are slow
payers whatever the deal, and those that never pay. Of course the last option can
cause a supplier to go out of business, especially if the amount is a major part of
the company’s revenue. Trade organisations exist to credit rate business organ-
isations by a payment risk element.
Example 4.15 Late payment is still the norm

Companies are still taking longer to pay their bills three years after legislation to
speed up payment was introduced.
o Three years after the government brought in legislation to reduce late pay-
ment of invoices, the average payment period in the UK is 60.3 days.
o It takes companies on average two days longer to pay their bills than when the
legislation was introduced.
o Large companies take 77.9 days, medium-sized companies 59.3 days, and small
companies 50.1 days on average to pay their suppliers.
o Large gas companies take 95 days to pay their suppliers, 20 days longer than
in November 2000.
o Large oil companies are taking 88 days to pay their suppliers, nine days longer
than in November 2000. (www.experian.com)
Segmenting by group and individual buying behaviour

We talk about organisational buying patterns, but it must be remembered that
ultimately buying decisions are made by individuals and groups with similar
sorts of human problems as are suffered by customers in consumer markets. We
can divide the process under the following headings:
1. Characteristics of purchasing situation

2. Group buyer characteristics
3. Individual buyer characteristics.
1. Characteristics of purchasing situation
Problem solving degree of difficulty

The level of difficulty the buyer might have with the purchase is associated with the
type of purchase being made. It might be a new purchase, i.e. the risk associated
with a product never bought before; a modified repurchase, i.e. price, quality or
service changes wanted; or a simple repurchase, i.e. reordering products already
in use. The seller, being aware of the difficulties involved, can then offer benefits
to overcome them.
Purchasing stage in the decision-making process

Many buying situations can take a very long time before a decision is made and
the contract signed. The process can take months and sometimes years. Purchas-
ing agreements might also be renegotiable every so often, perhaps every year, so
the seller will need to be aware when circumstances are ripe.
Purchasing importance
Linked to the degree of difficulty associated with the purchase stage will be
the importance of the product or service being purchased. This will vary from
company to company and from situation to situation. Some sellers specialise in
market segments where risk minimisation, in terms of delivery time or quality
guarantee, is offered as a central benefit.
Purchasing policies
All companies will have buying policies related to such areas as leasing, rental,
price setting, price negotiation and method of payment.
Purchasing criteria
Many organisations, particularly in the public sector, will have purchasing cri-
teria based on supplier reputation, product quality, product availability (often
insisting on a quality mark such as ISO 9000), and full service benefits. In some
cases purchases will not even be considered until a qualifying process puts the
seller onto an approved vendor list.
Inventory requirements
Inventory requirements comprise the add-on services required, delivery and
storage demands, and whether part of an overall materials management scheme
includes such things as ‘electronic data interchange’ and ‘just-in-time’ processes.
This can lead to a heavy resource commitment, which can be a real problem if
the buyer is unprepared to commit to a long-term relationship.
Value in use
Some organisations are more concerned about added ‘value in use’ in the form of
after-sales service, technical support and supply continuity.
Buying centre structure

Some companies involve many people within the organisation in the purchasing
decisions, depending on the level of importance. Identification of the roles
played by the various members in the buying centre, those with the most influ-
ence and the primary decision-makers, must be part of the segmentation and
sales process (also known as the decision making unit).
Organisational politics
Politics is about the level and distribution of power and all organisations will have
some form of power culture to a lesser or greater degree. The display of power can
manifest itself in many different ways according to the type of organisation,

internal structure, products and services bought and sold, and the importance of
the decision to be made.
2. Group buyer characteristics

The importance of the decision making unit (DMU) in B2B decision making
was discussed in the preceding chapter. Here we look further at the need
for suppliers, sales managers and sales representative to identify group buyer
characteristics.
All groups exhibit many types of buying behaviour according to group make-
up, organisational demands and the type of buying decision to be made. How
group decisions are made can vary from the authoritarian, where one person
dominates, to the democratic, where all group members are involved in the final
decision. Other group factors that can influence decision making will include the
make-up of the group and who the members are, the role and position of each
member within the organisation, who has the power to make decisions, and so
on. This can be a problem when groups of people come together for a one-off
project and when this is finished move off to another. Some companies will build
individual and group member profiles, attempting to answer some of these ques-
tions and create the right kind of marketing and personal approach. Many the-
ories exist on the role of groups, how they operate and how they come to make
purchasing decisions (see examples).
Example 4.16 Belbin and group roles

Dr R. Meredith Belbin describes patterns of group behaviour, attempting to show
how team members adopt roles to interact with one another. He identifies nine
useful types (roles) of contribution (www.Belbin.com).
1. Plant – very creative, the ideas person.

2. Resource Investigator – extrovert, good at making outside contacts and develop-
ing ideas.
3. Monitor Evaluator – shrewd and prudent, analytical.
4. Shaper – dynamic and challenging.
5. Co-ordinator – respected, mature and good at ensuring that talents are used
effectively.
6. Implementer – practical, loyal and task orientated.
7. Completer Finisher – meticulous and with attention to detail, also full of nervous
energy.
8. Team Worker – caring and very person orientated.
9. Specialist – high technical skill and professional, as opposed to organisational
prime loyalties.
Example 4.17 Group think

Irving Janis in his book Victims of Group Think describes his observation on group
dynamics that he came to call ‘group think’. He goes on to describe seven symp-
toms of so-called ‘group think’ which organisations should fight against:
1. An illusion of invulnerability. The group feels that it and the organisation they
work for could do no wrong. They feel invincible.
2. Stereotyping outsiders. The group will frequently justify its needs and position
by stereotyping others they see as enemies or rivals. This might be other depart-
ments and even expert advisors who interfere in some way with their decision
making.
3. Bounded rationality. Members fall under the impression that they are right even
when the evidence is telling them otherwise. Members reassure one another that
their interpretations and perspectives are correct and they believe what they
want to believe without challenging old assumptions.
4. Belief inherent morality. They believe that all that they do is right, that the
others are wrong and that their cause is morally underpinned.
5. Self-censorship. All members tend to conform to the opinion and decisions of the
majority, not wanting to stand out as different.
6. Direct pressure on dissenters. Anybody that speaks out against the general view
is pressurised or discredited. This leads to uncritical thinking, acquiescence and
conformity in decisions.
7. Mindguards. Members shield the leader from dissenters, giving the impression of
unanimity.
3. Individual buyer characteristics

It is difficult at times to take into account personal buyer behavioural and person-
ality patterns because buyers can change quite frequently. However, there is no
doubt that, despite increased professionalism, individual personality and attitude
of the buyer can have an effect on the eventual outcome, especially if he or she
does not like the supplier company, its products or the salesperson.
Despite the standardisation of organisational systems, processes and proced-
ures, buyers will almost inevitably bring their own style and ways of working to
the purchasing process. This will vary according to many factors such as age,
whether they are new to the job, confidence, the need to impress their bosses,
and so on. The importance of these differences cannot be ignored and there are
many examples of a company losing all its business when a new buyer moves in
and the old one departs. These differences are identified in more detail below.
Individual buyer characteristics take on a higher level of importance in the
small business where the buyer is also the owner. Most seller organisations will
be dealing with this type of company at some time or other. When selling into
these companies the decision to purchase or not is often at the whim and pos-
sible eccentricities of one man. In these situations an understanding of human
nature and the motives driving the purchasing situation are critical and should
only be left to astute salespeople. It should be noted, however, that this level of
individual behaviour and personality involvement in the B2B market is nowhere

as high as in the B2C market.
Good salespeople have always segmented individual buyers by personality and
attitude, many doing it instinctively as they moved from organisation to organ-
isation. Years ago, when a card system was used to record the different buying
patterns of each company, a salesperson might write on each card the personal
details about the buyer’s temperament, hobbies or family. This can now be done
more effectively with the help of laptop computers.
Individual buyer factors

The following individual buyer factors might need to be considered by the B2B
supplier marketing department and the sales team at the micro level:
o Ambition – high, medium, low, politically (in the business sense) active.
o Personality – sense of humour, aggressive, non-assertive, moody.
o Experience – new to the job, been in the business for years, technophobe/
technophile.
o Attitudes – towards own company and supplier: like, dislike, indifferent.
o Lifestyle – gregarious, outward-going, bookish, conservative, work driven.
o Self-image – confident, at ease, insecure, unsettled, need to impress.
o Risk tolerance – high, medium, low.
o Decision-making style – consistent, conservative, aggressive, slow, quick.
o Cognitive style – knowledgeable, quick thinker, slow thinker, interactive.
o Job responsibility – high, medium, low levels of decision-making responsibility.
Intellectual, emotional and instinctive influences on B2B markets

Public commentators as long ago as the Greek philosopher Plato have considered
the different ways that people have of ‘thinking’ about their needs, wants and
desires. This is because people do not seem to think in the same way when com-
ing to decisions. Some take their time and ponder long and hard before deciding.
Others take no time at all and act almost on impulse. As with other influences,
marketers are interested in the thinking process because they want to try to
understand what is going on so that benefits can be offered that take these pro-
cesses into account.
In a simple and very general way the concerns discussed here can be con-
densed into a theory that people ‘think’ at three different levels when making
decisions (see Figure 4.6):
1. Intellectual and rational thought: thinking with the use of the brain, which
might be considered to be the highest level of thought.
2. Emotional thought: ‘thinking’ with the heart, which might be considered mid-
level thought.
3. Instinctive thought: ‘thinking’ with the gut, which might be considered the
lowest level of thought.
Figure 4.6
The three levels
of thought
Source: Wright,
2001
People think at different levels

It can be argued that individuals think and act using varying degrees of intellect,
emotion and instinct. Some people think and act more at the highest level, some
at the mid-level, while others think and act at the lowest level. This will be the
case in both B2B and B2C markets. The level of thought employed will depend
on genetic, environmental and situational factors.
Intellectual, emotive and instinctive influences and B2B marketing

We would all like to think that we make decisions based on pure rational analysis,
but research shows this not to be the case. In B2C marketing, product branding
becomes crucial as research shows that over 70 per cent of consumer decisions
are made for symbolic and emotional reasons. In B2B, as buyers purchase for
the company and not themselves, purchases tend to be (though not always) for
rational reasons.
o Changing importance of segmentation factors

The importance of all the various segmentation factors discussed above will quite
possibly change from market to market and country to country. A factor that
may be important in the UK might be relatively unimportant if segmenting the
Japanese market.
Criteria for market segmentation

There are many factors to consider when segmenting B2B markets and the import-
ance of each will depend on different criteria:
o Environmental factors
o Corporate mission
o Corporate objectives and corporate strategies
CHANGING IMPORTANCE OF SEGMENTATION FACTORS 191
o Marketing objectives and marketing strategies

o Target markets: national, international, global
o Present structure of the marketplace
o Level of competition
o Internal resources and assets
o Product portfolio
o B2B market segmentation process
o Market coverage wanted
o Products and services sold
o Direct or indirect
o Channel structure.
Conjoint analysis
Conjoint analysis is a sophisticated tool for implementing market segmentation
strategies. It was developed primarily for use in consumer markets but is now
being developed for use in B2B. It tries to measure the various benefit trade-offs
that customers are willing to make when they use one supplier over another
and when they buy a product or service. This will include benefit areas such as
corporate and product brand, price, quality, service, delivery, warranty, timing,
speed, and so on. Its primary uses are in developing new products, repositioning
old products and deciding prices. The central idea of conjoint analysis is that
products and services can be described by a set of attribute levels. Purchasers then
attach different values to the levels of different benefit attributes, e.g. on a score
of 1 to 10 they may put the speed of delivery at 9, the price at 3 and the service
at 7. They then choose the offering that has the highest total value, adding up all
the related, weighted benefits. Business buyers have different values, so their
trade-offs vary and research should be used to identify these differences. These
can be placed on a grid and analysed.
Once we work through the models we find ourselves with various outputs:
profiles of companies, products and services, along with expected returns to each
company; and a description of each buyer who chooses a particular product
profile from the array of choices. The strength of conjoint analysis is that it
goes beyond simply telling us what a buyer likes about a particular company,
product or service. It also helps us to understand why the consumer might choose
one product or or service supplier over another. Once a company gathers informa-
tion on buyer needs, it must then assess both how potential purchasers are likely
to react in the market-place to any changes and, of equal importance, how com-
petitors are likely to react.
The first step in creating a successful conjoint analysis is to examine the com-
petitive marketplace and develop a set of corporate/product/service attributes
and levels. Personal interviews and in-house expertise can define these. Conjoint
analysis can use statistical design techniques to select a small set of possible
profiles from which the user can predict results for thousands of combinations
not actually tested.
Part 4 Market segmentation process

This process involves six stages:
1. Identify the basis for market segmentation.

2. Determine the important characteristics of each segment.
3. Evaluate the market attractiveness of each segment.
4. Segment selection.
5. B2B corporate/product positioning.
6. Develop a marketing mix strategy for each targeted segment.
o Identify the basis for market segmentation

The first step in segmenting a market is to identify on what basis the segmenta-
tion is to be made. We discussed above the many methods and approaches that
can be used and it is from these that choices will need to be made. Of course the
segmentation process will never take place in isolation from the whole planning
process because there are many other factors that will need to be taken into
account before reaching this stage. The internal and external environmental
auditing process will have identified the opportunities and threats facing the
company and its own internal strengths and weakness. Strategic market option
analysis should then have clearly described and evaluated the markets that the
company should now be considering and the products and services that need to
be developed to serve these markets. It is from this analysis that the basis for
segmentation strategies can be chosen.
Unless the company is starting from scratch, certain segmentation methods
will already be in use, although complacency in spotting new opportunities must
always be avoided. The basis for identifying the most likely macro segments will
include the following, depending on the strategies to be chosen:
o Markets already being served

o New markets for new products
o New markets for existing products
o Size and growth of the markets
o Level of competition in these markets
o General characteristics of buying companies in the market
o Competitive advantage enjoyed by existing players in the market
o Market structures
o Products and services currently in the product portfolio
o Company objectives and strategies
o Company skills and resources.
An example of a starting point might be an initial decision on whether to stay

within national boundaries or to move abroad. If the decision is to move abroad
then the most likely countries must be identified. The segmentation analysis
DETERMINE THE IMPORTANT CHARACTERISTICS OF EACH SEGMENT 193
Figure 4.7
Identifying the
basis for
segmentation
process might move on to see whether the market under consideration has both
B2B and B2C markets. An example might be the automobile market, serving both
the car fleet market (B2B) and the car retailer (B2C), or the finance services mar-
ket with both small business and domestic lenders. Any of the segmentation
methods discussed earlier in the chapter might then come into consideration,
depending on the basis factors highlighted above.
At the end of this first stage the marketing managers should be able to iden-
tify the segments that most closely match the future direction wanted for the
organisation. For example, if the company manufactures steel tubing it will not
be interested in selling to the end consumer. Similarly it might not want to go
abroad. Both these macro segmentation methods can thus be eliminated. Like-
wise it might be geared up to operate in the private sector and not have the skills
and resources necessary to operate in the public sector. Figure 4.7 is a simple deci-
sion tree model that might be used.
o Determine the important characteristics of

each segment
Once the basis for segmentation has been established, each of the possible macro
market segments identified can now be examined in more detail for important
factors that might fit the needs of the organisation. Information about the coun-
try of choice should already have been collected and analysed within a SWOT
analysis as part of the overall auditing process. This information can now be
further used as part of the segmentation process. All areas identified above and
considered to be the basis for the segments can be examined and evaluated to
determine the important characteristics of each and how it might fit the re-
sources of the entering supplier.
It is important to understand that what might be considered important to one

company might not be so important to another. For example, country infras-
tructure would be important to a company selling fresh produce to small com-
panies because of the need to make regular deliveries, while not important for a
company marketing computer software. Similarly, supply chain structures and
relationships might already be sealed and in place, making it very difficult for any
other organisation to enter the market. Below we outline some of the possible
important segment characteristics linked to the model in Figure 4.7.
o Country characteristics: political support for a market economy, economic
growth, interest rates, whether in or out of the euro, infrastructure, industrial
laws and regulations, pressure group activity, etc.
o B2B market structures: monopolies/monopsonies, oligopolies/oligopsonies,
competitive.
o Market sector: growth, maturity and decline, forecast demand levels.
o Supply chain: structures and relationships along the supply chain, horizontal
relationships.
o Competition: level of competitive activity across all relative markets, market
share, product portfolio, products.
o Size of buying organisations: small, medium and large, classifications and
numbers.
o Number of buying organisations: buying patterns, buying needs, products and
services purchased.
o Business competition: numbers, sizes, market share in the small business market.
So if size is important then customer buying levels and patterns in a particular
market segment will need to be examined, as will the balance between light and
heavy users of a particular product or service. In the same way the play-off
between quality, service and price might be an important consideration and will
need to be highlighted as another important segment characteristic.
Market analysis at this stage will be fairly broad and based on macro statistical information.
Little expense will be incurred up to this stage. B2C markets would be examined more for
consumer numbers and group and individual buying patterns and buying motives.
o Evaluate the market attractiveness of each segment

Once possible market segment contenders have been identified, the market
attractiveness of each segment can then be evaluated. This consists of a more
detailed examination in terms of market attractiveness and organisational
strength. A variety of approaches may be used for conducting market segment
attractiveness. The model used is not particularly important as long as it results
in a viable marketing segmentation strategy.
Below we look at each segment and important characteristic identified above
and compare with the business marketing strength and ability to compete in
EVALUATE THE MARKET ATTRACTIVENESS OF EACH SEGMENT 195
each particular segment. The factors chosen will be those considered important
enough to have been identified and discussed in stages 1 and 2 above. The fac-
tors used may well vary from segment to segment, from situation to situation,
and from organisation to organisation. A particular factor considered important
enough to be selected by one company might not be considered important by
another. Similarly a factor deemed to be important at one moment in time might
not be considered important at another.
Factor scoring
Each factor in the market attractiveness table is given a score between 1 and 10,
1 being low and 10 being high, measuring its attractiveness to the organisation
as a possible market segment. It will also be given a weighting factor between say
1 and 2 depending on its importance when compared with the other factors
being assessed. So if the ability to make a profit is considered more import-
ant than the size of the market, a weighting of 1.5 might be given. This means
that the 1 to 10 points allocation needs to be multiplied by 1.5. The same pro-
cess will be applied to the factors shown in the marketing strength table. This
approach should then be taken with every segment under consideration, so even-
tually each option can be compared one with the other.
Market segment attractiveness

o Government regulations
o Economic stability
o Size of the market segment
o Growth
o Profitability
o Barriers to entry
o Competitive intensity
o Channel structures
o Number of buying organisations
o Number of selling organisations
o Price levels and profitability potential.
Marketing strength (ability to compete in the segment)

o Marketing research databases
o Products and service attractiveness
o Overall portfolio fit
o Product portfolio selection on offer
o Costs
o Distribution contract opportunities
Figure 4.8
Evaluating
market
attractiveness
and company
strength using
a 3×3 matrix
o Extensive, selective or concentrated distribution opportunities

o Concentrated distribution
o Management skills
o Technical skills
o Marketing and sales skills
o Promotion experiences
o Ability to control.
Plot scores on a 3 × 3 matrix

The importance of this kind of exercise is not really in the end result achieved
but in the management participation process. As with the overall planning pro-
cess, getting marketing managers to discuss, argue, dispute and disagree over the
various factors chosen and the points and weightings allocated concentrates the
mind and helps all interested parties gain insight into the most important issues.
It is probably helpful for participating personnel to decamp to some type of man-
agement centre away from the hustle and the bustle of the company premises.
Human resource experts argue that this sort of environment is more conducive
to success in this kind of strategic management exercise. Putting the results onto
a grid as in Figure 4.8 helps in gaining an overview of all the options available
and, through this comparison, hopefully the choice of the right options.
Market analysis at this stage will be more detailed, based on both macro and micro
quantitative statistical analysis. Unlike B2C information gathering, very little qualitative
research will be used in the B2B process.
o Segment selection
Segment selection in B2B markets must be treated with the utmost care because,
depending on products and markets, the relationships between buyers and sell-
ers may well entail long-term strategic commitment with a heavy resource liabil-
ity making it very expensive to withdraw. However, once the evaluation process
SEGMENT SELECTION 197
has been completed, the segments that are most attractive in terms of market
opportunity and organisation match can be selected so long as they fit into the
overall corporate strategic plans. More research would now be needed to gain a
deeper insight into the needs and wants of the selected segments. This informa-
tion would be concerned with the more detailed need for micro segmentation.
From this information company and buyer profiles can be constructed.
Market segment company profile

A market profile can now be constructed for each adopted segment, giving more
detail about the types of organisations in that particular segment and the prod-
uct benefits wanted. The more detail known about buying patterns, benefits
needed and relationships wanted, the easier will be the task of product benefit
development, product positioning and customer communication and promo-
tion. The customer profile might include the following characteristics:
o Average size of the organisations in the segment in terms of sales volume and
number of employees.
o Location of all companies in the market segment.
o Range of products and services sold, range of products and services bought.
o Value in use wanted. The relative importance of benefits such as price, quality,
delivery and after-sales service.
o Range of products and services bought in that are produced by the selling
company.
o Buying patterns, buying group membership.
o Competitors currently used.
o Existing relationships with current suppliers.
B2B customer profiling will be based on industry and organisation, unlike B2C customer
profiling which will be based more on target segment group and individual customer.
Competition profile
A detailed competition profile will also be instigated, identifying every relevant
factor that might be of interest. This will cover such things as competitor market
share, product portfolio and benefits offered, costs, prices charged and profits
made, as well as supply chains used and supply chain relationships. Competitor
sales force activity and promotional spend will also be examined and evaluated.
Demand forecasting
Both quantitative and qualitative demand forecasting (discussed in some detail
in the preceding chapter and also on the B2B Marketing website) will be used to
identify sales and profit potential.
Detailed market, customer and competitor analysis, using both secondary and primary
research, might now be used. Expenses will increase the more detailed the investigation
and the more committed the supplier to identified markets.
Discussion with the buying organisation

In some cases, before segment selection takes place, the supplier might need to
talk to the buying companies to ascertain whether future sales are a possibility.
This will be especially necessary if there are only a few customers in a particular
attractive segment. It will be a waste of time and money if a particular segment
is selected and resources expended only to find that, because of some immovable
barrier such as supplier/buyer contract, any new business is impossible.
o B2B corporate/product positioning
Identify where the company/product will be positioned in the market so as to gain

competitive advantage.
The selling company must now look towards its company and product position
in the market within the chosen target segments. Positioning is placing the cor-
porate brand, product or service in the marketplace with distinctive benefit char-
acteristics that distinguish it, in the minds of the customer, from those offered
by the competitors. It is self-evident that, if the product service benefits being
offered are inferior or even the same as those competitive products already in the
market, there will be absolutely no reason why the customer should change. Of
course if the market is new and no competitors exist, this problem will not arise,
but benefit reasons will still need to be offered to prospective customers if they
are to purchase. An example might be the different corporate brand positions
between Mercedes and Ford.
In B2B markets all the benefits associated with corporate branding are more important
than those associated with product branding. In B2C markets the opposite is more often
the case.
Gaining competitive advantage

The product’s position in the market should be decided through a combination
of the customer benefit needs identified in the adopted market segments, benefits
already being offered by the competition, and the ability of the company to add
superior value to its product offerings. Ideally the benefits the company decides
B2B CORPORATE/PRODUCT POSITIONING 199
Figure 4.9
Product
position map
to offer will be benefits that are in some way better than those being offered by
any of the competitors. Benefits to be offered could be said to fall into three
generic categories:
o Making the product better than those of the competition.
o Making the product cheaper than those of the competition.
o Making the product different from those already on the market.
It is important that the benefits and added value which the company decides to
major on must give sustainable competitive advantage and value added. This is
discussed in the next chapter. Suffice here to say that the competitive advantage
can be more important in some markets than in others depending on buyer
demands and the level of the competition. Nevertheless in all markets the
customer will mostly be comparing one company with another and one product
with another. This task has been made infinitely easier with the growth and the
development of the internet. In the past, strange as it may seem, buyers could not
always seek out the most attractive suppliers and had to rely on trade magazines,
journals, exhibitions and word of mouth. Now it is just a matter of using a search
engine on the web to seek out supplier options from around the world.
From the supplier perspective, complacency must be avoided, customers
continually researched and new and improved benefit offerings developed before
the many sources of competition can position themselves as superior suppliers
(Figure 4.9). Product positioning maps are often used as a marketing tool to try
to identify ‘benefit’ gaps in the market that can be filled by a company and/or
product in a particular market segment. We can see from the product position-
ing map in Figure 4.8 that there is a gap in the market for firm Z to offer a high
quality service and fast delivery not offered by any other company at the
moment.
Positioning is placing the corporate brand, product or service in a targeted marketplace

with distinctive benefit characteristics that distinguish it, in the mind of the customer,
from the benefits offered by the competitors.
o Develop a marketing mix strategy for each

targeted segment
Once the most promising segments have been identified, thoroughly examined,
sales demand potential evaluated and then selected, the B2B marketing managers
must develop a marketing mix strategy for the organisation and/or its products
and services in each market. Working with the researched needs of each
identified customer segment, the B2B marketing and other managers will meet
together to discuss, examine and evaluate product/service, price, distribution
and promotional strategies that meet the needs of each identified segment. In
B2B this might also mean working with the actual buyer managers, especially if
the organisation might be capable of large orders and/or forming some kind of
partnership.
Power of the buyer and supplier in marketing mix

strategy selection
The input that the buyer might have in the supplier marketing mix strategy will
depend to a large extent on the power relationship between the two companies.
One large buyer in the market will be able to dictate product benefit offering,
pricing and profit levels and distribution methods to a smaller dependent supplier.
Many large companies now form strategic alliances and partnerships with supply
chain members and all will be involved in marketing mix strategy at every level
of the process.
In B2B segmentation a different marketing mix strategy might have to be developed for
each individual company as well as each separate industrial sector.
Implementing a segmentation strategy

Developing a segmentation strategy will be part of the overall marketing
planning and control process discussed in Chapter 10. This will include setting
clear objectives, identifying and profiling market and customer segments and
developing the right ‘bundle of benefits’ offering for each individual customer. It
could be argued that the most difficult part of the segmentation strategy is its
implementation. If products and services sold do not match customer expecta-
tions in every part of the process, then so demanding are business customers now
that financial penalties can be incurred and business lost. Unlike B2C markets
with millions of customers, business lost here can be in terms of a large percent-
age of supplier revenue. To ensure that this does not happen, it is vital that
responsibilities for each task are clearly allocated, performance indicators set, and
feedback, monitoring and control mechanisms are in place to cover every pos-
sible contingency (Figure 4.10).
SUMMARY 201
Figure 4.10
Segmentation
process
Unlike B2C markets with millions of customers, business lost from even one B2B customer
can be in terms of a large percentage of supplier revenue.
o Summary
The decision-making process was examined under the categories of the decision-
making unit (DMU) or buying centre, the decision-making process (DMP) and
the level of buying decision difficulty (BDD). The complexity of the DMU was
compared with the relative simplicity of the DMU in consumer markets. Market-
ing approaches were evaluated and recommendations given. The stages in the
DMP were identified and examples given of how buyers and buying groups might
perform at the various stages. We then went on to look at the role of the level of
difficulty in the process, examining the problems associated with a straightfor-
ward rebuy, a modified rebuy and a new purchase. Finally, the overall differences
between buying in B2B and B2C were identified and highlighted.
Segmentation is a crucial element in the business-to-business market planning
process. It involves classifying existing and potential buying organisations into
homogeneous groups that have similar strategic needs. This enables the supplier
to shape and hone the product and service benefit offerings in a way that will
meet these needs as closely as possible. Marketing research is an important part
of the process, investigating both existing and potential markets to describe and
evaluate factors that will contribute to successful segmentation.
Many ways to segment business markets can be identified at both the macro
and micro level, including by geographical location, industry sector, type of
industry, organisation size, products and services sold, the buying situation and
culture of the company. Group and individual differences were identified and
reasons given for when and how this information should be used in the seg-
mentation process. It is highly probable that more than one way to segment a
market will be used, perhaps using geographical location, industry sector, organ-
isational size and types of products marketed.
A systematic approach should be used by the business marketing manager when

identifying and selecting particular target segments, weighing and evaluating
the costs and benefits of each segment both in isolation and in contributing to
the well-being of the company as whole. Systems should be put in place con-
tinuously to monitor both existing and potential segments for change that might
provide segmentation opportunities or incipient market and competitive threats.
1. Describe the DMU, the DMP and the BDD and evaluate the differences between
consumer and business markets.
2. Discuss the overall differences between the consumer buying process and the
organisational buying process. Give examples.
3. Identify and evaluate the major differences between segmenting B2B markets and
B2C markets.
4. How might marketing research be most profitably used in segmenting B2B
markets? What differences might there be between research carried out in B2B
markets and research in B2C markets?
5. Explain why entry into a particular market segment by an industrial company
might require a longer strategic commitment than a comparable decision made
by a fast moving consumer goods manufacturer like Sara Lee.
6. How might the concept of B2B segmentation be applied to a charity such as
Oxfam in the not-for-profit sector? What are the particular factors that would
have to be considered?
7. Discuss the B2B factors that would need to be evaluated in segmenting the
following markets:
o Entering another country
o Moving an existing product into a new market
o Moving from one industry to another.
8. Identify the benefits and possible dangers involved with B2B segmentation. Give
live examples of companies that have (a) benefited from successful segmentation
and (b) suffered from unsuccessful segmentation.
9. Identify and discuss the systematic approach that will be needed when
segmenting B2B markets.
10. Identify and evaluate all the different ways in which the B2B market can be
segmented.

Questions, and an Internet Exercise for this chapter.
o Bibliography
Books
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30–1.

05 Managing business products/
services for strategic advantage
in business-to-business markets
Chapter
Profit in business comes from repeat customers, cus-

tomers that boast about your project or service, and
then bring friends with them.
Aims and objectives

1. Identify the different types of B2B products and services and recognise
why organisations need to analyse and classify to gain strategic
competitive advantage.
2. Outline the major differences between B2B and B2C products and services.
3. Identify and evaluate the different ways in which an organisation can brand
and present its products and services.
Part 1 Organisations, products and services
o Introduction
It might be said that the product or service the organisation offers for sale is the
very reason for its existence. Without a product or a service there is no company.
As marketing puts the customer at the very heart of its business, the product
and/or service must be developed and offered in conjunction with both the
customer’s and the market’s needs. It is difficult clearly to identify the value of
the B2B industry in any modern economy because many offerings eventually end
up in retail products. B2B products cover the whole range of goods and services
produced by business organisations over any one period (usually measured over
one year) and can account for as much as one-third to one-half of a country’s
GNP, depending on how the output is measured.
B2B products are defined as goods and services sold by one organisation to
another for its own use or sold on to other organisations for their own use. They
will not include goods and services sold by the retailer to end consumers,
B2B PRODUCT DEFINITION 205
although these products will include B2B goods and services in their make-up.
B2B products and services tend to have a lower profile than B2C goods and
services because they may be less glamorous than consumer products and sold in
a less obvious arena. Nevertheless this should not diminish their importance
both to the national economy and to the part that they play in producing con-
sumer products. In this chapter I will attempt to outline the essential differences
between B2B and B2C products and services.
Example 5.1 Vacuum company moves to Asia

Because of much lower manufacturing costs, as well as the prospect of being much
closer both to suppliers and to new markets, Dyson, the UK company which pioneered
the ‘bagless’ vacuum cleaner, moved the manufacturing of its cleaner to Malaysia
in 2002, with the loss of many hundreds of jobs. Businesses are about products, not
people, and unproductive product would lead to ultimate company collapse.
o B2B product definition

Taking a wide definition, a marketing definition of product might be the fol-
lowing: a product can be anything that satisfies customer needs or wants in
exchange for some form of payment (where the payment may sometimes be
some benefit other than money).
B2B product definition

A B2B product can be anything that satisfies a need or want in exchange for some form of
payment offered to the organisational customer for its own use or to be sold on to another
organisation for its own use.
Again taking the wider definition, a B2B product can be any of the following:
1. A product or service or combination of both. It can be a product, e.g. cement,
paint, nuts and bolts, a road bridge; a service, e.g. financial advice, factory
insurance, office cleaning, bad debt collection; or a combination of both.
2. An idea or concept. It can be an idea or concept, e.g. genetically engineered
food, embryo cloning, plasma TV screens, management advice, public health
messages.
3. A process. It can be a process, e.g. running a marketing information system,
wages payment systems, telecommunications systems.
4. A person or place. It can be a person or place, e.g. a politician, company owner
(Bill Gates), Manchester United, New York, Sellafield nuclear complex, royal
palaces.
5. Written, sung, played or performed. It can be a book, song, tune, or play.
6. A smell, a taste, a shape. Perfume, a unique recipe (KFC?), Nescafé’s diamond-
shaped bottle.
206 CHAPTER 5 • MANAGING BUSINESS PRODUCTS/SERVICES FOR STRATEGIC ADVANTAGE
7. The whole organisation and/or its products. The product can be seen as the whole
organisation, e.g. Microsoft, BT, NTL, and/or the products marketed such as
computer software, mobile phones, entertainment.
Many of these product types will have been patented and this will be discussed
in some detail later in the book.
o Types of business goods and services

Definitions and classifications
Products are classified into groups by both academics and practitioners alike
according to the function they perform for both the company and the consumer.
It is important to understand this because different product types will need to
be marketed in different ways, which will vary according to the type of product
and the market at which it is aimed. Marketing capital equipment worth many
millions of pounds will demand a different approach than supplying a basic com-
modity product such as nuts and bolts. Initially we can categorise B2B products
into tangible products and intangible services.
Tangible products
Of course, all products have a level of service attached and increasing expecta-
tions make this an ever greater customer demand. Products, however, can be
classified as tangible products where the benefits offered can predominantly be
seen or touched by the customer. This aids presentation as all members of the
buying centre can observe and try out the product before purchase. Features and
benefits can be easily demonstrated, good design and quality can be seen and
value for money compared with the competition. In some cases, organisations
can be encouraged to use the product on trial over a period of time. If, for ex-
ample, a company is thinking about acquiring a new forklift truck, one can be
left for the staff to try out over an agreed period of time, working on the certainty
of acceptance if benefit identification has been correctly undertaken.
Intangible services
Services are intangible in that they cannot be seen or touched before purchase.
Services are now of such importance to B2B marketing that we discuss them in
much greater detail below and on the B2B Marketing website.
o Major product/service categories

In general B2B goods and services can be further categorised into the following
three main areas. The classifications named below are not mutually exclusive and
many products will appear in more than one category. They will also be applic-
able in both the private and public sectors and vary from industry to industry.
MAJOR PRODUCT/SERVICE CATEGORIES 207
1. Capital goods
2. Materials and parts
3. Supplies and running services
4. Other B2B product classifications
1. Capital goods
Capital goods are major strategic items purchased both at the initial business
start-up and at other important times as the business grows and expands. They
include the major long-term investment items that are the foundation of the
business and the equipment that underpins the manufacturing and service pro-
cesses. They will inevitably involve large amounts of money. If the company
makes the wrong decision at this stage, any hope of maintaining competitive
advantage will be lost. Capital goods can be divided into foundation goods and
capital equipment.
Foundation goods
Foundation goods will include all those things that need to be purchased before
the organisation can begin to operate. They would often be seen as fixed assets
on an organisational balance sheet. They will include such permanent items as
land, buildings, factories, offices, and so on. Important considerations here will
include such things as location, ease of access and costs.
Capital equipment
Capital equipment, also called installations, is the large equipment needed for
the production process. It will include such things as industrial robotics, power
presses, large computer systems, IT, office equipment, transport, and so on.
Example 5.2 Goods categories

The major categories of goods imported and exported in the US in the year 2002
can be identified under the following headings:
o Capital goods (aircraft, semiconductors, computer accessories, machinery,
engines)
o Vehicle parts and engines
o Industrial materials and supplies (metals, energy, plastics, textiles, lumber)
o Consumer goods (pharmaceuticals, apparel, toys, TV/VCRs, furniture,
gemstones)
o Food, feed, and beverages.
Automobiles (7 per cent), semiconductors (5 per cent), computers and accessories
(5 per cent), aircraft (5 per cent) and telecommunications equipment (3 per cent)
are the largest components of US exports. Among imports, automobiles (14 per
cent), crude oil (6 per cent), computer accessories (6 per cent), and apparel (4 per
cent) are the most significant goods categories. (www.econedlink.org)
B2B marketing of capital goods
The purchase of capital goods will usually involve a large financial commitment
on the part of the buyer and many people will inevitably be involved in the
buying and selling process, often over a protracted period, making the decision-
making unit complex and often difficult to penetrate. The decision on which
capital equipment to purchase is usually of strategic paramount importance as it
may be in use for many years. The continuous improvement in technological
innovation leading to greater choices puts an ever greater stress on the organisa-
tion to purchase the right product. Get this wrong and sustainable competitive
advantage could be lost for many years to come.
The B2B marketer must take this into account when working in this area and
the approach needed will be discussed in more detail later in the book.
Leasing and renting
Capital goods are often leased or rented rather than purchased outright. This
means that they never own outright the capital goods but pay rent over a set
period of time. At the end of the time period, the contract will be renegotiated
(usually at a higher rent), or in some cases offered to buy the product outright at
a negotiated price. The company leasing out the property will be responsible for
the upkeep of the capital goods to a level dependent on the terms and conditions
of the contract. Some organisations even sell off property and then lease it back
so as to gain financial capital to expand. This will have an effect on the level of
importance given to the decision-making process and the number of people who
might be involved. Capital goods rented over short periods will involve less stra-
tegic decision making.
Example 5.3 Leasing
Leases for the New Delhi, Bombay, Calcutta and Madras airports are expected to be
awarded by the end of March 2003. Indian ministers called expressions of interest
from the private sector to run the country’s four largest airports in a bid to bring
them up to international standards.
Licensing
Goods and services are often contracted out to others for use under a negotiated
licence. This allows one organisation to use the products and processes owned
by another under negotiated conditions. This can be in almost any industry –
manufacturing, service, public or private. An example might be Coca-Cola that
has licensing agreements with companies around the world to produce, bottle
and distribute its coke.
Example 5.4 Du Pont licensing technology

DuPont has a Technology Bank where it offers others the right to use its techno-
logy systems for a price that is usually far less than the cost of creating technology
from scratch. Once accessible exclusively to DuPont researchers and businesses,
this vast inventory of DuPont technologies is now available for licensing to other
companies through the DuPont Technology Bank. DuPont has active licensing
programmes with hundreds of licensees worldwide across most industries. They
license from a portfolio that ranges from world-scale polyester design packages to
lab-scale analytical devices to micro-medical devices. They provide operational
know-how, patent licences, yield enhancing process improvements, and safer oper-
ating techniques. (www.dupont.com)
Government capital expenditure
It is worth noting here that governments around the world are some of the
biggest purchasers of capital goods (sometimes the only purchaser), either
directly or through public–private partnerships (PPP). These types of goods would
be used in such areas as road, bridge, dam and tunnel construction, hospital,
housing and office building. They would include defence equipment, for the
army, navy and airforce. Products purchased and sold for government consump-
tion would cover such things as planes, boats, tanks, weapons, clothing and com-
munication equipment.
Example 5.5 Government expenditure

Beijing’s victory in the battle to host the 2008 Olympic Games is worth a lot of
money to western businesses. The Beijing and Chinese governments will spend
more than $20 billion to get the city ready for the games. Contracts on offer will be
to build an Olympic Park, five new metro lines and 125 miles of new roads, and to
clean up Beijing’s polluted air and water. Bombardier and SNC-Lavalin have won a
$1.5 billion contract to dig tunnels for five new subway lines which is awaiting the
go-ahead. The tender for the main Olympic stadium is said to be worth in the region
of $250 million.
2. Materials and parts, or entering goods
Materials and parts are all those goods that a company will purchase for use in
producing the end product. This category can be identified by the stage in the
value adding process and consists of raw materials, manufactured materials,
accessory goods and component parts. It is as well here to make the point that
the categories discussed in this part are not all mutually exclusive and there is
bound to be some overlapping.
Marketing of B2B materials and parts

Businesses need a constant supply of raw materials, manufactured goods and
component parts. In some industries, e.g. cars and domestic appliances, failure of
supply could lead to product line shutdown with the subsequent loss of produc-
tion and sales revenue. In extreme cases, where substitute supplies are unavail-
able, this could drive the company out of business. This will encourage buyer
dual sourcing and/or negotiating long-term contracts with suppliers, depending
on the importance of the material and goods. These and other options are dis-
cussed in some detail in the next chapter Managing business marketing channels.
The growth in just-in-time sourcing and other collaborative projects has had
tremendous implications for suppliers in these types of industries, forcing them
constantly to reexamine product benefit offerings, delivery methods and costs.
The supply chain can also be long and include many intermediaries, starting per-
haps in one part of the market (raw materials) and ending up on the opposite side
of the world with component parts. Relationships can be adversarial, coopera-
tive, contractual, and so on. Having just discussed capital equipment, it should
be remembered that all the categories discussed here are often interdependent
and interconnected and so manufactured materials and component parts will
often end up in capital equipment, and services identified below will assist in the
running of capital equipment manufacturers. This all makes for enormous chal-
lenges, as well as dangers, for marketing in supplier companies across the globe.
Raw materials
Raw materials are marketed at the first stage in the supply process and can be
identified by commodity materials processed only to a level for easy distribution,
e.g. iron ore into iron rods, coffee beans picked and harvested into sacks, trees
cut, trimmed and delivered, chemicals refined, etc. There is little added value at
this stage and raw material products are usually sold on prices that will vary
according to supply and demand and perhaps seasonal variations.
Example 5.6 Oil price fluctuations

Oil company Royal Dutch Shell warned that the market for crude oil prices remained
uncertain as it reported a 17 per cent fall in profits. The results were just above fore-
casts but highlighted the continuing problems in the sector, including a possible
attack on Iraq which could disrupt oil supply and the constant demands of OPEC,
the oil price cartel.
Manufactured materials
Manufactured materials are raw materials that are further processed for ease of
use, e.g. iron into steel sheets cut to size, coffee beans into packaged ground cof-
fee, wood cut into usable size and into paper and pulp, cotton and chemicals into
textiles, rubber into moulded forms, chemicals mixed into usable form, and so on.
Component parts
Component parts are materials assembled into some type of finished product to
be used in the making of the final product, e.g. steel into nuts and bolts, ground
coffee into cocoa, wood into house roof supports. In the car industry, for ex-
ample, materials will include rubber, steel, paint, nuts and bolts, electrical wiring
and terminals, glass for the windows, tyres, seat coverings, engine parts, and so
on. In the food industry they would include raw and manufactured material and
component parts such as potatoes, vegetables, fruit, flour, vitamins, colouring,
preservatives, packaging, and so on.
The method of marketing and type of seller/buyer contract will depend on the
value, level of production and complexity of the product/service. Entering goods
can be purchased customised to meet the buyer needs or offered in a standard-
ised form and bought on a day-to-day basis or on a short, medium or long-term
contract. All things being equal, as with all products and services, the more
the added value, the higher would be the price the buyer will be prepared
to pay.
Example 5.7 Technology and component parts
The task of collecting and maintaining information regarding the millions of products,
parts, components and materials available in the market is a huge undertaking.
Commercial B2B organisations have sprung up that now offer content solutions to
the largest manufacturing organisations in the world. Reference databases today
span tens of millions of items from thousands of suppliers, ranging from the items
used to build manufactured products, to the goods and services used to support
and maintain plants, facilities and corporate offices. Subscribing customers can
have continuous access with part numbers updated daily – a truly amazing develop-
ment. They can also have access to business-to-business exchanges and portals
that connect many buyers with many suppliers.
3. B2B supplies and services, or facilitating goods
Supplies and services are all those products and services that will be used by the
organisation in the day-to-day, month-by-month running of the business. The
categories identified below are fairly arbitrary, not mutually exclusive, and could
vary from company to company depending on the history, customer and prac-
tice and the predilections. The range of supplies and services in both the B2B
and B2C markets is vast and constantly increasing. It is worth repeating that
the industries and markets covered by all of these product and service areas are
extremely varied and the marketing factors and priorities involved are often quite
different. Imagine the differences that there will be in marketing and selling B2B
on the one hand oil and gas for heating of some kind and on the other insurance
and legal aid. Many of these services are now outsourced, franchised or operated
under licence. Below we offer just a selection of examples.
Energy and waste management services

o Energy for lighting, heating and operating the equipment, e.g. gas, electric-
ity, oil, coal, water.
o Waste management, including both industrial and office waste.
o Recycling services, ever more important as countries increase legislation and
rules and regulations.
o Cleaning services, including industrial and office cleaning services.
Transport, distribution and storage services

In some industries this is often the most expensive service of them all, with the
added pressure of knowing that the problems might only get worse. Transport,
distribution and storage services (or logistics management services) are discussed
in more detail in Chapter 6 but this has become one of the major areas where
companies have saved large amounts of money by more effective transport
management. Again, as with all other services, this can be contracted out in a
number of ways.
Administrative services
Administrative products and services are needed to run the organisation on a
day-to-day basis. They could include tangible products such as paper, files, pens,
inks, batteries and computer disks, as well as services such as catering.
Management services
There is an ever-increasing range of services now available to help management
in the running of the business and the categories grow year by year. They include
the following:
o Management consultants, marketing and advertising agencies, research agen-
cies, PR, franchising agencies, innovation and new product development
agencies, telemarketing companies, computer and software agencies.
o Insurance and legal services.
o Recruitment, training and coaching services.
o Financial services, including accountancy, cost, factoring and bad debt man-
agement, payroll, asset management.
Intermediaries are often used in this market, especially where many small firms
are involved.
Maintenance services
All organisations, whether manufacturing or services, will need a degree of main-
tenance servicing. This might be the constant maintenance of capital equipment,
transport, office equipment, energy, waste and cleaning – in fact anything that
OTHER B2B PRODUCT CATEGORIES 213
needs monitoring and care and attention to make certain that costly breakdowns
do not occur. This might be on an ad hoc basis or more likely under contract of some
kind. Cleaning and waste management services might well be identified here.
Accessory goods
These are goods supporting the production process. Examples might be light
equipment, forklift trucks, diggers, bulldozers, filing cabinets, office equipment,
computer equipment, and so on. As in many others areas, there will be options
to buy, hire or lease.
Marketing of services and facilitating goods

The marketing of intangible services can be noticeably different from the mar-
keting of tangible products and this is examined in detail when we identify the
nature of services. Suffice to say here that buyers now want to contract out the
types of services shown above in both the private and public sectors. Contracts
can be as short as a year and as long as ten years, with bonus and penalty clauses
built in for good and bad performance. More and more organisations, from
schools and hospitals to government departments and multinationals, now out-
source the whole service area programme. It has been a lucrative picking for B2B
service companies over the last 20 years with markets expected to increase.
o Other B2B product categories

As with the B2C market, B2B products can also be categorised into meaningful
groups so that market approach opportunities can be identified.
Commodity goods
As discussed above, commodity products and services are B2B offerings that have
little or no obvious added value. If this turns out to be the case then a low price
tends to be the overriding benefit demanded. Products that fall into this category
might be raw materials such as oil, cleaning fluids, nuts and bolts, basic veget-
ables, and so on. This type of product will be purchased from companies with low
costs and/or access to economies of scale, anywhere around the world wherever
the price might be the cheapest. This type of product can be bought either by some
kind of forward contract or on a current market known as the ‘spot’ market.
Example 5.8 B2B auction sites

Internet marketplaces or B2B ‘hubs’ have now been set up where large companies
are able to join together so as to purchase commodity products by auction, the
contract going to the bidder with the lowest price. WorldWide Retail Exchange,
with over 50 members including M&S, Dixons, Boots, John Lewis, Auchan, Gap,
Kingfisher and Safeway, is an example of this type of buying organisation.
It can be argued that a company can add value to so-called ‘commodity prod-
ucts’ in a number of ways. These might include the following:
o Location
o Delivery time
o Delivery speed
o Pricing policies
o Quality guarantees, and so on.
Added value is discussed in more detail on the B2B Marketing website at

www.booksites.net/wright.
Convenience goods
There will always be room for the buying and selling of products that are needed
immediately or as a one-off order. The ability to offer service can give the smaller
selling organisation a clear competitive advantage and enable it to sell to the
largest of companies. Although probably a niche market, it is with this type of
product that the efficient wholesaler can gain market share. In most cases,
because of the relatively small orders involved, the seller will approach the buyer
and must be able to show product/service professionalism if it expects a large
buyer to purchase. Unlike the B2C convenience market, in most situations the
B2B customer expect product delivery, often on the same day, and selling organ-
isations have fleets of vehicles circulating on a regular basis. Added value here
will be:
o Choice and availability of the needed parts (sometimes on a 24-hour basis)

o Instant response and quick delivery
o Product quality
o Back-up service.
Search-out goods
More complex goods and services will involve an organisation looking around to
obtain the exact benefits wanted. Some search-out goods and services will have
only a few suppliers and buyers so companies in these markets will be aware of
one another. Representatives will be employed to keep in continuous contact.
Other search-out goods will be bought and sold by many organisations and con-
tacts will need to be continuously sought by both buyer and seller so that the best
products can be obtained. This need is of greater importance because of the
advent of increased competition from around the world. The internet and the
availability of supplier and buyer websites will make the task much easier. Added
value here will be:
o Information on products and services made readily available

o Personal salespeople and experts always on call
OTHER B2B PRODUCT CATEGORIES 215
o Bundle of benefits on offer matching buyer needs

o Innovation and design
o Quality and product service value
o Comprehensive after-sales service.
Integrated solutions
It is worth identifying integrated solutions as a type of product category. In many
instances B2B buyers are looking for solutions to whole problems rather than
buying separate products and benefits. It can be more cost effective for a B2B
organisation to buy in the whole solution to a problem from an expert supplier
rather than to atomise and seek out the individual products and services needed
to solve the problem themselves. This need has led to the development of a huge
outsourcing industry. This is discussed in more detail in other parts of the book.
Sources of added value here will include all those identified above as well as:
o The ability to offer customised integrated ‘bundles’ of benefits that match a

problem need.
o The skills available to advise on the most relevant customised products.
o Help and advice always available for as long as is needed.
Example 5.9 Integrated electronic invoice presentment and payment

(EIPP) system
The new version of the company’s end-to-end system for B2B e-billing now lets
users resolve invoice disputes online, handles billing in multiple languages and cur-
rencies, and streamlines payments via automated buyer controlled rules. It is also
claimed to be the first EIPP system to deliver interim messaging, which automatic-
ally ensures that a supplier’s enterprise resource planning (ERP) or customer rela-
tionship management (CRM) system acknowledges the results of an online payment
dispute.
Different marketing approaches

As we outlined above, in most cases a different marketing contact strategy will be
needed when selling the different products and services categorised above. This
might be both entering and foundation types of goods and services. The market
for the product categories identified above could be of a very low value or worth
billions of pounds. It could a one-off purchase or a long-term contract over many
years. It could be a standard benefit offering available ‘off the shelf’ or every sale
could be customised to meet the exact need of each customer. As a rule of thumb,
the more senior personnel involved, the more experts involved, the larger the
DMU and the more personalised will be the seller–buyer contact when buying
and selling products and services according to the following factors.
Different buying sectors

Marketing products and services in different B2B buying sectors (and different
organisations) will often demand different marketing approaches, as will selling
around the world in different countries. Products and services marketed in the
private and/or public sector will inevitably demand a different approach.
Public sector
As we identified above, there are some goods and services that are only purchased
by governments. These will include such things as tanks, guns, warplanes, land
mines, naval frigates, submarines, etc. Other goods and services such as mater-
ials and components for roads, railways, hospitals, schools, public buildings, etc.
might be bought by the public or private sector, or a combination of both,
according to the political structure of the country. In the past, for political reasons,
these contracts might have gone to the home country. However, because of freer
markets and trading bloc regulations, contracts are increasingly offered around
the world for selective tendering. There will always be more political influence on
product type when compared with the private sector. Contract tender specifica-
tion in this sector will usually be extremely tight with little room for manoeuvre
and many disparate people and groups (the decision-making unit) may have
some level of input into the final product or service requirement.
Example 5.10 Government purchase

The Chilean government says it will go ahead with purchasing ten F–16 fighter jets
from the USA. The decision to buy the planes – made by Lockheed Martin – comes
after some five years of deliberations. The deal, to modernise the country’s air-
force, is worth $660 million.
Private sector
B2B products in the private sector will be purchased mainly for functionality,
value, service and price. In the past politicians might have tried to influence what
products should be bought in the private sector, especially if large amounts of
money were involved and jobs and industry survival were at stake. However, with
the adoption of free market economics this type of government interference is
happening less and less. Different industrial sectors demand different types of
B2B products and a different marketing approach. The construction industry will
want products and services for roads, bridges and buildings. Manufacturing will
want capital equipment and component parts associated with a particular indus-
try such as electrical appliances or car manufacturing. Hotels, restaurants and
catering will want food associated services. Different industries will have differ-
ent priorities and different ways of working, which are discussed below.
IMPORTANCE OF PRODUCT/SERVICE PURCHASE TO BUYING COMPANY 217
Example 5.11 Public to the private sector

In the UK, and increasingly around the world, once publicly owned organisations are
now run by private companies. British Airways and the British Airports Authority
were among the first major transport businesses to be sold off in 1987. British
Telecom, buses and ferries went the same way, as did gas, water, telephones and
electricity. Bridges, tunnels and railway lines are now built and paid for by the pri-
vate sector and then leased back to governments in some way or another.
o Importance of product/service purchase to

buying company
Some purchases are more important to the well-being of the organisation than
others at both the strategic and tactical levels. Buying a property in the right loca-
tion, having the most technical up-to-date machinery and bringing in the most
effective computer service consultants could be absolutely critical for long-term
success. In the same way signing a long-term contract for raw material supplies
that turn out to be of the wrong kind or the wrong quality could jeopardise com-
pany profitability.
Cost of product or service

The same will apply according to the cost of the product or service demanded.
The purchase of products costing small amounts of money will probably be left
to the buyer in the purchasing department and, as long as desired product
specifications are met, little discussion will take place. However, if the amount
involved in the purchase is likely to run into millions of pounds then more
senior managers will be involved.
Length and complexity of contract under negotiation

Similarly the product buying strategy to be adopted will depend on the length
and complexity of the contract under negotiation. To sign up to the wrong con-
tract could involve expensive opt-out penalties, or lead to supply shortages that
could severely dent an organisation’s competitive advantage. Contracts will often
commit both buyer and seller to a heavy financial commitment. These inter-
actions are discussed in more detail when we look at relationships along the sup-
ply chain. Buyer contact method will also depend on whether the products and
services needed are standardised or customised.
Example 5.12 Negotiate for the long term

E-commerce, both B2C and B2B, is a growing industry in Japan. According to a MITI
(Ministry of International Trade and Industry) study, B2C e-commerce transactions
are expected to balloon from $650 million to $31 billion between 1998 and 2003,
and B2B from $86 billion to $680 billion in the same period. With such dynamic
growth potential, e-commerce would appear to offer numerous new market entry
opportunities for foreign companies. There is no doubt that Japan is a huge mar-
ket, but it requires a long-term perspective for the full realisation of its potential.
Japanese customers want localised services and new entrants into the market must
be prepared to invest heavily and negotiate for the long term if they intend estab-
lishing a strong presence there.
A standardised product
If the product is standard then the strategic approach adopted by the seller will
be relatively simple. This will include making available advice and literature on
the current range of products, the pricing structure and the benefits available.
Trade media advertising tends to be used to reach mass audiences via direct
response, e.g. direct mail and telephone. The salesperson will usually act as the
coordinator between the selling and the buying company. The level of con-
tact and the advice and information needed by the seller will depend on the
complexity of the product on offer, whether the buyer is a first-time buyer or not
and the intensity of the competition. Standardised products across the categories
identified above might be purchased on a one-off basis or in quantities on
a regular contractual basis. As with all products and services there is always a
trade-off between the importance of price and the importance of added-value
benefits.
Commodity products used on a regular basis might include manufacturing
products such as metal staples, wiring connections, nuts and bolts and oil whilst
more expensive, added-value products might include medical equipment, metal
pressers and transport vehicles. Standardised products are easier for the competi-
tion to replicate. Strategic factors to be considered when attempting to gain com-
petitive advantage with standardised product offerings would be price structure,
delivery, quality, reliability and support services.
A customised product
Many products will need to be customised to meet the specific need of each dif-
ferent customer. This is particularly so with capital goods. Although the initial cus-
tomer introduction might be made through trade advertising and direct response,
the predominant method of communication when dealing with customised
products and services will be by personal contact. This may well involve tech-
nical as well as sales staff, particularly if the benefits needed are complex. It is also
more likely that the contact will be direct between buyer and seller organisation,
although there are occasions when a skilled intermediary might be used.
Example 5.13 Customised stationery

‘Choose customised stationery for the ultimate in choice and flexibility. You can
specify not only your company details and relevant logos, but also colours, type-
faces, layout, number of parts and paper colour. You can even choose a ghosted
image that gives your stationery a completely unique look and feel.’
o Your company details in any colour
o Your company logo in full colour
o Choose any typeface from our range
o Design, with us, the layout to suit your company needs
o Select the colours that reflect your business
o Use tints for greater clarity
o Add the logos of trade associations you belong to
o Add as many business logos as you want
o Use your logo or another image as a background
o Choose the size of paper you want
o Specify the number of parts (laser or continuous)
(Sage Accounting Stationery, www.cadsnet.co.uk)
Customer benefits demanded

Benefits demanded by B2B organisations will be different in many ways from
products and services sold in the B2C market. In B2C markets, customers pur-
chase for personal reasons and will often buy for symbolic reasons rather than
functional. Though price is important, other emotional factors, characterised by
the importance of product branding, come into play. Well-known brands such as
Persil, Mars, Windows, etc. have a high level of importance to consumers. This is
shown by the value given by the markets to brands such as these. On the other
hand B2B products and services are purchased not for personal reasons but for
use in the organisation. Although there might occasionally be an element of
emotion attached (e.g. buying from a company because of flattery from an attrac-
tive sales representative), most B2B products are bought predominantly for logi-
cal and functional reasons. These reasons will vary from industry to industry and
according to products, markets and organisational and buyer preferences.
Criteria for the importance of B2B products and services

o Whether of small or large importance to the well-being of the organisation.
o Small amounts or worth many millions of pounds.
o A one-off purchase or a contract over many years.
o A standard or customised offering.
o Always a trade-off between price and added value.
o Marketed direct or through a wholesaler, distributor or agent.

o Trade advertising, followed by direct response and personal selling used for
standardised products.
o Personal selling, followed by direct response and exhibitions for customised
products.
o Government and public sector products.
Strategic differences between goods and services

Products are often categorised as either ‘tangible’ products or ‘intangible’ services.
It should be noted, however, that increasingly most tangible products have some
form of service attached. This level of service might just concern the initial trans-
action and be limited to delivery times or, at the other extreme, it might involve
some type of continuous product top-up system. Whatever the level of service
offered, high quality standards are set, controlled and maintained. This is espe-
cially important with the advent of buyer quality programmes such as ‘continu-
ous replenishment’ or ‘just in time’, as well as the ever-increasing demand for
better levels of service brought about by increased competition from around the
world.
Other benefit offerings will be almost entirely to do with services offered.
There is no doubt that services are different in character from tangible products.
These differences must be identified so that the correct marketing approach can
be taken. The growth of outsourcing by more and more B2B organisations has
also put the need for levels of service quality high on the agenda. It seems that
there is no service activity across the whole supply chain that cannot now be
undertaken by an outsourcing organisation.
As with all areas of business when marketing B2B products and services the
whole relationship between seller and buyer must be strategically thought
through, planned and managed in a professional and customer-satisfying man-
ner by the selling organisation. Support must come from the very top and filtered
down and discussed throughout the whole organisation. Coaching and training
should be given so that nobody is in any doubt about the importance of the rela-
tionship between the total customer needs and wants, and the product/service
benefits offered.
Services grow in importance

In most developed economies, services have grown as a percentage of gross
national product (GNP) when compared with manufacturing and can account
for anything from 65 per cent to 80 per cent, with more growth expected. All
demand particular B2B marketing skills and many organisations develop special-
isms to help in gaining market superiority. Service industries cover every sector,
public, private and not-for-profit, and take in the following:
o Retail services
o Communications services
o Information services
o Consultancy services
o Outsourcing services
o Entertainment services
o Financial services
o Medical services
o Energy services
o Education services
o Cleaning services
o Waste management services
o Catering and food services.
Example 5.14 Manufacturing sector continues to decline

According to the UK labour force survey, while there has been growth in sectors
such as business services, public administration and retail, this has not been
enough to outweigh the decline in manufacturing and mining. A key monthly report
by the Chartered Institute of Purchasing and Supply (CIPS) is indicating that
Britain’s manufacturers are still deep in recession, output having fallen three months
in a row, while services still remain relatively strong. Manufacturing accounts for
about 20 per cent of Britain’s economy, with about 4 million people employed, the
other 80 per cent coming almost exclusively from the service sector.
Example 5.15 Service grows and manufacturing sector falls

The gap between the UK’s service and manufacturing sectors has widened, throwing
the spotlight once again on Britain’s two-speed economy. The Chartered Institute
of Purchasing and Supply’s (www.cips.org) closely watched monthly services index
climbed to 56.7 in May from 54.5 in April, outstripping the 55.2 score forecast by
analysts. A score above 50 on the CIPS index denotes expansion, while a reading
below 50 signals a contraction. The figures confirmed that the services sector is
once again moving in the opposite direction to the manufacturing sector, which fell
to 52.9 in May from 53.2 in April.
A more detailed discussion of the differences between B2B goods and services can
be found on the B2B Marketing website at www.booksites.net/wright.
A balanced product portfolio

The number of products in the portfolio of B2B organisations tends to be less
than in B2C organisations as business demand polarises around functional spe-
cialised products rather than brands and brand extensions. Procter & Gamble
offer many different cleaning products and brands for its different consumer
segment needs based on emotional as well as functional needs. On the other

hand the need for industrial cleaning products will be based almost solely on
effectiveness at solving a practical problem and so the range of products wanted
will be less. It is still essential, however, that the range of products at all stages in
the portfolio matches the needs of the target segments both at present and into
the foreseeable future. What constitutes a balanced product/service portfolio will
vary from industry to industry, but the need to have new products onstream and
coming through the system as older products weary and decline along the prod-
uct life cycle should be self-evident.
A more detailed description of the Boston Consultancy Group portfolio matrix
applied to B2B marketing, as well as a complete section on adding value to prod-
ucts and new product development, can be found on the B2B Marketing website
at www.booksites.net/wright.
o Market research
As with all types of marketing success will ultimately depend on having the right
products and services that can offer relevant benefits that clearly satisfy identified
target market segments. Continuous research into both local and international
markets around the world is crucial to the process. Markets grow, reach maturity
and decline, business customer needs and wants change as their markets change
and the supplier must anticipate and be aware of these changing demands almost
before they are happening. Information gathering on product development
and customer needs from around the world should be fed into the marketing
information system so that changing benefit needs can be identified and prod-
ucts and services developed to meet these needs. Research was discussed in detail
in chapter three.
Quality signals
It must be understood that when buying services, because of the difficulties
identified above, a purchaser will look for signs of quality, reliability and value
that will give some indication about the selling organisation. If the company has
been used previously these signs will apparent in such areas as: ease of contact,
delivery times, service outputs and so on. The most reliable quality signal is, of
course, word of mouth. With first time purchases judgements about the seller will
be more problematic and will be based on a whole range of value indicators used
as a surrogate way of selecting acceptable companies to deal with.
The whole process

From the first initial contact with the client, answering the telephone, dealing
with enquires, sending out brochures, the sales presentation, through to benefit
service offering, the follow-up and subsequent after sales service, a quality and
focussed response must be seen to be the norm. Company literature should be
relevant, informative and of a high standard, all contact staff should be vetted for
MARKET RESEARCH 223
suitability before recruitment and trained to the highest possible level, benefit
programmes should be examined and upgraded in line with customer needs. A
plethora of customer relationship management (CRM) software programmes are
now available to build in systems that will oversee, monitor and control and aid
the whole process.
Build in systems
Quality systems should be discussed, tested and then built in for almost every
customer serving system so that all within the organisation (and along the sup-
ply chain) are aware of standards to be met. The level of detail that might be
needed for each system will vary from service contract to service contract.
Benchmarking
The whole B2B service process should be benchmarked to make certain that the
level of service will never fall below a determined level. Monitoring and control
mechanism should be put in place to make certain that the same standard of cus-
tomer service is offered every time whatever the company department and where
ever it might be in the world. The customer should be continually consulted
as to the level of satisfaction and adjustment made whenever performance falls
below acceptable levels.
Example 5.16 Balanced Scorecard

The Balanced Scorecard concept, developed by Professor Robert Kaplan of the
Harvard Business School and David Norton, has been embraced by a rapidly
growing number of large corporations as a vehicle to help effectively manage cor-
porate performance and strategy. By studying other organisations’ approach to
performance measurement and strategy deployment through the use of Balanced
Scorecards, companies can better understand how to design, refine and effectively
use a diverse Scorecard of Performance Measures to help them meet their strate-
gic business objectives.
Expected performance indicators

Many buying organisations now demand adherence to tightly agreed perfor-
mance indicators across all bought-in services. Bonuses might be paid for better
than expected performance and money deducted for worse than expected per-
formance. Ultimately contracts will be lost if performances do not meet the
agreed set criteria. So it can be very expensive for the selling organisation if the
services offered do not live up to expectations. This can be disastrous in B2B mar-
kets where customer buying contact points are few and the amount of revenue
large.
Customer management relationship programmes

Many companies now realise the strategic importance attached to marketing cus-
tomer services and develop Customer Relationship Management Programmes
(CRMP) along the whole of the supply chain.
Planning, monitoring and feedback

As with all marketing programmes it is crucial that objectives are set and moni-
toring, feedback and control mechanisms are implemented. There is no point in
having detailed customer systems in place along the whole process if there are
insufficient monitoring and control mechanisms in place to oversee perfor-
mance. Most customer care systems break down, not because of insufficient plan-
ning, but because nobody seems to bother about systematically checking to see
that what should be happening happens.
Product/Service Checklist
o Strategically planned and instigated
o Top management support
o Balanced product/service portfolio
o Continuous research
o Building and innovative culture
o Quality signals awareness
o The whole process considered
o Build in quality systems
o Benchmark against the best
o Performance indicators set and adhered to
o Customer management programmes across the whole supple chain
o Monitoring, feedback and control mechanisms implemented
The demands in Marketing B2B services

Because of the factors identified above the following factors might be considered
crucial in marketing and selling B2B services
Personal Selling
The more intricate and complex the product or service the more the need to have
personal contact between buyer and seller. This will enable trusting relationships
to be formed and description and explanation to take place. This tends to be the
most used form of supplier to buyer contact and we discuss this in detail in chap-
ter eight when promotions and sales management are shown.
BASIC BENEFITS DEMANDED IN B2C AND B2B MARKETS 225
Direct marketing
This is often used to make contact with buyers because, as there are less buyers
in the B2B market than in B2C, named and sometimes known buyers can be
clearly targeted. Frequently used with personal selling. A telephone call, a letter
or email is sent asking to make an appointment or, if the relationship is sympa-
thetic needs discuss by one of these types of direct response methods.
Other methods of communication contact and these are also discussed in
detail in chapter 8.
Part 2 Adding value to the products

B2B organisations buy products and services because they hope that the benefits
gained from the transaction will satisfy some organisational need, that is to solve
a business problem, either in the present or some time into the future. Another
way to look at the product or service is as a ‘bundle of needs’ put together by the
producer in the hope that it will be able to satisfy this need. As the customer
becomes more professional in they way the business operates more intricate and
complex solutions are demanded. To maintain competitive advantage the seller
must continually look toward offering ever more sophisticated benefits some-
times on a long-term contractual basis.
Therefore marketing and selling in products and services in the modern,
global market can be seen as a process of continually adding value in response to
the ever-changing demands of the targeted organisation. This task must be
undertaken in a world where competition is increasing and every company looks
to gain market share, by adding value in some way or another, at the expense of
all others.
There are many different ways that a B2B organisation can add customer value
to it products and services both before and after purchase. It is through this
added value process that a company can gain competitive advantage and the
more progressive company will always be looking for more innovative and cre-
ative ways.
o Basic Benefits demanded in B2C and B2B markets

In B2C markets added value can be categorised under two general headings cor-
responding to the types of benefits demanded by the customer. These two areas
can be identified as the functional and the symbolic. Most of us would argue that
the main reason we want to purchase a product is because of its functional prop-
erties. This is the overt purpose of the product and the reason for purchase seems
self-evident. So we buy a car to get from A to B, a watch to tell the time and
clothes to keep us warm. However in-depth research undertaken over the decades
has shown that the main reason for the purchase of many products is symbolic.
By symbolic we mean that the purchase is a representation of some other deeper
and less transparent, emotional or instinctive need. So we buy the car to make us
attractive to the opposite sex, a gold watch to display our wealth and clothes to
show how street wise we might be.
In B2B markets this is not usually the case and, because the product or service
is not for personal use but for use by the organisation, purchase tends to be
mainly for functional and practical reasons. Emotions will come into the buying
process but not to the same degree as in B2C. An organisational buyer will pur-
chase from a company because of a personal likeness for the sales representative
or because they feel flattered by individual attention. They might purchase from
a large, well-known organisation because they feel safe with the purchase. In
extreme cases they might purchase because of some kind of personal gain such
as money or gifts. As companies and the competition become more professional
and effective, however, buyers who purchase products or services for emotional
reasons that turn out to be sub-optimal will be exposed as inefficient as the com-
pany loses productive advantage.
In B2B markets products and services are purchased for functional and practical reasons
rather than symbolic and emotional
o The value added process

The idea behind the concept of value added is that there is a basic core to all
products and services around which benefits are then added in response to buyer
demand. The process can be examined under the following simple headings
1. the core product
2. primary added value
3. supplementary added value
1. The core product

All products and services have some basic form or core and this is the starting
point for the value-added process. This core might also identified under the
classification of commodity products earlier in the chapter. Many of these prod-
ucts are still traded in the city on what is known as ‘commodities markets’. For
our purpose we want to define the B2B core product or service as the product
offered in a basic form (without getting into intricate detail about how ‘basic’ is
a basic form) with the minimum level of benefits. In the context discussed here
core products will also include core services such as waste disposal, cleaning,
catering, education, communications and so on.
2. Primary added value

In response to customer demand and to the benefits offered by the competition
trying to gain market share organisations must add more benefits to the product
or services in response to customer demands.
THE VALUE ADDED PROCESS 227
Primary added value we want to define as the benefits that are added to the
product or service before purchase whilst supplementary added value we want to
define as the benefits that are added to the product or service after purchase.
Primary B2B added value benefits would include the following;
o Creativity, innovation and design

o New product/service development
o Choice of product, customised, standardised or integrated product
o Features and benefits
o Help, advice and skill level
o Guaranteed quality
o Price, payment terms, leasing and value for money
o Location and point of purchase
o Promotions, communications and corporate reputation
o Branding
o Packaging
These benefits have been listed in an arbitrary order of priority but whether price
is more important than quality or choice more important than an innovative
approach will depend on the company, the industry, the customer and the prod-
ucts marketed.
Example 5.17 Added value in many different ways

Bitrex is the brand name of the most bitter substance yet discovered. It is inert and
odourless, but a few parts per million are enough to make products unpalatable.
Evolution has given human beings a strong aversion to the bitterness that often
marks out harmful plant or animal material. Studies have shown that children are
particularly sensitive to these bitter tastes. By adding minute quantities of Bitrex to
certain products we can help ensure that no-one, especially children, ingests poten-
tially harmful substances. And by adding the logo to the packaging, customers will
see manufacturer care about the products they sell and the people who use them.
That’s why Bitrex is such a powerful deterrent to accidental swallowing. First used
in denaturing alcohol – making it legally unfit for consumption – it is now added to
a wide range of household cleaners, pesticides, and DIY and automotive products.
(Bitrex.com)
3. Supplementary added value

Selling organisations realise that in most cases responsibility will not end with
the initial purchase. Customers now want and expect so much more after the
purchase. This level of after purchase involvement will, of course, vary tremen-
dously according to the product and service sold and the type of relationship that
had been entered in to. Supplementary added value (value added after purchase)
benefits would include the following:
Figure 5.1
The B2B Value
added process
o Strategic relationship commitment

o Customer relationship policies
o Help, advice, and skill level
o Access to information
o Management and consultancy services
o Service contracts, quality and performance levels
o Guarantees and warranties
o Delivery and installations
o Returns policies
o Access to add-on products and services
o Security
Prioritising added value

We have looked at the many ways that the organisation can add value to its prod-
ucts and services in response to customer and market ever changing demands
and most of the factors outlined above are examined in more detail throughout
the book. The B2B marketing manager can build competitive advantage for the
company by adding any number of these factors identified under the concept of
primary and supplementary added value to the core product or service. Which of
UNIQUE SELLING PROPOSITION (USP) 229
these added factors should be prioritised in developing a competitive product

portfolio will depend on industry and market conditions and organisational core
competencies and strengths. It might be product quality for some companies and
after sales service in others. Inherent in the concept of good marketing is the real-
isation that the correct areas must be identified and the relevant benefits offered.
o Unique Selling Proposition (USP)

The idea of a Unique Selling Proposition (USP) was first introduced by Rosser
Reves in the USA. Reves argued that all organisations, if they wanted to be suc-
cessful, should offer the customer some form of unique benefit not offered by the
competition. It should be based on an organisational core strength, it should be
sustainable over a strategic period, and it should give a positive competitive
advantage. A USP can be based on any of the primary and supplementary added
value factors discussed above. A USP is particularly important when introducing
a new product to the market, especially if there is heavy competition. If the new
product or service has nothing to differentiate itself from existing products there
is no reason why the customer should switch.
Example 5.18 Unique Selling Proposition and you

There is a marketing term that should be thought about when looking for a job and
putting together the initial job application form, it’s called the Unique Selling
Proposition, or USP. When companies are trying to determine how to market a
product, they focus on the Unique Selling Proposition, the one thing that makes one
product different than any other. It’s the one reason they think customers will buy
the product even though it may seem no different from many others just like it. It
may be that the product has a lower price or more convenient packaging, or it may
taste or smell better, or last longer. When preparing to write a job application let-
ter, you may find it helpful to think about your Unique Selling Proposition. What is
the one thing that makes you unique? What makes you better than other candi-
dates applying for a similar position with this company? What can you offer that no
other applicant can? What is the one reason the employer should want to hire you
above all other candidates? If you can determine your Unique Selling Proposition
and build it into a dynamic paragraph, you will have a real advantage in creating a
dynamic cover letter.
Product/service strategy and the USP

Probably the term USP is probably a bit of a misnomer. The benefit (or benefits)
offered would probably not be unique in that no company would have marketed
a product or service offering a particular benefit before. It will be unique in the
sense that no other company has marketed a product or service benefit in a
different way or as well in the past. So the USP might be that the quality is of a
guaranteed level not offered in the past, or the service is more strategically
comprehensive than promoted by any other company or it might be that deliv-
ery is quicker and so on.
In can be argued that there are three simple strategic approaches in develop-
ing a B2B product USP and the organisation should chose one or more if they are
to successfully market their products. The three approaches are outlined below.
1. Make the product/service cheaper
2. Make the product/service better
3. Make the product/service different
If the organisation cannot adopt one of the above approaches to its product offer-
ing there might be little reason why a company would want to purchase.
1. Make the product cheaper

If an organisation decides to use price (with no frills) as the product USP in a
highly competitive market it would have to be a price lower than the competi-
tion. It could only achieve this in two ways, either working on a lower profit
margin or producing the product more cheaply. It could only adopt the former
method in the short term because the competition could always respond and a
price war may well develop. To maintain price leadership in the long term the
organisation would have lower costs than the competition in the long term (in
the short term it could achieve this by greater productivity but companies soon
catch up). This would probably mean it had achieved market leadership, because
only by selling more products than anyone else can greater economies of scale be
achieved and a lower price offered.
A smaller company could use low price as its product strategy if it has a
monopoly, is in a niche market or it has a contract to manufacture own label
products for a larger company. The larger company would guarantee a certain
level of orders and carry all of the marketing costs.
2. Make the product/service better

Many companies gain competitive advantage by making the product/service bet-
ter than the competition in some significant way. This might be offering a better
content, higher quality, superior service or in any of the other ways discussed
above. This is probably the most successful way that the smaller B2B seller can
achieve market share against the might of the larger organisation.
3. Make the product/service different

Other B2B organisations look for a market advantage by adopting a USP that
offers the customer something different to that being offered by the competition.
The way that a company may chose to differentiate its products and services may
take many forms. It might be through have a unique innovative (preferably
patented) product or service not marketed by anyone else. Or it could be by hav-
ing a leasing plan not seen before in a particular industry. Service could be
offered on a twenty-four hour basis, delivery guaranteed within a certain time or
product taken back if satisfaction not achieved. What is important is that the
benefit solutions offered match the continuously researched needs of each target
segment served.
NEW PRODUCT DEVELOPMENT IN B2B MARKETING 231
Product service strategies in B2C

Because end consumers have different needs than B2B customer the bundle of
benefits wanted in B2C tend to of a different order. Such things as quality, after
sales service and price, are, of course important, but we find that emotional fac-
tors such as advertising, branding and merchandising play a much more impor-
tant part and this is discussed later in the chapter when we look at branding.
o New Product Development in B2B marketing

Creativity is allowing yourself to make mistakes. Art is knowing which ones
to keep.
(Scott Adams)
The world’s knowledge base doubles every few years with a consequent increase
in buyer sophistication and demands .New product development is crucial in B2B
product development if the organisation is to maintain competitive advantage in
a market characterised by increasing global competition and it is one of the most
important ways that a company can add value and so gain competitive advantage.
In B2C markets customers want new and better products that are designed
well, work better, look better and offer more value for money. End consumers
become easily bored and will look for evermore choice in the things that they
purchase, they will seek out products that make them feel better, that satisfy an
emotional need, as well as products that function more effectively.
On the other hand the B2B buyer will want new innovative products and ser-
vices that will enable his or her company to produce and market better products
and services that offer their customers better benefits and solutions. This will in
turn enable their customers to sell better products and services all along the sup-
ply chain finally to the end consumer. There are potentially many more oppor-
tunities for B2B organisations to become involved in exciting new developments
in IT, Nanotechnology, biotechnology and so on at every stage of the process. In
B2C they will manufacture and sell the end product for consumer consumption
but the B2B supplier can work at many levels in research and development, in
raw materials, component parts, software development, testing and experimen-
tation working with governments and multinationals around the world.
Definition of a new product or service

It is important to spell out what we mean by a new product or service in the B2B
market as this will affect the way that it will eventually need to be marketed.
A new product or service can be, a change or replacement to an existing benefit offering,
an existing market concept but new to the organisation, or a totally new concept.
The newer the product or service to both the selling and the buying organisa-
tion the more difficult and complex might be the marketing task. Difficulties
involved with different types of decision making were examined in some detail
in the chapter on organisational buying behaviour.
New product development for internal and external customers

New product development in B2B marketing covers both internal and external
customers and factors.
Internal customers
Internal customers will involve all organisational employees involved in the cus-
tomer value-adding process. Purchasing and managing raw resources, production
techniques, marketing and delivery etc. all stages offer new product/service
opportunities. An employee becomes the customer of the previous employee as
the products and services move through the system. If a company’s internal
value chain is to compete with the best in the business it must be as good, if not
better, than the most successful competitor in the market. So systems, structures,
management ways of working, staff training all offer new product opportunities
for new and more efficient ways of working with one another. It will embrace
such concepts as internal marketing, total quality management, activity based
costing, employee empowerment and so on.
Example 5.19 Best practices

Today’s high-performance companies are developing their knowledge management
skills by creating a culture of sharing across departments and business units.
They’re motivated by the belief that some of the best ideas may be right in their
own backyard. Below are some examples of the internal steps to successfully
implement a knowledge management/internal best practices program organisa-
tions have taken.
o Connect best practices to strategy fulfilment.
o Identify best practices.
o Develop best practices recognition systems
o Communicate best practices.
o Create best practices knowledge sharing systems.
o Nurture best practices on an ongoing basis.
External customers
Ideas shape the course of history.

(John Maynard Keynes)
B2B External customer will always be searching out better ways of running their
business, looking to buy products and services that, in turn enable them to sell
more attractive products and services all the way along the supply chain to the
end consumer. Suppliers must be continuously working and researching to

upgrade products and services, to innovate and bring in the latest technology, to
offer advice on the very latest methods, in line with customer wants, if they are
not to be overcome by a more progressive competitor.
Developing a new product development culture

The world is made up of 1 percent of the population who think, 9 per cent
who think they think and 90 percent who wouldn’t be caught dead thinking.
(Anon)
Depending on the industry many organisations attempt to develop a new prod-

uct development culture both in an informal and formal way. Informally staff
members are encouraged to discuss new ideas with one another, with suppliers
and with customers. Formal systems, with support from the very top, are also set
up in some companies. These will include the following.
o Company management and worker groups and teams meeting on a regular
basis to discuss current practice and suggest how improvements might be
made
o Creating communication channels through which to funnel new ideas
o Suggestion schemes rewarded by a payment of some kind
o New product ‘shops’ set up where ideas can be taken for discussion and
appraisal.
o Senior managers, new product ‘champions’, are assigned to new ideas to safe-
guard progress through the company
o Setting up a research and development department
o Regular customer testing research programmes
Generating new ideas

All companies, no matter the size, can constantly look for B2B new product/
service idea opportunities for both within and outside of the organisation that
might give them a competitive advantage in the market place. The might include
using some of the following methods;
Idea generation methods

Organisations such as Sony or 3ms where NPD is crucial will try to simulate new
ways of thinking by taking relevant employees away from the conventional place
of work to a new setting (a hotel in the country) for a period of time, perhaps a
weekend, for a session of idea generation. Many idea generation methods exist
and outside consultants will often be used to undertake the process. The belief
behind such techniques is that right-side brain creative ways of thinking (the
holistic, creative side) need stimulating overriding the natural tendency for most
manager to think with the left-hand side of the brain (lateral, numerical and log-
ical). Many hundreds of methods exist and here are just a few.
o Brainstorming – uncritically producing as many ideas (outrageous accepted) as

possible for discussion.
o Assumption squashing – taking basic assumptions and arguing ferociously
against
o DOIT – The pattern of the DO IT process emphasises the need to Define prob-
lems, Open yourself to many possible solutions, Identify the best solution
and then Transform it into action effectively.
o Innovative Problem Solving – methods that combine rigorous problem
definition, pattern-breaking generation of ideas, and action planning that
could result in new, unique, and unexpected solutions.
Constantly comparing and benchmarking products and

services with the competition
This will include such a things as the design i.e. functionality, construction, time-
to-market and looks as well as the ‘fit’ between benefit solutions wanted and the
ability of the product or service to produce these benefits. Reverse engineering
involves obtaining the competitor’s products, then breaking them down piece-
by-piece to see how they are constructed and then attempting to build better, dif-
ferent of cheaper. At a minimum, companies should compare the competitive
strengths of their products against those of their direct and indirect competitors’
products at least once a year. Previous product innovations can also be revisited
so that knowledge can be captured for re-use.
Constantly talking to the customer and end user

Talking and listening constantly to the needs and wants of the customer, dis-
cussing problems, identifying solutions, analysing any complaints will pay divi-
dends in identifying product improvement needs and new product ideas.
Somebody should also be liasing with the end users of the product, especially if
they have little contact with those that actually buy the product. It is using the
product that problems will arise that could well be the source of new ideas. There
are many examples of employees complaining about supplier product limitations
that few bother to listen to.
Staying close to the sales force

The sales force should be seen as the eyes and the ears of the organisation. They
are the people continuously out in the marketplace talking to customers, competi-
tors and industry participants and are often the closest to the latest technology,
materials, ingredients, international advances, and competitive improvements.
Formal and informal marketing research

Larger companies will periodically conduct usage and attitude studies, diary
panel studies, product perception mapping studies, and other product develop-
ment monitoring devices. They may also employ research companies to scan
patents and new product technology publication sources and talk with consul-
tants, research firms, and industry/trade experts to keep tabs on target customer
needs and wants. Smaller companies can still use research companies relatively
cheaply or undertake informal research by incessantly asking customers, sales-
people, suppliers, employees etc. questions about needs and wants.
Market research during the NPD process

Concept testing
Market research will probably need to be used at other time in the NPD process
by suppliers to inexpensively test out new product concepts before committing
time and money on ideas that might never be adopted (it’s a pity that many busi-
ness didn’t adopt this part of the process instead of throwing huge amounts of
money at website construction based on wishful ideas that had never been tested
in this way). Methods used will include talking to individual buyers, buyer
groups or buyer associations so as to gauge reactions to the ideas behind the new
concept B2B products. Asking for example whether they like the idea and would
be prepared to use the product if it came onto the market. It is at this stage that
partners might also be approached to ascertain their reactions to the concept.
Business market analysis

More formal research will probably be used once a new product idea concept
seems to have ‘legs’, to first to help outline a simple business/market feasibility
study, where something like 80 per cent of the costs might be determined. This
will include such things as design and production costs, employee costs, promo-
tion and sales costs, distribution costs, service costs (if applicable) as well as the
new product fit with products in the existing portfolio. Those involved in these
kinds of projects might include technical, electrical and mechanical engineers,
stylist and designers, those in procurement, manufacturing, marketing, sales,
finance, maintenance as well as suppliers, outsourcers and other partners. All
might need to be consulted. It will also involve talking to buyers and others back-
ward and forward along the supply chain to try and estimate overall industry
demand and individual company future sales potential.
Market testing
Depending on the product the market might be approached once a prototype
had been built to test out the product out in the field. In the case of a consumer
product this would be quite an extensive exercise covering a large demographic
area. In B2B the process would be much more contained with perhaps just a few
buyer organisations involved. At this stage the decision to go with the product
would probably already have been made and the market testing be used to dis-
cover any customer benefits unexpectedly not catered for and/or faults not
picked up by supplier experts. There has to be a considerable amount of trust
between buyer and supplier at all of these stages discussed here because if com-
petitors are warned then spoiling tactics might well be used. We discuss market
research in much more detail in chapter four on the importance of information

gathering.
Research and development (R&D)

Many of the larger companies will have well-funded research and development
departments where scientists and researchers are paid to undertake either
focussed direct research into specifically defined areas or ‘blue-sky’ research
where they are allowed time to follow new product development research path-
ways where ever their inclination might take them. Other organisations might
utilise the same service from Universities and management schools, forming part-
nerships with others to share the costs or working without specialist outside
product innovation research agencies. According to recent research by the DTI’s
‘Futures and innovation’s group’ there is a evidence of a direct link between R&D
investment, sales growth and stock market value. They go on to say that cost cut-
ting exercises only result in short term gains and the answer to long-term success
is to manage intellectual and application global assets more effectively and to be
constantly producing highly desirable category killer products and services.
Collaborative working on innovation

Innovation and design has for many decades often been a collaborative project
with organisations working together (for examples universities and innovation
agencies) working with industry to bring new products to market because of the
costs and skills involved. The growth in competition and customer demands
coupled with technological developments and the growth in IT capabilities is
fuelling these partnerships. Collaborative Product Innovation (CP) inter and
intra-enterprise cross-functional teams are now working together using the
power of the Internet to improve project team working and information sharing
across the distributed supplier network ensuring that products meet or exceed
market requirements as well as costs and time-to-market imperatives. Such a vast
amount of expertise in a wide variety of areas is now needed to bring innovative
products to market, particularly in heavily segmented and highly technical sec-
tors such as the car industry, that more and more R&D and innovation and
design projects are now outsourced to specialist companies (reputably as much as
70 per cent with one car manufacturer).
Why there is a need to develop new products and services

A B2B organisation might have a NPD programme for the following reasons:
o Maintain market position and reputation as an innovating organisation
o Defend market share
o Be in the forefront in the development of new markets gaining market share
before others
o Take advantage of new technology
o Optimise resources, including production and supply chain management so
as to gain competitive advantages
WHAT IS A BRAND? 237
o To offer greater customer value and satisfaction

o To attract the best possible staff and expertise
More can be seen on the size and scope of new product development on the B2B
marketing website at www.booksites.net/wright
Part 3 Branding
The concept of the brand is now firmly entrenched in business and marketing
philosophy. Most of the largest and most profitable companies in the world have
achieved their success through effective marketing and promotion of a brand
name. Business Superbrands Ltd identified 50 of the world’s top B2B corporate
brands and in a poll conducted with NOP in 2002 found that in general brands
were considered more dynamic and accessible than a host of national organisa-
tions, ranging from the police service to the National Health Service. Such is its
power that for many national and global companies the brand name and all the
values associated with it come to be worth more than all the other tangible and
intangible assets combined. In 2001 the Microsoft brand was said to be worth
$65 billion. New technologies, particularly the internet, now enable companies
to build brands faster than ever before by providing customers with highly cus-
tomised information and services (whether these ‘upstart’ brands will be endur-
able only time will tell).
o What is a brand?
A brand is a combination of several elements including the actual product/
service, a name, a symbol or logo of some kind, particular colours, and specific
shapes and sizes. It is also a set of attributes, associations, expectations, percep-
tions and promises about some benefit or other coming together to form an over-
all image of the company or brand in the mind of the beholder.
Example 5.20 What is your brand?

If you need to extend market share, build barriers to competition, motivate your
workforce, ensure greater performance and profit, or attract and recruit top talent,
you must first develop your brand and align it with business strategy. Before advert-
ising, before marketing, before communications, and before company or product
launches, your brand is a catalyst to your business goals and the connective tissue
for your organisation. Your brand is ultimately your reputation. It begins with the
promise you make and therefore the promise you must keep. Much more than a
visual face or public identity, the brand is about human nature and success
behaviour. It lives in every member of an organisation, advancing your common
vision and mission. The brand is a performance measured and recorded in every
encounter with your constituents, including customers, investors, employees, busi-
ness partners and media.
A brand is a combination of functional and emotional characteristics that define a certain

image or personality about a company and/or its products in the mind of the customer. The
strength or otherwise of this image will determine the likelihood to purchase.
Some brand terms

o Brand. The name, term, sign, symbol or design, e.g. for Coca-Cola, the name,
the bottle shape and the white slash.
o Corporate brand. The company itself can be seen as a brand (very important
in B2B). BT is the brand name and the company will spend millions redesign-
ing and keeping it up to date. It also has the symbol of the prancing trumpet
player, instantly recognisable and symbolically representing the organisa-
tion. BP has recently spent a fortune modernising the BP brand and altering
the logo to something that looks like a yellow and green sunflower, reinforc-
ing its commitment to the environment.
o Brand name. The name can be spoken.
o Brand mark. The brand can be seen.
o Trade mark. The trade mark gives legal protection (seen as TM beside the
ownership mark). Under an addition to the UK Trade Mark Act 1994, busi-
nesses can now register three-dimensional shapes as well as sounds and
smells for protection under the law, as well as brand names and marks.
o Copyright. The right, given to the creator, for a fixed number of years, to
reproduce books or documents etc., or to perform music or plays etc., and to
authorize (or refuse) permission for others to do the same.
o Brand equity. This is the value of the brand in terms of both customer loyalty
and estimated money worth. Consultant companies such as InterBrand.com
will try to value the brand by methods such as comparing the sales of the
brand to the nearest generic substitute; for example, the operating margin for
Tetra Pak might be 22 per cent and that of the nearest substitute 10 per cent.
Multiply the difference in the margins (12 per cent) by the level of the sales
involved and you begin to have some idea of the value of the brand.
o Brand awareness. This is the percentage of customers who express awareness
of a brand as revealed by market research.
o Brand stripping. This concerns the acquisition of a company for its brands, e.g.
Ford bought Jaguar for the brand name and paid over three times the market
share value.
Example 5.21 Brand piracy

Chinese authorities are moving to convince the owners of one of the world’s best-
known brand names, the International Olympic Committee, that the country
doesn’t deserve the reputation it has as a world leader in intellectual and copyright
infringements and the sale of illegal branded pirated goods. The Olympic Games is
to be held in Beijing in 2008 and the committee and potential sponsors are worried
about the blatant rip-off by businesses using the Olympic logo and other company
products on unlicensed goods. Despite the purported crackdown in the area, many
CORPORATE AND PRODUCT BRANDING STRATEGIES 239
foreign businesses are still not convinced about the Chinese authorities’ commit-
ment. Many foreign firms are threatening to pull out of China because the adminis-
trative and criminal sanctions are either too weak or too hard to enforce.
o Corporate and product branding strategies

The brand and all that it represents may be attached to the company and/or its
products and services. These can be identified under the following strategic
approaches:
1. Corporate branding
2. Corporate family branding
3. Product and service branding
4. Own or private label products.
1. Corporate branding
The corporate brand is all the brand factors identified above that are associated
with the name of the company. The products and services sold by an organisa-
tion, the markets in which it operates, the way it treats its customers, how it runs
its business and how it respects the environment will all build into creating a cor-
porate brand image. The development of a corporate brand can be both planned
and unplanned: planned through the use of public relations and promotional
activity; unplanned in that everything a high profile company does will have
some sort of effect on its corporate image.
Example 5.22 Brands in China

In China, brands were unknown in the decades following the Communist revolution
in 1949. Most products were indistinguishable commodities, so the Chinese had few
strong feelings about particular products or their manufacturers. China’s unpreced-
ented and rapid transformation from a planned economy to a market-driven soci-
ety has confronted businesses and consumers alike with an explosion of choices
unparalleled in the country’s history. From the business-to-business perspective
the absence of globally known brands has severely restricted China’s ability to
market around the world on added value, having to rely purely on low labour cost
advantage to sell its products either as commodities or as brands engineered under
the names of foreign companies. However, things are changing and spending in
this direction has increased apace, particularly since China’s membership of the
WTO. Companies that have succeeded in building strong brands include such well-
established multinationals as IBM, Amway and Carrefour, as well as local companies
Sina.com, Yili Dairy Products, AsiaInfo and UT Starcom. Their success stems largely
from a strategic focus on maximising the effectiveness of their distribution chan-
nels and on building goodwill among key constituencies such as government
officials and financial analysts. This movement can only but continue.
2. Corporate family branding

Some organisations will house a group of companies either organically developed
but more than likely acquired by purchase or merger. The holding company may
choose to keep these companies under separate corporate family brand names
rather than bring them under the one umbrella corporate name. In this way
values associated with the different brands by different market segments will be
maintained. Aerospace Systems, Airspace Safety Analysis Corporation, Contin-
ental Graphics, Jeppesen Sanderson, Preston Group and SBS International are
all subsidiaries of the giant Boeing Corporation, offering products and services to
many different segments.
What makes a corporate super-brand

An NOP poll in 2002 identified 50 of the top brands around the world, giving the
following reasons why they might be considered ‘superbrands’:
o Delivery of consistent value and quality
o A strong and distinctive reputation
o Financial security and stability
o Innovative products and services
o Strong research and development credentials
o High levels of awareness
o International presence
o Known only to recruit the best employees
o High standing with the local community.
Example 5.23 Prontaprint – superbrand

Prontaprint (www.prontaprint.co.uk), the largest and best known brand within the
print-on-demand market within Europe, has been granted superbrand status by the
independent council of marketing and branding experts, the Superbrands Council
(www.superbrands.com). This ultimate accolade in brand recognition was bestowed
on the company after being identified as one of the exceptional business brands
around the world. As a result, Prontaprint will now appear in the Superbrands book
dedicated to business-to-business (B2B) branding, which identifies over 50 of the
strongest B2B brands in Britain today. It was selected for its innovation, reliability
and technical expertise, as well as its reputation for fulfilling its promises, deliver-
ing on time and to specification. One of the most significant reasons for being
selected, however, was its ability and focus on building long-term relationships
among business clients, current and potential franchisees.
3. Product and service branding

Branding under separate product or product group names is much more pop-
ular in B2C than in B2B markets, really because of the plethora of segmentation
CORPORATE AND PRODUCT BRANDING STRATEGIES 241
methods and the emotional appeal of the brand. Kotex, Huggies, Pull-ups, Kleenex,
Andrex and Fiesta are all FMCG brand names belonging to Kimberly-Clark,
appealing to different individual consumers. Individual product names are less
used in B2B because the buyer tends not to be seduced by the emotion sur-
rounding a particular brand. A toilet roll bought for industrial purposes will not
need the same symbolic attachments as a toilet roll bought by mum for the fam-
ily, nor will cars bought for company use compare with cars bought for own use.
However, where a B2B organisation sells many hundreds of different products,
the different brand names can be patented to protect the manufacturer and used
by the buyer to identify the benefits offered by each separate product.
Example 5.24 Du Pont

Chemical giant Du Pont has a range of B2B and B2C chemical-based brands used
across a bewildering range of products including materials, paints, plastics, carpets,
furniture, curtains, luggage, foods, lawns, gardens and agriculture in both business
and consumer markets. Some brand names are known by the consumer and will
appear in the products of others and some will be unknown by the consumer but
known to the B2B buyer: Cordura durable fabrics, Dacron polyester filament yarn,
Delrin acetal resin, Micromatic fire blankets, Smartpaint products, Tynex tapered
paintbrushes, Solae soy protein, Supro, Scairfilm food wrappings, Teflon non-stick
coating, Freon refrigerants, and many, many more. (www.dupont.com)
4. Own or private label products

Some manufacturers choose to produce goods and services that are branded
under the name, of another company, e.g. Northern Foods producing under
the Tesco name, or under a product brand name such as Nova for Sainsbury.
Although more often than not the products are FMCG, the practice of making
own label products for others falls firmly into the B2B industry.
Example 5.25 Growth potential for B2B private label manufacture

At present there is a major concern in the global retail world on the positioning of
branded products versus private labels and who will eventually dominate in the
marketplace. In Europe the growth of private labels, non-branded products manu-
factured by business-to-business suppliers for the retailer, has reached on average
45 per cent of all products sold. The overall feeling is that in the supermarket indus-
try in western Europe the private label market has now matured and little growth
will be seen. But in eastern Europe, especially Poland, Czech Republic, Slovenia,
Russia and Turkey, there will be huge growth in this market sector. Similarly this
might also apply to the USA with only 25 per cent private label products.
Branding in B2C and B2B markets

There is still uncertainty and disagreement about the real value of branding in
the B2B market. There is now no doubt about its worth in consumer markets
because of the large amount of research conducted over the years, but the same
cannot be said in the business market. In the B2C packaged goods markets
research has shown that as much as 75 per cent of consumer purchases are made
for emotional and psychological reasons linked to the brand name. Names such
as Nike, Coca-Cola, Mercedes, Microsoft, McDonald’s and Disney are legendary
in the attraction they have for the consumer and the worth they bring to their
shareholders.
Unlike consumers, B2B buyers will be loath to purchase branded products for
the emotional attraction of the brand. Because the purchase is for the company
rather than for own use, the value offered in the product must be seen to be real
rather than abstract and symbolic. B2B buyers will not generally be prepared to
pay a premium for branded products in the same way that consumers will. In this
respect it must also be remembered that a large part of the cost in B2C branding
is in the promotion and advertising. This will not be at the same level in B2B
markets. It must be remembered, however, that not all benefits associated with
the brand name are emotional. There are real, functional, practical benefits such
as quality, service and long-term value when dealing with a well-respected organ-
isation such as Bosch, Northern Foods, IBM and GKN. In this sense the corporate
name offers the B2B buyer many of the benefits and will be taken advant-
age of as long as customer expectations are met.
o Advantages associated with branding

B2B markets
There are many benefits in dealing with a well-known organisation when buying
and selling B2B products. As choices rapidly grow from around the world brand
appeal is an increasingly important criterion for buyers to apply. Unlike B2C mar-
kets, purchase in B2B markets is mainly for rational reasons that are thought
through and evaluated. Listed below are some of the factors associated with good
corporate and product branding in B2B markets.
From the B2B buyer perspective

o Reduces the risk – the ‘nobody ever got the sack for buying an IBM computer’
syndrome.
o Saves time when searching out new products.
o Known functional performance matching benefit needs.
o Known value, quality, consistency, service.
o Safety and peace of mind.
From the B2B seller perspective

o Builds a reputation that can be used when launching new products, espe-
cially around the world.
o Helps segment the market.
ADVANTAGES ASSOCIATED WITH BRANDING 243
o Strong brand values can protect a product from intensifying price

competition.
o Can serve as a bulwark against substitute products.
o Holds price levels and prevents the product being seen as a commodity
product.
o Employees want to work for strong branded corporations.
o Engenders loyalty and pride if linked to adequate recognition and reward
system.
o Can be used when moving into other product/market areas.
o Extra income can be earned from extra benefits.
B2C markets
The appeal of brands in B2C markets tends to be centred around emotional
appeal for the end consumer and rational appeal for the retailer.
From the consumer perspective

o Brand association satisfies a host of emotional needs such as status, recogni-
tion, safety, security, companionship, belonging, sex appeal, and so on.
o Recognised quality, value and service encourages repeat purchases.
o Consistent quality guaranteed wherever the product might be purchased.
o Saves time in not having to seek out and test unknown quality levels.
o Provides information about both the company and its products.
From the retailer perspective

o Able to purchase products promoted and advertised by the manufacturer and
guaranteed to sell.
o Avoids confusion when ordering across an enormous range of products.
o Attracts consumers to the store where more profitable own label products
might be bought.
o Status can rise by being associated with the name of a respected manufactur-
er’s brand, e.g. Mercedes, Givenchy.
o Helps strategic sales planning as pattern of sales of known brands more reli-
able than unknown products.
From the seller perspective

o Builds power with the retailer needing to stock market leaders.
o Fights against the power of retailer own label.
o Number one and number two brands in the market virtually guarantee shelf
space.
o Helps segment markets.
Brand extension
Brand extension consists of using the brand name across related products. An
example might be an Aga cooker manufacturer producing fridge freezers and Aga
cookware. The advantage is that the name and the values attached to the name
are readily perceived by the buyer, saving time and money needed to create
awareness from nothing and an almost immediate acceptance of new products
that are brought to the market. However, there is a downside. Where brands are
stretched across a number of products or services, brand failure in one area can
taint perceptions of the brand in other areas. An obvious example is in the con-
vergence between banks and insurance companies, where poor claims service in
the insurance part of the business might damage customer perceptions of the
banking part of the business.
Brand stretching
Unlike brand extension, brand stretching consists of using the brand across many
unrelated markets. The obvious advantages are the same as those identified under
brand extensions. However, there are dangers associated with this product strat-
egy. Values associated with a brand can be diluted and become weakened if used
across too many different industries. It can also be dangerous when the brand is
taken beyond its natural boundaries. The brand then loses its power.
Example 5.26 Branson stretches the brand

Since Richard Branson launched his own record company, Virgin, at the age of 19,
he has defied convention by stretching the brand and moving into an inconceivable
range of businesses. In 1984 he went into aircraft, Virgin Atlantic. Hotels and a
holiday company soon followed. Now he is trying to tackle the European short-haul
airline market. In 1985 he floated his company on the stock market, but he bought
it back in 1988 for £248 million following the stock market crash. In 1991 he sold his
Virgin Music business to EMI for $1 billion. In 1994 he launched Virgin Cola and chal-
lenged Coca-Cola’s marketing practices. He acquired MGM’s cinemas in the UK and
refurbished them as Virgin cinemas.
He then acquired a train business, the West Coast Main Line, and took a stake in
Eurostar, the cross-channel service to Paris and Brussels. In 1996 he moved into
financial services, launching pensions, insurance, and stock market PEPs that were
marketed as Virgin Direct, which has taken £1 billion in funds. He has licensing
agreements with Virgin Vodka and even wedding service outlets.
Not all the above have been successful and many critics including specialist
brand agency Wolf Olins argue that bad publicity in one area (train failures) will
impinge on Virgin’s reputation in other areas.
Brand consolidation
There has been a move by organisations to reduce the number of brands in the com-
pany product portfolio. In this way more energy can be focused towards building
fewer but stronger brands that become market leaders in their particular markets.
PACKAGING 245
As value is concentrated in fewer brands, however, the threat posed by risks to

these brands will correspondingly grow in severity. To take one obvious example,
the recall of a product accounting for 30 per cent of a company’s profits will be
more damaging than the recall of a product accounting for 10 per cent of profits.
Example 5.27 Brand evaluation

Global advertising agency Ogilvy PR evaluates brands on the basis of six core
properties:
1. Visual. Does the brand project a clear, consistent visual identity?
2. Image. Is the image of the brand engaging and strong?
3. Goodwill. Has the brand earned the goodwill of influencers in the communities
where the company operates?
4. Product. How does a product’s performance support the brand?
5. Channel. Is the brand adequately leveraged in its distribution channels?
6. Customer. Is there an existing brand franchise among a firm’s customers?
(www.olgilvypr.com)
Brand relationship building

By teaming up with other well-respected companies, a company can sometimes
enhance its brand equity in the eyes of customers. An example is the OneWorld
airline alliance, currently comprising six major airlines. Brand alliances, however,
can expose companies to the risk that their partner’s performance may fail to
meet business customer expectations, thus damaging the brands of the other
alliance members. For example, airline alliances make each participating airline
vulnerable to poor service standards on the part of its alliance partner.
o Packaging
Packaging in both B2B and B2C markets has become an essential and integral
part of the product. This is especially so in B2C markets where it is often seen
emotively by the end consumer as part of the brand offering, a quintessential
ingredient in all that a particular brand, such as Persil or Budweiser, means to the
end user. Package ownership, and through this the brand, brings such things as
reassurance, feelings of status, pleasant associations, and so on.
Because the overwhelming reason for purchase in B2B markets is rational
and for the firm rather than oneself, packing has different connotations. Where
the business purchase is for use by the buyer, product protection in delivery, stor-
age and usage are probably the most important factors as well as cost and ease of
use. Recent legislation insisting that all packaging must be recyclable and/or
biodegradable has added another imperative to the business buying process. It
should be remembered, however, that there are many companies of all sizes from
around the globe involved in the retail packing process, making for manufactur-
ers supplying products into the retail trade. These are products and brands that
will end up being bought by end consumers for the emotive reasons identified
above. In these cases, although the buyer is another business and the initial rea-
son for purchase will be rational, i.e. cost, speed of delivery, etc., the supplier will
need to be aware of the emotive factors that the buyer will want to be invested
in the packaging. So these factors and skills become B2B product benefit offerings
wanted by the business buyer.
Packaging in B2C
Packaging is particularly important in B2C markets, especially in the FMCG
industry. Sometimes known as the ‘silent salesman’, its many functions in con-
sumer markets include attracting attention, enhancing the product, giving out
information, offering sales promotions, and so on. In fact it has become such an
integral part of the product that in many cases it would be impossible to divorce
the two without totally devaluing the product and the brand, reducing the offer-
ing practically to a commodity offering. Imagine KitKat without its familiar red
and white packing, Coca-Cola without the world-renowned tin or bottle, or
Kellogg’s Cornflakes without the cockerel on the constantly busy box full of
information, free gifts and things for the children to do. Such is the import-
ance of packaging in B2C that many innovations, shapes, colours and designs
will often constitute the USP and will now be patented.
Packaging is just as important in the B2B market, but in many different ways
when compared with B2C. The consumer will be concerned about the packing
mainly for a harmonious and value-added visual perspective. This will include
the shape, design, colours and material used related to the overall attractiveness
of the product. Higher value packaging reflects the higher value product. There
will be some concern about the protection given, but this will only come into
effect if the consumer receives a product that is damaged in some way.
Example 5.28 Packaging makes the first sale, the product the second
Research has confirmed that an estimated one to three seconds is all the time that
a company will get to sell its product as the consumer browses the retail market-
place. So the packaging can mean the difference between success and failure in
business. With this in mind, Fortune 500 companies will commonly spend 60 per
cent to 80 per cent of the total item cost on B2C packaging, knowing this limited
attention of a passing shopper.
Packaging in B2B
Packaging in B2B has many more dimensions and spawns a multi-billion pound
industry. The supply chain in B2B packaging can be long and diverse and involve
the design, engineering, computer, chemical, biological, paper, metals, adhesives
and sealants, glass, crates, printing and labelling, plastics and capital equipment
industries, randomly to name a few. Packaging additives and finished products in
the B2B sector can be manufactured for other businesses for their own use or they
can end up being sold by retailers to the end consumer. Organisations involved
PACKAGING 247
might be driven by the buyer’s need for delivery protection, consistency and
speed, health and safety, security, recyclability and waste disposal. The impera-
tive might be for the packaging to load efficiently into lorries and containers, to
fit efficiently onto delivery pallets or to sit comfortably and attractively on the
retail shelf. The overriding issue might be one of ease of use causing designers,
engineers and computer experts to work together on new ways to open, use and
dispose of cans, bags, bottles, boxes, cartons and crates. It might be the constant
need for creativity, design, printing, colour combinations and exciting promo-
tions to hold the interest of the consumer in an ever-changing, ever more
demanding market environment.
Packaging companies might be working with wood, sealants, steel, paper,
aluminium, glass, rubber, polystyrene or chemical products. One B2B organisa-
tion might be involved with raw materials, another with component parts,
and another with the capital equipment. B2B packaging employs many millions
of people from around the world with extremely high and very low levels of
skills. A highly paid computer expert might be designing and engineering pack-
aging in Silicon Valley in the west and a very low paid labourer might be putting
together paper products in the east.
Example 5.29 Campbell’s fresh tasting soups in a glass container

Innovation and function come together in Campbell Soup Company’s new line of
quality soups. This product line was the first introduction of soups in glass jars on
a national scale. Glass was the perfect choice for Campbell’s to highlight the qual-
ity of their product. Consumers loved the convenience afforded by the resealable
glass jars. Bringing back a bygone era, this package shows a venerable idea in a
new light. The glass container supplier was Owens-Brockway Glass Containers.
(Glass Packaging Institute, www.gpi.org)
New technology and packing

As with all areas of marketing, new technology development is always present,
on the one hand offering sellers and buyers wonderful opportunities to gain both
productivity efficiencies and competitive advantage, and on the other hand con-
tinuously throwing up new threats and challenges. A few examples of new tech-
nology in packaging include:
o Reducing paper waste within the printing process.
o New packaging machinery and constant upgrades to improve efficiency of
existing machinery operation as well as changeover times, user interface reli-
ability, maintenance requirements, flexibility and customised uses.
o Increasing shelf life of fresh products as well as such things as sell-by-date
packaging changing colour as the end date approaches.
o Shower products to aid in a non-slip surface, skin care packaging, and a vari-
ety of health and beauty aid products.
o High-speed ‘no-drop’ packer for the dairy industry and a brewery machine
for packing cans into plastic cases.
o Computer-aided design (CAD) technology allows designers and engineers to

use computers for their design work. Early programs enabled two-dimensional
(2-D) design. Current programs allow designers to work in three dimensions
(3-D) and in either wire or solid models.
o Computer-enhanced creativity uses specially designed computer software
that aids in the process of recording, recalling and reconstructing ideas to
speed up the new product development process.
o Bar code technology, standardisation, smart computer (radio) chips built into
packaging storing unlimited information.
o Thermal transfer printing technology.
o Using packaging materials that are stronger, lighter, longer lasting, more
environmentally friendly, recyclable and biodegradable yet less expensive.
Areas involved with packaging

These include the following: packing machinery; automatic sealing machines;
blister packs, bubble wraps, shrink wrapping, film and foil linings; blowing and
injection moulds; commercial and industrial packing machinery cases;
custom manufactured skin or blister packaging; food and pharmaceutical indus-
tries machinery; films for chemical packaging; labels and labelling systems;
inflatable polythene bags; Jiffy and Jiffy Lite delivery envelopes; moulds; poly-
styrene; sealed air packaging; straps and strapping machines; thermoforming
machines; vacuum packaging machinery; crating, boxes, cartons, containers and
drums; filling and dispensing; corrugated board and paperboard; bottles, jars and
cans; wrapping, sealing and shrinking; chemical coating for health and longevity.
It will also involve the following industries: logistics and transport; trade
shows and exhibitions; purchasing; innovations, creativity and design; health
and safety; security; point of purchase display; environmental agencies; waste
disposal and recycling; engineering; computer software; food technologists and
food processing; pharmaceutical engineering; material handling; powder techno-
logy; agriculture and seeds; printing and publishing; health and hygiene; metal-
lurgy; chemicals; forestry; rubber; paper; steel; coal; oil. The list is endless.
B2C packaging
B2C markets have the following requirements:
o Attractive packaging enhances display and encourages purchase, e.g. boxed
chocolates, perfumes, jewellery.
o Packing shapes and designs can be branded and patented for protection
against competitors, instant consumer recognition and as a USP, e.g. Jif lemon
squeezer, Coca-Cola bottle, Maxwell House coffee jar.
o Packing shapes and designs can be aimed at ease of use, home storage,
reusability and disposability, e.g. wine in a box, toothpaste in a pump-action
tube, beer in a ring pull, widget driven, easily disposable aluminium can.
o Packaging gives the customer information on content, instructions for use,
promotions, etc.
o Legal, health and environmental requirements have to be met.
SUMMARY 249
B2B packaging
B2B markets want:
o Constant discussions and advice on packaging requirement, especially with

customised needs or for B2B products that will eventually end up in retail
outlets (where all the above will apply).
o One-off or long-term contracts executed speedily and within the needed time
periods.
o Product protection and preservation during transportation, storage and usage.
o Ease of use meeting all logistic requirements.
o All legal requirements to have been met.
o Materials that are stronger, lighter, longer lasting, more environmentally
friendly, recyclable and biodegradable yet less expensive.
Example 5.30 National packaging exhibition

With the diversity and quality of our exhibitors, you will be able to meet face-to-face
with the vendors, manufacturers and packagers that can fulfil all of your outsourc-
ing, packaging product or service needs, as well as your equipment or machinery
needs in one unique venue. You will meet the vendors you know and some you
don’t, all with the ability to offer the same or better quality of goods or services
with competitive or better pricing than you are presently finding. Meet distributors
and reps for lines of packaging machinery and equipment.
Example 5.31 Packaging challenge

Faced with the new labelling requirements demanding more space to convey drug
information, companies are challenged to develop packaging that will still grab con-
sumer’s attention in this ever-competitive marketplace. They understand the need
to employ graphic elements that will give their products more shelf impact to stand
apart from the competition. One such design features a foldout panel that is
normally fastened to the carton exterior to promote brand identity and preserve
billboard space, but can be easily opened by consumers to reveal compliance
information. A second design incorporates a pull-tab panel that extends to reveal
additional drug information or even promotional content such as coupons or brand
cross-marketing. (Diamond Packaging)
o Summary
In this chapter we looked at how and why business-to-business products and
services were categorised, attempting to highlight the basic different marketing
approaches that might be needed. Particular attention was paid to the import-
ance of distinguishing between products and services as well as the differences
between B2B and B2C products and services. Products and services were initially
identified under the categories of capital goods, materials and parts, and supplies
and running services. We then looked at other ways in which products an

services might be categorised under convenience goods, search-out goods and
integrated solutions, recognising that there was much overlap and none of the
areas were mutually exclusive. The differences between the first three areas and
the additional categorisation methods were outlined and the alternative market-
ing approaches that could be used were investigated.
Importance levels and risk associated with the purchase of products and
services in B2B compared with B2C were examined, highlighting how much
higher the risk could be for a business purchaser. The problems and opportunit-
ies associated with the need to both customise and/or standardise the products
and services were talked about and the pros and cons of each area were identified,
recognising that ultimately it must be the customer that should be the deciding
factor.
We then looked at the whole process of adding value to the basic B2B com-
modity good so as to gain sustainable competitive advantage. This looked at the
many value added methods that can be used both before purchase, primary
added value, and after purchase, supplementary added value. It was recognised
that adding value to the product is at the heart of marketing and should be
driven by the needs of the target customer. Three basic strategies, making the
product different, better or cheaper were shown to be the generic strategies all
companies should consider in attempting to position itself in the marketplace
and so gain sustainable competitive advantage. In the same vein the need to have
a product portfolio of products so as to address the needs of the different market
segments was brought up and examined using the model of the Boston Consult-
ancy Group Matrix.
Branding and new product development were selected for special considera-
tion and comparisons made between B2B and B2C because of their differing
importance to both markets. Inculcating a new product culture, encouraging
employees to be constantly aware of opportunities and developing both formal
and informal NPD processes were seen to be crucial to constant success, espe-
cially as technology and competition grows and threatens the complacent
organisation. Corporate branding was argued to be more important in B2B
markets and product branding more important in B2C markets. The advantages
of having a strong brand were discussed and reasons given as to why this was
so. Finally the role and importance of packaging in both B2B and B2C markets
was talked over with the different roles that it plays in the two areas examined
and evaluated.
1. Discuss the different marketing approaches that might be needed for the
different categories of products. Will this differ between the public and the
private sector? Give live examples.
2. Discuss the concept behind ‘added value’ in B2B markets. How might a company
build on this idea and will it differ in B2B when compared to B2C?
3. How will marketing of B2B products and services differ from the marketing of B2C
products and services? Give examples.
BIBLIOGRAPHY 251
4. Discuss the ways in which an organisation might add value to its benefit offerings.
Take an industry and give examples. How important is branding in B2B markets
compared with branding in B2C?
5. Will B2B products and services demanded be any different in the public sector
when compared with the commercial sector? Give examples and discuss how the
marketing approach might have to vary.
6. ‘Continuous new product development is crucial in B2C but not so important in
B2B.’ Discuss.
7. How important is the idea of a mixed product portfolio of products in B2B
marketing? What drives the concept and how will marketing on a global
perspective affect the process?
8. Identify and evaluate the different roles that packaging might have in B2C when
compared with B2B. Give live examples to illustrate the points that you might
want to make.
9. Identify new technological developments in packing for use in both B2B and B2C.
What are the major drivers and where do you think the future might take us in
this area?
10. How might the global demand for B2B products and services alter over the next
decade and what might be the emerging issues affecting productivity and overall
success for an industry and any one company?

o Bibliography
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Marketing Research, November: 405–21.

06 Managing business marketing
channels
In theory there is no difference between theory and

Chapter
practice. In practice there is.
Aims and objectives

1. Identify and evaluate both direct and indirect methods of distribution.
2. Discuss and evaluate the strategic factors that need to be taken into
account when choosing a channel of distribution.
3. Identify the supply chain relationships and analyse the importance and the
reasons for the different types.
Part 1 Evaluating strategic channel alternatives
o Introduction
B2B and B2C channels of distribution are the ways that an organisation makes
products and services available to the buying organisation or the end consumer.
The choices available are many and the decision on which method or methods
to choose is of crucial strategic importance. Opt for the wrong or inferior method
and valuable resources can be wasted, customers upset and competitive advant-
ages lost. Well-researched, customer value-added products and service benefits
can be wasted if the buyer is confronted by a distribution system that is in some
way flawed and inadequate. In the case of B2C this might only be a small per-
centage, but in B2B this could be a buyer representing a company such as GE
worth untold millions in terms of buying power. In some extreme cases the
difficulty for a supplier to obtain distribution, perhaps because of a monopolistic
market condition or partnership, can make it impossible for a particular market
to be entered.
254 CHAPTER 6 • MANAGING BUSINESS MARKETING CHANNELS
Example 6.1 Distribution monopoly

Many retailers can only supply ice cream from one manufacturer. They had been
given free freezers for ice cream on the condition that they did not stock rival prod-
ucts. It is a system small manufacturers said discriminated against them. The UK
government moved to end the stranglehold of Birds Eye Wall’s, Nestlé and Mars on
the sale of ice cream in January after a Competition Commission report which
found that outlet and freezer exclusivity restricts competition between manufac-
turers and retailers. Birds Eye Wall’s has two-thirds of the market and Mars and
Nestlé freezer deals were seen as crucial to helping them compete.
Distribution can be broken down into ‘channels of distribution’ and ‘physical

distribution’. We will look at channels of distribution first.
Channels of distribution are the ways that an organisation makes its products and services
available to its selected market segments.
o Channels of distribution in B2B markets

To restate in simple terms, the channel of distribution is the way that the B2B
supplier makes the products and services available to the organisational buyer.
This can be broken down into two major channels, direct and indirect. The dis-
tinction is illustrated in Figure 6.1 where it can be seen that distributing direct
makes the product or service available without any intervening organisation in
between. Marketing indirect, on the other hand, involves channelling the products
through an intervening organisation who will then make the product available
to the customer. A producer can choose to sell direct, indirect or via a combina-
tion of both depending on certain criteria that will be identified and discussed as
we move through the chapter. On the other hand the market supply structure
might already be in place and the channel of distribution an established fact. In
this case the supplier will have to fit in with existing circumstances unless a new
method of distribution can be found that will give a competitive advantage.
B2B and B2C channels of distribution

B2B and B2C channels of distribution can both be direct to the customer or indir-
ect through some type of intermediary. Companies will choose one or the other
Figure 6.1
Direct and
indirect
distribution
DIRECT CHANNELS OF DISTRIBUTION 255
or, in some cases, use a selection of both methods. In B2C, although products are
sold direct to the end consumer, the most popular method is to sell through retail
intermediaries such as supermarkets, department stores, chain stores and inde-
pendent retailers. Depending on the product or service to be offered to the mar-
ket, wholesalers might also be used. Direct methods, such as selling door-to-door,
house parties, product catalogues, direct mail, the internet and TV, are used, but
comprise a small percentage of the whole. In contrast, although some products
and services can be bought indirectly, most B2B products and services tend to be
channelled direct to the buyer. The reason for the use of a different method in
the two different sectors is now discussed.
o Direct channels of distribution

Most B2B suppliers choose to market the products directly to the buying organ-
isation without the use of an intervening organisation, known alternatively as an
intermediary or middleman, and they will do so for a variety of reasons.
B2B buyer/customer expectations

In many cases the customer will expect to see and discuss product and service
needs direct with each supplier and will not entertain going through a middle-
man. If the benefit offering need is of strategic importance, complex or costly,
then the buying company may only be interested in talking directly with the sup-
plier to discuss detailed needs. The largest companies will often insist on dealing
only with senior managers, often at boardroom level.
Building customer relations

Dealing direct with the buyer can be seen as an intricate part in the process of
communicating and building long-term close relationships with buying com-
panies. This will be particularly apt if repeat orders are seen as part of the process.
It will also apply if some kind of contract is involved and the buying and selling
organisations need to meet continuously to discuss such things as quality, delivery
and service. This close relationship, unfettered by intervening organisations, can
facilitate greater continuous and long-term satisfaction, supported by the use of
market research and database analysis (relationship marketing).
Focused specialised attention

A company selling direct can present its products and services in a concentrated
and focused way to the customer unhindered by immediate competitors’ prod-
ucts. Product benefits can be matched to customer needs using the specialised
knowledge and experience that only comes from selling one’s own company’s
products. This is especially relevant when selling complex and high valued pro-
ducts such as financial services, computer systems and capital equipment. A
middleman, on the other hand, will usually be offering a whole range of products
from many different companies with only a general knowledge of the whole and
limited knowledge of each individual product range.
Marketing of services
In most cases services will need to be delivered direct rather than by an inter-
mediary although service supplies, e.g. food, cleaning materials and administra-
tion materials, would probably have come from other suppliers. Because of the
personal skills involved, for example in consultancy, it would be difficult though
not impossible to operate through an intervening organisation.
Guaranteed outlet
Selling direct should ensure a guaranteed outlet for the company’s products (as
long as the customer wants to buy) since there are no intervening bodies between
the organisation and its customers refusing to take stock or taking stock from
elsewhere and so restricting supply. This can be important because of growing
competition.
Maintaining control
The major advantage in marketing direct is that full control can be maintained
over all elements of the marketing mix. This is the way that the B2B product or
service is presented to the buyer, where the product/service is offered for sale and
how the product/service is promoted and sold. A carefully crafted benefit offer-
ing, tightly targeted to meet a buyer solution, might need special nurturing and
care. A supplier might feel that this could not be left to the uncertainties of an
intermediary salesperson offering this product as just one among many others.
Building a customer database

Crucial to the insight into business-to-business customers and markets is the
need to build a marketing information system (MkIS) and create a database of
businesses and buyers. Essential to this is the need to gather information from
customers. Dealing direct allows marketing managers and supplier salespeople to
observe and ask questions and so collect data that can then be processed through
the MkIS and used to dig out valuable information to create more customer
value. This would be lost if acting through an intermediary.
Costs
Whether there is a cost saving in marketing directly rather than indirectly will
depend on product/customer and market circumstances. Superficially there may
seem to be a saving as selling direct eliminates the need to pay a percentage
amount, in terms of a reduction on the expected selling price, to the intermediary
DIRECT CHANNELS OF DISTRIBUTION 257
for undertaking some of the marketing tasks. The amount the supplier will have
to discount from the expected selling price will differ according to the type of
product and industry but it can vary from as low as 5–10 per cent to over 100 per
cent. It really depends on the value the buyer might be able to add before pass-
ing on to the next customer. However, this possible saving must be weighed
against the cost to the supplier of having to undertake all the marketing mix tasks
that would have been borne by the intermediary, for example advertising, sell-
ing, delivery, installation and after-sales service.
Example 6.2 UK farmers sell direct

With falling farming incomes and distribution networks constantly demanding lower
prices and more punitive terms and conditions, an increasing number of farmers
have been forced to bypass wholesalers and supermarkets and are now selling
direct to the public at better prices. The Policy Commission on the Future of Farm-
ing and Food, published this week, encourages such practices. Farmers’ markets
began to take off about three years ago and there are now more than 200 across
the UK with many more expected in the future.
Preferred supplier list

Some organisations, particularly in the public sector, might insist that they
would only deal with companies direct and so put these types of suppliers on
their preferred supplier roster. The major reason for choosing to develop and
have preferred suppliers is the extent to which they can provide the customer
with a competitive advantage in the marketplace. In this context ‘competitive
advantage’ means the ability to provide the customer with a unique product or
service, or a degree of quality and value that is otherwise not available to the cus-
tomer’s competitors, or not available from other suppliers.
Example 6.3 Radius and Avis

Radius, the global travel company, and Avis Rent a Car System have entered into
a preferred supplier agreement to provide car rental services at negotiated rates
to Radius agencies and their clients. Avis is recognised as one of the world’s top
brands for customer loyalty. It is felt that this will be a win–win situation for both
companies.
Hidden suppliers
Some supplier products will end up in other supplier products and in that sense
a buyer might feel they were dealing direct when in fact they were buying prod-
ucts indirectly from a host of upstream suppliers.
o Methods used in direct channels of distribution

There are many different ways that the supplier can make its products and ser-
vices directly available to the customer. The company will have the choice of
1. Direct sales force
2. Trade exhibitions
3. Mail order
4. The internet
5. Other media.
1. Direct sales force

The most common form of direct distribution in B2B markets is through the use
of the company’s own sales force and its importance cannot be over-emphasised.
This is particularly so where products are complex and benefits multifaceted. The
role and responsibility of the salesperson will vary according to the industry,
market and type of organisation. In some firms selling very basic products such
as motor spares the salesman or saleswoman might be little more than a delivery
person topping up customers with such things as nuts and bolts and electrical
connections as and when wanted. Wages will be low and probably based on com-
mission. At the other end of the spectrum the salesperson (or manufacturer’s
representatives, commercial agents, sales executive, sales director, or account
director) may be highly skilled in specialised technical areas, working with large
companies on contracts worth millions of pounds. In a case like this remunera-
tion, wages, bonuses, commission, etc. could be extremely high and it is not un-
usual for a good salesperson to be one of the highest earners in the organisation.
The salesperson role

Salespeople are able to meet buyers in person, discuss needs and wants, overcome
objections and offer customised solutions to intricate problems. They are able to
develop professional, cordial relationships with buyers over the long term and
build such an atmosphere of trust that the buyer will not want to consider a rival
company. This can even spill over into the buyer ordering large amounts of prod-
uct, or ordering complementary products, just on the recommendation of the
supplier salesperson. Of course this trust would soon evaporate if the suggested
product turned out to be of the wrong kind or quality. With products and ser-
vices involving high value and/or long-term contracts, the supplier will often
have a team of representatives including experts as well as salespeople talking to
the team of buyers (the DMU). This process might go on for weeks, months or
even years if the sale was for something like a large construction project or a long-
term office cleaning contract. The supplier must support the salespeople at all
times with training and coaching, current information and administration back-
up. Nothing can destroy a relationship quicker than such things as a customer
wrongly invoiced, low quality products offered, poor delivery or bad after-sales
METHODS USED IN DIRECT CHANNELS OF DISTRIBUTION 259
service. In return the salesperson can supply the company with continuous feed-
back on customer and market developments.
CRM and the salesperson

The best kind of salespeople have always seen the building of good long-term cus-
tomer relationships as an essential part of the job. Almost intuitively, anybody
with any sense will soon see that if the buyer is constantly given excellent ser-
vice, treated in a helpful, friendly and professional manner and never let down
on promises, trust will be built and sales success should follow. Of course there
are some types of products that might be bought so infrequently that the sales-
person would only need to see a buyer once in his or her career. In this case the
buyer–seller relationship will be relatively unimportant, although reputation and
word of mouth could well bring in extra sales. Where purchase is frequent or has
the potential to be very large, this relationship building is crucial and will soon
sort out the good from the bad. The idea of customer relationship management
(CRM) that has come to the fore over the last decade is discussed throughout the
book. The salesperson has become a crucial part of the process. CRM attempts to
take the job of the salesperson and the sales team and integrate their role into an
interconnected, formalised company approach to long-term customer care at the
strategic level. We will look more at the role of the sales team when we discuss
promotion in Chapter 8.
Example 6.4 Use the face-to-face encounter to sell more in the

concrete industry
Continuously let your customers know of the services you offer. If you do water-
proofing for a customer, make sure they know that you also do foundation repair.
It is amazing how many times even a regular customer won’t know you are also
capable of doing something else for them. Offer complementary products and/or
services that are natural companion purchases for your customer. Make it one-stop
shopping for your customer and you will be providing a valuable service. Share your
customer base with another business. This strategy allows you to gain access to
another business’s customers to whom you can market your business’s products
and/or services. Target the existing customers of a competitor by making the com-
petitor’s customers aware of your business. (With thanks to concretenetwork.com)
2. Trade exhibitions
Trade exhibitions (Figure 6.2) are temporary marketplaces where suppliers can
meet buyers. In some industries, e.g. armaments, they might be almost the only
place where this opportunity might arise, although the internet is opening up
many more opportunities for the exchange process to take place. While trade
exhibitions are seen predominantly as a marketplace where people can be meet,
sales can be and are made, either at the time or later as a result of a sales lead.
Again this will be discussed in Chapter 8.
Figure 6.2
The Toy Fair (Trade), ExCel Centre, London
Examples Amusement Trade Parks & Attractions, Amusement Trades Exhibitions, Earls Court, London
of trade Hospitality & Foodservice, National Exhibition Centre, Birmingham
exhibitions Furniture Trade Exhibition, Royal Highland Centre, Edinburgh
British Franchise Exhibition, G-MEX Centre, Manchester
Recycling & Waste Management Exhibition, NEC, Birmingham
Royal International Agricultural Show, Stoneleigh, Coventry
Professional Finisher Trade Show, NEC, Birmingham
SPATEX, Swimming Pool Industry Show, Hilton Metropole, Brighton
Medical Device Technology (MDT 2003), NEC, Birmingham
3. Mail order
B2B products and services are sold through trade magazines, trade journals and
mail order and for some organisations this is the most lucrative method. Smaller
items can be advertised and sold direct while other products and services might
be advertised inviting an enquiry and then followed up with a phone call or per-
sonal visit. There are thousands of trade magazines covering every industry from
catering and healthcare through to recruitment and road haulage and as fast as
one closes another two open.
4. The internet
Still relatively in its infancy, the internet is opening up wonderful opportunities
for B2B organisations to buy and sell products and services around the world.
Smaller products can be despatched by post or a delivery service to every corner of
the globe in response to an electronic order online. Other products and services,
information, catalogues and music can be paid for and sent downline immedi-
ately. As with direct response, an internet enquiry can initiate a phone call, a
video talk line or a personal visit. In the first chapter we discussed the develop-
ment of auction type websites (e.g. Covisint.com for the car industry) where
suppliers from around the world can be invited to bid for large orders from a con-
glomerate of business buyers. These and similar sites are set to grow in number.
Example 6.5 Growth in B2B e-commerce

Until now most UK e-businesses have been relatively small business-to-consumer
(B2C) undertakings. However, if e-commerce is to make a substantial impact on the
UK economy, the country must move quickly into the rapidly expanding interna-
tional B2B market. B2B is flourishing because it is a highly effective way to find new
markets and to make existing channels more efficient. Analysts project that B2B
sales will reach $7 trillion by 2005. To put this figure into perspective, it is no less
than the amount of the entire US gross national product as recently as 1993.
5. Other media
To a lesser extent B2B suppliers will use other media such as TV and radio to sell
products direct but this is limited to a very small market, for example Fisons sell-
ing fertiliser to farmers in the UK Anglia region.
INDIRECT B2B CHANNELS OF DISTRIBUTION 261
o Indirect B2B channels of distribution

For some organisations it suits them to market their products and services
through one or many intermediaries. An intermediary or middleman is an organ-
isation that acts as a conduit for products and services between the supplier and
buyer. In B2B markets indirect distribution is less favoured than direct distribu-
tion, but the method chosen will depend on company objectives and the prod-
uct or service to be sold. Companies starting up will often use an intermediary
until knowledge of the industry is gained and contacts made. This is especially so
when marketing abroad where local knowledge can be so important.
In B2B markets direct distribution is used more than indirect distribution but it will vary
from industry to industry and from product to product.
Long and short B2B distribution or supply chains

There can be one or more intermediaries in the supply chain from any one pro-
ducer through to the business customer. Each firm may purchase the goods either
for resale in more or less the same form or by adding value in some way and then
passing it on to the next business buyer. In some industries the supply chain can
include many intervening companies before it reaches its final destination. The
end customer may be a B2B customer or a B2C retailer passing it finally on to the
end consumer.
In Figure 6.3 the supplier sells the product, e.g. component parts, on to a
wholesaler or distributor who then sells it on to the end buyer. The supply chain
is very short. In Figure 6.4 there are many companies involved in the process.
This might be because the product is bought in bulk initially and gradually broken
down into smaller amounts, or it could be because amounts of value are added
as it moves downstream along the supply chain. It can be argued that the longer
the supply chain, the greater the loss of control over the elements of the mar-
keting mix as the end customer becomes detached from the supplier. This will be
more relevant to some products and services than others, but channel length is
particularly important where elements such as quality, product knowledge and
after-sales service play an important part in the product or service. It is not so
important with basic commodity type products such as nuts and bolts or chem-
icals to go into foodstuffs.
Figure 6.3
A short supply
chain
Figure 6.4
A long supply
chain
Methods used in indirect distribution chains

The intermediaries in the distribution chain might include one or more of the
following.
Supplier
One supplier may sell on to another supplier either to break down into smaller
numbers or to put into another product to resell. It is possible to have many sup-
pliers in one distribution chain. The supplier might be a manufacturer, broker,
agent, distributor or wholesaler.
Brokers
There are different definitions of a broker often according to the country of use
and the industry chosen. The generally accepted one is the idea of a company (or
even an individual) that buys and sells goods, usually upstream and very early in
the supply chain, without taking title of these goods. In fact the broker might not
even see the goods but acts to put the seller and buyer of goods and services in
touch with one another, earning a mark-up on the price difference or being paid
a commission on the services. When trading in some countries it seems to be
obligatory to work through a broker of some kind and this has at times generated
accusations of sleaze, corruption and contracts being given to the wrong com-
panies. Brokers’ services will include:
o Bringing buyer and seller together
o Networking and influential contacts
o Help and advice in unknown circumstances.
Agents
Unlike distributors, agents will not take title of (purchase) supplier products but
will sell on commission in a defined region or country. Agents might sell only
one supplier’s products or work for many different companies. This can affect the
focus of the approach taken by the agent to any one company’s products (they
could in many cases be seen as selling direct depending on the control level oper-
ated by the supplier). This throws up an interesting problem in terms of the law
and the responsibility for products and services that could cause difficulties for
all types of intermediaries around the world. If an agent sells products for a
manufacturer to another business and there are problems, where will the ultimate
responsibility lie, with the manufacturer or the agent?
Distributors
Suppliers might sometimes use distributors to sell products and services for them.
A distributor is different from an agent in that they actually take title to the prod-
ucts (purchase them) and then promote, sell, distribute and even offer after-sales
service across a designated sales area. As with agents, they can be given sole rights
to market a supplier’s products in a region, country or continent. A distributor
might stock only one company’s products or it might stock many. Contracts
between producer and distributor will normally vary between three and five years
after which the contract can be renegotiated. The contract could be terminated
earlier according to such things as target sales not reached, selling other suppli-
ers’ products, or a change of control of the distributor.
Example 6.6 Method of payment

Methods of payment between the manufacturer and a distributor will vary around
the world according to customer and practice, trust and the amount involved. In
B2B a few bad debts could drive a supplier out of business. Methods include letters
of credit, cash on delivery and an open account with the number of days for pay-
ment stated in the initial agreement. Different currencies will cause extra problems
and care will have to be taken by both parties to make certain that fluctuations will
not bring unnecessary hardship to either party. We discuss this further in Chapter
7 on price.
Agents and distributors will often be used because they are able to offer a network of
contacts and local knowledge on such things as business culture, buying needs and channel
infrastructure.
Wholesalers
Although few in number compared with 30 years ago, B2B wholesalers will buy
products in bulk from many suppliers and then break them down into smaller
amounts and sell and deliver to business users. They offer specialist products,
continuity of supply and one-off products on a day-to-day basis (Figure 6.5).
Using a wholesaler will usually cost the buyer more money but the con-
venience in terms of time and effort saved to obtain a needed component will be
worthwhile. For the buyer of a company to spend valuable time searching around
for a particular product in order to save a small amount of money when a
specialist wholesaler might supply immediately would be foolish and not cost
Figure 6.5
Advantages of
using a B2B
wholesaler
efficient. Imagine a buyer wanting a selection of particular components and hav-

ing to search around many suppliers before success is achieved when the whole
task can be given to one wholesaler operation. Similarly a company might have
to buy large amounts of stock, perhaps a year’s supply, to get the best price when
a wholesaler would deliver on a regular basis at a fraction above this price. Even
the largest companies such as Ford will use a wholesaler from time to time when
circumstances demand. B2B buyers will use wholesalers for the following reasons:
o To save time and money
o A choice of products
o Convenience and instant delivery
o One-off urgently needed, or specialist products
o To save inventory holding space
o Help, advice, experience and networking contacts
o Where local knowledge is of importance
o To sell and distribute to the smaller buyer where it would be uneconomic for
the wholesaler to sell and deliver direct.
Full service and specialist service wholesalers

As the name suggests, some B2B wholesalers will attempt to offer a comprehens-
ive service sometimes to business and end consumer trade. An example might
be B&Q, the DIY outlet, selling building products and services to both the trade
and retail customer. The full service wholesaler will be welcomed by businesses
wanting to buy standard products but unhelpful when more specific offerings are
needed. In this case a specialist wholesaler will be used. Specialist wholesalers
exist in every industry from pets and animals, furniture and soft furnishings to
cars, computers and caravans.
Example 6.7 Wholesalers act as creditors

Asian and North American suppliers often marvel at the ability of European com-
petitors to garner market share in Latin America, given their relatively high prices.
The answer is that credit, not price, is king in Latin America. The region’s banks are
weak, timid and expensive, leaving importers with little support at home to finance
their inventories. Wholesalers, a dying breed in the US economy, function in Latin
America as quasi-bankers. They stand between the manufacturer, which cannot
evaluate the credit risks for thousands of customers, and dealer/distributors, which
cannot operate without credit. (Infoamericas.com)
Voluntary B2B wholesaler trading groups

In the same way as the retail trade, wholesalers will sometimes join together into
cooperatives or voluntary buying groups. The nature of this arrangement will
vary according to the needs of the member wholesalers, but basically it is the
coming together of the smaller wholesalers into groups so as to strengthen their
purchasing power and gain economies of scale.
Imagine the differences in financial, time and opportunity costs between the first and
second type of wholesaler interaction.
Relationships between a supplier and intermediary

The nature of the relationship between all the above intermediary types – broker,
agent, distributor, wholesaler – and the supplier will vary according to the agreed
terms of that relationship. There is no one contract type and it is up to the par-
ticipants (there can be more than two) to talk through the needs of each and
come to an eventual agreement that will satisfy all. It can be purely a transac-
tional relationship based on the short-term needs of both parties or it could be a
much closer relationship involving a binding contract with terms and conditions
covering such things as:
o Allocated trading areas
o Product portfolio range stocking and/or selling agreements
o The restriction on working with competitors
o Price, trade discounts
o Responsibilities, etc.
Supply chain relationships have become an increasingly important area in B2B
marketing, which will be discussed in much more detail later in the chapter.
Indirect method of distribution favoured in B2C markets (Retailers)

o Consumers want to see and be able to choose between a range of products.
o In many cases producers are unable or unwilling to sell direct to every indi-
vidual consumer.
o It would not be economic for producers to sell direct to millions of individual
consumers.
o Retailers will offer product advice to the consumer.
o Retailers will promote product and services.
o Retailers will deliver, install and offer after-sales service.
o Retailers will buy and pay for the products, often before the sale is made,
offering a form of credit to the producer.
Direct method of distribution favoured in B2B markets

o Fewer customers and larger orders mean it is economical to sell direct.
o Having fewer customers allows the supplier to talk, persuade and interact
directly with every customer.
o Buyers often want advice and help directly from the supplier and are
unhappy if this is watered down by funnelling through an intermediary.
o The B2B buyer will want to deal direct as this gives an element of control over
the process.
o Margins can be very tight and competitive advantage might be lost if an
intermediary is used.
o Many of the marketing mix functions offered by the retailer – merchandising,
choice of product, promotion, etc. – are unnecessary in B2B markets.
o The need for close supply chain relationships demands some kind of partner-
ship directly between supplier and buyer.
o Disintermediation
Intermediaries survive by adding value. They deliver the product, handle returns
and have a place for customer service. If changes in the marketplace make an
intermediary’s role less valuable, then the intermediary must adapt. If not, the
old intermediary will likely be replaced by a new, more valuable intermediary or
be cut out altogether. Disintermediation is the inelegant term for the elimina-
tion of intermediaries in the supply chain, also referred to as ‘cutting out the
middleman’. Examples include General Motors bypassing dealerships to sell cars
directly to consumers and insurance companies skirting their own agents to sell
products and services direct. At times an organisation may try to use both direct
and indirect channels with the danger of channel conflict.
Channel conflicts
Channel conflicts arise when a new venue for selling products, such as the web,
threatens to cannibalise one or more existing conduits, such as a wholesaler or
distributor already used for selling goods. Relationships between organisations
along the supply chain can be very fragile and the buyer of products and services
from a supplier might well be upset if it is discovered that the same supplier is
dealing direct with the same end business customer. In a similar vein a buyer will
get upset if one buyer discovers that another is getting better terms or is favoured
in the allocation of stock that is in short supply.
Other problems might arise because of different objectives. For example, the
wholesaler will want to sell a range of products but the supplier will want a con-
centrated sales effort on his or her products. There could also be disagreement
about the degrees of responsibility over such things as delivery and installation,
warranties, the return of damaged stock, and so on. Many of these difficulties can
also come about when selling direct. Managing channel partners – distributors,
resellers, retailers and dealers – is a tricky business.
Channel relationships are complex and vary greatly from industry to industry.
When well-known manufacturers, big distributors and even giant retailers are all
trying to agree on a single strategic approach, the problems can at times seem
insurmountable as all parties have their own sphere of influence and are used
to controlling it. Trust, transparency and cooperation between both buyers and
sellers is an essential remedy to these kinds of problems, although it would
not be cynical to suggest that ultimately all companies will consider their own
THE INTERNET IN THE SUPPLY CHAIN 267
welfare before the welfare of others if a cost benefit analysis pointed in this dir-
ection. Channel conflict can arise for the following reasons:
o Supplier using more than one channel to the market.
o Buyer buying from more than one channel.
o Different corporate and marketing objectives and tactical focus.
o Disagreement over strategic issues.
o Disagreement over levels, degrees and interpretation of product policy.
o Pricing levels, quickness and amount of payment.
Example 6.8 Channel conflict

Facing a roomful of his ten largest distributors at a meeting last march, Simon
Elmes confidently revealed his company’s latest e-commerce plan. Raynet Electric,
a manufacturer of welding equipment, wanted to shift from indirect to direct sell-
ing, handling sales leads generated from its website itself while making its distrib-
utors responsible for delivering the goods. The reaction was remarkably swift and
overwhelmingly negative. ‘It didn’t go over well at all,’ complained Elmes, electronic
communications manager at Raynet Electric. By owning the sales transaction,
distributors argued, Raynet Electric would be able to set prices and eventually cut
the channel out completely. Not wanting to offend its distribution channel, Raynet
Electric conceded defeat and quickly drafted a new plan.
o The internet in the supply chain

The network economy was initially hailed by many as a way to eliminate inter-
mediaries, enabling a direct path from producer to consumer. This might have
been a misjudgement of the nature of intermediaries and networks. Thanks to
the near ubiquity of the internet, just about any company that wants to can sell
its products and services directly to consumers and businesses online. Many do
so because cutting out intermediaries, disintermediation, can mean bigger profits
and greater access to valuable customer information. But cutting out the middle-
man can also mean new kinds of problems, such as obtaining and managing the
customer base, figuring out how to fulfil complex orders from consumers, intro-
ducing new products and services, setting up new customer service centres, and
dealing with backlash from retailers and other spurned channel partners.
Reintermediation
Many suppliers rushed headlong into direct methods of marketing and under-
estimated the problems associated with disintermediation. Reintermediation
refers to using the internet to reassemble buyers, sellers and other partners in a
traditional supply chain in new ways. Examples include New York based e-Steel
Corp. and Philadelphia based PetroChemNet Inc. bringing together producers,
traders, distributors and buyers of steel and chemicals respectively in web-based
marketplaces.
Example 6.9 Reintermediation (bringing back the middleman)

Using the web to cut out the middleman isn’t turning out to be all it was cracked up
to be, according to a spokesperson at Gartner Group (www.gartner.com). They
predict that more than half of all companies now building or maintaining direct-
to-customer websites will abandon them over the next three years. Instead, they
will rely on, among other things, new web-based intermediaries that bring buyers
and sellers together in new ways. In the business-to-business arena, these include
the ever-increasing number of industry specific digital marketplaces, such as
PaperExchange.com and e-Steel.com. Another example is Minneapolis-based 3M
Co. which, rather than compete with resellers, is working with them to create web-
based, co-branded showrooms for its line of ergonomic products and accessories.
The online showrooms allow 3M to control how its products are portrayed and to
gather valuable data about users of its products.
o Combination of direct and indirect distribution

There are some forms of distribution that might arguably be seen as a combina-
tion of both direct and indirect distribution, depending on the terms and condi-
tions of the relationship. These will include the following:
1. Agents
2. Franchise
3. Licensing.
1. Agents
We discussed the role of the agent above. The type of contract and level of
control negotiated could be said to dictate the character of the relationship.
Sometimes an agent can be contracted to work solely for one company, earning
commission on the products and services sold. In this way he or she becomes
almost an employee of the supplier and could be said to be working direct.
On the other hand the contract and the level of control could be weak. The agent
could work for many companies and he or she could be said to be working
indirect.
2. Franchise
Almost the best way that the supplier can maintain control over the marketing
mix, yet still get many of the advantages gained by using an intermediary, is to
use a form of franchising. There are many different forms of franchising in both
B2B and B2C (some of them now illegal under anti-competition legislation), but
the basic concepts are the same. The supplier of the goods and services will set
up the franchisee (the intermediary) in business. In return for an agreed sum of
money, a percentage of the sales take and an obligation to buy, the supplier will
give corporate identity, help and support and allow the franchisee to market the
said supplier’s goods and services.
COMBINATION OF DIRECT AND INDIRECT DISTRIBUTION 269
Example 6.10 B2B franchising

The International Franchise Association’s directory lists over 50 franchise compan-
ies under its ‘business aids and services’ category. There is a broad mix of every-
thing from printing companies to executive office suites; from sales consultants to
shipping and handling stores; from legal documentation services to companies that
sell logo-imprinted pencils, coffee cups, and T-shirts. (www.franchise.org)
3. Licensing
Another form of B2B distribution is for one party, the licensor, to grant permis-
sion for another, the licensee, the right to manufacture, produce or market goods,
services, patents, etc. belonging to the licensor. One company owning a patent
allows another company to manufacture or produce under strict guidelines in
return for a royalty payment of some kind. Examples of licensing agreements
include part manufacture and bottling as with Coca-Cola and Cadbury
Schweppes. Microsoft has more than 1000 companies that license access to the
Windows source code. A company might want to license its products or processes
for many reasons including the following:
o No capital outlay in set-up and running costs.
o It allows speed of coverage, perhaps before the competition can come in.
o In some countries it might be the only acceptable or viable way to enter the
market because of entry restrictions and the necessity of local knowledge.
o The licensee may have an existing dealer/market network in place.
o The competition might monopolise the market in some way, leaving little or
no room for a new player except by this form of joint partnership.
Example 6.11 IBM, Ariba and i2 in cross-licensing agreement

Computer giant IBM announced that it will form an alliance with Ariba (Nasdaq,
ARBA) and i2 Technologies (Nasdaq, ITWO) to provide what it calls an ‘end-to-end
solution for business-to-business (B2B) e-commerce and collaboration’, saying the
alliance will offer seamless integration of IBM’s hardware, software and marketing
clout with Ariba’s and i2’s B2B e-commerce platforms and business support
services. While Ariba offers trading and procurement software, i2 provides supply
chain management software focused around decision support, forecasting and sup-
ply chain management. The financial terms were not disclosed. The agreement also
calls for Ariba and i2 to enter into patent cross-licensing agreements with IBM.
Reciprocity
Business buyers will often practise reciprocity. Suppliers are selected on the con-
dition that they agree to buy the buyer’s products in return, e.g. a paper company
might buy chemicals from a chemical company that in turn buys the company’s
paper. The arrangements can be formal or informal. With formal arrangements

the mutual exchange process is built into the contract. Both companies would
have to be careful about arrangements of this sort as there can be legal restric-
tions, under anti-competitive practice legislation, leading to the possibility of
heavy fines. Informal arrangements are more common and more difficult to
prove. Informal reciprocity might take place because the seller feels it prudent to
ingratiate the company with a good customer and so buy needed products in
return and/or the products/services are cheaper because of the reciprocal arrange-
ments. Counter-trading, although undertaken by companies, tends to be used
when the same practice is applied between countries. This is a common practice,
especially when dealing with developing or underdeveloped countries. In some
cases reciprocity between companies will be encouraged as a way of increasing
international trade. In others it might be considered anti-competitive and there-
fore illegal.
Bartering
Bartering is a form of reciprocity trading in that there is a direct exchange of mer-
chandise and/or services between two different businesses. One company sells
another company computers and instead of taking money in exchange accepts a
period of business consultant service. The same problems can arise with barter-
ing products and services as with other reciprocity agreements, discussed above.
Example 6.12 Bartering on the increase

While many modern companies struggle in the tough global economic climate, a
more primitive form of trade seems to be gaining popularity. The ancient business
practice of barter appears to be benefiting from the global slowdown. In some parts
of the world many people have no choice and are simply forced to use this form of
commerce. The International Reciprocal Trade Association (www.Irta.com) says
barter companies around the world traded nearly $8 billion of goods and services
last year and that figure is expected to grow by 20 per cent this year.
o Strategic channel selection

The chosen method of channel selection is usually of strategic importance and
should be discussed and agreed at board room level. It will inevitably call for the
long-term commitment and coordination of expensive resources and failure to
get it right could cause the company unrecoverable pain. There will be many
options open, which were discussed above, but unless the company is starting
from scratch it will already have methods in use working with accepted industry
norms.
Channel selection method

There is no one channel selection method that can be said to be better
than another. The method that might be better in one industry will not be so
STRATEGIC CHANNEL SELECTION 271
successful in another. Some organisations in the same industry might use differ-
ent methods. Some might use multiple channel methods to reach their end busi-
ness customers, while others will use only one. Different buyers might prefer
different methods and different methods might be traditionally used in disparate
industries. Channel methods might also change from country to country, with
one method acceptable in Japan (the greater use of wholesalers) but not in the
USA or UK.
It should be remembered that as environments and markets change marketing mix

elements, including channels of distribution, should be strategically examined and evaluated
on a regular basis to see if competitive advantage might be gained by offering more
customer orientated ways of bringing goods and services to market.
Channel selection in B2C and B2B

Reasons for channel selection in B2B and B2C will be similar in that the end
objective is to make the products and services available for the customer in the
most effective, efficient and economical way possible. There will, however, be
some relative differences and these will include the following:
B2C channels
o The type of outlet is important in retail marketing as the end consumer likes
to see the brand value of the product or service being bought reflected by the
quality of the purchasing conditions.
o The end consumer will usually visit the retail supplier.
o Tens of thousands of outlets are needed to serve millions of customers.
o Supplier location and ease of access is important in many instances.
o Buying ambience and choice of outlet are important.
o Wholesalers are used.
B2B channels
o The quality of the selling outlet is not so important in B2B as concern is for
functionality and not so much for symbolism.
o The B2B supplier will usually call on the customer.
o Relatively few outlets are needed to supply relatively few customers.
o Location is relatively less important as the supplier will visit the buyer.
o Buying ambience and choice of outlet are unimportant.
o Wholesalers are used to a lesser extent.
The differences between selling direct and indirect between B2B and B2C were
discussed above.
Figure 6.6
Extensive
distribution
Figure 6.7
Selective
distribution
Figure 6.8
Exclusive
distribution
Extensive, selective or exclusive coverage

The supplier channel distribution strategies selected will depend to a certain
extent on the market coverage wanted. Depending on company size and prod-
ucts and services produced, extensive, selective or exclusive market coverage
might be the channel strategy wanted.
Extensive market coverage

Extensive market coverage as a strategy looks towards securing product sales to
every possible buyer type in the market. This could be at national and interna-
tional level. To make this happen would probably mean using a multi-channel
approach. B2B products that might warrant extensive market penetration would
include such things as computer software (Figure 6.6).
Selective coverage strategy

Selective coverage strategy is marketing products/services only to selected buyers
(Figure 6.7).
Exclusive coverage
Exclusive market coverage consists of distributing to or through only one or a
very small number of buyers. This might be because of exclusivity contracts being
agreed or because there are only a few buyers in the market for the supplier prod-
uct or service (Figure 6.8).
STRATEGIC CHANNEL SELECTION FACTORS 273
o Strategic channel selection factors
As we have seen above, there are many ways of reaching the customer by both
direct and indirect distribution. What is important to the supplier is to choose
the channel method(s) that will be the most cost effective way of achieving cus-
tomer satisfaction and gaining and maintaining competitive advantage. There is
an enormous long-term commitment when choosing a new channel of distri-
bution and to get it wrong can be costly in time, money and opportunity cost.
Factors to consider by B2B suppliers when evaluating and selecting the type of
distribution channel structure are now discussed.
Buyer product/service needs

Different buyers and segments might want to be approached in different ways
depending on the products and services produced. As with most B2B marketing
decisions it is important that buyer needs are taken into account. It might be the
case that a buyer insists on having selective or exclusive distribution so that the
supplier products are unavailable to the competition. A large company might
want personal service and a direct approach and/or a range of back-up services
that will then dictate the channel method. The fact is that, through complacency
and risk avoidance, some organisations would rather stay with existing suppliers
than change to others.
Organisational mission and objectives

An organisation will have goals and objectives and these will influence the ulti-
mate choice of a channel. If the marketing objective is for extensive coverage
then intermediaries might be used. If speed of coverage, both at a national and
international level, is required then a form of franchising might be the most
effective. If the buyers are few and scattered then a direct approach by the sales-
person might be in order.
Industry structure
No industry will be new to methods of distribution and there will be supply struc-
tures and ways of doing things, perhaps going back decades, already in existence.
Supplier buyer structures and acceptable ways of working with one another will
already be in place and the new entrant might find this very difficult to change
and will thus have to abide by these practices. This can be a real dilemma if
the distribution arrangements are inclusive and work to shut out newcomers.
Cultural factors could add to the problem, especially if wanting to supply to
organisations abroad. Many politicians at all levels are now committed to break-
ing down industry structure barriers, both formal and informal, that operate to
restrict new trade in this way.
Role of the competition

When choosing a channel option the amount and role of the competition will
need to be considered as all companies will react when another company attempts
to move into the market. The competing supplier could develop contracts with
major buyers in return for limiting supplies to others. They could load the customer
with goods and thus prevent the purchase of the new item. They could lower the
prices or offer extra services when news of a possible new entrant surfaces.
One channel method, e.g. sales reps, may be dominated by a well-entrenched
competitor forcing other companies to try different channel methods, e.g. taking
on an agent.
Example 6.13 Oligopoly markets

The wave of mergers in the oil industry has come under close scrutiny from the
European Commission. EU competition authorities have launched an in-depth
investigation of the planned merger of BP Amoco with Atlantic Richfield Co., better
known as Arco. The European Commission appears to be particularly worried that
the mergers will create an oligopoly in the oil sector, where just a few players dom-
inate the market for crude oil exploration. The US Federal Trade Commission seems
less concerned than its regulatory counterpart in Europe.
Evaluation of current channels and new channels

Unless it is completely new to the market, a company will already be using a
channel of distribution. So it will need to examine whether it might continue to
use this method, adopt a new method or run both old and new in a multi-channel
operation. It will need to undertake a strategic cost benefit analysis taking into
account such things as customer, market and product needs, channel advantages
and disadvantages, competitive activity and internal resource capabilities.
Products and services offered

There is almost an unlimited amount of different goods and services in the many
B2B categories discussed in Chapter 1. The very nature of the benefit offering will
almost self-select the channel method. Some B2B services, such as business con-
sultants or advertising agencies, leave very little option but to be delivered direct
while others such as cleaning or waste management can take place through inter-
mediaries. One product type, component parts, can be offered on the internet,
while another type, capital equipment, would demand direct person-to-person
discussion and negotiation. These conditions will apply to very many goods and
services.
Type of supply relationship wanted or demanded

Although one-off transactional relationships still exist, there is a movement now
for relationship marketing and a closer cooperation between B2B suppliers and
B2B SUPPLY CHAIN STRUCTURES 275
buyers involved in any one supply chain. If the dominant player in an industry
feels that these closer relationships bring higher benefits, then suppliers will have
no choice but to accept the channel of distribution that will comply with this
demand. Similarly some suppliers only exist because they supply all or most of
their products to one major buyer. Under these developing circumstances many
suppliers have lost the ability to choose the channel of supply and must accept
the situation given.
Internal resources, skills and competitive strengths

Internal resource capabilities, core skills and competencies will also influence and
limit channel choices. However, organisations have discovered ways of creatively
using existing competencies to exploit new channel methods and thus gain
competitive advantage. It can be argued, however, that if the opportunity is
promising enough finance might be made available for additional resources to
be brought in. Similarly, as with other business processes, the whole operation
might be outsourced to a specialist organisation. Strategic channel design
involves the following stages:
o Specify marketing objectives.
o Identify and research new buyer needs.
o Identify existing methods used by the competition.
o Evaluate current and other channel options.
o Undertake a cost/benefit analysis.
o Discuss possible options with the buyer.
o Select and implement the chosen channel.
o Monitor and control performance.
Part 2 Managing the supply chain relationship
o B2B supply chain structures

There are various forms of B2B channel structures and channel relationships that
are adopted for different reasons by participating organisations. The prevalence
of one structure will change to accommodate changing environmental circum-
stances. As competition from all corners of the world has become more intense,
B2B organisations are merging with one company acquiring another, strategic
and tactical alliances and partnerships are being forged and joint ventures under-
taken. In this way companies hope to protect themselves from competition, gain
long-term competitive advantage and offer better marketing solutions to solve
customer problems all along the supply chain. We can begin by identifying many
of the marketing and business structures that companies have adopted, rejected
and readopted over the years.
Marketing structures
The following examples of B2B structural types are examined below:
1. Vertical integration
2. Horizontal integration
3. Conglomerate integration
4. Contractual integration
5. Voluntary integration
6. Administered integration
7. Hegemony integration.
1. Vertical integration
This will take two different forms – backward integration and forward integration.
Backward integration
An organisation looks back along the supply chain (upstream) and seeks in some
way to control its suppliers. This is usually by acquisition or merger but it can be
by some form of coercion. In this way it might hope to achieve one or more of
the following:
o Guarantee supply, crucial in times of shortage or limited supply.

o Control the quality, input amount and times of supply.
o Save costs.
o Offer the opportunity to diversify if business in one of the areas takes a
downturn.
Forward integration
Forward integration is where a company looks forward (downstream) along the
distribution change and acquires the purchaser of its products. The advantages
are similar to backward integration:
o Guaranteed outlet for its products.

o Control of the marketing mix and the selling-on process.
o Opportunity for diversification and profit.
o Access to more customers.
Some companies will seek both backward and forward integration and so control
the whole distribution chain from raw material supplier through to manufactur-
ing and retail.
Disadvantages of vertical integration structures

There are major disadvantages as well as advantages with both backward and
forward integration and these will include the following:
o Different management skills are needed to run one type of company rather
than another. Manufacturing raw material development, wholesaling and
retailing all need different skills and success in one area will not guarantee
success in another.
o There could be a lack of knowledge and experience about the different
markets.
o Vertical integration could lead to a dilution of company resources.
o It can lead to higher prices because of higher levels of single control.
Vertical integration works better in some industries than others but tends to
follow a business fashion. When the economy is buoyant and business is good,
optimism reigns and mergers take place. The reverse happens when the optimism
subsides. Alternatives are to form partnerships and alliances. These options will
be discussed in more detail later.
Example 6.14 Gasoline supply

A study of the US petrol industry (Gilbert and Hastings, 2001) looked at the merger
of Tosco and Unocal in 1997 that changed the vertical and horizontal structure of
a large part of the wholesale and retail market. The data sets showed that an
increase in the degree of vertical integration was associated with higher whole-
sale prices.
2. Horizontal integration
Horizontal integration is where one B2B firm will merge in some way with
another B2B firm supplying or manufacturing the same or similar products or ser-
vices on the equivalent channel level. For example, a rubber plantation will take
over another rubber plantation; a glass manufacturer will merge with another
glass manufacturer; a wholesaler will amalgamate with another wholesaler.
In this way competition can be reduced, economies of scale improved, market
share increased and new segments and new customers obtained. This is especially
important if the new customer is a market leader and has access to other supply
chain customers that are unapproachable in any other way. It can lead, however,
to an overstretching of resources, management diseconomies of scale and loss of
control and increased bureaucracy associated with large organisations.
Example 6.15 Horizontal integration builds the market

French aluminium producer Pechiney agreed to pay £543 million to steel group
Corus for two main aluminium businesses. The sale includes plants in Germany and
Belgium as well as interests in joint ventures in Canada and China. The businesses
convert aluminium ingots into products such as rods and sheets which are used in
the aerospace, car and construction industries. The transaction provides Pechiney
with a unique opportunity to develop in the aluminium conversion business, espe-
cially in two key markets, aerospace and automotive, now making it a major player.
3. Conglomerate integration
With conglomerate integration a powerful business will buy up a less powerful
business at any channel level in often seemingly unrelated markets. So any one
company (often a so-called ‘holding company’) might own a cigarette manu-
facturer, a brick company, wheat-growing farms, a diamond mine, an insurance
company, and so on. There are possible strategic reasons for buying disparate
organisations, for example buying at a low price, breaking it up and selling in
parts at a combined higher price; or because they were all cash cows capable of
making lots of cash with the right skill in strategic management. Conglomerate
integration tends also to follow business fashion for reasons similar to those
identified when talking about vertical integration.
4. Contractual integration
This is a similar relationship to backward and forward integration except that the
relationship between channel members is not ownership but agreed contract. A
buyer will not take over a supplier but will negotiate working contracts. The con-
tract may be verbal or written, may be backed up by the force of the law, or based
solely on mutual trust. The form of contract (price, terms and conditions, deliv-
ery schedule, quality demand, etc.) will depend on the power relationship
between the participating members.
Example 6.16 Less need for B2B vertical integration

Over the last five or six decades, economists have been explaining why firms
become vertically integrated in terms of imperfect information and a desire to
reduce transaction costs. These explanations are particularly good for complex
manufactured products such as planes, cars, electrical appliances and computers,
where numerous component parts can either be manufactured by the firm itself or
purchased from outside suppliers. In noting that components could probably be
purchased cheaper on the open market, it was realised that firms would have to
spend considerable time and money to discover what is available and in negotiat-
ing orders. In short, good information is hard to come by and transaction costs are
high. This tends to make firms choose to manufacture many components them-
selves and seek vertical integration. But what happens when circumstances change
so that the cost of gathering information and undertaking transactions with suppliers
and manufacturers is dramatically lowered? We are alluding of course to the
growth and use of the internet in B2B marketing. Opportunities offered in supply
chain management could now make it more effective to develop a partnership of
some kind and so less necessary or even unprofitable to do everything in-house.
5. Voluntary integration
A voluntary integration system can be vertical or horizontal and is a voluntary
coming together of channel members who agree to work together for mutual
common interest. This relationship might be between firms at a local, national
or even global level. They might choose to come together occasionally, perhaps
to purchase or supply specific products, or the relationship could encompass
many more activities and span a longer time period. Voluntary integration could
be informal, with company heads agreeing to undertake particular business activ-
ities, or it could be set on a more formal footing with agreed policies put into
place and a relationship business structure set up.
6. Administered integration
If the relationship is broader and over a longer time period one member organisa-
tion might agree to run and administer the whole business process. For example,
a wholesaler might agree to work cooperatively with a group of suppliers to build
group market share and economies of scale.
7. Hegemony integration
Hegemony – having power over others – is a type of integration where small com-
panies are tied to larger companies because of the trade that takes place between
them. The relationship will not be based on a written contract or, in many
instances, even a verbal contract. Many small suppliers will spring up around a
B2B buyer, building their trade on the orders they receive, sometimes on an ad
hoc basis, from the much larger organisation. They are totally dependent on the
one major buyer and can stay in business only as long as the buyer chooses to
purchase supplies.
The power in the relationship is one way and the smaller companies have no
choice but to accept the status quo. If the purchasing manager decides to buy
from other suppliers abroad then some companies would close down overnight.
Large, medium and small organisational structures

There has been an inexorable movement around the world for commercial
organisations to grow bigger and bigger. In this manner companies hope to gain
economies of scale, access to new customers and markets, and take on competi-
tion from around the world. This is happening in both B2B and B2C markets. In
fact the three largest organisations in the world cover retailing, manufacturing
and raw material supplies: retailer Walmart (turnover nearly $200 billion), car
manufacturer General Motors ($185 billion) and oil giant Exxon Mobil ($210 bil-
lion). This can cause problems for suppliers as the buyer contacts become less and
their power to dominate negotiations increases.
Governments and legal bodies (like the Competition Commission) will step in
when the process seems to be getting out of hand and either refuse to let one
company merge with another or cause leviathan companies to break into smaller
units. Governments have also attempted to break down large public sector utilit-
ies when they move from the public to the private sector. As a business grows
larger, however, it can allow smaller, more flexible companies to move profitably
into niche markets (unattractive to their larger brothers). They can then use these
markets as a launch pad to take on larger markets.
o The B2B supply chain

Any one supply chain will include all the companies involved in some way in
eventually getting a finished product or service from the beginning of the process
through to the end business customer or end consumer. If any organisation is
unable continually to upgrade its overall productivity in benefit offerings across
the entire supply chain, it must eventually become non-competitive, resulting in
loss of customers, loss of sales and shrinking profits. As markets become more
competitive, customers must be offered ever better value for money in terms of
quality, service and price. Today, executives have come to realise their customers’
satisfaction or dissatisfaction is linked to the performance of the entire supply
chain. To view the supply or distribution chain as a strategic value added process
from beginning to end and back again is the challenge that now faces all mar-
keting and business managers, no matter the industry.
o The value chain

The value chain is a model that highlights the importance to the organisation of
effectively and efficiently managing the whole internal and external supply
chain. Internal controls range from raw materials input, operations and output
through to business customer usage. The external distribution chain is used to
include all the suppliers and buyers that might exist in any one supply chain over
a period of time. The analysis focuses on supply chains defined by their product
or market characteristics. It takes into account the different storage and transport
requirements as well as differences in cost factors, regulations and the general
market environment. The model can be broken down into two categories:
1. Internal value chain
2. External value chain.
1. The B2B internal value chain

The internal value chain considers the entire movement of resources through an
organisation from inputs and operations through to output, after-sales service
and eventual customer satisfaction. Therefore every stage of the process must be
thoroughly examined to ensure that it is being carried out in the most effective,
efficient and economic way possible. This task can be demonstrated by the use of
Porter’s internal value chain model (Figure 6.9).
In value chain development each stage of the process should be clearly identi-
fied, evaluated and monitored to make certain that it is being performed in the
most effective way possible. This can best be undertaken by comparing all value
added activity, at every stage of the process, against the most successful organisa-
tions in both the same and other industries. A process known as benchmarking
best achieves this (discussed in further detail below).
Using the model shown in Figure 6.9, we would expect such things as pur-
chasing, inventory holding, operations methods, marketing, delivery methods,
after-sales services and support services to be continually examined and evalu-
ated to make certain that every part was operating in the best possible way. The
THE VALUE CHAIN 281
Figure 6.9
Internal value
chain
overall approach should then be monitored to make certain that it was coming
together to achieve optimum business synergy and customer satisfaction. Only
in this way can competitive advantage be maintained.
Benchmarking
The continuous, systematic search for, and implementation of, best prac-
tices which lead to superior performance.
(The Benchmarking Centre, www.benchmarking.com)
A benchmark is a reference or measurement standard for comparison recognised

as the standard of excellence for a specific business process. It can be a financial
or non-financial measure. Benchmarking is the process of identifying, learning
and adapting outstanding practices and processes from any organisation, in the
same or a different industry, adjusted to reflect an individual business situation
and then used to help another organisation improve its performance. Informa-
tion is available from many sources – government, trade associations, commercial
businesses – to help an organisation perform benchmarking.
Benchmarking forces organisations to examine present processes, which often
leads to improvement and can significantly reduce waste, rework and duplica-
tion. World-class benchmarking is looking for best performance in a process,
product or service independent of industry, function or location. It is crucial for
multinational companies that see themselves as world players. Benchmarking is:
o An ongoing management process for continuous improvement along the
whole supply chain.
o Identifying and examining areas where internal improvement would make
the most significant difference to the bottom line, to key areas of the busi-
ness and to customer relationships.
o Providing external focus by setting standards and credible targets according
to the ‘best’ practice that can be found.
o Adapting and applying lessons learned from those approaches and ideas to
meet and exceed those standards.
o Establishing what makes a difference in the customers’ eyes between an ordin-

ary supplier and an excellent one. (www.benchmarking.com)
The benchmarking gap

The benchmarking gap is the difference in performance between the benchmark
for a particular activity and that of other companies in the comparison or the
measured leadership advantage of the benchmark organisation over other organ-
isations. If a company has the resources, benchmarking can be undertaken any-
where in the world. There need to be regular updates of the benchmarking data
and feedback of the individual company performance. Tracking the performance
relative to the competition over time can be helped by information stored online.
Internal and external benchmarking

Internal benchmarking is performed within an organisation by comparing similar
business units or processes, while external benchmarking compares its business
units or processes with those of outside organisations.
Strategic benchmarking
This is a systematic business process for evaluating alternatives, implementing
strategies and improving performance by understanding and adapting successful
strategies from external partners who participate in an ongoing strategic alliance.
Different types of value chains

All organisations, whatever the economic, industrial or business sector, have
systems and processes that can be measured, monitored and compared with the
‘best in the business’. Taking into account the constraints imposed by different
planning needs, value chain development and analysis can be applied to the pub-
lic sector, not-for-profit and commercial sectors. Hospitals, schools, civil service
departments, charities, trade associations, retailers and manufacturers can all
profitably learn from undertaking this process so as to achieve greater efficiency
in their operations. In B2B markets both suppliers and buyers can gain by the
process, which is now examined in more detail.
2. The external value chain

We have discussed the value chain as it relates internally to the individual organ-
isation. However, B2B companies will be involved with other organisations in
moving the goods and services from suppliers and producers through to business
customers and often on to the end consumer. In many cases, if these relation-
ships up and down the distribution chain are to be mutually productive there
must be concern about the efficiency of every member involved in the process. It
does not make sense for the buyer to be competitive in every part of the business
process only to be let down by a supplier partner who has outdated methods in
any part of the activity. This leads us to the realisation that the concept of ‘value
added analysis’ must be applied to every member who might be part of one par-
ticular supply chain.
THE VALUE CHAIN 283
Managing the supply chain

To make this happen partnerships and alliances are sometimes formed between
channel members, which we will look at in some detail later. Whether alliances
are formed or not, it will often be the case that one member will have more
power than others and so dominate and ultimately dictate overall supply chain
policy. In many cases this might be the only way the supply chain can be man-
aged in an effective manner. Getting suppliers and manufacturers to trust each
other and share sensitive information would be one of the biggest obstacles.
Inventory pile-ups and rapid turnover with an effective delivery mechanism
become high priority. A good example could be a PC manufacturer: the mother-
board may come from Korea, the CD player from Mexico, yet another com-
ponent from Taiwan. This makes the whole manufacturing process and supply
chain very complex. Ultimately, value being added and cost savings will depend
on suppliers, distributors, customers and manufacturers working together and
giving each other direct access to the entire process.
Example 6.17 Working together along the value chain

Family-owned Yeo Valley has been producing yoghurt for many years, mainly for
other companies. It wanted to develop more products using organic milk but a
consistent supply seemed difficult to come by. So the company approached a group
of farmers and helped them to set up the Organic Milk Suppliers Co-operative,
which now has 200 members. Respecting the need for reasonable profits on both
sides they gave the farmers long-term contracts so that the market could grow with
confidence. The organic market is now worth almost £1 billion a year and growing
at 15 per cent a year.
Development of the external value chain

If we take as an example a simple distribution chain (Figure 6.10), it can be seen
that there are four organisations involved in the process: two suppliers, a pro-
ducer and a retailer. Each member will go through the same benchmarking pro-
cess outlined when we looked at the internal value chain.
The dominant partner in Figure 6.10 might be the retail supermarket chain
with a large market share but still in a very competitive market. Having a highly
efficient operation and being aware of the pressures to stay ahead, the supermar-
ket management will need to agree benchmark standards and continually mon-
itor performance back along the supply chain so that all members meet the same
business standards. In this way the whole operation, including every supplier and
Figure 6.10
External value
chain
producer, will contribute so that the end consumer has products and services
second to none.
This leads us to the realisation that in many modern markets competition is not between
one company value chain and another but between one supply value chain and another.
Value chain techniques

Value chain analysis uses every possible relevant tool and technique to improve
the way the business is run. This will include the latest technology, communica-
tion methods, financial performance measuring techniques and inventory hold-
ing and delivery processes. It also means being prepared to adopt proven modern
ways of B2B marketing and business management and persuading others in the
business relationship about the profitability, for both supplier and customer, in
adopting these changes. The measures employed are used to help managerial
decision making across the supply chain, at the strategic, tactical and operational
levels. They should also enable the identification of drivers for future value
creation through improvements in the supply chain.
The heart of the concept is that more value can be achieved by supply chain
members working in harmony with one another rather than as isolated business
units.
Demand and supply chains

It could be argued that viewing the distribution chain as a ‘supply’ chain looks
at the problem from the point of view of the supplier rather than the customer,
which could be considered the wrong approach. If the right approach is man-
aging the distribution chain so that value is added for the customer, then dis-
tribution effectiveness and value chain analysis should be addressed from the
perspective of customer satisfaction and seen as a demand chain rather than a
supply chain.
Efficient consumer response

Efficient consumer response (ECR) looks at the retail distribution chain from end
consumer needs, working back upstream to the retailer, then to the manufacturer,
supplier and raw material producer (Figure 6.11). It is a form of external value chain
implementation initiated by large grocery retailers across the western world.
Figure 6.11
Demand chain –
customer
driven
THE VALUE CHAIN 285
Beset by continuous pressures on margins because of consumer demand for more

choice and better value, they looked to remove costs from along the whole of the
supply chain. At the heart of ECR was a business environment characterised by
dramatic advances in information technology, shifts in consumer demand, and
the increasing movement of goods across international borders aided by the
internal European market. This new reality required a fundamental reconsidera-
tion of the most effective way of delivering the right products to consumers at
the right price. Non-standardised operational practices and rigid separation of
the traditional roles of manufacturer and retailer threatened to block the supply
chain unnecessarily and failed to exploit the synergies that came from powerful
new information technologies and planning tools. To better serve the consumer,
ECR set out to invert the traditional model and break down non-productive
barriers. The impacts were extensive and continue to resonate across industry.
Traditionally the fast moving consumer goods (FMCG) supply chain was frag-
mented into separate competing companies, with interface costs arising between
supplier and supplier, producer and supplier, and supplier and retailer. Each link
in the supply chain controlled and knew about only a small proportion of total
stock in that chain. It was shown that by working together, sharing information
and building compatible systems, companies could integrate the supply chain,
remove inefficiencies and thus offer the customer better value.
The important concept here was that improvements came about, not by look-
ing at the needs of channel members, but by looking at the whole system from
the point of view of ultimate and continuous customer satisfaction. So starting
with the needs and wants of the end consumer, both at the present time and pre-
dicting into the future, the process was moved back upstream with participants
looking at whatever improvements could be made.
Example 6.18 ECR Europe

In 1995, the ECR initiative was launched in Europe by the ECR Europe Executive
Board. The board includes representatives from Tesco along with other major Euro-
pean grocery manufacturing and retailing companies, as well as service providers
such as GE Information Services. ECR initiatives now exist in the USA, Africa,
Australia and Asia. (ECR Europe, www.ecrnet.org)
Methods used in internal and external value chain

development
Many methods have now been adopted in both ECR and wider value chain devel-
opment. Existing methods are being constantly updated and new initiatives
explored. Many of these value chain component parts are identified below.
Collaborative planning, forecasting and replenishment (CPFR)

Collaborative planning, forecasting and replenishment (CPFR) is one of the im-
portant programmes to be developed from Efficient Consumer Response (ECR).
It has consequences for all members along the supply chain. The concept requires
retailers, manufacturers and suppliers to agree on sales forecasts for a given
period based on sales history, promotion plans and other significant data in order
to establish pre-set order amounts. CPFR is supposed to level traditional supply
peaks and valleys and reduce out-of-stock situations at the retail level, show com-
parisons between different trade-offs in the supply chain, for example between
stock levels and transport frequency, and thus increase sales and reduce costs.
By relating operational supply chain measures to cost structures and financial
indicators, comparisons of the financial impact on both operational efficiency
and the overall competitiveness of the supply chain can be analysed and
evaluated.
Electronic data interchange (EDI)

Electronic data interchange (EDI) is a computer-to-computer exchange of busi-
ness documents between trading partners using acceptable standards via com-
munication links. These standards are predetermined formats (EDI standards)
developed by industry experts and approved by overseeing EU and US standards
bodies. EDI requires all supply chain members to use compatible IT hardware and
software so business partners can talk easily to one another in the same language.
EDI has been shifting the way companies do business for a long time and there
are now thousands of companies using it on a daily basis electronically to
process business documents between each other. This will include order and
acknowledgement documents, processing and delivery documents, and invoic-
ing and payment received documents. It can also be used for marketing research
and selling products. Cost effectiveness, accelerated turnaround time, improved
customer service and the development of a just-in-time inventory programme are
just a few of the benefits that can be associated with the advantages of setting up
an EDI programme.
Use of the extranet

Linked to EDI, the extranet, a private internet system, refers to an intranet that
is partially accessible to authorised outsiders. Whereas an intranet is protected by
firewalls and is accessible only to employees of the same company or organisa-
tion, an extranet provides various levels of accessibility to outsiders. Right of
entry is given to business supply chain partner organisations (through a pass-
word) so all are able to have access and exchange information online. This gives
suppliers an immediate insight to such business areas as sales figures as well as
stock movements and stock needs.
Just in time (JIT)

Just-in-time systems (JIT) consist of production and inventory control systems
designed to produce small lots of goods and services and to produce the right
items in the quantities needed by subsequent production processes at the right
time. This will be discussed in more detail under physical distribution.
THE VALUE CHAIN 287
JIT will incorporate processes such as continuous replenishment programmes

(CRP).
Activity based costing (ABC)

Activity based costing (ABC) builds a structure for the business that attempts to
show how costs and profits are generated for each product and customer. It is a
financial method that, more realistically than in the past, attempts to pinpoint
the cost, revenue generator and profit from each and every activity. It should
identify processes that are efficient and those that are not; products that produce
good revenue and those that do not; customers along the supply chain that yield
a profit and customers that seem always to generate costs (even sometimes the
heavy users of a product or service).
Activity based management (ABM) is the application of activity based costing
to improve business performance.
Total quality management (TQM)

TQM is a customer-focused management philosophy and management strategy
that seeks continuous improvement in business processes using analytical tools
and teamwork that encompass the participation of all employees along both the
internal and external value chains.
A collaborative culture
More idealistic, but nevertheless a goal to be sought, is the need to construct a
collaborative culture across the whole supply chain. While difficult to implement
within an organisation, it is an even bigger task across the whole external supply
chain. It can be characterised by a shared vision, shared leadership, empowered
and motivated workers, cooperation among organisational units as they work to
improve processes, a high degree of openness to feedback and data, and optimisa-
tion of the organisational whole versus its many parts. For it to happen support
must come from the very top and it must be seen from a strategic perspective. All
staff must be included in discussions, information made readily available and
individual objectives agreed.
Category management
Category management is the management of product categories as strategic busi-
ness units. The practice empowers a category manager with full responsibility for
the assortment decisions, inventory levels, shelf space allocation, promotions
and buying. With this authority and responsibility, the category manager is able
to judge more accurately the consumer buying patterns, product sales and mar-
ket trends of that category. It has implications for B2B as well as B2C because all
suppliers along the supply chain will be expected to develop programmes that
adhere to this overriding imperative.
Other value chain resources

Manufacturing resource planning (MRP) is a process for determining material,
labour and machine requirements in a manufacturing environment.
MRPII is the consolidation of material requirements planning (MRP), capacity
requirements planning (CRP) and master production scheduling (MPS).
MRP was originally designed for materials planning only. When labour and
machine (resources) planning were incorporated it became known as MRPII.
There are myriad other software packages to meet ever more demanding
value chain needs, including customer relationship management (CRM), manu-
facturing execution systems (MES), advanced planning and scheduling (APS),
warehouse management systems (WMS) and transportation management sys-
tems (TMS).
Advantages from building supply/demand chain relationships

Such relationships can lead to more effective and efficient ways of working
together and produce cost and time savings by the following:
o The whole supply chains is coordinated and organised centrally, rather than
by each individual member adding value and then connecting to the whole.
o Competitors’ supply chains can be benchmarked and compared across the
whole business process rather than by each individual element.
o Helping to set up a collaborative and motivating culture.
o Minimising or eliminating overlapping work practices.
o Standardising processes, products and services.
o Sharing valuable resources including access to skills, knowledge and
technology.
o Sharing information sources in real time.
o Shared monitoring, feedback and control mechanisms.
o Allowing for customer satisfaction and service to drive the whole supply
chain process.
Disadvantages from building supply/demand chain relationships

As with all good ideas there tend to be some that gain more than others in the
process, and supply chain relationships are no different. The following might be
considered as disadvantages:
o Supply chain cost savings are gained by the more powerful members forcing
price cuts on weaker members.
o Strategic objectives set by the stronger members may be at the expense of the
weaker.
o All members are forced to purchase and use standardised resources such as IT
hardware and software that can be an expensive outlay, especially if contracts
are lost.
OUTSOURCING 289
o Entrepreneurial spirit can be dampened by the need to conform to supply

chain conditions.
o Employees can be demotivated by feeling lost among the greater number of
people involved.
o Outsourcing
Although an organisation may feel responsible for every link in the external sup-
ply chain, it will find that it cannot do everything itself even if it is totally ver-
tically integrated. We have seen above that it must be able to work with other
organisations and we identified many different marketing and supply structures
it might use to be able to optimise its overall effectiveness. In some cases it may
find that it can even achieve better business results by involving outside organ-
isations in some of the value added processes that take place within the company
along the internal supply chain. A business process known as outsourcing is the
way that this can be achieved.
B2B business process outsourcing and information

technology outsourcing
Outsourcing is the purchasing of a function or functions once administered in-
house from another business – an independent contractor – and usually applies
to a complete business process. In business process outsourcing (BPO) a third
party will be given the opportunity to manage the entire business process, such
as accounting, procurement, logistics, marketing and customer services, human
resources and even manufacturing.
Concomitant with the expansion in information technology is the growth in
IT outsourcing (ITO). With ITO organisations are contracted to manage a par-
ticular application, including all related servers, networks and software upgrades.
They can be located anywhere in the world and, because of savings in labour and
other costs, countries like India now host B2B and B2C customer call centres for
enquiries, information, sales and transactions coming from EU countries on the
other side of the world. In fact there seems to be nothing that cannot now be
outsourced, leading to the concept of the ‘virtual’ company where only senior
entrepreneurial management remains in place overseeing and organising every
outsourcing business process.
Example 6.19 Industry analysts predict growth in outsourcing of customer

care by utilities in 2002
Research analysts are heralding the outsourcing of services like billing and cus-
tomer care as a critical path to profitability in today’s uncertain utility market.
Outsourcing offers a cost-effective alternative to customer care and business pro-
cess management operations that can improve cash flow, customer satisfaction,
and earnings per share for electric, gas and water companies. Using the latest cus-
tomer care and billing management services, technology processes allow utilities to
deliver world-class customer service while controlling costs.
B2B outsourcing and job/batch contract work

Outsourcing is different from job and batch contract work. With job and batch
contract work companies are invited in and given instructions on a part of the
process. This might be on a one-off or contract basis. They will not be given
responsibility for the whole business process. Outsourcing is dissimilar in that the
person contracting for the services will have the right to control or direct only
the result of the work and not the means and methods of accomplishing the
result. In other words, they contract for certain work to be done, but do not tell
you when, where or how to do the work. It implies responsibility and a high
degree of managerial control and risk on the part of the service provider.
Performance based pricing (PBP) contractual pricing mechanisms can be used
that link outsourcer compensation to the meeting of discussed and agreed
specific performance objectives. Performance objectives met can trigger bonuses
while the opposite can trigger penalty payments. Gainsharing is a contract struc-
ture where both the customer and provider share financially in the value created
through the relationship. One example is when a service provider receives a share
of the savings it generates for its client. Outsourcing should not be confused with
mergers, acquisitions, and strategic alliances, which are discussed below.
Outsourcing in the public sector

In many countries outsourcing in the public sector has become mandatory as
government ministers seek to inject commercial pressures into many national
and local government services. It was argued that in-house public sector depart-
ments needed the spur of competition to improve management and service effect-
iveness and efficiency. The inception of Compulsory Competitive Tendering
(CCT) forced national and local government departments to allow outside com-
mercial companies to tender for services such as waste disposal, catering and road
maintenance as well as administration activities to do with the running of the
public sector. In some instances the running of schools, prisons and even parts
of the policing service have also been contracted to outsourcing companies.
Bidding and tendering terms and conditions are very strict in this sector and even
to be considered for participation can be time consuming and frustrating. Out-
sourcing in this sector can be controversial and always open to public scrutiny
because public money is being spent and public services are under consideration.
There are many examples of bad publicity because employees are paid less and
services are worse under a new, commercial, regime.
Example 6.20 Reluctance to bid for outsourcing contracts

Share price weakness has affected controversial government plans to outsource
more public service contracts. Many UK services firms have seen their share prices
fall steeply this week, in a sign that investors are losing confidence in the complex
‘public–private partnership’ deals used to encourage private sector companies to
bid for government contracts.
OUTSOURCING 291
Why outsource?
Companies outsource for both strategic and tactical reasons. Strategic outsourc-
ing is used to achieve a better return on investment and accelerated growth by
using outside organisations that can offer specialist, leading edge knowledge and
skills in specific business areas. The effects – redirection of the organisation’s
resources towards its highest value creating activities and core competencies –
can happen quickly and with the minimum of capital investment. Senior execu-
tives can stand back and look objectively at all business process areas, decide
which to keep in-house and which to outsource, set clear and measurable bench-
marked performance indicators, and then monitor and control the whole opera-
tion from a corporate and marketing perspective. Built-in success and penalty
clauses and frequent contract cost benefit analysis should ensure that customer
driven performances are maintained on a continuous basis.
Transformational outsourcing can be used to take advantage of innovation
and new business models and is approached as a way to reposition the organisa-
tion for competitive advantage.
Tactical outsourcing, on the other hand, is seen as a way to achieve opera-
tional efficiencies and is sometimes used to create competition between existing
internal operations and outside service providers, in this way improving overall
value for money.
Nevertheless there are examples of organisations bringing business processes
back in-house because of disappointing outcomes. This might be because of
performances not reaching the desired and needed level or the difficulties of
creating a holistic approach to customers and markets because processes are
atomised across different independent companies. It can be that outsourcing
companies have several contracts and so cannot give complete focused attention
to any one company. Other problems have arisen, especially across areas of IT,
where the clients’ needs are not fully understood and unworkable solutions are
promised to obtain the contract, resulting in expensive failure all round.
Marketing the B2B outsourcing process

Outsourcing is a very competitive process and those companies taking part will
need to market and sell their competencies in competition with others wanting
to obtain the contract in more or less the same way as any other B2B strategic
solution-solving service. The client buying process will often be long and com-
plex because of the importance of the strategic issues. This means that all the
factors discussed under B2B decision making in Chapter 4, including the decision
making unit (DMU), decision making process (DMP) and buying decision
difficulty (BDD), must be considered when the outsourcer is in talks with a client.
Terms and conditions demanded by the buyer will vary in line with stra-
tegic needs and some are more stringent and bureaucratic than others. This is
especially so in the public sector where public money is being spent and the
political fallout from failure can be immense. As with all long-term contracts, to
put together an intricate bid and not obtain the sale can be very expensive and
time wasting for the unsuccessful participant.
Advantages of outsourcing
o Obtain the benefits from organisations with highly trained and experienced
staff.
o Gain a focused approach from companies specialising in different business
areas.
o Set, monitor and adjust performance indicators.
o Pay and set penalties according to these performance indicators.
o Able to stand back and objectively assess business processes in isolation.
o No cost of ownership.
o No need to obtain approval for capital spending.
o Costs can be budgeted as a monthly expense.
o Predictable costs only pay for what is needed.
o Fast and simple implementation.
Disadvantages of outsourcing
o Loss of customer ownership and customer information.
o Loss of skills and knowledge in business outsourcing areas.
o Innovation gains go to outsourcing company.
o Lack of focused attention if outsourcing company has many clients.
o Difficult to back source if anything goes wrong.
o Loss of synergy.
o Performances not reaching desired level.
o Misunderstanding on the specific needs of the client company.
o Unrealistic solutions promised.
o In the public sector always open to public scrutiny.
o Leasing
Some organisations choose to lease business assets such as land, property, equip-
ment, transport, computers, etc. rather than buying. A lease is a contract in
which the legal owner of the property or other asset agrees to another person
using that property or asset in return for a regular specified payment (known as
rent) over a set term. In addition to buildings, other items such as cars and com-
puters are often leased in order to avoid capital costs in the running of a business.
In some leasing contracts the lessee is able to buy the goods at the end of the con-
tract. Leasing is used in B2C markets, but to a very small extent when compared
with B2B.
Sell and lease-back

A sell and lease-back is a situation whereby a property is sold by its owner to
another person or company on condition that the purchaser leases the property
OTHER BUSINESS RELATIONSHIP FORMS 293
back to the original owner for an agreed rent over a set term. This enables the
original owner to raise capital that can be used for other purposes. It also lowers
the amount of capital employed in running the business, with the possibility
then of improving the corporate return on capital employed (ROCE) ratio.
o Other business relationship forms

We can now identify other relationships used by organisations to gain business
success and maintain competitive advantage.
Mergers
Mergers are a full joining together of two previously separate corporations. A true
merger in the legal sense occurs when both businesses dissolve and fold their
assets and liabilities into a newly created third entity. This entails the creation of
a new corporation. The term merger is frequently used in conjunction with the
term acquisition, as in mergers and acquisitions. Mergers occur if both particip-
ants see the new company as a way of adding business strength and gaining
added shareholder value.
As with all types of relationships, however, the result will frequently favour
one company more than another, depending on the position of strength brought
to the negotiations. If company A merges with company B, the resulting com-
pany might then be called company AB. An agreed merger is where both com-
panies want to merge. A hostile attempted takeover is where one company
objects. To avoid a hostile takeover the target company may seek a ‘white
knight’, another company with which it would prefer to merge.
Acquisitions
In business parlance an acquisition means taking possession of another business
or another business division. This can be by consent of both parties or by a so-
called hostile takeover where the company under threat fights to prevent its pur-
chase. Fierce battles between both sets of senior managers can occur when this
happens (sometimes fought out in combative press campaigns) as shareholders
are persuaded either to sell or not to sell their shares. The big pension fund man-
agers who control large blocks of shares in companies more often than not decide
the outcome. The acquisition can be by vertical, horizontal or, less often, con-
glomerate integration for the business reasons discussed under these headings. As
with mergers, if it is to be considered successful the final outcome should add
value in such areas as customers served, market share gained and eventual share-
holder return.
The Competition Commission will investigate large acquisitions and mergers if the resulting
company might seem to break anti-monopoly rules.
Example 6.21 Mergers and acquisitions

In 2001 and 2002 US computer giant Hewlett-Packard merged with Compaq com-
puters in an $18.6 billion tie-up. Northrop Grumman, the US defence company,
merged with US weapons maker TRW for the equivalent of $7.8 billion. Ameritrade,
the online brokerage company, agreed to pay $1.3 billion for rival Datek. Distressed
Korean car-maker Daewoo Motors was taken over by US auto giant General Motors.
The oil giant Chevron’s $39 billion acquisition of fellow oil firm Texaco was approved
by US regulators.
Joint ventures
Joint ventures involve two or more businesses joining together under a contrac-
tual agreement to conduct a specific business enterprise in which both parties
share profits and losses. Strictly speaking, a joint venture is for one specific pro-
ject and should not be confused with a strategic alliance, which is a term used for
more of a continuing business relationship.
Example 6.22 Troubled joint venture

Swedish mobile phone firm Ericsson has said it will axe 4000 jobs from its information
technology operations. The work currently done by the group’s IT employees will be
outsourced. The news came soon after a suggestion by the chief executive that
Ericsson might pull out of its loss-making phone making joint venture with Sony.
Strategic alliance
A strategic alliance is a partnership in which two or more business organisations
combine efforts in a business effort involving anything from getting a better price
for goods by buying in bulk together, to seeking new customers and markets,
with each providing part of the product. The basic idea behind alliances is to
minimise risk while maximising the power and force of each member; for ex-
ample, BA coming together with United Airlines to share markets, flight routes
and landing opportunities; or car manufacturers sharing an internet market por-
tal to invite component bids from suppliers around the world. It might also be
the only way for a company to move into a foreign country.
Example 6.23 Association of Strategic Alliance Professionals

The Association of Strategic Alliance Professionals (ASAP) is a professional organ-
isation dedicated to strategic alliances. By providing management resources, shar-
ing best practices and supporting the professional development of those involved
in strategic alliances, ASAP is committed to providing the professional and educa-
tional support that executives and managers of strategic alliances need to be
successful. It offers members the following services:
OTHER BUSINESS RELATIONSHIP FORMS 295
o sharing information on opportunities for strategic alliances

o disseminating best practices in the management of strategic alliances
o raising awareness of the unique professional discipline of strategic alliance
management and its contribution to both individual companies and the field of
management. (www.strategic-alliances.org)
Use of mergers, acquisitions, joint ventures and

strategic alliances
Mergers, acquisitions, joint ventures and strategic alliances are used in national,
international and global markets and can appear in different forms depending on
the objectives and strategies of the participating players. The following might be
reasons for building these types of relationships and alliances:
o Gain economies of scale.
o Build market share.
o Shut out the competition.
o Share mutual distribution systems, customers and markets.
o Share resources including finance, skills, knowledge, information and
technology.
o Gain access to restricted resources such as patents, licences, customers and
markets.
o Gain access to cultural and political knowledge and influence.
o Share managerial and entrepreneurial knowledge and skills.
This area will be discussed again in more detail when we look at strategic entry
methods and international and global marketing.
Example 6.24 A failed alliance

A decade ago, IBM and Apple launched a much-vaunted strategic alliance, including
investments in joint ventures and research. Together they intended to take on Intel
and Microsoft. It didn’t happen. Eight years later the alliance faded away, leaving
unfulfilled hopes, frayed relationships and wasted effort.
Factors to consider in a B2B partnership

1. Total commitment. There must be a total commitment from all senior managers
to want to make the partnership successful.
2. Strategic fit. Objectives and strategies in the chosen area of activity should be
complementary.
3. Cultural fit. Employees from each company must be able to work with one
another.
4. Risk sharing. All business ventures will incur risk of some kind and participat-
ing organisations must be aware of this when discussing the level and type of
commitment.
5. Resource allocation. Both sides must allocate sufficient resources.
6. Knowledge exchange. Partners will be expected to share knowledge and expert-
ise and a company may be loath fully to disclose important valuable informa-
tion in case the partnership fails.
Part 3 Management of logistics in B2B markets

Management of logistics is the process that plans, implements and controls the
efficient, effective flow and storage of goods, services and related information
from the point of origin to the point of consumption in order to meet customers’
requirements. It is making sure that raw material, components and products and
services are available at every needed stage of the supply chain operation in the
right number, at the right time, at the right costs and of the right quality. If any
of this fails the whole production activity can at best be non-competitive and at
worst can grind to a halt.
o Reverse logistics
With reverse logistics the supply chain flows opposite to the traditional process
of order acceptance and fulfilment. For example, reverse logistics includes the
handling of customer returns, disposal of excess inventory and return journeys
of empty trucks and freight cars.
o B2B physical distribution

Physical distribution involves the physical movement of goods and services from
supplier to producer, from producer to wholesaler and retailer and eventually to
the end consumer. It involves planning, implementing and controlling the phys-
ical flow of goods from company to company efficiently, effectively and at the
lowest possible costs. B2B organisations can be involved in the movement of
their own goods; they can have their own goods and services transported by
others; or they can be involved in transporting others’ goods and services. The
function of physical distribution consists of the principal subfunctions of trans-
portation, order processing, warehousing, inventory and inventory control, pack-
ing and packaging, and materials handling.
In addition to the subfunctions, distribution managers get involved in many
decisions that are related to the distribution process, including product design
and the location of fixed facilities. The transportation subfunction often includes
the management of a transport subsidiary, as well as purchase of transportation
services from lease or hire companies.
B2B PHYSICAL DISTRIBUTION 297
Physical distribution management (PDM)

Physical distribution management (PDM) is concerned with ensuring the right
product is in the right place at the right time at the right costs. To think of the
logistical process merely in terms of transportation is much too narrow a view.
PDM is concerned with the flow of goods from the receipt of an order until the
goods are delivered to the customer. In addition to transportation, PDM involves
close liaison with production planning, purchasing, order processing, material
control and warehousing. All these areas must be managed so that they interact
efficiently with each other to provide the level of service that the customer
demands and at a cost that the company can afford.
Physical distribution management (PDM) is concerned with ensuring the right product is in
the right place at the right time at the right costs.
There are four principal components of PDM:

1. Stock levels or inventory
2. Order processing
3. Warehousing
4. Transportation.
1. Stock levels or inventory

Stock holding is another important area where decisions need to be made with
regard to customer satisfaction. There will always be a trade-off between stock
levels, stock choice and the costs involved. The seller’s sales staff and the buying
organisation will always want every item held in stock for immediate delivery
while the financial director, ever cost conscious, will want the minimum levels
possible. Some kind of inventory control is crucial to maintain the right amount of
each item in stock or to maintain the required level of service at the minimum cost.
Other factors concerning supplier stock are now considered.
Cost of holding large amounts of goods in stock

Holding large amounts of material and goods in stock can be an enormous drain
on cash flow and all organisations have to make the choice between how much
to hold for customer satisfaction and the overall cost and space involved. Using
a ‘just-in-case’ (JIC) philosophy, large amounts of inventory were held in com-
pany warehouses just in case there was a sudden shortage brought about by such
things as increase in demand from existing or new buyers or a shortage brought
about by bad weather, labour strikes or transportation problems. A whole range
of products might be stocked including unusual and seldom demanded shapes,
sizes and designs for the occasion when the odd one might be wanted. B2B
organisations holding material and goods in stock across the whole portfolio for
the contingencies outlined here can cost billions of pounds in what was considered
an unproductive use of company resources, and the idea of ‘just in time’ (JIT)
was developed. Companies now try to resolve the problem by holding as little as
possible in stock themselves and being able to call on suppliers for immediate or
quick delivery. This means that suppliers and producers have to work extremely
closely with one another (the supplier even basing itself within the buyer com-
plex) as a breakdown in supplies could lead to a loss of sales.
Just-in-time stockholding
JIT is a Japanese management philosophy which has been applied in practice
since the early 1970s in many Japanese manufacturing organisations and sub-
sequently adopted by the industries in the west. It was developed and perfected
within the Toyota manufacturing plants by Taiichi Ohno as a means of meeting
consumer demands with minimum delays.
The alternative to JIT, ‘just in case’ (JIC), meant that an organisation would
hold large amounts of stock (sometimes for weeks or months) just in case there
was a shortage or increase in demand. This could be very costly and would be
reflected in the sell-on costs. The advantages of JIT for the buyer are that non
value-added tasks involved with buying, warehousing and moving the large
amounts of stock around are avoided. It is a process developed for buying in stock
from suppliers only at the very moment of use. It encompasses such processes as
lot to lot (LTL), a rule defined on inventory items wherein a certain amount of
product or material is reordered so there is just enough to cover the next time
period in the demand schedule. A so-called ‘reorder point’ is a low-water mark on
inventory levels that triggers a reorder notification.
JIT saves costs by cutting down inventory levels, not needing large warehouses
holding many months’ supply of stock, eliminating delay and requiring near-zero
defects and fast set-up times, particularly for repetitive, discrete manufacturing.
It lowers insurance costs (as less stock is held) and reduces the opportunity for
pilfering and the likelihood of damaged and outdated material and goods. On the
other hand it should be remembered that many of the costs associated with these
savings will be passed on to the supplier.
The biggest disadvantage of JIT for the buyer is the fear that the right mater-
ial and goods will not available when wanted. There must be a close professional
relationship between buyer and supplier, with highly organised systems for
ordering raw materials and component parts to make certain that there are no
delays at any stage as shortages of stocks can result in serious delays in produc-
tion. There can also be higher costs in not holding stock due to economy of scale
losses associated with one-off bulk deliveries. In some cases this can be offset by
period targets (yearly?) and retrospective discounts given on the amount taken
during the given period. Payment might be spread over a longer period match-
ing deliveries. This will be good for the buyer, but less welcomed by the supplier.
Kanban
Kanban is a simple just-in-time (JIT) control system for coordinating the move-
ment of material to feed the production line. The method uses standard con-
tainers or lot sizes with a single card attached to each. It is a pull system in which
work centres signal with a card that they wish to withdraw parts from feeding
operations or vendors. Loosely translated from Japanese, the word kanban liter-
ally means ‘billboard’ or ‘sign’.
JIT systems become more complex

Gradually simple just-in-time control systems become more sophisticated as
buyers demanded better and better stock control management. As fast as one
organisation gained competitive advantage by more planning and cooperating
with a supplier, another organisation would fight back and so improve the pro-
cess. Management consultants moved in and improved the process even more.
The rapid growth in IT brought many more options and future possibilities look
endless. The following inventory management techniques ensued.
Continuous replenishment
Building on the beliefs underpinning JIT is the concept of continuous replenish-
ment. This is the practice of partnering between supply channel members that
changes the traditional replenishment process from distributor-generated purchase
orders, based on economic order quantities, to the replenishment of products
based on actual and forecasted product demand. This will require even closer
contact between supplier and buyer.
Direct procurement
Direct procurement is the purchasing of raw materials and parts needed for the
manufacturing of finished goods. Automating direct procurement can enable
faster cycle times, making a manufacturer more responsive to the market. Sig-
nificant savings can be realised by optimising the process of order submission
and confirmation, as well as improved vendor collaboration. This results in fewer
shortages of essential materials, thus reducing the need for large inventories
along the supply chain.
Materials requirement planning (MRP)

Materials requirement planning (MRP) was developed during the 1980s, brought
about by the realisation that materials requirements should be planned from
forecast demand and purchasing through to inventory control, production
scheduling and usage to invoicing and payment. It has since been superseded by
enterprise resource planning (ERP).
Enterprise resource planning (ERP)

ERP developed with the realisation that no one part of the business could be
seen to act in isolation from all other business processes. Using the power of
developing computer software systems, ERP is being positioned as the foundation
and integration of enterprise-wide information systems. Such systems will link
together all of a company’s operations, including human resources, manufactur-
ing, finance, sales, purchasing, inventory management, and distribution, as well
as connecting the organisation to its customers and suppliers. These systems usu-
ally have extensive set-up options that allow their functionality to be customised
to meet specific business needs.
Vendor managed inventory (VMI)

Building on the above techniques and use of the extranet, vendor managed
inventory (VMI) is a just-in-time technique whereby a supplier of goods is able to
manage the inventory process more comprehensively. The supplier can access
the inventory records of a customer to determine whether to make a shipment to
that customer. They can look into buyer stock levels and identify shortages and
are then able to refill stock automatically without the buyer initiating the order.
The customer can be notified electronically when goods are to be sent and their
inventory records updated accordingly. The supplier can even enter a selective
part of the buyer’s bank account and take payment when due. As cost savings
were highlighted by these processes, we gradually see an evolutionary building of
trust and a more cooperative way of working between buyer and seller, leading
to the value chain relationships discussed earlier in the chapter.
Advantages of JIT/ERP and VMI developments
Buyer advantages
o Close relationship enables continuous discussion leading to more accurate
benefits.
o Keeps stock of raw materials and component parts as low as possible.
o Saves costs until the stock is needed.
o Saves on timings and space.
o Lower security and insurance costs.
o Less opportunity for pilfering, write-downs and spoilage.
o For the wholesaler and retailer less storage space and more selling space
available.
o Smaller transport system.
Supplier advantages
o Guaranteed contract.
o Learning associated with a close working relationship.
o Close relationship can build loyalty, trust and long-term contracts.
Disadvantages of JIT/ERP and VMI developments

There could be high set-up costs involved for all members.
Buyer disadvantages
o Goods not available when wanted.
o Higher costs in not ordering in bulk delivery.
o Delivery and transport problems associated with frequent deliveries.
Supplier disadvantages
o Payment spread over a longer period according to the contract.
o Possibility of erratic ordering if buyer sales and needs fluctuate.
o Higher storage and delivery costs.
o Higher insurance and security costs.
2. Order processing
We can look at order processing in terms of both B2B seller and buyer concerns:
(a) Seller concerns
(b) Buyer concerns.
(a) Seller concerns

Order processing is the business function concerned with following the buyer
order from the moment the sale is made through to delivery and payment. It is
axiomatic that a sale is not a sale until payment is received and many organisa-
tions forget this at their peril. In fact more small companies go out of business
because of lack of order payment and cash than for any other reason. The written,
verbal or electronically received order must be processed through the organisa-
tional system and this can cause all sorts of problems if controls are not of the
highest order.
Fulfilment is the process that occurs when an order is received by the supplier
or by an intermediary of some kind. Fulfilment processes often include tasks such
as customer order management, shipping management, returns and status track-
ing. When the order is received the following factors need to be considered:
o Is the prospective buyer legitimate, do they have a record of bad debt and/or
do they have adequate funds for repayment?
o Has the salesperson given the right information? Are the needed products,
make, size, specification and customisation in accordance with customer
specifications in stock or, if not in stock, is a request for manufacture or a
supply order sent and the customer notified about any time delay?
o A pro-forma invoice is sent to the customer with product description, costs,
delivery point and expected payment terms and conditions.
o In some cases insurance will be necessary and responsibility for cost must be
clear.
o Care must be taken if the product is to be shipped over long distances includ-
ing overseas. It will need to be clear where the delivery responsibility ends
and the customer collects. This could be free delivery to the dockside, on
board ship, to the embarkation port or all the way to the buyer’s premises.
o Correct products are allocated and a delivery time confirmed.
o Tracking procedures might be necessary if the product has to travel long dis-
tances to make certain that movement is happening as planned.
o Products are dispatched and received by the customer, shown by a signed
delivery note.
o A correctly priced invoice is on time and a check carried out to make certain
payment is made when it should have been made. Reminders will need to be
sent out if necessary.
o Product returns policies are adhered to.
Despite the development of sophisticated computerised order-processing sys-
tems, many organisations still have inadequate order-processing systems that can
cause many problems. These are identified below.
Time and speed in processing

Delays in processing orders and invoices can be costly in terms of the time it takes
to get the order from the salesperson into the system and the products delivered.
The speed of order delivery is a major way of gaining competitive advantage.
Issuing payment invoices late can mean payment delays and cash flow problems.
The use of sophisticated complementary IT applications has allowed organisa-
tions to become more professional in this area, as discussed below.
Accuracy
Dispatching the wrong stock because of unsound processing systems can cause both
customer irritation and excess company costs. Invoices wrongly assessed can also
cost money in terms of underpricing when inadequate payments will be received.
If products are found to be wrongly priced, then not only will there be extra costs
in rectifying the mistakes but customer confidence will begin to be dented.
Information
Customer information must be up-to-date, accurate and clearly reflect the needs
of the customer.
Example 6.25 FedEx – collection, delivery and tracking

FedEx is the delivery company with a website offering a feature that allows
customers to generate their own unique bar-coded shipping labels and summon
couriers to pick up shipments. FedEx technology enables customers, couriers and
contract delivery personnel to wirelessly access the company’s information sys-
tems networks anytime, anywhere. FedEx couriers, contract delivery personnel and
other team members use wireless data collection devices to scan bar codes on ship-
ments. These ‘magic wands’ are a key part of what makes it possible for you to find
out where your package is in transit, whether on a FedEx Express jet speeding
across the Atlantic Ocean or a FedEx Ground tractor-trailer on the Pennsylvania
Turnpike. On average, FedEx Express and FedEx Ground packages are scanned at
least a dozen times from pick-up to delivery. At pick-up, each package’s shipping
label bar code is immediately scanned to record the pick-up time, destination and
delivery commitment. The scanned information is uploaded to the FedEx main-
frame. Bar codes are scanned again at every key step of the shipping process,
allowing customers to follow the status of their shipments throughout the journey.
(www.fedex.com)
Technology and seller order processing

As with all areas of B2B marketing, technology now permeates every nook and
cranny in order processing. Commercial organisations offer ever more sophistic-
ated products to help solve problems. Technology and computer software pro-
gramming can now be applied across all activities associated with customer
ordering in an attempt to ensure effectiveness, continuity and control across the
whole process.
Order management systems (OMS)

Customer order management (COM) includes, but is not limited to, customer
and customer credit management, sales order processing, pricing, availability
checking, transportation, billing, invoicing and accounts receivable processing.

Trends that can influence order management include customer relationship
management (CRM) systems which amass detailed information about customers
and their orders and allow for the application of that information throughout
enterprises, such as in sales and marketing or production planning.
Typically, an order management system (OMS) receives customer order infor-
mation from the host system and an up-to-the-transaction view of inventory
availability from the warehouse management system and from trading partners
via electronic data interchange (EDI) transmissions. The OMS then groups an
enterprise’s orders by customer and priority, allocates inventory by warehouse
site, and establishes delivery promise dates. In a fully integrated system, order
management system (OMS) applications optimise the way orders are presented to
the transportation management system (TMS) and the warehouse management
system (WMS).
(b) Buyer concerns

Procurement begins with perhaps a request for a quotation – an invitation to
suppliers to bid on supplying easily described products or services needed by a
company or public agency. Acceptance may follow with the creation and send-
ing of a purchase order, tracking and tracing orders, updating inventory, request
for product modifications or new products information and, where necessary, the
return of defective or unwanted products. These are all tasks that turn a planned
supply chain into a working live entity.
No buyer likes to have problems associated with the procurement of goods
and services, delivery and payment of stock. Unfulfilled orders, wrong goods or
materials dispatched and late deliveries all cause buyers unnecessary problems
in terms of disrupted production lines, extra costs and unhappy customers.
Wrongly priced invoices, especially overpriced invoices, can cost companies mil-
lions of pounds a year, leading to expensive rectifying actions, buyer anger and
eventual change of supplier. Order processing systems should be developed in
conjunction with buyers so that all contributors and users are happy and feel that
real savings are being made. Information systems and technology need to be
compatible so that buyers can talk to suppliers in ‘real time’ if necessary.
3. Warehousing
All organisations must at some time or another store materials and goods while
waiting to use or to sell and deliver on to customers. This storage and delivery
function becomes more important in some industries where factors such as prod-
uct size and space needed, value, security against theft, perishability, amount
needed for seasonal demand and so on might play a part in the process. Ware-
housing is a non-productive process in that the longer paid-for stock is held idle
in the warehouse, the more will be the costs to the organisation. This can be a
crippling expense, especially for a company working on very small margins.
Research has shown that warehousing and delivery costs can be as much as a
third of all costs. The challenge over the last decade has been for managers to
search for ways to reduce this cost while at the same time continually increasing
customer service. As with most other business process functions warehousing can
be outsourced in the manner described in the section on outsourcing.
Buyers and suppliers working closely together

There are many factors to be taken into account when deciding on warehousing
policy. As with all marketing decisions, customer needs and wants and continuous
customer service must be overriding considerations. This will mean supplying
products and services as and when wanted in the most value driven way possi-
ble. We have discussed supply chain relationships, the need to work closely with
member companies, throughout this chapter and, as with all distribution deci-
sions, adding value for the customer will be the major driving force in ware-
housing considerations. Factors that need to be considered are now examined.
Distribution strategies and objectives

Warehousing should not be seen in isolation but as an important part of the
strategic marketing whole. As with transport and inventory control it should fit
into the logistical pattern developed through the planning process. An organisa-
tion will have discussed and set distribution and warehousing objectives and
strategies in line with the overall marketing plan and this will dictate policy
factors looked at here. Strategic issues driving all logistic decisions will cover such
things as:
o Overall marketing and distribution objectives

o Distribution strategies
o Buyer–seller relationships, buyer and channel member needs
o Buyer/supplier inventory holding strategies
o Direct or indirect distribution.
o Regional, national and international distribution
o Extensive, selective or concentrated coverage.
Location
Depending on the goods and materials produced, location will need to be in a
place convenient and effective for both supplier and buyer. This will be in terms
of timings, speed and cost of delivery. It might be a centralised or decentralised
system or a combination of both. These options will be outlined in more detail
below. The availability and cost of suitable premises and the cost and availability
of skilled labour must also be examined and evaluated.
Costs
Always a part of the equation in any management decisions, the cost of ware-
housing will impinge on the price of the goods when sold on to the buyer. If
the supplier is in the more powerful position, these costs will be passed on to the
buyer, but if competition is rife, the supplier will have to bear this imposition.
Costs that will need to be considered will cover the following:
o Costs of buying, renting or leasing buildings

o Stockholding costs, pilfering, depreciation, spoilage costs
o Insurance and security costs
o Delivery and returns costs
o Transport costs
o Labour costs.
Costs can be offset by:
o Economies of scale
o Quickness of delivery
o Shared buyer/seller warehousing
o Customer satisfaction.
Choice of warehousing system

Both supplier and buyer organisations will need to decide on the most advant-
agous situation for warehouse location. Decisions of this magnitude should be
seen as strategic and made at the highest level in the organisation. In B2C, end
consumer location will be of greatest importance and suppliers will deliver to
retail warehouses, retail shops or direct to the consumer. In B2B, suppliers will
usually deliver direct to a manufacturing plant or producer warehouse. A B2B
supplier will sometimes deliver to a retailer warehouse or retail outlet if the order
is for a B2B product, e.g. shelving, refrigeration or administration.
Example 6.26 Contract out your warehousing

A full-service company providing international and domestic contract warehousing,
transportation and distribution services, Locust Industries offers flexibility and
cost-effective operations from modern buildings. New equipment and the latest
computerised systems serve your business and meet the needs for inventory con-
trol and rapid shipment tracking. Locust’s warehousing and distribution operations
feature modern and diverse facilities, equipment, and capabilities affording you
flexibility in storing your goods. We can also take care of your business needs for
transloading, palletising, stretch wrapping, blocking and bracing.
Supplier direct to manufacturer

Small suppliers and those with very few business customers, depending on the
material and goods on offer, will not need to warehouse products or will hold
and warehouse products at the point of production. These will be shipped direct
to the buyer as and when needed either as a continuous flow or in separate
batches. The amount of product-holding warehouse space needed by the supplier
will depend on levels and timings of production and buyer call-off needs. There
is always the danger of shortages brought about by seasonal or erratic demand if
too little supplier back-up stock is held, leading to the competitor being invited
in. Similarly too much stock held can lead to expensive storage costs.
B2B centralised and decentralised warehousing systems

The strategic issues identified above will drive companies to look for the most
effective and efficient way of holding and moving stock both within the organisa-
tion and thence on to the buyer. Different warehousing models have been used
in this search for competitive advantage and we can look at some of these below.
Centralised system
Some organisations opt for using a centralised system. If selling into a national
market the centralised warehouse might be at or near the place of production or
in the middle of the organisation’s market. If selling internationally the company
might have a central warehouse in each of the countries or regions in which it
operates. Great amounts of material and component parts can then be delivered
to the central distribution depot, by train or large lorries, and then redelivered in
smaller loads and smaller lorries to the various business customers. In this way
economies of scale can be gained.
Decentralised system
With a decentralised system the supplier will have a series of warehouses located
strategically across a region or country, each serving an optimum number of cus-
tomers. Deliveries from the manufacturing plant will then be made directly to
each separate location. In some cases, goods will be delivered to one decentralised
warehouse and then delivered on to a number of smaller satellite stockholding
points. Stock will then be delivered on from there to the buyer. The greater the
number of delivery and holding points, the greater will be the costs and risk of
damage and theft.
Strategically coordinating the warehousing process

As with all management processes warehouse management has progressed
immensely over the years. Its strategic importance is recognised by forward-
thinking companies and it is now approached in a cohesive and professional
manner. As with most business decision-making processes, information techno-
logy has helped immensely and warehouse management innovation now makes
full use of computer programs used in conjunction with customer research,
manufacturing, purchasing and inventory control and transportation.
Warehouse management systems

Warehousing and distribution used to be seen as a necessary exercise to hold
and move products from supplier through to buyer. It tended to be viewed in
isolation from other business activities and past methods were more often than
not costly, time consuming and inefficient. Modern practices now demand that
it be approached in the same way as all company functions in a professional and
integrated fashion. Warehouse management is now seen as a strategic business
function incorporating well thought through systems and processes developed as
part of the logistical whole. It includes organising existing warehouse locations
and the planning of new ones, stock movement process modelling, preparing a
description of warehousing functions, and recording the flow of information.
Warehouse management (computer) systems (WMS)

The evolution of warehouse management (computer) systems (WMS) is very sim-
ilar to the evolution of many other software solutions. It was initially a system to
try to integrate mechanical and human activities and to control movement and
storage of materials within a warehouse. It has expanded to include transporta-
tion management, order management and accounting management, with an
information and automated data collection system to manage warehouse business
TRANSPORT AND DELIVERY METHODS 307
processes and direct warehouse activities effectively. The lines between warehouse
management, inventory control, order processing, distribution, and transporta-
tion systems are blurring as more warehouse systems handle logistics functions
such as incoming delivery schedules, load planning and building, shipment
scheduling, and yard management. The WMS can prompt workers to do inven-
tory cycle counts, order picking, packing, shipping, and so on. The use of radio
frequency technology in conjunction with bar codes provides the foundation of
a WMS talking to both supplier and buyer staff and delivering accurate informa-
tion in real time.
Cross-docking
Warehouse management will include the concept of ‘cross-docking’. In its purest
form cross-docking is the action of unloading materials from an incoming trans-
port and immediately loading these materials onto outbound vehicles, thus elim-
inating the need for warehousing and storage. Products are sorted by destination
by the incoming supplier working on the instructions of the buying company.
The whole warehousing operation is automated, including unloading, move-
ment round the warehouse and loading onto outgoing vehicles. Minimal ware-
house staff are needed and it speeds up the time it takes to move goods from
supplier to buyer, minimising costs and increasing overall inventory productiv-
ity. In some cases warehouses that used to employ hundreds now employ no
more than five or six.
WMS advantages
o Reduce inventory
o Reduce labour costs
o Increase storage capacity
o Increase product turnaround
o Increase customer service
o Increase customer satisfaction
o Increase inventory accuracy
o Help cement supplier/buyer relationships.
WMS disadvantages
o Expensive to set up
o Complex to operate
o Loss of flexibility.
4. Transport and delivery methods

The other major area where substantial cost savings can be made, and the fourth
principal component of PDM, is in the choice of delivery methods used to move
goods from one area to another and eventually to the customer. There have been
tremendous technological and management strides in this area and huge cost
savings have been made.
Multi-modal transportation
The transportation of material goods and services can involve the use of several
modes of transportation including, road, rail, water, air, pipelines and telecom-
munications. Methods chosen will depend on such things as, country infrastruc-
ture, types of products, distance from supplier to buyer, the importance of speed
and time and costs involved. With some goods and services there will be a com-
bination of more than one method in getting the goods from supplier to buyer.
So expensive products (e.g. industrial diamonds) might be transported by plane
and then by road, as might products needed quickly (e.g. computer system com-
ponent parts) or having a short life span (e.g. plants). Bulk commodity products
to be moved from one part of the country to another might go by rail (coal), large
finished products to be exported from one side of the world to another, by sea
(e.g. cars) and liquids such as oil through pipelines. Other products such as
music, books, pictures etc. can now be sent electronically. All these methods are
used to a lesser or greater extent dependent on the factors identified above but it
is not intended to get involved in a discussion about the nature of each method
here. By far the most important and widely used method is by road and many of
the issues discussed below can be applied equally in a general sense to these other
modes of transportation.
Road transport
This is the most widely used and important form of transport. When deciding
where to put factories, storage and delivery warehouses and retail outlets a com-
pany should look towards the most favourable location so that it can reach its
customers quickly, efficiently and at the lowest possible costs. If road transport is
the method chosen then it would make sense to be located near a suitable motor-
way system offering easy access to every part of the company’s market.
Technology in transportation
As would be expected, technology has played a big part in the development of
road transport, constantly improving productivity, safety and customer satisfac-
tion. Satellite tracking and precise scheduling maintain consistently achievable
time-sensitive delivery levels. Drivers can be contacted at all times and in all
places. Refrigerated containers allow for product protection across long distances
and over increasing time periods. Lorries run more efficiently and effectively as
vehicle safety improves and breakdown risks lessen.
Transport options available

Many transport options are now available for a company running its own fleet to
outsource the whole process. If a company chooses to buy its own transport fleet,
high discounts can be had from vehicle manufacturers. In fact in the UK fleet
purchases for both vans and cars now account for over 70 per cent of all sales.
Collection and delivery can now be made (and are demanded) 365 days a year
throughout the UK and Europe, transporting a diverse range of products from
TRANSPORT AND DELIVERY METHODS 309
manufacturing to consumer goods, handling every type of consignment and load

combination, offering a single or multi-drop option to and from any location.
The service can be backed by efficient vehicle planning, and modern commun-
ication systems to ensure accurate tracking of vehicles and to maintain time-
sensitive delivery schedules.
Example 6.27 Transport today

All of the vehicles are equipped with a mobile telephone. This reinforces their com-
mitment to providing the most reliable service possible. All drivers are uniformed
and all their vehicles are clean and well maintained. This further emphasises the
company’s commitment to quality and service for the customer. The haulage com-
pany is a specialist in refrigerated transport. They operate locally, regionally and
nationwide and will provide both chilled and frozen storage facilities as well as dry
goods storage. They are also now branching out into Europe as demand for their
specialist services grows. They are a Member of the Freight Transport Association.
Refrigerated transport
Refrigerated transport is operated throughout the UK and Europe using the
latest technology to offer customers flexible loading options which are able to
create cost and efficiency advantages. State-of-the-art trailers have computerised
chill and freeze facilities that allow the driver to monitor the state of the load
at any time during the journey. Internal movable bulkheads and decks allow
any combination of ambient, chilled and frozen goods to be carried in a single
load.
Bulk transport and heavy haulage

Bulk transport encompasses a whole range of goods and manufacturing products,
from raw materials to scrap metal. A diverse range of vehicles can be hired which
are capable of moving bulk consignments to demanding schedules and which are
made cost effective by experience in load combinations and planning. Heavy
haulage contractors specialise in the movement of heavy equipment such as
machinery and plant for all sectors of industry. Their vehicles can transport up
to 65 tonnes and feature specialised loading equipment, including outriggers and
heavy-duty winches.
Fleet contract is an attractive option for companies with strong identities and
reputations to preserve, and exact requirements can be discussed between con-
tractor and user. In some cases specialist vehicles can be acquired to operate in
the customer’s livery. This option allows the customer a continuity of image,
with expertise in fleet management from the contractor protecting reputation
and ensuring a reliable and cost-effective flow of product to customers.
Contract distribution
Contract distribution affords the customer a highly reliable level of service with
fixed costs, which in turn bring long-term benefits through the ability to plan
effectively. With predetermined volumes and routes assessed, vehicles are

assigned from the fleet or often purchased solely to service the contract. External
variations in work levels have no effect on a dedicated distribution contract. The
ability to analyse customers’ requirements in advance allows the contractor to
prepare a cost-effective efficient service. On-site contract managers liaise between
the customer and a planning team to organise a time-sensitive schedule.
Transport leasing
Transport can be leased in the same way as any other type of product or service.
Payment is made on a monthly basis and can include finance and cleaning as
well as breakdown recovery and maintenance services. Under a leasing system,
transport can be bought at a reduced price when the leasing contract is finished
if the user so desires.
Transportation management system (TMS)
As with all the other logistic processes identified above, computer software pro-
grams can be purchased to increase the overall functional efficiency and effect-
iveness. Transportation management system applications determine the most
efficient and profitable way to execute the movement of product to its final des-
tination. The TMS receives orders from an order management system (OMS),
then confirms shipping dates required to meet delivery promises, checks rates,
assigns carriers and establishes pick-up and delivery schedules before releasing
orders to the warehouse management system for processing. Once orders have
been processed and are ready to be shipped, the TMS manages the delivery and
freight payment process. Transportation planning and scheduling (TPS) specifies
how, when and where to transport goods. Transportation planning and schedul-
ing applications may provide weight/size restrictions, merge-in-transit, continu-
ous move, mode or carrier selection, and less than truckload (LTL)/full truckload
(FTL) planning functionality.
o Other transport issues
B2B organisations now have many other issues to consider in choosing and run-
ning their whole transport system. Whether they are operating it themselves or
using one of the many other systems, managers are continually threatened with
a rise in transport costs. It is true that efficiencies connected with use of new tech-
nologies work to improve performance and push down running costs, but many
other factors outside the control of the organisation work to push costs in the
other direction. This will include such issues as rising and/or volatile petrol and
diesel prices, road congestion charges and pollution charges. There are also prob-
lems and possible legislation and further costs associated with such disparate
concerns as stowaways found on board, the transportation of dangerous goods
and higher road charges.
OTHER TRANSPORT ISSUES 311
Example 6.28 Cut out C02 emissions

Road traffic reduction is one of the government’s major issues, yet forecasts pre-
dict an increase of 37 per cent on 1990 levels by 2010. Vehicle CO2 emissions are
seen as a prime contributor to the greenhouse effect and climate change, issues at
the heart of the Kyoto Agreement and LA21. Vehicle leasing and rental are an effect-
ive way to cut down on ownership, and promote a specific type of alternative fuel
through a large number of vehicles. (www.greenconsumerguide.com)
Transport and marketing

Most organisations now appreciate the importance of a good corporate image in
both B2B and B2C markets and will work hard to make certain a consistent
approach is taken across all business functions. Only in the last decade was the
significant part that transport might play in the process appreciated. Large com-
panies will have hundreds if not thousands of cars, vans and lorries moving
around the country by day and night. These are moving communication adverts
representing the values of the company, not only by the words, colours and
designs on the back and sides, but also by how clean and tidy each vehicle comes
onto the road each day. In many cases the company would have to pay hundreds
of thousands of pounds a year for the same promotion exposure if contracted
through outdoor advertising companies such as Maiden or Moore and Allen. If
transport managers are not careful, dirty, rusting and badly kept lorries will be
characteristics associated with the company by customers and other stakeholders
alike. As well as clean and tidy vehicles, signs are appearing on the backs of vehi-
cles asking the public to phone in if they feel that the lorry is being badly driven
– surely an indication that organisations are taking this communication form
seriously.
Integration of logistics into all other organisational functions

The need to manage purchasing, transportation and inventory levels has led to
an increasingly close relationship between organisations along the supply chain.
Over the last decade, through the use of innovation and technology, great strides
have been taken in building ever-closer working relationships, superior com-
munications and better mutual understanding between organisations along the
supply chain, leading to continuous logistic effectiveness. Purchasing, inventory
movement, production, administration, human resources, marketing and finance
have all been brought closer together in the planning process so that the organ-
isation and its supply chain operate at both the strategic and tactical levels as an
integrated whole rather than in separate parts.
Supply or demand chain management (SCDM, DCDM) is a strategy through
which integration can be achieved across the whole supply chain, including all
supplier and buyer organisations. The challenge for all organisations in operating
their physical distribution systems is to manage the goods and material flow
across a carefully planned supply chain effectively and efficiently. The use of
information technology gives automated intelligence to a network of vendors,

suppliers, manufacturers, distributors, retailers, and a host of other trading part-
ners. The goal is for each player in the supply chain to conduct business with the
latest and best information from everyone else, guiding supply and demand into
a more perfect balance. Effective management of the supply chain enables a com-
pany to move products from the point of origin to that of consumption in the
least amount of time at the smallest cost and giving the best possible value to the
end customer (B2B or B2C).
o Summary
In this chapter we looked at the management of business channels starting with
the strategic alternatives available. The major strategic decision facing the senior
manager is the choice between going direct or indirect in marketing to the buy-
ing organisation. Reasons given for choosing one way rather than another were
discussed and advantages and disadvantages of each evaluated. Methods used in
direct distribution were identified under the headings of direct salesforce, trader
exhibitions, mail order, internet and other media forms. We then went on to
look at indirect methods under the categories of supplier, broker, distributor and
wholesaler. Again the pros and cons of each were briefly outlined before going on
to talk about the relationships between suppliers and intermediaries, disinter-
mediation, channel conflict, reintermediation and the role of the internet in the
supply chain. We then went on to identify other methods of distribution seen as
a combination of both direct and indirect. Here we examined the role of agents,
franchising, licensing and contracting. The many factors that need to be consid-
ered with strategic channel selection and the differences in the process between
B2B and B2C markets were shown as we moved towards the end of Part 1.
In Part 2 we began by examining the management of the supply chain rela-
tionships. It is important to appreciate that B2B managers will operate in differ-
ent types of marketing structures, sometimes demanding different approaches.
To this end many were identified and discussed including vertical and horizontal
integration, voluntary, contractual and hegemonic. The business supply chain
has taken on enormous importance over the last 20 years and understanding
the need to manage in partnership with all members now dominates manage-
ment thinking. Experience has demonstrated that the supply chain must now be
viewed as both an internal and external value chain if improvements are to be
made. Starting with the internal value chain, each part of the business process
from inputs through to outputs must be benchmarked so that it is as good as, if
not better than, the competition in delivering eventual customer satisfaction.
This concept must then be applied to the external value chain; that is every other
organisation involved in the supply chain, from one end to the other. Only in
this way can the competition be beaten or held at bay. Developments that
improve this concept were identified under the heading of efficient consumer
response (ECR). These included developments known under the acronyms CPFR,
EDI, JIT, ABC, TQM, and many others. We then examined the upsides and the
downsides of this close cooperation among supply chain members. The growth
of outsourcing as an alternative way of operating certain business functions has
been phenomenal. This was discussed in some detail before moving on to look at
SUMMARY 313
how and why companies merge or acquire other companies or form joint ven-
tures and other types of strategic alliances.
The role of physical distribution and the management of logistics in B2B mar-
kets were discussed in Part 3. Organisations have to move goods and services
from one point to another in the most effective and economical manner pos-
sible. Better management understanding coupled with the growth in new tech-
nologies has brought great resource savings across all the major areas that might
be categorised under the heading of logistics. We therefore chose to categorise
under the headings of stock levels and inventory, order processing, warehousing
and transportation. Concepts identified under inventory included cost of hold-
ing stock, JIT stockholding, continuous replenishment, direct procurement,
materials requirement planning, enterprise resource planning and vendor man-
agement inventory. Advantages and disadvantages were then outlined. If order
processing takes too long or is flawed in some way, then costs can rise, orders
can be lost and customers left dissatisfied. Technology has played a big part here,
allowing cost and time savings to be made and both seller and buyer satisfaction
levels to rise. Warehousing is yet another area where savings have been made
because of greater management understanding and business developments.
Different ways of managing transport were then identified before finally dis-
cussing the need to integrate logistics into all other organisational functions.
1. Identify the different channels that B2B organisations can use in getting products
and services to their markets. What methods, and why, will best suit the following
organisations?
(a) A company selling paint.
(b) A business consultant.
(c) A chemical manufacturer.
2. Identify the differences between marketing direct and indirect in the B2B market.
Give real examples of each and explain why companies choose to supply in this
way.
3. Discuss and evaluate the methods that might be used in both direct and indirect
distribution. Give examples.
4. Describe and analyse the criteria that will be used when selecting a B2B channel to
market. How will this differ when compared with channel choice in B2C markets?
5. Discuss the value of the internal and external value chain and identify the major
differences in its use between the organisations described here.
(a) Public sector.
(b) Not-for-profit sector.
(c) Manufacturing sector.
(d) Service sector.
6. Examine the business process of outsourcing. What are its many forms and why
do you think there has been such a growth in its use, at both the tactical and
strategic levels, over the last few years? What are its major disadvantages?
7. Discuss the development of just-in-time inventory management systems. What
part did JIT play in the development of supply chain management?
8. Sixty per cent of strategic supply chain alliances fail over the first three-year
period. Discuss why you think this might be.
9. Identify and evaluate the part that technology now plays across the supply both
in the running of the supply chain relationships and in physical distribution.
10. The Internet will alter forever methods of distribution in many industries. Discuss.

o Bibliography
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07 Pricing strategies for
business markets
The bitterness of poor quality is remembered long after

Chapter
price is forgotten.
Aims and objectives

1. Recognise and evaluate how price is used in business-to-business
marketing and how it interacts with other elements of the marketing mix.
2. Identify and evaluate the factors that must be taken into account when
considering price strategies.
3. Identify and evaluate different strategic approaches.
4. Identify and examine the operational factors associated with price.
5. Compare and evaluate the differences in the use of price between B2B and
B2C markets.
Part 1 The meaning of price and marketing in

business markets
o Introduction
Price is the element of the marketing mix that seems to be most misunderstood
by students and practitioners alike. Many approaches underestimate the all-
round contribution that pricing can make to the optimum use of marketing
resources. This is not only because of revenue and profit contributions but also
because of the many other functions that price can perform in developing suc-
cessful marketing mix strategies. As in other chapters there is an attempt to con-
stantly highlight the difference between B2B and B2C marketing. So let us start
with a definition of price.
Price is the value (usually measured in monetary terms) at which the seller agrees to sell a
product or service to the buyer and the value at which the buyer agrees to purchase.
THE BUSINESS-TO-BUSINESS PRICING PROCESS 317
This exchange transaction can be either:

o Fixed: the price is given and the buyer either agrees or disagrees.
o Negotiable: buyer and seller bargain in some way until a mutual price is
agreed.
o A variation: one or more elements may be fixed and other elements negotiable.
Of course price cannot be looked at in isolation and will be linked to many other
factors such as added services, delivery and installation, payment method and
credit terms, security risk, and product and competition alternatives. Many of
these factors will apply to both B2B and B2C markets, but with many differences
which will be identified as we move through the chapter.
Setting prices strategically is a matter of knowledge, and not simply a financial
decision but a strategic one. Setting price requires an understanding of certain
factors: the value of the product to the consumer, the likely competitive
response, the costs used in setting the price and the price sensitivity of the mar-
ket. Many people can be involved with the process, often approaching it from a
particular perspective. The management accountant might be concerned with
minimising running costs, the financial accountant with obtaining good returns
for the shareholder, the sales manager with price concessions to obtain new
accounts, and the marketing manager with long-term customer satisfaction.
Although disagreements will happen, it is up to senior managers to balance the
decisions made on price with good business and marketing practice, leading ultim-
ately to constant customer satisfaction.
o The business-to-business pricing process

There is no one set way for setting the price for products and services in the B2B
market. As in B2C markets the price to be charged will vary according to a mul-
titude of interconnecting factors. These will include the pricing objectives, costs
involved, market structures, demand levels, intensity of the competition and the
type of product and level of service to be offered. Ultimately, the price to be
charged should ideally be based upon the price the customer wants or is able to
pay. This should be identified through constantly talking to customers, using
both quantitative and qualitative marketing research. As with B2C goods and ser-
vices, the pricing mechanism is the only way that the organisation can obtain
revenue and profits and too low or too high a price will, sooner or later, tip the
company into failure and bankruptcy. As well as too low or too high a price,
other problems can arise because of faults related to the pricing process. Prices
that are inconsistent across the product portfolio and fail to identify specific
related costs, prices that ignore the competition and prices that disregard cus-
tomers’ differential needs can all cause profound problems. These as well as other
pricing issues are discussed throughout this chapter.
Pricing and marketing

Price is an integral part of the marketing mix and should be never be discussed
and set in isolation. The idea that price can be set according to internal costing
318 CHAPTER 7 • PRICING STRATEGIES FOR BUSINESS MARKETS
needs with little or no regard for other marketing factors could be said to be naive
and foolish and only happen where some kind of monopoly position existed.
Customers, markets, the type of product, the channel of distribution and methods
to be used in promoting the finished offering will all need to be considered when
deciding the strategic method of setting the price.
The marketing definition which states that, driven by the need for customer
satisfaction, marketing is ‘having the right product, at the right price, in the right
place and then communicated in the right way’ applies as much to B2B markets
as to B2C marketing. There is a continuously shifting relationship between the
price and all other elements of the marketing mix and this must be addressed
when setting prices.
Product positioning
Price will also play a crucial part, with all other elements of the marketing mix,
in positioning the product or service in the marketplace. Positioning – how the
companies’ products are viewed in relationship with the competitors’ products –
is an essential end objective of the marketing process. For example, high quality,
high value, high priced products will be viewed differently from low value, low
quality, low priced products. If the products are viewed as high priced but low
value products, then the marketing mix application can be said to be faulty. In
B2B markets product positioning would be based mainly on rational criteria
while positioning in B2C markets is based on emotional criteria and happens
within the consumer’s mind.
B2B and B2C markets

In some ways pricing in B2C markets is easier than in B2B. In most B2C mar-
kets, customers are segmented into like-minded groups with needs and wants
(hopefully) identified and, taking into account marketing factors outlined above,
products and services are priced accordingly. There will be little personal contact
or negotiation with individual customers who will pay the price wanted if the
marketing mix components have been correctly identified and integrated. If a
price change is needed in B2B markets individual customers may have to be con-
sulted and won over. The customer might refuse the price hike unless the sup-
plier makes a clear, unarguable case.
o Price and the B2B marketing mix

The relationship between price and other elements of the marketing mix can
now be discussed in more detail under the headings identified below:
1. Price and product

2. Price and distribution
3. Price and promotion.
PRICE AND THE B2B MARKETING MIX 319
1. Price and product

The complexities tied up with the concept of product were discussed in more
detail in earlier chapters. Research has shown that when customers purchase
products and services, in both B2C and B2B markets, they are purchasing a range
of added value benefits that will help solve some kind of problem. In B2C mar-
kets these ‘problems’ will probably be personal and encompass both emotional
and rational concerns. In B2B markets they will tend to be organisational and
rational. Just to reiterate for a moment, these benefits will include such things as
innovation, packaging, branding, quality, servicing, and so on. We can now look
at the relationship between these added value benefits and the price that buyers
are prepared to pay.
Pricing across the product portfolio

Most B2B organisations will have a portfolio of products built up in response to
customer demands. When price and costs are being considered on any one prod-
uct or product line, there is a need to consider the effects that any one decision
might have across the whole portfolio mix. Costing ramifications are discussed in
the section on costs later in the chapter.
The relationship between price and product value

There will always be a relationship, a trade-off, between price and the product
services value offered. Although this will apply to both B2C and B2B markets, the
process and outcomes are very different.
Price and product value in B2C markets

In B2C markets there is a continually shifting relationship between the price of
the product and the added value elements such as packaging, quality, function
and, most importantly, branding. When looking around and comparing differ-
ent products and services the end customer will be continuously balancing the
price and the product to arrive at what they consider best overall value. As a rule
of thumb, in times of economic well-being (a high ‘feel good’ factor) consumer
demands might be said to move towards added value factors and away from
price. Conversely, during times of economic stringency (low ‘feel good’ factor)
demand moves towards price and away from added value factors.
Unlike B2B markets the interplay between price and value in B2C products
and services will mostly take place in an informal manner in the mind of the
consumer. It will often be helped by discussion with others, friends, family, sales-
people, reading the literature (and the internet), TV and radio programmes, and
so on. The eventual choice will be greatly affected by advertising and product
branding and will be made according to both emotional and rational factors (the
decision-making process was discussed in more detail in Chapter 4). Not all tar-
get segments are the same and price will be important to one group and less so
with another. Ease of payment methods and low interest rates will also be con-
tributing factors with borrowing on the increase every year (Figure 7.1).
Figure 7.1
B2C B2B
Factors that o Emotional as well as rational needs o Rational and functional needs
affect the o Advertising and branding o Delivery
interplay o Ease of payment method o Innovation and technical input
between price o Economic circumstances o Importance of product/service to company
and added o Importance of the decision in optimising market position
value in B2C o Type of product or service o Risk involved
and B2B o Target segment o Product knowledge and training offered
decision making o Convenience o Other benefits such as service and quality
o Other benefits such as service,
delivery, knowledge, etc.
Price and product value in B2B markets
He knows the price of everything and the value of nothing.
(Anon.)
In B2B markets, buyers will usually approach the process in much more of a
professional, formal and logical fashion, evaluating the cost/benefit trade-offs
between price and all other added benefits (Figure 7.1). This will vary between
one company and another and between one industry and another, depending on
products, customers and markets. Buyers will weight the various benefits by how
they might successfully contribute to solving specific problems and give overall
competitive advantage. Delivery times may be the overriding consideration in
one industry, quality in another, service in another, innovation in another, and
so on. The buyer will be able to weight the various benefits offered in line with
the efficiency opportunities that particular benefit could contribute to the over-
all strategic marketing opportunity. Added value ratings will then be rated along-
side the price demanded by competing suppliers and a choice made.
As an example, one company may rate delivery continuity as being worth
8 out of 10, service 5 out of 10, innovation 5 out of 10, and so on. Another
company may rate innovation 9 out of 10, service 7 out of 10, and relationships
6 out of 10. Both companies would then rate alongside the price to be paid from
suppliers and make some sort of cost benefit judgement. So we can see that it will
not always be the lowest price that will be accepted.
2. Price and distribution

The channel of distribution, that is how the product is made available to the cus-
tomer, will have a greater or lesser effect on the price depending on the type of
product and the methods used. There are two basic strategies available for B2B
and B2C organisations: marketing direct (doing it yourself) and/or marketing
indirect (operating through an intermediary). It was identified that the B2C
company will mostly sell through retailers while the B2B will sell direct. Both
methods will incorporate costs of some kind and so have an effect on price to be
charged both directly and along the whole distribution channel.
Price and marketing indirect

If the supplier operates through an intermediary, usually a wholesaler or reseller,
payment of some kind will be expected for the duties that it will have to perform
in selling on to another buyer. Depending on the tasks to perform, this amount
could be anywhere between 10 per cent and 100 per cent of the intermediary sell-
on price. Industry norms dominate percentages given so that 15 per cent might
be common in one industry and 25 per cent in another. Prices to be paid by the
wholesaler can be expressed as a mark-up margin on the supplier’s selling price
or as a mark-down margin on the wholesaler’s selling price. Costs will then be
passed along the whole distribution chain and so have an effect on the price
eventually paid by the end user. It is not uncommon for industry percentage
margin norms to vary across the supply chain as different members perform dif-
ferent tasks.
Management tasks performed by B2B intermediaries

Intermediaries will expect payment for undertaking all or some of the following
tasks:
o Offering an established route to market.
o Holding inventory at levels that will satisfy customer demand.
o Demonstrating, explaining and selling goods and services.
o Handling customer complaints.
o Delivering the amount when and how needed – this task can take on added
importance with the advent of JIT inventory adoption methods.
o Handling damaged stock and returns.
o Paying for stock and so offering the supplier a type of early payment.
o After-sales service.
An intermediary might perform one or many of the management tasks identified
above. As a common rule of thumb, the more tasks to be performed and the more
complex those tasks, the higher will be the expected margin. A supplier might
offer the reseller such benefits as exclusivity of selling area, customer leads, advert-
ising and promotional help and extra discounts for taking a range across the
product portfolio. In return the middleman might offer loyalty, not stocking a
rival’s products, and willingness to work with lower price margins.
Supplier and middleman arrangements on price would need to satisfy the
Office of Fair Trading on competition policy as transgressions could result in
heavy fines.
Price and derived demand

Some original suppliers will want to influence price further down the chain as
this will have an effect on the price (and amount) at which they are is able to sell
in the first place. They might be able to do this by building relationships along
the supply chain and/or promoting along the supply chain, and in this way, help
maintain a particular price level.
Role of the intermediary in B2C markets
B2C wholesalers selling to retailers might also carry out many of the tasks
identified above. The relative differences will include the following.
o Less complexity in the products.

o Dealing with ‘finished’ products, often branded, rather than component
parts.
o Less urgent delivery times.
o Less need for product knowledge as this is usually given direct by the pro-
ducer’s representative.
Price and marketing direct
B2B companies that market their products direct will obviously not have to pay
a middleman for selling the product. This will not necessarily mean that the price
of the product will be any cheaper as the supplier will have to bear the costs of
undertaking all the tasks that might have been performed by the intermediary.
These will include display, advertising and selling, delivery and installation, and
sometimes after-sales service. Some industries and some organisations are more
likely to sell direct than others, depending on the type of product, the necessary
skills involved and the traditions existing in the industry. Cost per customer pur-
chase is a cost effectiveness measure used in direct marketing based on the cost-
per-sale generated.
Managing prices and costs along the supply chain

The importance of pricing and costs along the whole supply chain in maintain-
ing competitive advantage was alluded to in the previous chapter. Modern global
market developments have fuelled the need for constant efficiency monitoring
along the whole chain. High costs leading to too high prices can mean over-
pricing and loss of sales at the channel end. Many channels tend to throw up
channel ‘leaders’ that take on the responsibility of controlling costs and prices.
Suffice to say that these leaders are the most powerful members, often having
the ability to push cost reductions upstream to be borne by the weaker suppliers.
The concept of efficient consumer response (ECR) came into being to examine
the whole process as a demand chain. Beginning with and based upon the
end consumer need, and then looking back vertically along the supply chain, it
seeks to make cost savings from suppliers using IT and the latest management
methods.
Overall prices must adequately compensate all those that are involved in mov-
ing products and services along from supplier to supplier and buyer to buyer. Too
high prices at any stage in the process can lead to high costs, loss of sales and/or
a movement to a competitor. Conversely, too low a price can mean inadequate
compensation, deterioration in quality and service and, at worst, the forced clos-
ure of a good supply chain member.
3. Price and promotion

The promotional mix, the different methods used to communicate messages to
the target audience once the product or service is available for purchase, will be
discussed in great detail in Chapter 8. As with other elements of the marketing
mix, a relationship exists between price and promotion and a few of these ele-
ments will be examined here.
Advertising and price

Advertising is used in both B2B and B2C. The costs of the advertising will have
an effect on the price that is eventually charged. Mass advertising – TV, news-
papers and radio – is used mostly in B2C markets because of mass market seg-
ments, and much less in B2B because of smaller markets. Its great strength is in
promoting brands both nationally and across the world. There is no doubt that
the large costs involved must be eventually seen in the price charged, which in
the end many consumers are prepared to pay because of the extra (emotional)
value associated with these brands (Nike, Levi’s, Mercedes, etc.).
Advertising is used to a lesser extent in B2B marketing through specialised B2B
journals, directories and magazines rather than mass media, TV and print. There
is obviously a cost involved, but it is minute compared with B2C. Although again
it must be absorbed into the cost of the product, it is offset in two ways: aware-
ness created should lead to more products being sold; and price information
should allow buyer comparisons among competitors’ products, leading to lower
prices. Many businesses now use the internet to obtain price comparisons from
around the world as well as to sell products and services.
Sales promotions and price

Sales, trade and staff price promotions can be used in both B2B and B2C markets
as short-term ways of boosting sales or opening new accounts by offering extra
value. However, in both markets care should be taken to see that price cuts do
not become the norm rather than discretionary, so that customers will only pur-
chase when prices are reduced. Price decreases due to volume and promotional
discounts cannot always be planned for. Competitors may react to one another
using defensive or offensive promotional campaigns offering discounts to cus-
tomers for volume purchase and/or to defend market share.
Price and trade promotions in B2B markets

Price will be used in B2B markets to ‘push’ products and services downstream
along the supply chain. In purchasing extra products, the buyer will then take on
the responsibility of making certain that the extra stock purchased is used and/or
sold on to the next organisation, thus ‘pushing’ it along the chain. Sales promo-
tion can be used for the following purposes:
o As an incentive to open new accounts.

o To stock new products.
o To encourage a buyer to take extra stock and so keep out the competition.
o To help sell on existing stock held by the buyer as well as the seller.
o To take on added value and complementary products or services.
o To help with cash flow.
o Reacting to competitors’ promotional activities.
Price and sales promotions in B2C markets

Price and sales promotions are also used heavily in B2C markets as part of a ‘pull
promotion’ campaign. Price cuts directly off the product, by the use of money-
off coupons, ‘buy now and pay later’, added value for the same price, and so on,
are aimed directly at the end consumer, encouraging them to visit the retail out-
let to search out the reduced price stock. The retailer in turn seeks more from
upstream suppliers and so stock is ‘pulled’ down along the supply chain.
Extra benefits rather than price cuts

In both B2B and B2C sales promotion campaigns, suppliers would rather offer
some short-term added benefits as an incentive to buy because direct price cuts
send out the wrong messages to buyers. They highlight prices and indicate that
the seller might always have room for manoeuvre on price offered, so encourag-
ing price cut expectations. Price cuts also come straight off the bottom line and
sales would have to increase by a large amount to make up for a reduction. For
example, if a company sells a product at £15 and makes a £5 profit, the mark-up
is 50 per cent. A 20 per cent price reduction will come off the selling price, in this
case £3. The company is left with a £2 profit. The supplier would have to sell 150
per cent more products to make up the difference. Whether this is possible will
depend on demand elasticity.
Using price as a marketing tool

Price can be used as a B2B marketing tool in the same way as all the other ele-
ments of the marketing mix – both to enhance the product offering and to be
attractive to different segments of the market. Many organisations have devel-
oped a USP by adopting and specialising in one or more of the following.
Pricing by behaviour
Many customers will price by customer behaviour in both B2B and B2C markets.
So heavy or regular users can be offered better prices, loyalty bonuses and extra
discounts. Buyers can be offered better terms to switch from another company,
past users persuaded to repurchase, and existing users encouraged to buy other
products across the whole portfolio range. Earlier payers can be given extra dis-
counts and companies willing to negotiate long-term contracts offered better
overall terms. In B2B markets, pricing by behaviour can be used on a micro level
right down to individual companies. In B2C it tends to be used on a mass scale
and focuses around customer loyalty schemes.
Pricing by time
Time will always be more of an important factor for some businesses than others,
allowing it to be used by suppliers as a way of segmenting the market by offering
more value. So a range of prices can be charged for the product or service at dif-
ferent times of the day, week, month or year depending on the customer need.
This might be price given on each delivery or based on a year contract with
identified deliveries throughout the year. Many businesses are also affected by
seasonal trends and demand fluctuations, so if buyers can be encouraged to take
in stock, production can be evened out and supplier costs saved. Examples might
be an ice cream manufacturer agreeing to take in a constant supply of ingredients
throughout the year to be used mainly at holiday time.
Pricing by speed
In some cases a buyer may want products and services quickly and be willing to
pay a premium price, as delays will cost money. Some suppliers have set them-
selves up to offer this type of service. So we see examples of same-day delivery on
such things as motor spares, parcels, packages and letters, and specialised com-
ponent parts.
Pricing by level of service wanted

We have discussed buyer needs for added services and customised products and
extra prices can be charged. Extra services can be priced separately or as a com-
plete system. The secret of good business is to be able to offer services that have
high value to the customer and low costs to the supplier. In this way profits can
be increased and/or supplier gratitude enhanced.
Other price considerations

Most B2B suppliers will offer better prices for cost saving measures, including
those listed below.
Pricing by quantity demanded

Most suppliers will offer quantity discounts: the more purchased, the better will
be the price. Quantity discount price might be set out in the company product
price list or negotiated on a quantity by quantity basis. It is not unusual for small
and medium sized companies to purchase together so as to take advantage of
quantity discounts. With these so-called voluntary buying groups, the supplier
might insist on delivering all member orders to one drop-off point or deliver
orders to each company as and when wanted, with the quantity discount worked
out retrospectively at the end of the year.
Pricing by payment method

The reason why many small and medium sized organisations go out of business
is cash flow problems caused by slow payment or non-payment for goods and ser-
vices delivered. To help minimise the possibility of this, most companies will
offer extra discounts off the price, perhaps 2.5 per cent if payment is received
within seven days. All industries have a norm for payment and this will usually
be within a 30-, 60- or 90-day period. Research has shown that the largest com-
panies tend to be the worst payers. Cost and benefit analysis can be used to iden-
tify the most profitable customers. Invoicing, control and payment can now be
exercised electronically, speeding up the process as well as cutting costs.
Pricing by delivery method and distance

In some instances delivery can be by plane, ship, road, pipeline, or electronically.
The most costly will affect the end price to be charged. Depending on the dis-
tance and speed wanted, high valued products might go by air at a higher price
and low value by sea at a lower price. Innovative technology developments have
broadened the options and lowered the price for the delivery of certain products
and services. An example might be the injection of biochemicals into fruit, veg-
etables and flowers used with refrigerated containers, making cheaper, slower
methods of delivery a reasonable option. Different prices might also be charged
if the buyer collects from the supplier factory, from a centralised warehouse or
from the docks (if coming by sea) rather than wanting direct delivery.
Part 2 Strategic factors determining price

We will now look in some detail at the factors which determine the final price
that customers will pay. Some of these factors will be internal to the organisation
and some external. The organisation should be able to control the internal fac-
tors while most external factors are market driven and generally outside the con-
trol of the organisation:
1. Price objectives and strategies
2. Costs
3. Customers
4. Market structures
5. Level of demand
6. Competitors’ prices
7. Legal considerations.
o Price objectives and strategies

The price approach adopted by the management will depend ultimately upon
what the organisation hopes to achieve through its corporate and marketing
objectives. For a publicly quoted company, corporate objectives will usually be
set in terms of a certain level of return on the money invested in the organisa-
tion needed to satisfy the shareholders in that company. For example, a return
on capital employed (ROCE) or a return on investment (ROI) of 15 per cent each
year over a three-year period might be the level of return expected on the amount
of money invested. This level of return expected will vary from company to com-
PRICE OBJECTIVES AND STRATEGIES 327
pany and industry to industry depending on such things as company strength,

market conditions and the amount of risk involved. Corporate headquarters will
also demand return levels for subcompanies and divisions operating in both
national and global markets. The need for a certain return on investment might
also apply to the privately joint-owned organisation, partnership or sole trader,
but not necessarily with the same level of urgency. The need to link prices to cor-
porate objective will be virtually the same whether in B2B or B2C markets.
It should be recognised that when looking for a certain return on corporate
investment, price will be only one of the determinants (albeit very important).
Other considerations will include production effectiveness, financial borrowing
costs, levels of fixed capital equipment used, and so on.
Marketing objectives
Marketing objectives are usually set in terms of sales or market share and how the
marketing department can contribute to the desired return on capital invested.
Subpricing objectives can then be added and these will include profit levels, prod-
uct mix sales, opening new customers and new markets. Marketing objectives
will be revisited in more detail when we discuss B2B planning in Chapter 9.
Pricing objectives in the public and NFP sectors

It is not intended to go into any great detail about pricing in the public and the
not-for-profit (NFP) sectors as this is a specialist area discussed elsewhere.
However, pricing here will not necessarily be linked to the level of expected
return on capital invested, although it can and does happen, as this is not usu-
ally the purpose of these types of organisations.
In the public sector, the prices set will reflect wider objectives linked to eco-
nomic, social, political and organisational needs, as many departments are not
expected to make a profit in the same way as commercial organisations. For
example, a company wanting government collected information on exporting to
a foreign country could pay cost or market price for the service if the department
is expected to act as a cost or profit centre; or more likely it could pay a subsidised
price (or even be given the information free) if the government of the day felt
that this would encourage exports and so benefit the well-being of the country.
Similarly products and services sold in public areas such as health, welfare,
local government, education and defence will also have set price objectives that
reflect society’s and political needs rather than commercial effectiveness. It is
worth adding here that public sector organisations are expected to operate in
an efficient and cost-conscious manner. In the UK, the National Audit Office
(www.open.gov.uk/nao/home.htm) is in place to oversee and make certain this
happens.
Pricing in the not-for-profit sector

Although selling very little in the B2B sector, charities, trusts and mutual organ-
isations will price according to commercial considerations wherever possible, but
there will always be the need to take into account the wishes and demands of the
many interested stakeholders.
Price and buying concerns in the NFP sector

In both types of NFP areas, the price that an organisation will be prepared to pay
for B2B products and services will also reflect concerns other than those found in
the commercial sector. In the health service, for example, political pressure has
forced suppliers to supply drugs at a buyer dictated price. It can also force gov-
ernment departments to only buy within predetermined price limits. Similarly,
charities will be expected to buy in products and services within strict pricing
limits and non-adherence can cause stakeholder disapproval and sometimes
some kind of public outcry. Of course this hasn’t stopped public sector and NFP
organisations paying well over the odds for products and services. This can be
because of commercial inexperience and pricing naivety brought about by
working in the public sector.
Specific B2B strategic pricing objectives
At the corporate level

o To fit with the corporate mission
o To obtain a required level of return on the capital invested.
At the marketing level

o To reach sales targets
o To make a profit
o To improve liquidity levels
o To open new accounts
o To open new markets
o To build long-term relationships
o To reward loyalty
o To offer added-value choices
o To meet fixed and variable cost considerations
o To sell across the product portfolio mix
o To match the competition
o To defend or attack against a competitor.
B2B pricing strategies

B2B pricing strategies and objectives might include the following.
Pricing low compared to the market norm

Some organisations will develop strategies based on trying to price as low as pos-
sible, sometimes across the whole product portfolio or on selective product lines.
The following are reasons why a company might price low.
B2B markets
To achieve and maintain market share

Pricing may be consistently low across all markets so as to achieve and main-
tain market share. This strategy will tend to be used in commodity markets
where competitive advantage might be difficult to achieve in any other way. This
approach might only be available to the larger companies because of the need for
economies of scale leading to lower costs and therefore lower prices than other
market players. However, it can also be practised by the smaller organisations
specialising in a particular product or service area. Examples might be a food
company manufacturing and selling soups to a large supermarket chain under an
own label brand (e.g. Wal-Mart or Tesco) or a small manufacturer specialising in
particular types of metal fasteners.
To enter new markets

Pricing may be low when entering new markets so as to gain market share or to
gain new customers. This is also known as penetration pricing and can often be
the only way that a newcomer can enter into markets already served by others.
The hope here is that once the supplier is seen as a worthy company to work with
prices can be raised. Whether this wish can be fulfilled will depend on whether
the value that might be added to the product or service is sufficient, in the mind
of the buyer, to warrant a price rise.
B2C markets
To achieve and maintain market share

Some large retailers will also strategically price at a consistently low level so as to
achieve and maintain market share. We see retail pricing strategies such as ‘every-
day low prices’ (EDLP) from the supermarket group Asda and the ‘price promise
– find it at a lower price elsewhere and we will refund the difference’ from elec-
trical retailers Dixons and Comet. However, whether this truly applies to all prod-
ucts across the ranges offered can be difficult for the consumer to discover (unlike
B2B) and some commentators argue that price confusion hides the more realistic
picture.
To enter new markets

Lower prices and penetration strategies can also be used when companies want
to enter new B2C markets, particularly fast-moving consumer goods (FMCG),
hoping to gain market share. The hope is that the consumer will be satisfied and
so want to repurchase at the higher price. Retailers, however, are just as likely to
use advertising to create brand value or offer extra value, e.g. two for the price of
one, as a market entry strategy, preferring to keep the consumer’s mind off price
comparisons.
Building relationships
B2B markets
B2B suppliers will often have large buyers spending large amounts of money. In
these cases pricing strategies will be used to build, reinforce and maintain long-
term relationships, rewarding loyalty, blocking the competition and encouraging
greater supplier use. This can be carried out by up-front lower prices, quantity
discounts, retrospective discounts (extra discount given at the end of the year if
target purchase levels are met), and so on.
B2C markets
Retailers in B2C markets attempt to use price to form relationships with indi-
vidual consumers, but the relationship is of a very different kind. Because they
are dealing with millions of consumers it tends to be with segmented groups
rather than with individuals, superficial rather than deep, and undeniably more
valued by the retailer than the end consumer. Consumer loyalty is rewarded by
added-value benefits such as loyalty points and money-off coupons on future
purchases, rather than directly off the price when products are purchased.
Pricing high compared to the market norm

An organisation might feel that its products and services justify pricing above the
market norm. The following are reasons why it might successfully follow this
strategy of premium pricing.
B2B markets
Customers in both B2B and B2C markets are prepared to pay more for added
value and premium products. The differences are that in B2B the added value
must be tangible and meaningful, contributing to market advantage in a clearly
defined, pragmatic way. In many product areas of B2B price is less important
than added value because the particular component might only be a small part
of the overall whole. The equipment offered must compare favourably with offer-
ings currently on the market, ideally last longer, perform more effectively and/or
be more economic than products or services already available. In the main pre-
mium products will not be purchased for symbolic reasons.
B2C markets
Whilst the functional benefits identified above are important in B2C markets,
research has shown time and time again that a premium will be paid for products
and services that have an emotional attraction encapsulated in the concept of the
brand and are perceived to be of great value. Some consumers will pay more for
a product such as Nike because of symbolic associations (‘street credibility’) and
will be relatively unconcerned about such rational concerns as comfort and dura-
bility. This is a major reason why the product brand is more important in the B2C
market than in the B2B.
Discriminatory and differential pricing

There are circumstances when a company is able to price its products and services
differently in different markets. This can be controversial as there are some
people that argue that this is an unfair practice based on a dominant market
condition.
Example 7.1 Dual pricing

The European Competition Commissioner has barred GlaxoSmithKline (GSK) from
the dual pricing of wholesale drugs in Spain. The Commission said EU rules barred
GSK from charging one price to Spanish wholesalers for drugs they sell domestic-
ally and a higher price to the same wholesalers for the same drugs exported to the
rest of the EU. It said that pharmaceutical companies, or other companies, cannot
put into place distribution arrangements which perpetuate the partitioning of the
single market into national markets. Drug companies argued that different health
regulations across European countries caused the price variations.
B2B markets
Country and market conditions can, under certain circumstances, allow suppliers
to discriminate and charge different prices in different markets. So the same
product could cost more in the north of the country than in the south, or more
in France than in Sydney. This could be because of such things as the extra deliv-
ery costs and different customs and exercise duties and tax laws. It could also be
because customers are prepared to pay more in one market than in another
so pricing is according to ‘what the market will bear’. The opportunities for
flexible differential pricing in B2B markets are receding, however, for a number
of reasons.
1. Competition. An increase in global competition restricts the freedom on the
prices a company can charge. Unless justified by added value, too high a price
will allow other companies to move in and capture a market or customer.
2. Small customer base. Most B2B markets have a relatively small number of
buyers and so one customer can know fairly quickly what other customers are
being charged. Similarly, one supplier will usually know what other suppliers
are charging and knowledgeable market players can easily overcome attempts
at price secrecy by working through component costs and/or searching out
information from a multitude of sources.
3. Increased information. Information technology has given comprehensive access
to B2B supplier and buyer information from around the world. Costs and
prices can now be compared almost immediately.
4. International and global companies. There has been an increase in mergers of

organisations on both a national and global scale, so that in many cases a sup-
plier might be selling to the same buyer in many parts of the world.
5. Power. As buyers become more powerful, they can insist on price parity.
6. Legislation. Anti-competition bodies, such as the UK Competition Commis-
sion, have increased power to search out and prosecute organisations that
price products and services unjustly, especially if some buyers are deemed to
be at an unfair advantage.
B2C markets
Discriminatory pricing could be said to be more prevalent in B2C markets than
in B2B. There are opportunities for discriminatory pricing in B2C markets for the
following reasons:
1. Competition. The competition tends to be contained and localised. Although
multinationals exist in retail, many operate competitively on a local basis. The
Tesco supermarket group might well charge different prices for its products in
London compared to the provinces.
2. Large customer base. Although segmented into groups, most retail markets con-
sist of many millions of customers and one individual/group will often be
unaware of the prices that other individuals/groups are paying.
3. Many different product offerings. Many millions of products and product types
exist in these markets and, unlike B2B, it can be very difficult to compare like
with like.
4. Increased information. Similar to B2B markets, more information is now avail-
able through the internet and also through pressure groups such as the
Consumers’ Association and TV programmes such as ‘Watchdog’ on the BBC.
However, because of the many different product offerings available, perfect
information can be difficult to obtain.
5. Power. Consumers have relatively little power individually and it is only when
they come together in groups that they can lobby effectively for price parity.
6. Legislation. Consumer legislation is channelled through bodies such as the UK
Office of Fair Trading and the EU Competition Commission that seek to root
out unfair discriminatory pricing policies, both nationally and across national
boundaries. How successful this tends to be is continuously discussed, with
some arguing that the power of the large producers and retailers will block any
meaningful change.
Flexible and dynamic pricing strategies

Flexible pricing
Flexible pricing, as defined here, includes both differential pricing – in which
different buyers may receive different prices based on expected benefits – and
dynamic pricing mechanisms such as auctions, where prices and conditions are
based on bids by market participants. Depending on the product or service,
buyers will always be prepared to pay for extra benefits offered that are tailored
to meet exact needs. Although this is true in both B2B and B2C, it is much more
prevalent and individualistic in B2B markets where suppliers are invited in to
customise solutions to particular problems and then price accordingly. In these
circumstances the supplier must have a flexible pricing policy so that every pos-
sible contingency is catered for. This puts a great onus on supplier sales and back-
room staff involved to make certain that the price eventually asked is enough to
make a profit, takes into account competitor pricing, and covers the buyer
benefits wanted.
Systems pricing
A variation of flexible pricing, systems pricing is an approach where prices are not
given for the individual items or services that go to make up the whole product
or service. All the benefits wanted are brought together and one overall price is
given. For example, a computer system might include hardware, software, furni-
ture, installation, staff training and servicing. This can make it very difficult for
a buyer to compare one supplier with another. This should cause the buyer to
insist that clear, detailed benefits are agreed and written into a systems contract
so that arguments do not arise at a later time. All employees contributing to the
costing and pricing process must have the skills and knowledge to prevent loss-
making contracts, sometimes worth millions of pounds, being entered into over
a long period. Systems pricing is used extensively in B2B markets but less in B2C.
Areas in B2C might be buying fitted kitchens (furniture, fitting, electrical work,
plumbing, and so on) or fitted bedroom furniture.
Dynamic pricing
Dynamic pricing allows for the increased use of auctions as a way of both buying
and selling goods and services. The use of the internet as a way of buying and
selling products and services has spearheaded this growth and many companies
have developed flexible pricing policies to cope with this new market form. Only
in special circumstances will B2C products be sold in this manner.
Competitive harmony pricing

Although active price collusion between companies is illegal (and the overseeing
anti-competition bodies in the EU can fine guilty companies up to 10 per cent of
their turnover), competitive harmony pricing or passive shadowing, that is
charging the same price as the competitor, is not illegal. If market structures are
favourable, for example oligopolistic, then tacit, unspoken agreements to com-
pete on added value, e.g. quality, service, delivery and not price, may evolve
between suppliers and retailers. This practice occurs in both B2B and B2C mar-
kets, but is probably easier to spot in the latter because of the many interest bod-
ies concerned for the well-being of the consumer. Encouraging competition into
these markets wherever possible helps to eradicate this practice.
Figure 7.2
Pricing across
the product life
cycle
Pricing across the product life cycle

As products move through the product life cycle (PLC), they might need to
change to take account of changing circumstances. With some products and ser-
vices these changing needs could well have been strategically planned from
introduction and growth through to maturity and decline. With other goods and
services this might not have been possible because of market uncertainties over
the long term. Innovation has shortened the life cycle of many products, espe-
cially in the B2B market where functionality and effectiveness are at a premium.
For example, IT hardware and software have shorter and shorter life cycles and it
can take as little as 12 months for products to become outdated. So we see intro-
ductory high pricing decreasing significantly over a six- to twelve-month period.
Managing the price over the PLC (Figure 7.2) will need to take into account
other marketing mix functions as well as market activity. There are many strate-
gic approaches and an example will include a high introductory price gradually
reducing as growth begins to move into maturity, and finally lowering even fur-
ther as the product moves into decline and liquidation. Of course such things as
advertising and distribution would have to be examined as part of the process.
More strategic approaches will be discussed when we look at planning and con-
trol in Chapter 9.
Strategic pricing of new products

The pricing of new products in B2B will depend on the type of product, market
conditions and company objectives. Market research should have been used to
ascertain the customer segment reaction to products launched at different prices.

New product objectives will determine whether the company wants to gain mar-
ket share, claw back costs as quickly as possible, dominate a premium niche mar-
ket, and so on. If the objective is to gain market share as quickly as possible and
so restrict the movement of the competition, then penetration pricing will be
used. If the objective is to make as much profit as possible before the competition
comes in, then price skimming will be the strategy. This would entail charging
an initial high price and then gradually reducing it as competitors entered the
market. If the product is of high value, to be positioned in a niche market, then
a premium price will be charged and constantly justified by customer commun-
ications. When in doubt, price higher (if possible) as it is easier to lower prices
than to raise them.
Strategic and tactical pricing

There is a difference between long-term or strategic pricing objectives and short-
term or tactical pricing objectives.
Long-term or strategic pricing objectives

As we outlined above ultimately the price objectives that the organisation sets
and the strategies it adopts to achieve these objectives for its products and ser-
vices must link back through agreed marketing and sales and profit objectives to
the overall corporate objectives and corporate mission. Strategic pricing object-
ives must be established with care because they outline the approach that the
organisation will adopt for the long term and involve a coordinated effort from
all company departments. ‘Long term’ is relative and will vary from industry to
industry. It might be one, two or three years in one area where dynamic change
is inherent, e.g. technology, and five or ten years in another where relative mar-
ket stability is more the norm, e.g. cars. Pricing policy must also integrate with
all other elements of the marketing mix so that, for example, a premium price
will reflect a premium service offered, or a low price the level of market share
wanted.
Contrasting the pricing strategies of Federal Express and Blue Circle Cement
illustrates the importance of a unified corporate marketing approach. FedEx
(www.fedex.com) offers express packing and information transportation across
the world within a guaranteed one to two business days – a premium service at a
premium price and high profit margin. The strategy of Blue Circle Cement
(www.bluecirclecement.co.uk, now part of the Lafarge Group) focuses on low-
margin commodity products being priced low to build and maintain market
share.
Significant company coordinated investment will be put into the strategic
pricing approach to be adopted so the policy must be well thought through and
rigorously implemented. To change the pricing strategy from premium pricing to
low cost pricing would have serious resource and market implications and could
well cause serious damage to the company’s markets.
Short-term or tactical pricing objectives

Despite the long-term strategic objectives for the price, there will be many occa-
sions when a need will arise for a company to react in the short term, tactically,
to market and environmental circumstances. These might include the following:
o Loss of market share
o Defence against increased competition
o Cash flow difficulties
o Guaranteed pricing because of inflation
o Discount pricing as a form of trade promotional incentive, e.g. taking extra
stock or pushing slow moving lines.
In theory the company would revert back to its original pricing strategy when the
particular circumstance had changed back to normal. There is an academic argu-
ment about when the objective is strategic and when it is tactical (survival could
be seen as both a strategic and tactical pricing objective). It could be argued that
there is no right or wrong answer to this as whether an objective is strategic or
tactical will depend on market circumstance, products offered, individual organ-
isations and personal predilections.
o Costs
In both B2B and B2C markets the costs involved in producing goods and services
must play a major part in determining the final price charged. Any fool can manu-
facture a product and sell below cost. However, to do this would very quickly
lead to the company going out of business. So costs must be covered and a per-
centage amount added to allow for a reasonable profit. There are two ways that
the company can increase its profitability: increasing the price and/or reducing
its costs. In highly competitive markets it is impossible to do the former, so the
latter becomes a major consideration when looking at the pricing of goods and
services.
Customer demand for better products and lower prices forces suppliers con-
tinuously to examine and benchmark cost drivers so that the wasteful practices
can be eliminated and efficiencies optimised in order that customer products and
services are supplied at the best possible value. It is a truism that if a company
isn’t incessantly undertaking this process, the competition will, and so competi-
tive advantage will be lost.
Because cost plays such an important part in deciding the final price (and
determining the profit to be made), it is important that organisations are aware
of all types of costs, where they arise and how they might be minimised in the
most effective way.
Marketing and costs

As with all other departments, marketing can look towards its own costs and
accountability structures, eliminate waste, set clear performance indicators, alloc-
ate levels of responsibility and implement value for money programmes. There
COSTS 337
should be a constant search for new and innovative ways of using the marketing
tools and techniques to achieve optimum customer satisfaction.
Different sorts of costs

Marketing and financial managers must know which costs are linked to pricing
decisions and how these will impinge on the efficiency and effectiveness of the
business. To begin with we will look in simple terms at fixed and variable costs
and their relationship with the product portfolio mix, volume of sales and levels
of profits.
1. Fixed costs. These are the costs incurred whether the company produces goods
and services or not. They include expenditure such as rent, rates, loan interest
payments, administration, wages for permanent employees and any form of
long-term contract such as a three-year sponsorship deal.
2. Variable costs. These are costs incurred only when products are produced, so
they will be linked directly to the product or service itself.
3. Mixed costs. These are costs with both fixed and variable elements.
Fixed costs, variable costs and volume

The relationship between fixed costs, variable costs and volume sold across the
whole product portfolio must be understood if the optimum cost savings are to
be made. As fixed costs must be paid whatever the production, it is to the benefit
of the organisation to spread these as widely as possible so all resource capability
is used to its optimum level. All products in the portfolio need constant scrutiny
to assess overall cost demands and revenue contribution. It is sometimes in the
interest of a company to market low profit items because of the contribution to
overall costs. A food manufacturer producing its own branded products for sale
to retailers (B2C) might decide to make own label goods for the supermarket
Tesco (B2B) to take up spare capacity and so spread the fixed costs.
It is important to remember that fixed costs are ‘fixed’ across a range of activ-
ities over a certain period of time and can change when this period ends. Wages,
rent and interest payments could all increase at the end of the year. This pos-
sibility must therefore be examined when identifying the relationship between
cost, volume and profit.
Identifying where costs arise

B2B marketing managers must be aware of where and how costs arise if they are
going to be able to influence them in a meaningful way. They must also attempt
to understand which activity within the business will benefit from the expend-
iture and who should be held responsible. Only in this way can clear objectives
be set and the results monitored, controlled and improved. This is not always as
easy as it may seem. Some costs, predominantly variable, can usually be attri-
buted to the actual activity, e.g. the amount of paint on the car. Fixed costs are
more difficult and have to be allocated, e.g. heating and lighting or administra-
tion costs. Direct and indirect costs are identified below.
Direct costs
Direct costs, both fixed and variable, are expenses that can be directly attributed
to a particular project, activity, product, customer, or sales territory. They can be
directly assigned to that project or activity with a high degree of accuracy.
Indirect costs
Indirect costs are expenses that cannot be specifically identified with a particular
project or activity. Sometimes called ‘overhead’ or ‘facilities and administrative’
(F&A) costs, these are the costs of buildings, utilities, wages, marketing, and the
many other expenses necessary for the operation of the business. These have to
be allocated across all activities in as accurate a manner as possible. This can
prove to be very difficult in practice as it can be nigh impossible at times to know
which business area benefits from a given resource and by what amount. An
example might be the cost of a long-term advertising campaign costing millions
of pounds. Should the full cost be borne by the advertising department or spread
among product development, manufacturing, sales, and so on? Similarly who
should be responsible for damaged product returns – sales, distribution, or pro-
duction? There might also be political problems involved as managers seek to
gain advantage by pushing more costs onto others in order to appear to have a
more efficient operation. The use of cost and profit centres and activity based
costing are ways that managers try to overcome some of these problems. Cost
factors to consider when pricing include:
o Costs of goods sold
o Marketing spend
o Overheads
o Sales commissions
o Intermediary mark-ups
o Shipping costs to distributors
o Possible returns
o Profit objectives.
Cost and profit centres

One way around the problem is to set up cost and profit centres. The business is
divided into different ‘centres’ where costs and/or profits will arise. These can be
in almost any form that the company wishes and include strategic business units,
departments, sections, operations, processes and part processes of a business.
Marketing will be concerned with the products, distribution, promotion mix,
sales and customers, and so on. There is then an attempt to allocate the exact
costs (and profits in the case of a profit centre) as they arise to each and every
centre identified for usage. This will organise the business, help achieve financial
control, motivate and give realistic responsibility for cost improvements to all
employees involved.
COSTS 339
Activity based costing (ABC)

Activity based costing is an accounting methodology that assigns costs to activit-
ies rather than products or services. This enables resource and overhead costs to
be more accurately assigned to the products and services that consume these
costs. It should operate to show clearly how costs flow into activities and what
activities are involved for each marketing area, e.g. product and customer. Tradi-
tional accounting systems are often arbitrary and inaccurate in the way that they
allocate costs so any particular activity can falsely show costs that are higher or
lower than the actual case. ABC allows the manager to model more realistically
the way that costs behave, and so manage processes for better results.
How ABC can be used with the customer

Organisations also need to know the costs involved with each and every cus-
tomer as well as sales if a realistic profit figure is to be reached. Used with the mar-
keting information system, ABC can provide managers with the information they
need regarding the contribution each customer makes. If correctly applied and
utilised, ABC can rank the customers in terms of costs and profits made. Studies
have shown that 20 per cent of customers provide virtually all the profits of a
company. Another 60 per cent break even and the remaining 20 per cent actu-
ally cost the company money. To determine how much a customer costs, every
activity relating to each customer must first be identified, separated into individ-
ual cost drivers and then a total cost given. Cost drivers might include, but not
be limited to, inside/outside sales, order processing, credit, delivery, telephone
expenses, training and product returns. In this way all customer interactions can
be measured and valued. Strategies can be adopted that maximise the relation-
ship with the better customers, while minimising or even eliminating the more
wasteful (Figure 7.3).
Activity based management (ABM)

ABM is a term for the management process that uses ABC information to improve
performance as the key to better outcomes. It incorporates modern management
techniques such as quality assurance, process re-engineering, benchmarking, best
practice and Balanced Scorecard in attempts to constantly improve cost/benefit
ratios.
Figure 7.3
Traditional ABC
Cost of a Salaries £100 Obtain customer appointment £40
particular Equipment £80 Call on customer £75
customer call Supplies £20 Order processing the customer £75
Overhead £45 Admin. for the customer £55
TOTAL £245 TOTAL £245
The learning and experience effect on costs

The marketing strategist must also be aware of the changes in costs over time.
Learning curve theory reflects the concept that we learn to do things quicker and
more efficiently the more we undertake a particular task. Similarly, experience
curve theory argues that as well as learning to do things more efficiently, experi-
ence should enable us to identify ways (e.g. new technology) to undertake the
task more effectively. So a combination of learning skills, leading to task improve-
ment, and experience and knowledge attainment should bring about an overall
reduction in costs. As costs fall then prices will come down and sales will increase,
leading to more cost savings through greater economies of scale. Learning and
experience curves can be measured with a fall in costs seen as a function of the
increase in turnover.
Selling at or below costs

Having just said that selling below costs will eventually lead to a company going
out of business, there are circumstances when it might be propitious to allow this
to happen.
As a loss leader
Selling at or below costs is practised in both B2C and B2B markets. In B2C a
supermarket might sell a staple product such as bread, milk or petrol at a loss to
encourage traffic flow and the sale of other more profitable goods. BSkyB offered
its modems and dishes at low prices or even free of charge knowing that the con-
sumer must then purchase its entertainment services on a regular basis. Likewise
the B2B supplier will also offer goods at cost price to encourage the sale of other
goods. This might be selling or leasing office equipment on the expectation of
selling accessories and supplies, or heating equipment knowing that the con-
tinuous sales of running materials and servicing would then be locked in.
As a way of breaking into new markets and new customers

We outlined above how a seller might offer a particular product or service below
cost as a means of obtaining initial entry into a buying organisation. Many large
buying organisations such as Ford or Unilever will have some kind of relation-
ship with existing suppliers and might be disinclined to try others because of the
switching costs involved. Selling below costs can be used tactically as an initial
sop to encourage trial and so, hopefully, encourage further orders. Of course
there must be buyer potential to make this exercise worthwhile.
Spare capacity
If there is spare capacity, increased sales can absorb this slack and so contribute
and spread the overall fixed costs.
CUSTOMERS AND PRICES 341
To gain overall economies of scale

Similarly selling one type of product at cost or below can greatly increase the
overall purchasing power of a supplier – enabling scale gains to be made in other
areas that more than compensate.
Predatory pricing
Although difficult to prove, predatory pricing is illegal and stiff fines can make
the perpetrator repent at leisure. The product is priced below cost so as to drive
out the competition. Once they have gone the prices are raised.
Bad debts and costs

Some commentators might want to argue that the selling of goods and services
is the easier part while the collection of the money is the hard part. It is a truism
that a sale is not a sale until the goods and services have been paid for. This can
be a real problem for some small (and not so small) suppliers serving just a few
large buyers. The deferral of large payments can mean that urgent bills cannot be
paid, leading to a downward circle of debt and eventually supplier closure. The
small or medium sized supplier can find itself between a rock and a hard place:
to refuse to serve the large buyer or to prosecute for late payment can lead to loss
of sales so large that collapse would be on the cards. All the supplier can do under
these circumstances is to talk to buyers, appeal to their sense of fairness, and
hope that this will have the desired effect. There have been calls by trade asso-
ciations, politicians and government departments for legislation to force com-
panies to pay more quickly but up to now to no avail.
Debt factoring
It is possible for a creditor to sell off the debt to a third party, that is debt factoring,
in return for an early payment at a lower price (perhaps 10 to 15 per cent off). It
is then up to the debt factoring company to collect the money from the supplier.
o Customers and prices

Ultimately the price charged must be attractive to the customer. If a product or
service is considered not to be of value then it will not be purchased. We know
that B2B markets are segmented by industry and individual customer. It is crucial
that communications are continuous so that changing benefit solutions are
identified and relevant problem-solving products offered (Figure 7.4).
Pricing for different segments

In B2B markets different customer segments will derive different benefits from the
products and services on offer. This will often happen with individual organisations
Figure 7.4
Forces shaping
the customer’s
perception of
value
within customer segments, which will allow the supplier to charge varying prices
depending on the added-value wanted. Marketing research should be used to
identify benefits wanted and price expectations. Costs on the overall package
can be made and the prices developed. The importance of price will vary from
customer to customer and from segment to segment. Offering the customer the
exact benefits wanted will shift the emphasis away from price, and the concomi-
tant commoditisation of the product. Generally price in B2B is less important
than in B2C.
B2B markets
In B2B markets customer product and service benefits wanted can often vary
from country to country, from industry to industry and even from company to
company. A single business product can be used in many different ways accord-
ing to requirements. The costs and price to be charged will need to reflect both
this and the importance it might have in its eventual usage. It is usual in the mar-
kets for buyers to indulge in meticulous price analysis and price comparisons.
The sellers will need to have the relevant information at their fingertips, other-
wise the level of professionalism will be questioned.
B2C markets
Needs and wants in B2C markets are also a major consideration and customers
will be often be charged differing prices according to the quality and level of
service offered. However, it will mostly be according to large segmented groups
rather than individual customers. The differences in the product and the sub-
sequent price variations charged will also be much less than in the B2B market
where discussion on service benefits needed can be on a one-to-one basis. Cus-
tomers in both markets will be prepared to pay a higher price for convenience,
time and risk reducing factors. Some organisations will develop niche markets to
take advantage of these types of benefits wanted. Although price will be of relat-
ive importance, customers do not indulge in such intricate price comparison as
in B2B markets.
MARKET STRUCTURES AND PRICE 343
Customers in the public sector market

As with many other aspects of B2B marketing, buyers in the public sector and to
a lesser extent in the NFP sector will have to justify the prices paid to many stake-
holders as the money spent will ultimately come from the taxpayer. This will
probably mean that prices and costs have to be detailed, transparent and avail-
able for public inspection. The Public Accounts Committee is the UK overseeing
body that monitors all public spending.
o Market structures and price

Market structures were discussed in detail in Chapter 1 and each structure
identified will have an effect on the prices that can be charged. The price effect
and some of these structures are now discussed:
o Monopoly
o Controlled monopoly
o Oligopoly
o Monopolistic competition
o Free competition
o Adulterated competition.
Price and monopoly markets

Because of government commitment to competition we see fewer examples of
monopoly markets. Where monopolies exist, perhaps through having a patent or
access to new technology (Microsoft), the organisation can either control the
price or control the level of demand. Setting a high price will cause demand to
fall, and setting a low price will cause demand to rise. Public indignation leading
to a general outcry and bad public relations are about the only protection from
overpricing in monopoly situations. An example might be pharmaceutical com-
panies being persuaded to reduce the price of AIDS treatment to Third World
countries through international condemnation. There can be markets where
there might be only one buyer, known as a monopsony market. This market
will operate under similar circumstances to monopoly markets but with roles
between buyer and seller reversed.
Price and controlled monopoly markets

We know that many erstwhile public monopolies were sold into the private sec-
tor under the control of an independent regulator. In many cases the regulating
bodies (OFWAT, OFGAS, OFCOM) are able to restrict price increases to within
preset boundaries.
Price and oligopolies

Oligopolies are characterised by only a few sellers all offering very similar prod-
ucts and services. Oligopolies find it unhelpful to compete on price because the
lowering of price by one of the players will only encourage the others to follow
suit. This might trigger a price war with the end result being lower prices and
lower profits for all, with no one firm gaining any advantage. This situation en-
courages a tacit acceptance of price levels while attempting to gain differential
advantage through non-price added value competitive activities such as corpor-
ate image enhancement, innovations and customer relationship service.
In B2C markets product brand and sales promotions are more likely to be used
to gain this differentiation. Where there are only a few large market players, the
temptation to collude on maintaining price levels is always an option. Although
difficult to prove, this practice is against UK and EU competition law and trans-
gressors can be very heavily fined if it is shown to be happening. On an interna-
tional scale it is more difficult to prevent and probably the most striking example
is the OPEC cartel set up by a number of countries to keep oil prices and oil pro-
duction within agreed limits. There are occasions when a seller will face just a few
major buyers, known as oligopsonies. In such cases as this the seller becomes a
price taker as this market will operate in a similar way as an oligopoly market.
Price and monopolistic competition

Monopolistic competition is similar to oligopoly markets in that it is a market
dominated by just a few major organisations. It is different, however, in that
there are many close substitute products and so demand is elastic – making it
reasonably simple for buyers to switch to another seller. Firms try to differentiate
their products through non-price competition such as corporate and product
branding, location, service, etc. This type of market structure is more preval-
ent in B2C markets than B2B where supermarket groups such as Tesco, Asda,
Sainsbury’s and Safeway try to differentiate themselves by value added marketing
rather than price. B2B markets can more easily buy from around the world, and
are less susceptible to emotion-driven corporate and product branding.
Price and free competition

Like monopoly markets, free or pure B2B competitive markets are rarely observed
in practice. Very few industries have many competitors all selling the same or
very similar products with no way that the customer can differentiate between
them. This might perhaps apply to some commodity markets such as aggregates
or basic minerals, but even here companies can differentiate in terms of quality,
delivery, location and long-term relationships, which are highly important
factors in B2B markets but less so in B2C. Where elements of free competition
operate, demand is elastic and buyers can easily substitute and switch from one
company to another. Thus all sellers become price takers rather than price setters.
Profits will be minimal and the inefficient will be priced out of the market
because of too high costs.
Price and adulterated competition

Most markets have elements of all the above, but with differences between industry
and industry. Because of company size, financial strength, access to information,
PRICE AND LEVELS OF DEMAND 345
location and other circumstances we can find localised elements of monopoly,

oligopoly and free competition in many industries and markets.
Price, the public sector and its influence on commercial

markets
Pricing objectives in the public sector were discussed earlier in the chapter but
it is worth identifying how public body pricing policies can affect B2B com-
mercial markets. Because public bodies are not set up to make a profit, they are
not under the same pressures as a commercial company. So in circumstances
where the two sectors are in competition or one is buying from the other, the
public body is powerful enough to dictate the price level for a whole industry.
Similarly when borrowing money on the open market governments will heavily
influence money-lending rates in both the long and short term.
o Price and levels of demand

Demand was discussed in some detail in a previous chapter. There is no doubt
that levels of demand will have an effect on the prices that companies are able to
charge for their products and services. Basic economics informs us that heavy
demand will push the price up and low demand will push the price down. The
difficulty for the marketing strategist is to try to forecast levels of demand at var-
ious price points. Revenue objectives depend on both number and price of prod-
ucts sold. Using some form of time value method the marketer must estimate the
different levels of sales over a certain time period. This must take into account
fluctuation in demand at the various stages of the product cycle as well as the dif-
ferent prices which might have to be charged.
Levels of demand and price changes are more volatile in B2B than in B2C. In
some cases in B2B markets price cannot be changed once contracts have been
agreed and so demand and supply fluctuation might have to be lived with, at
least in the short term. In general, however, demand and price changes for many
products and services will feed through pretty quickly in B2B markets. In some
cases component parts have little effect on the overall price and a price will not
alter greatly the buyer’s selling price.
Some B2B have a small product portfolio and little room to absorb price
increases, especially if they are working on a small profit mark-up. Commodity
prices can also be very volatile so price can alter quite rapidly at the back end
of the supply chain. In B2C markets, demand is more stable and it takes time
for the need for products and services to decline or increase across large market
segments. Often price increases can be absorbed more easily in stages down
through the supply chain before they arrive at the retail outlet. Competition, sub-
stitute products, publicity and consumer resistance are factors that also make it
difficult to pass on price increases to the end consumer. A good pricing strategy
will contain guidelines for a response to price increases or decreases by others
in the market. Although it is not possible to make allowances for every con-
tingency, at least the organisation can make sure it has some outline plans in
abeyance.
o Competitor response to pricing
Competitors in B2B markets will inevitably influence the pricing in the market
and organisations must have as much information as possible on the price and
cost structure and strategic objectives of other players in the market. In this way
competitors’ reactions to price changes can be predicted. This information can be
obtained by one salesperson talking to another, from compliant buyers and from
annual reports and public statements. Knowledgeable marketers should also be
able to examine and evaluate competitor behaviour and make realistic deduc-
tions about pricing, cost strategies and objectives.
Competitor behaviours in the different market structures were discussed earl-
ier and it is safe to assume that in any type of competitive market a price change
by one firm will trigger some kind of reaction from another. This reaction will
depend on such things as the importance of the segment, direction and magni-
tude of the price change and the ability and power of the competitor to be able
to respond. Market leaders will want to maintain this position and a price attack
by others will result in the price change being matched or even bettered. In some
situations a company will be prepared to take a loss in order to maintain the
status quo.
o Price and role of legislation in B2B markets
Although there has been a movement to diminish the amount of legislation, red-
tape and bureaucracy that can hinder the free flow of goods and services both at
home and across the EU, there has been an increase in the amount of legislation
brought in to stop anti-competitive pricing activity.
Anti-competitive pricing legislation

Legislation exists in both B2B and B2C markets to control the movement of
prices. In extreme circumstances the Secretary of State for Trade and Industry, the
Office of Fair Trading and overseeing regulatory bodies will refer cases to the
Competition Commission where it is felt that price movements are suspect and
could cause political, social and economic difficulties. Any company that has a
problem with price demands in the market can complain to the Office of Fair
Trading, which exists in some form in most developed countries. An investiga-
tion will take place and if there is evidence of wrongdoing such as price collusion,
price fixing, unfair discriminatory pricing, and so on, the matter will be referred
to a competition commission that can order the practice to stop, and in extreme
cases impose heavy fines.
Companies will look for ways to circumvent the law. With price signalling
sophisticated ways are developed by which companies tell one another their pric-
ing strategies without overtly colluding and thus breaking the law; e.g. talking to
the press about the need for general price increases will signal intentions to other
competitors.
PRICE AND ROLE OF LEGISLATION IN B2B MARKETS 347
Pricing and incomes policies

There are occasions in times of high inflation when governments have intro-
duced price legislation, restricting the amount that prices (and often incomes)
can rise across the board. Such measures seldom work as supply and demand fac-
tors have the effect of developing two markets: the official market where prices
remain within the government guidelines but cause a product shortage, and the
unofficial or ‘black’ market where prices are higher and products are available.
Subsidies
Some countries will subsidise the price of certain basic commodity products such
as bread, rice and milk to make certain that the economically disadvantaged do
not suffer. Suppliers are given guaranteed prices and products are then made
available at reduced prices. The government makes up the difference. Considered
to be anti-competitive except to protect fledgling industries, most governments
are attempting to reduce and eventually eliminate subsidies. As you would
expect, this is not well accepted by those sections of society that receive the sub-
sidies, but welcomed by those that do not and consider it unfair practice.
Example 7.2 The Competition Commission

(www.competition-commission.org.uk)
The Commission has two distinct functions: first, carrying out inquiries into matters
referred to it by the other UK competition authorities concerning monopolies,
mergers and the economic regulation of utility companies; second, the newly estab-
lished Appeal Tribunals hear appeals against decisions of the Director General of
Fair Trading and the regulators of utilities in respect of infringements of the pro-
hibitions contained in the Act concerning anti-competitive agreements and abuse
of a dominant market position. It has the power to fine miscreants up to 10 per cent
of their turnover.
Example 7.3 Competition Commission investigation

In March 2002 the Civil Aviation Authority (CAA) (aircraft business regulator)
asked the Competition Commission to investigate and report on the maximum
charges that could be levied over the five-year period from 1 April 2003. The charges
relate to the three London airports owned by BAA plc, namely Heathrow, Gatwick
and Stansted, and cover those levied for landing and parking aircraft, and include
passenger-related charges. It also asked for the report to consider whether any of
these airports has acted against the public interest in any of their airport-related
activities at any time since the last investigation in 1995.
The European Competition Commission operates across the whole of Europe

and the Federal Trade Commission operates in the US. Many others operate in
individual countries around the world with the same or a similar mandate.
UK National Audit Office

The UK National Audit Office is the independent public spending watchdog.
With 750 staff it audits expenditure of over £600 billion on behalf of parliament.
It audits the accounts of all government departments and agencies as well as a
wide range of other public bodies, and reports to parliament on the economy,
efficiency and effectiveness with which government bodies have used public
money. It purports to save the taxpayers millions of pounds a year.
Part 3 Other aspects of price in B2B marketing

In Part 3 we will look at many other aspects that have an effect on costs and pric-
ing. These include the following:
1. Price and the concept of elasticity
2. Price negotiations
3. The internet and its effect on pricing
4. Price and global markets
5. Strategic and tactical methods used in determining price.
o Price and the concept of elasticity

The concept of product elastic and inelastic demand is important to marketing
managers in both B2C and B2B as it will impinge on their ability to move the
price of the product either up or down and so increase sales and profit. There is
little point in increasing the price of the product by 10 per cent in the hope of
making a profit only to find that demand falls by 50 per cent. Similarly the results
will be disappointing if the price is reduced by 10 per cent only to find that sales
do not increase. In both cases a loss of profit will ensue. However, if the 10 per
cent decrease leads to a 50 per cent increase in sales, then profits will increase
from both a jump in products sold and the resultant cost savings as greater
economies of scale are achieved. So price elasticity of demand refers to the per-
centage change in quantity demanded caused by the percentage change in price.
It may be profitable in some cases to delay price increases if the market segment
is price elastic. Although profit margins will decrease this could be offset by a
temporary increase in volume and maybe a longer term increase in market share.
Price elasticity in markets

In B2B price elasticity of demand can vary from market segment to market seg-
ment and even from customer to customer depending on many factors including
the following:
o The value that product or service represents to the buyer (commodity or
premium?).
PRICE NEGOTIATION 349
o The importance of the component in the cost structure of the customer’s

product.
o Information available on alternative products and prices.
o The costs involved in switching from one supplier to another.
o The risks involved in moving supplier.
o The ability to pass on costs.
o The amount of competition.
o The availability of substitute products over both the short and long term.
Price elasticity in B2C markets

The concept of price elasticity of demand is also important in B2C markets.
Although there are similarities to B2B markets, there are also subtle differences
o The amount of disposable income enjoyed by the consumer.

o The basic need for the product.
o The importance of the product to a certain lifestyle and the availability of
substitute products, e.g. petrol.
o The availability of substitute brands; consumers tend to buy from a repertoire
of acceptable brands.
o The strength of brand in building loyalty. Advertising and global branding
can create a sense of uniqueness that will appeal to consumer emotions and
through this build in more inelasticity.
o Switching costs are less than in B2B and it is relatively easy for a consumer
to move from one retailer to another and from one product to another as
long as substitute products are available.
The existence of huge market segments can cause large volume changes with
elastic products or higher profits with inelastic products. By lowering its prices
and accepting lower profit margins (epitomised by the slogan ‘pile it high and sell
it cheap’), the Tesco supermarket group was able hugely to increase its sales.
Increased sales gave greater buying power because of economies of scale, an
increased customer base and swifter product turnover, which all enabled it to
grow to be the largest and most profitable grocer in the UK.
o Price negotiation
You don’t get what you deserve, you get what you negotiate.
(Anon.)
In many markets, especially low value or commodity markets, price will be a con-
tinuous process of negotiation and prices will shift back and forth according to
levels of supply and demand, extra benefits on offer and power position in the
marketplace. In other situations the negotiations on price are for long-term
contracts and so could be considered more important because of the commit-
ment involved. Some exchange processes are with existing customers and some
are with brand new customers. In all cases the negotiation strategies could be
different and personal and interpersonal skills should be honed so as to acquire
the most professional approach. Below we have identified two basic approaches:
cooperative and adversarial.
Cooperative or adversarial approach

Two distinct approaches to price negotiation between B2B buyer and seller have
developed over the ages. In the past the major approach would have been ad-
versarial, with both buyer and seller seeing each other as on opposite sides of a
divide and the buyer trying to buy at the lowest price and the seller trying to sell
at the highest price. Negotiation would then involve quantity amounts, benefits
demanded, delivery terms, and so on. There would bluff and counter-bluff until
a price could be agreed. This might be a mutually beneficial arrangement, a
win–win situation, or it could be more beneficial to one than the other, a win–
lose situation. With the adversarial approach, every encounter is a new round of
negotiation and the process starts all over again.
Cooperative strategic pricing

Although some buyers are happy with the adversarial method of negotiation
many are now more sensitive to traditional sales techniques, manipulation and
tricks and so reject this approach as inefficient, costly and not fully utilising all
buyer and seller skills and resources in a synergistic manner. The movement on
pricing in many B2B markets is now towards a more cooperative approach with
both sides wanting a longer term relationship where price and costs are discussed
in parallel with other added value factors focused on competitive advantage and
ultimate customer satisfaction.
We have discussed in earlier chapters the growth in the closeness of supply
chain relationships with all buyers and suppliers working together to increase the
effectiveness of the whole and building extra customer value at every stage.
Pricing is a major part of the process and strategic pricing decisions will often
need to be discussed and decided by both buyer and seller. It is here that the
degree of power in the relationship will often dictate the prices to be charged.
The negotiation process might be democratic and balanced, with both sides con-
tributing to the eventual prices to be charged, or it might be a case of one part-
ner, usually a large buyer, autocratically telling the other, a small dependent
supplier, the price it will be prepared to pay.
The more understanding and enlightened buyer will appreciate the cost and
profit needs of the seller, open this up to sympathetic discussion, and both agree
a ‘win–win’ pricing scenario. Pricing contracts might be agreed for the forth-
coming year to be renegotiated at the end of this period. In this way loyalty can
be developed, leading to a mutually beneficial association.
THE INTERNET AND ITS EFFECT ON PRICING 351
Price negotiation in B2B

Although many B2B organisations will have clear pricing policies and catalogues
with identified prices across a range of products, others will not and a process of
negotiation will decide prices. We have discussed above how price can vary
according to benefits demanded, but it can also vary according to factors such as
length of the contract (if any), quantity amounts wanted, delivery conditions,
payment methods, and power relations and partnership arrangements between
the negotiating companies. In fact depending on the B2B products and services
offered and market conditions, price might always be open to some degree of
negotiation because of the possible large amounts involved and the continuous
pressure along the supply chain on costs and efficiency. The more value in the
deal being negotiated, the more senior will be the sales managers involved, as no
organisation wants to be committed to a long-term unprofitable contract.
Price negotiation in B2C

Pricing in B2C markets tends to be less open to price negotiation. Finished
branded products sold to the retailer offer little room for price negotiation as
established producers have clear percentage mark-downs, calculated from the
estimated selling price, that are offered to the retail buyer based on accumulate
costs. Of course that is not to say that there are no occasions when retailers will
be offered lower prices, e.g. for extra amounts ordered or on outdated products.
Independent retailers often join together into ‘voluntary buying groups’ so that
they can obtain better prices on larger group orders.
Although consumers are consulted about pricing levels in B2C markets
through the use of both qualitative and quantitative research, it tends to be on a
mass superficial level. In the main, end consumers have very little room for price
manoeuvre and have to accept the asking price on most products. Only if they
come together can they usually obtain better prices.
o The internet and its effect on pricing

For hundreds of years, businesses used negotiation and bartering as a matter of
routine. The industrial age saw the emergence of mass production and extended
distribution chains, which made face-to-face negotiations with each customer
impractical. Fixed prices became necessary to manage the enormous growth in
both the volume and variety of products, distributed over larger geographic regions.
The advent of the internet and electronic commerce has greatly affected the
way businesses price their goods and services. It has allowed for more flexible
pricing based on customer characteristics or is dynamically determined based on
supply and demand.
Two trends in electronic commerce are causing this shift from fixed to dy-
namic pricing. First, the internet has reduced the transaction costs associated
with dynamic pricing by eliminating the need for people to be physically present
in time and space to participate in a market. The menu costs are also consider-
ably reduced. Whereas in the physical world changing a price incurs huge costs,
the same task in electronic commerce is reduced to a database update.
Second, price uncertainty and demand volatility have risen and the internet
has increased the number of customers and competitors, and the amount and
timeliness of information. In addition, the increased use of flexible pricing leads
to increased price uncertainty. Businesses are finding that using a single fixed
price in these volatile internet markets is often ineffective and inefficient.
The internet and differential pricing

Electronic markets can reduce customers’ costs for obtaining information about
prices and product offerings from alternative suppliers. They can also reduce
these suppliers’ costs for communicating information about prices and product
characteristics to customers. This has implications for the efficiency of an eco-
nomy in terms of the search costs experienced by buyers and their ability to locate
appropriate sellers. Electronic catalogues were the first step in this direction. Over
the past few years, companies have put their product catalogues on the web in
order to make them widely available. Most electronic catalogues are comprised
of fixed offers in the form of fixed list prices. Search engines make it easy for cus-
tomers to compare these offers and so the supplier must be continually updating
its pricing on standardised products if it wants to stay ahead of the game. This
problem will not be so acute where unique benefits and services are being offered.
Example 7.4 Pricing on the internet

The type of B2B arrangement that raises the most antitrust questions involves
cooperative efforts by members of the same industry to buy or sell over the inter-
net. The Federal Trade Commission examined a fledgling cooperative effort among
General Motors, Ford, Daimler-Chrysler, Renault and Nissan to provide services
to firms in the automotive supply chain. These are, of course, among the largest
automobile manufacturers in the world and compete with each other for sales.
The entity formed is supposed to facilitate the purchase of supplies. Pricing is the
antitrust problem most commonly identified with cooperative B2B arrangements.
If each participant can post its own individually established prices and is free to
negotiate pricing with particular customers (e.g. ‘off-line pricing’) then a price fixing
problem will probably not arise. Any restrictions on pricing can raise problems,
however. For instance, a B2B arrangement involving restraints on participants to
alter prices or requiring uniform prices would be almost certain to violate the
antitrust laws. In addition, a cooperative B2B arrangement that restricted credit
terms or resulted in some members boycotting particular suppliers would also raise
serious antitrust issues. Participants in joint B2B arrangements need to realise that
under the antitrust laws all members of a ‘conspiracy’ may be held equally liable,
even if they did not actively participate in the particular transactions raising
questions.
IT technology, computer software and its effect on pricing

As with all areas of business, technology is now firmly entrenched as an essen-
tial part of the pricing process. The marketing information system should be
constructed to easily provide information, past, present and future, on customers
PRICE AND GLOBAL MARKETS 353
and markets. Customised software is also available to measure demand elasticity

and to model the sales that might be made from various price charges. Software
programs will enable users to review price changes quickly and see how changes
have affected costs, movement and contribution. Models can be built mirroring
the whole market so that all reactions to different price changes can be measured
and evaluated. Competitor, customer, overall demand, etc. can be looked at
individually and/or as a group and predictions made about the future. Computer
simulations allow pricing strategies to be established against competitors in a
particular trading zone, while measuring the potential gross profit of the strategy.
From this costs, sales and profit targets can be generated that permeate from the
top down to the bottom of the organisation.
o Price and global markets

International and global suppliers will need to price their goods and services in
other countries as well as their own. The question arises as to how this might
be done: whether to centralise marketing mix decisions at HQ or to allow all or
some of these decisions to be made in individual countries. This is a recurrent
problem in both B2B and B2C markets and will be discussed in more detail in
the next chapter. If costs and pricing policies are controlled then a clear line
of monitoring and control can be established. However, this does not allow
marketing managers to take into account localised factors that will impinge
on costs and prices across the product portfolio. These factors will include the
following:
o Standards of living will vary from country to country and a reasonable price
in one country will seem exorbitant in another.
o If production is in the home country, then the same costs will dictate the
price wherever products are sold. This has driven many organisations to out-
source production to the lowest cost countries.
o By custom and practice prices across the whole market may be higher or
lower than in the seller’s home market.
o Similarly culture may have an effect on the way that prices are negotiated,
agreed and then paid for.
o If production is in the peripheral country where the products are to be mar-
keted rather than in the home country, costs would probably be lower and
so the price can be lower.
o Where exchange rates fluctuate, price changes can cause buyer concern and
loss of sales if the products become too uncompetitive. Long-term contracts
and/or the use of a universal currency such as the euro can help alleviate this.
o Transfer pricing by global companies can push the costs and profits to the
most propitious and beneficial country.
o Although countries are forming large trading blocs moving towards similar
market conditions, legislation, tax laws, subsidies and barriers to market
entry will still possibly vary from country to country. These factors will all
have an effect on the prices that can be charged.
Pricing and power relationships

All relationships to a greater or lesser degree are power relationships and it is no
different between buyer and seller in B2B markets. In most situations the large
and strong buying organisation will nearly always be able to dictate costs and
prices where any type of supplier competition exists. The responsible buying
organisation will want to build good relationships with suppliers and so negoti-
ate prices that allow the partnership to grow and blossom, enabling quality goods
and services to be supplied. Other organisations are not so responsible and nego-
tiate very low prices, forcing the seller to cut costs to the bone. This has led to
notorious examples of producers in developing countries paying very low wages,
operating dreadful working conditions and employing child labour. In some
cases the moral outcry and subsequent bad publicity have forced buyers to revisit
and readjust supplier relationships.
o Strategic and tactical methods for determining price

The factors affecting the pricing of the product need to be considered and pricing
methods chosen. There are many different methods available, at both the strategic
and tactical levels, and the following will be discussed:
o Cost-plus pricing
o Going rate pricing
o Break-even and target revenue/profit pricing
o What-the-market-will-bear pricing
o Customer-driven pricing.
Tactical or secondary methods will include:
o Psychological pricing
o Lease pricing
o Sealed bid pricing
o Open bid pricing
o Auction pricing
o Bartering
o Reciprocal arrangements.
Cost-plus pricing
This method of pricing has an immediate attraction because of its apparent
simplicity and it can be used in both B2B and B2C markets. The cost of the stra-
tegic business unit (SBU), e.g. the product or service, is worked out by allocating
a portion of the fixed costs to each product (using cost and profit centres and
ABC costing will help in more accurately achieving this) and then adding it to
the variable costs. This will give the total cost of each SBU. The percentage profit
wanted is then added to the total cost to give the expected selling price. Although
it is crucial for planning and control purposes to know wherever possible the
STRATEGIC AND TACTICAL METHODS FOR DETERMINING PRICE 355
total cost of all designated SBUs, there is a misassumption made here. This is that
having established total costs, all the product manager needs to do is add the
desired mark-up to obtain the selling price and then offer the product onto the
market.
What this does not take into account is the fact that the competition may be
offering a similar product at a lower price because of greater productivity or a
willingness to work on a lower mark-up. Similarly, the customers may be unwill-
ing to pay the price because they might be willing to go without, buy a substitute
product or buy it cheaper from the competition. This method of pricing will only
work where there is excess demand or a monopoly or oligopoly type market.
Cost-plus pricing in B2B

Cost-plus pricing can work in B2B under the following circumstances:
o Where the benefits offered are specialised and/or complex.
o Where there are no substitute products.
o In a monopoly or oligopoly market.
o Where there is excess demand.
o Where costs and pricing policies have been agreed between buyers and sellers.
Going rate pricing

In many industries, in both B2B and B2C, the structure of the market will decide
the general level of prices. In an unregulated monopoly market, almost any price
can be charged bearing in mind the trade-off between profit and sales. At the
other end of the market – perfect competition – the price will be decided by the
interplay of supply and demand and be outside the control of the organisation.
Most companies, however, will be setting their prices somewhere between these
two extremes.
Adopting the going rate pricing, the company will set the price according to
price levels that are already used in their particular market. These price levels
might have come about through tacit agreement, similar cost and profit needs,
customer demands, or by competitive market interaction. A pattern of different
price bands tends to develop, each aimed at different target groups. A firm
launching a new product will price its products and compete within these price
bands (or price plateaus).
The advantage in adopting a going rate pricing policy is that there is little or
no effort needed in deciding the price as the market will have set the parameters.
This is particularly helpful if the going rate allows for high profit margins due to
little competition and/or a concentration on added value rather than price
(oligopoly market?). It is in no company’s interest to rock the boat by lowering
the prices and perhaps causing a price war and a downward spiral.
The disadvantage of going rate pricing is that it can lead to complacency and
inefficiency. Almost any market is now open to invasion from competitors around
the world prepared to ignore custom and practice and set their prices according
to a lower cost base or offer more innovative products at the same prices and so
steal market share. This is particularly so in B2B where products and services tend
to be aimed at narrow and more specialised markets.
Break-even and target revenue/profit pricing

Some organisations, in both B2B and B2C, will price products to break even
(cover both fixed and variable costs) or reach profit targets within a certain
period. If a higher price is charged then total costs recovery will be quicker and
if a lower price is charged then total costs recovery will be longer. This might be
because financial backers impose time demands, in terms of payback period and
profit targets, and so the prices charged would need to conform to agreed revenue
and profit targets. The flexibility to do this would, of course, depend on the
factors identified earlier.
What-the-market-will-bear pricing
Pricing by what the market will bear is to take advantage of market conditions
such as shortages, scarcity, or a product’s uniqueness at a particular moment in
time, and setting the price at the highest figure the customer is prepared to pay.
This may, on the surface, seem to be an attractive method because optimum
profits can be achieved. A word of caution, however. There are times when higher
prices can be charged and customers have little or no choice but to pay. This will
not necessarily cause hardships in B2B markets if the component accounts for a
small amount of the finished item. But there will be occasions when illwill might
be generated which could have long-term detrimental effects, with the buyer
looking elsewhere when the first opportunity arises.
Customer-driven pricing
If we were to take a marketing approach the price should be set at the level the
customer is willing and satisfied to pay. This level can be found through the use
of marketing research. This price may vary from segment to segment and accord-
ing to the many benefits that might be added to the product or service. The
benefits offered by others, and the overall prices traditionally charged across the
whole marketplace, will determine the degree of buyer expectation on what
benefits could normally be obtained from any one pricing level (see Figure 7.5).
o Tactical or secondary pricing methods

Psychological pricing
Although there are occasions when psychological pricing, for example charging
£999.99 instead of £1000, might be attractive in B2B markets, these are rare and
much more prevalent in B2C markets. This is because of the many different
reasons for purchase between the two markets identified in many places through-
out the book.
TACTICAL OR SECONDARY PRICING METHODS 357
Figure 7.5
Factors to
consider when
deciding the
final price in
B2B markets
Lease pricing
Leasing allows the business to use high value products and services over an
extended period rather than making one large purchase investment for immedi-
ate ownership. Payments are spread over a negotiated period and can include
extras such as maintenance, servicing and repairs. At the end of the lease period
the product can be purchased at about the current market price. The use of leas-
ing in B2B markets has increased over the decades and can be used for all B2B
products and services. It is beginning to be used in B2C markets, e.g. the purchase
of cars, but the occasions are few and far between.
Sealed bid pricing

With sealed bid pricing, suppliers are invited to submit a price and a description
of the level of benefits to be offered to a buyer wanting a particular product or
service. Usually (though not always) the lowest price will win the contract. Often
only a small number of suppliers (e.g. six or seven), previously vetted and placed
on an acceptance list, are allowed to tender. The sealed bid tender is usually in
writing (or perhaps now on the internet) and each supplier is unaware of the price
costed by other suppliers. There have been occasions when competing suppliers
have colluded and deliberately priced high so that each one in turn receives the
contract at an inflated price. This malpractice, if discovered, will result in a fine
and/or imprisonment.
Open bidding pricing

Similar to sealed bid pricing, open bidding pricing allows suppliers to discuss
needs with the buyer and to make offers both formally and informally. A buyer
may use many suppliers who might or might not know what others are bidding.
This method is often used where product/service needs are complex, highly tech-
nical and/or uncertain. In this way buyers can discuss problems and possible
benefits needed as part of the bidding process. With both sealed bid and open
bidding pricing the supplier will need to put together a quote based on identified
buyer needs. This can be time consuming and costly, especially if the order is
won by another company. On the other hand and just as much of a problem can
be contracts won that turn out to have been badly thought through, so ultim-
ately costing the company money. The bid proposal will need to be put together
in as professional a way as possible using current buyer, market and competitor
information. Bids that fail should be thoroughly scrutinised to help discover why
the bid lost.
Both methods are used for high value contracts in both the private and pub-
lic sector. In fact, with the opening of the public sector to competition, more and
more departments must now buy many products and services through a process
of compulsory competitive tendering (CCT). Both the above methods are rarely
used in B2C markets.
Auctions
Internet growth has seen the increase in website market exchanges as a method
to facilitate the use of auction as a way of buying and selling B2B products.
Auctions have been used in the past, especially in commodity ‘spot’ markets. A
spot market is where a commodity is purchased ‘on the spot’ at current market
rates for immediate delivery. The following are types of auctions:
o English auction: buyers start bidding at a low price. The highest bidder wins
and pays the last price bid.
o Dutch auction: the auctioneer starts very high and calls out progressively
lower prices. The first buyer to accept the price wins and pays that price.
o Reverse auction: used to purchase instead of sell. The lowest bid wins. All auc-
tion types can be used in reverse.
o Double auction: both buyers and sellers submit bids and the closest are
brought together.
TACTICAL OR SECONDARY PRICING METHODS 359
Example 7.5 WorldWide Retail Exchange

(www.worldwideretailexchange.com)
Online marketplaces or B2B ‘hubs’ are where large companies join together to pur-
chase products by auction. This one has over 50 members including M&S, Dixons,
Boots, John Lewis, Auchan, Gap, Kingfisher and Safeway. Suppliers from around
the globe are invited to bid for B2B products wanted and advertised on the website.
Lowest supply price wins.
Bartering and other reciprocal arrangements

Some companies agree to ‘barter’ and exchange or swap goods or services directly
without the use of money. Both buyer and seller must be happy with this arrange-
ment for this to happen. Although price isn’t used directly, a value of some kind
must be negotiated and agreed by both parties if this to happen. Bartering
arrangements are sometimes implemented by governments anxious to support
their own industries by insisting that goods and services bought from abroad are
paid for not by precious foreign exchange, but with home country goods and
services. If forced into this arrangement, the initial seller may have to make
arrangements to sell the bartered goods on to others if the seller cannot make use
of them. Bartering arrangements can fall foul of legislators and tax authorities.
A buyer may sometimes insist on the seller purchasing some of the buyer’s
own products in return for an order. Of course the seller must use the buyer’s
products in some way, otherwise the agreements couldn’t work. Reciprocal
arrangements such as this work well and help to build fruitful relationships if
there is a genuine need for each other’s products. Care must be taken, however,
not to upset the competition authorities who will strike hard if it is felt that
the reciprocal arrangements are anti-competitive in some way. Bartering and
reciprocity arrangements are rare or non-existent in B2C markets except in very
small markets in developing countries.
Example 7.6 Bartering growing

The International Reciprocal Trade Association (www.irta.com), the bartering
industry’s trade body, estimates that $16 billion (£11 billion) worth of products and
services were bartered in the USA in 1998. BarterTrust (www.bartertrust.com) is
one of the major players and is backed by General Motors Investment Management
Corporation, Deutsche Bank, Alex Brown and GE Equity. It has become the largest
business barter exchange in North America, with more than 7000 clients and $130
million worth of transactions in its first year of operation. It now claims to have
10,000 businesses on its books producing $150 million worth of transactions through
15 regional exchanges, and to have enjoyed revenues of $10 million last year. Industry
experts say that the internet has given bartering a fresh impetus. A US academic
has been quoted as saying: ‘Business-to-business barter is going to be massive.
With the internet it is inherently global. BarterTrust say they are now focusing on
the European and Asian markets where the potential is expected to be enormous.’
Table 7.1 B2B B2C

B2B and B2C
pricing Price negotiation possible Little price negotiation
differences Consultation through group qualitative Individual discussion on price
and quantitative research
Costs as well as price discussed No discussion on costs
Price auctions used Little use of price auctions
Price bidding used Little or no price bidding used
Flexible pricing linked to customised Little price flexibility
products and services
Individual company pricing Pricing by group segments
Large and complex DMU involved Small, simple DMU
Pricing to build supplier/buyer relationships Pricing to build mass loyalty
Relationships more important than price Price more important than relationships
Long-term contracts No contracts
High pricing on premium products based on High pricing on premium products based
functionality on brands and emotion
Elasticity of price quickly filters through to Elasticity of price takes longer to affect
buyer price consumer price
Cooperative pricing along the supply chain No cooperative pricing
Difficult to price discriminate because of Easier to price discriminate because
small number of customers and easy of mass markets and lack of
access to information information
Payment by extended credit Credit card, debit card or cash
o Summary
In this chapter we have examined the role that price and costing play in B2B mar-
keting. A definition of pricing was given and then its place within marketing was
discussed. The interaction between price and products and services, distribution
and promotion was examined and B2B compared with B2C (Table 7.1). It was
argued that price was an underutilised business tool in B2B marketing and so
ways that it might be used were identified and evaluated. We then went on to
discuss the strategic factors that should be determining the price.
Company objectives, strategies, costs, customer, market structure, levels of
demand, competition and legislation were identified and related to the pricing
process. It was made clear that the overriding concern was for pricing objectives
to meet both the marketing and corporate objectives and examples of different
objectives were given. The main pricing strategies used to achieve pricing object-
ives were identified and reasons given for usage. Again B2B was compared with
B2C. New product pricing and pricing across the product life cycle were briefly
outlined before moving on to talk about the differences between strategic and
tactical pricing.
The importance of costs in the pricing process, their association with market-
ing and the different types of costs were discussed, emphasising the need con-
stantly to monitor, control and reduce these to maintain competitive advantage.
Cost and profit centre and activity based costing were recognised as ways of
trying to make certain that this would happen. Monopolies, oligopolies and com-
petitive markets were again examined, but in the context of different pricing
needs. Price and levels of demand, price and competitive response and price and
BIBLIOGRAPHY 361
legislation were all shown to have an influence on pricing strategies and could
not therefore be ignored in the process.
Other influences on pricing were discussed including price elasticity, price
negotiations, the effect of the internet on pricing, price and global markets and
strategic and tactical methods that could be used in determining the price to be
charged. B2B and B2C markets were compared wherever possible.
1. Identify the factors that need to be examined when pricing in B2B markets. What
are the differences when compared with B2C markets?
2. What part will marketing theory and marketing concepts play in B2B marketing?
Are there major differences when compared with B2C markets?
3. How might pricing factors differ when comparing the public sector with the
commercial sector in B2B marketing? Why do some commentators argue that the
movement of an organisation from the public sector to the private sector could
be beneficial for cost and pricing efficiency?
4. Discuss the various pricing strategies that might be used by B2B suppliers. Give
examples of companies that use the different strategic pricing approaches and
examine why this might so.
5. Why might a supplier be able to charge different prices for its products and services
in different regions and countries? Are circumstances the same in both B2B and
B2C and what forces might work to stop this type of discriminatory pricing?
6. Discuss the proposition that ‘there are only two ways that an organisation can
increase profits, sell more or reduce costs’. How might a company reduce costs
both internally and along the supply chain?
7. Discuss the various pricing methods identified here. How might they be used in
practice and what are the advantages and disadvantages of each?
8. Is there an ethical case for paying above the norm prices in Third World countries
so that working conditions can be improved? Identify and discuss examples where
organisations have attracted bad publicity.
9. Identify the role that governments play in B2B product and service pricing
policies. Examine the part that overseeing regulators, both nationally and
internationally, have in policing the current pricing legislation.
10. Identify and analyse the steps involved in determining the price of the product.

o Bibliography
Books
Cunningham, M.J. (2001) Business-to-Business: How to Build a Profitable e-commerce Strategy.
Cambridge: Perseus.
Daly, J.L. (2001) Pricing for Profitability: Activity-Based Pricing for Competitive Advantage.
Chichester: Wiley.
Dolan, R.J. and Herman, S. (1997) Power Pricing: How Managing Price Transforms the Bottom
Line. New York: Free Press.
Nagle, T. and Holden, R.K. (1998) The Strategy and Tactics of Pricing: A Guide to Profitable
Decision Making, 2nd edn. Harlow: Pearson Education.
Seymour, D.T. (ed.) (1989) The Pricing Decision: A Strategic Planner for Marketing Professionals.
Chicago: Probus.
Spar, D.L. (1994) The Cooperative Edge: The Internal Politics of International Cartels. Ithaca:
Cornell University Press.
Journals
Dolan, R.J. (1995) ‘How do you know when the price is right?’ Harvard Business Review,
September–October.
Sashi, C.M. and O’Leary, B. (2002) ‘The role of the internet auctions in the expansion of
B2B markets’, Industrial Marketing Management, 31: 103–10.
Shapiro, B.P. and Jackson, B.B. (1978) ‘Industrial pricing to meet customer needs’, Harvard
Business Review, 56 (6): 119–27.
Smith, G. (1995) ‘Managerial pricing orientation: the process of making pricing decisions’,
Pricing Strategy and Practice, 3 (3): 28–9.
Woodside, A. (1994) ‘Making better pricing decisions in business marketing’, in A.
Woodside (ed.) Advances in Business Marketing and Purchasing. Greenwich, CT: JAI Press.

08 Business-to-business strategic
communications
Aims and objectives

Chapter

1. Identify and evaluate the differences between corporate and product
communications at the corporate and marketing levels in both B2B and
B2C markets, and show how they might be changing around the world,
including the use of innovation and technology.
2. Identify, compare and evaluate both ‘above’ and ‘below the line’
communications and promotion strategies and demonstrate how they
might be used together to reach different target segments.
3. Recognise the importance of selling and sales management to B2B
marketing and communications and show how it might be used with all
other media forms.
4. Demonstrate how all communications and promotion must be integrated to
achieve optimum effectiveness and objective achievement.
Part 1 Corporate and marketing communications
o Introduction
The role of communications
All organisations have to talk to their customers, if only to try to sell them benefit
offerings. Experience tells us that very few products and services, if any, will ever
sell themselves and customers have to be informed about why they should use
one company rather than another or buy one product rather than another.
Methods used to communicate vary not only between B2B and B2C markets
but also from industry to industry and from customer to customer within both
these markets. As well as customers, businesses communicate with many other
interested stakeholders, in both an informal and a formal way, collecting and
providing information on a continuous basis. Communications will be at both
corporate and product level, providing information about the company and
information about its product portfolio of goods and services.
The levels of marketing communication range from short-term tactics to a
long-term strategic vision. Communications at the corporate level will be
364 CHAPTER 8 • BUSINESS-TO-BUSINESS STRATEGIC COMMUNICATIONS
concerned with enlightening people about the organisation itself, promoting com-
pany values, explaining policies, rectifying misunderstandings and minimising
anything that might cause any form of bad feeling. Communications at the prod-
uct and service level will be about talking, and listening, to customers and telling
them how supplier company product benefit offerings could solve problems both
now and in the future. They are about creating new customers, building expecta-
tions and explaining how one’s company’s products and services are better value
than any of the competition’s offerings. In this way it is hoped that customers
will be persuaded to purchase the product on a one-off or continuous basis.
In B2C markets the customers are individuals, or groups of individuals, buy-
ing for themselves, while in B2B the customers are individuals, or groups of indi-
viduals buying for the organisation that employs them. The differences between
corporate communications and product communications and between B2B and
B2C markets have engendered the growth of many and various communications
methods specifically developed to take into account these differences. When
communicating, the company will use many of these methods to augment and
build the strength of the message. This will be discussed throughout the chapter.
We will also discuss the crucial need to bring together all communications into
an integrated programme that can be measured and seen to have achieved its
objectives.
The changing role of communications

In the distant past communicating would not have been so daunting as it appears
to have become over the last 20 or so years. The seller and purchaser would have
lived in the same hamlet, village or town so information about product or service
availability and/or development could have been communicated, fairly quickly,
by word of mouth. Feedback on the retail outlet, the owner, price, value, func-
tionality and competitors’ offerings would have been obtained, almost immedi-
ately. In many cases this directness of communications is no longer possible
in the modern, complex and widespread global marketplace, especially in B2C
markets. The seller and many buyers (possibly millions) will probably live many
hundreds or thousands of miles apart, never actually seeing one another, and so
be reliant on some type of non-personal contact. The same problem exists in B2B
markets but not anywhere near to the same extent. Although B2B suppliers and
buyers could be anywhere in the world, they are larger and fewer in number,
making it more possible to talk individually or in small compact groups.
However, these problems are not the only major factors to be considered when
attempting to communicate to select target segments and individual customers.
Hundreds (in the case of B2B markets) or thousands (in the case of B2C) of other
organisations, advertising agencies, competitors and non-competitors, will also be
attempting to talk to the customer at the same time. The successful organisation
must make sure that its message is heard rather than the message of another.
Development of different forms of communication

It is impossible in B2C markets for company personnel to talk directly on a face-
to-face basis with every separate consumer. Although it is theoretically possible
INTRODUCTION 365
to talk with every buyer in B2B markets, this would not be practical for any
but the largest of companies for reasons of costs, time and travel implications.
This has led to the development of ever more intricate and sophisticated meth-
ods of communication that have been given an immeasurable boost with the
unprecedented growth in information technology and particularly the internet.
These many options will be discussed and evaluated throughout this chapter
under the concept of the communications or promotional mix. It is important to
understand that the category is called the promotional ‘mix’ because it consists
of various communication methods available to the marketing manager to
inform, educate, interest and persuade the customer eventually to try and/or pur-
chase the product or service.
A selection of promotional techniques or ‘tools’ is needed because there are
different communication and promotional objectives that the marketing strat-
egist and operational manager must achieve in informing and moving the audi-
ence through to seeking and buying the product. These can and will be different
between the B2B and B2C markets. The promotional objectives to be achieved
will include creating awareness, stimulating desire and persuading action of some
kind. Feedback between the two markets will also differ in that B2B marketers can
usually readily talk to business decision makers, being relatively few in number,
but B2C marketers will have many more difficulties because of the large numbers
involved.
Communications in B2B markets

o Relatively few customer to talk to.
o Person-to-person communications often a possibility.
o Complex DMU or buying group.
o Hundreds of others attempting to persuade at the same time.
o Different techniques from B2C needed.
o Messages will have a high rational content.
o Feedback more immediate.
o Used to build long-term relationships with individual companies.
Communications in B2C markets

o Mass markets consisting of millions of customers.
o Methods other than person-to-person must be used.
o Individual or simple DMU.
o Thousands attempting to talk at the same time.
o Different techniques from B2B needed.
o Messages will have a high emotional content.
o Feedback complex.
o Attempt to build long-term relationships with market segments.
o Corporate and marketing communications

Although there is an enormous amount of overlap, B2B communications can
be profitably examined under two headings: corporate communications and
marketing communications. Corporate communications are communications
emanating from the organisation itself, and marketing communications will
come from the marketing department.
Corporate communications
B2B corporate communications are communications to all corporate stakeholders,
usually directed and controlled from head office. Many large organisations now
have corporate communications departments (previously called public relations
departments) managed by specialist communications people given the task of
maintaining good relations with all company stakeholders and creating and
maintaining a good image for the overall organisation on a continuous basis. All
the factors that go to make up this ‘good image’ could be said to be represented
by the corporate name and logo, the so-called ‘corporate brand’.
It is at this level that communications strategies are determined, outlining
how the organisation will behave to stakeholders both within and outside it. So
these communication strategies will be responsible for both corporate internal
image management to employees and shareholders and corporate external man-
agement to local communities, local and national government, pressure groups
and of course customers. Every contingency should be planned for, not in detail
but in broad terms, so that all managers know how to respond, on the one hand
to opportunities for organisational advancement, and on the other to mollify
and minimise negative criticism (Figure 8.1).
B2B and B2C

There are similarities in corporate communications between B2B and B2C organ-
isations. There are also important differences. B2B will be concerned about how
its image is perceived by other companies and not by the end consumer. This
implies that it will be judged purely in rational business terms and even with a
certain amount of sympathy for bad publicity (‘there but for the grace of God
go I’ syndrome). In contrast, end consumers and the population as a whole will
Figure 8.1
Corporate and
marketing
communications
message
flexibility
CORPORATE AND MARKETING COMMUNICATIONS 367
judge B2C organisations on emotional as well as rational considerations (often

driven by the popular press) and can often expect little sympathy.
Stakeholders
Corporate communications might have to talk to the following stakeholders.
Internal stakeholders
o Managers, workers, workers’ families, trade unions
o Shareholders.
External stakeholders
o Value/distribution chain members; suppliers, producers and intermediaries
o Local community
o Trade and professional bodies
o Local and national government, politicians
o Independent legal and regulatory bodies
o Pressure groups, environmentalists, moral campaigners
o Financiers, the ‘City’
o Media, newspapers, TV, etc.
o Customers, DMU
o Competition.
Crisis management
Having outline strategic and operational plans available in manual form so that
all responsible managers can respond in an appropriate way is an intrinsic part
of corporate communications. An example might be the case of one of the big
chemical companies being slated for spilling harmful ingredients into a river and
thus causing pollution. Although best not to commit the misdemeanour in the
first place, the company will also be judged on its reaction to the public outcry.
Crisis management should help by at least giving managers access to well
thought out ways of response that might help appease the condemnations.
Example 8.1 Andersen’s faces a crisis

When Enron collapsed because of fraud, nobody thought it could get any worse. But
then WorldCom collapsed. The demise of the telecoms giant has now overtaken the
energy trader as the biggest bankruptcy in US history. The crisis has brought chaos
to the markets and shaken the foundations of the world financial systems. One
name is at the heart of both scandals – Andersen. It signed off the accounts of both
WorldCom and Enron, companies whose billion dollar profits were built on lies. And
there are a string of other accounting scandals that have Andersen’s name
attached to them.
Marketing communications
Strictly speaking, the concern of marketing communications is with talking,
listening and promoting the company and its brands to customers and markets
and attempting to build up long-term relationships. But in many cases there is a
very grey area between what should be corporate communications and what
should be marketing communications. For example, it is a marketing axiom that
many buyers will think twice about buying products from companies that they
don’t know and/or from companies that they don’t like. This homily is particu-
larly applicable for B2B suppliers moving into new countries and new markets.
So all activity, whether by the corporate communications department or market-
ing department, that enhances the image of the corporate brand will be helpful
to the sales and marketing effort. Conversely all criticism of a company can
rebound in a negative manner on the purchase of goods and services. In some
companies and in some instances corporate communications people will be
involved in marketing, and marketing people in corporate communications.
B2B and B2C

Marketing communications in B2B and B2C are similar in that both use a mix-
ture of tools and techniques to communicate and persuade customers to buy the
product. But the actual process can be very different because of the dissimilar
buyers, reasons for purchase and the use that will be made of the bought product
or service. So we find that personal selling, for example, will be heavily used in
B2B but not in B2C, and main media advertising used in B2C but not in B2B. The
reasons will become more apparent as we move forward.
Importance of audience targeting

It is imperative that the target audience is clearly identified and profiled in detail
if relevant messages are to be constructed in the correct manner and a medium
used that will reach and be understood. We discussed in Chapter 4 the impor-
tance of segmentation and targeting, but it should be self-evident that the wrong
messages sent in the wrong way will be lost in the ether and be money and
opportunity down the drain. Stakeholders will often want different benefits from
an organisation and its products and services. This must be taken into consider-
ation when building communication and promotional strategies and responding
to events that demand a reaction. Pressure groups will want to hear that the
launch of a new product will not harm the environment; government that new
jobs will be created; intermediaries that some amount of profit will be made; and
the customer that it will offer more innovation and value for money than exist-
ing products.
Unintentional and intentional communications in B2B markets

Organisations are always communicating to stakeholders whether they intend to
or not. Both intentional and unintentional corporate messages may be generated
in the following ways.
1. Where the company is situated. This might be the town, region or even country
from which the company operates. A bad employer and/or an uncaring envir-
onmentalist will create negative messages that will spread and ripple a large
distance from the place of operation. The company’s treatment of the local
community, whether it contributes positively in some way, will be part of
building a local and national identity.
2. The manner and way the company operates. Companies that always push down
price, never pay on time or never reward loyalty will sometimes find that
when circumstances change they have very few friends to turn to for help. The
customer contact with the organisation can turn off the relationship before it
has even begun: telephones not answered or that mechanically force inbound
callers to move from one humanless contact point to another; unhelpful,
unknowledgeable, or rude staff; how enquiries and complaints are dealt with.
All such contacts can build up an unfortunate image with the stakeholders.
3. Products and services marketed and sold. The products, services, brands and pack-
aging that the company manufactures, the prices charged, the channels of dis-
tribution used, the state of the delivery lorries, returns policies and methods
of selling promotion and advertising adopted all contribute to identity
formation.
Example 8.2 Bad behaviour

Pepsi and Coca-Cola have been fined by India’s Supreme Court after painting adver-
tisements on the side of the Himalayan mountains. The two companies were among
12 companies who placed adverts on ecologically sensitive rockfaces on a stretch of
highway running through the Himalayan range. Judges fined the two companies
200,000 rupees ($4000) each, while the other companies were ordered to pay
100,000 rupees each towards the cost of repairing the damage.
Strategic communication integration

It is the concern of both corporate and marketing communications senior man-
agers to be aware of the power and extent of business communications and to
plan and strategically harness all forms into an integrated whole. In this way
unplanned, unhelpful messages can be minimised or eliminated and all com-
munications, both corporate and marketing, be brought together as a positive,
image-enhancing force. The integration of communication methods will be dis-
cussed in more detail as we move through the chapter.
Communications and relationship marketing

We have argued in earlier chapters that most if not all organisations would like
to have close and friendly relationships with customers in both the short and
long term. Friendly relationship will hopefully engender loyalty and so create
repeat purchases over the customer lifetime. There is also the hope that this
loyalty and satisfaction will persuade the customer to recommend others to buy
Figure 8.2
B2B Corporate
Communications
Model – talking
to many
stakeholders
from the same organisation. Communications are an essential part of the process
in building this relationship. Of course the benefits offered must live up to or
exceed customer expectations, otherwise all the communications will succeed in
doing is to dissuade any further purchases. If relationship marketing is going to
work then the marketing communications must clearly identify target audiences
and send out consistent quality messages in an integrated manner, monitored,
controlled and adjusted as benefits need to change. Planning software is available
to help guide and focus the programme (Figure 8.2).
Understanding basic communications

Good promotion is all about good communications, that is sending a specific
benefit message to clearly identified target audiences, listening to the feedback,
readjusting the message if confusion or ambiguity is apparent and finally being
certain that the truth and the core of the message are fully understood. This
simple concept will apply whether the market is B2B or B2C. No matter how
complex the message process becomes, its basic tenet should be rehearsed so as
not to be forgotten whenever possible.
With corporate communications this might be to any number of different
stakeholders, while product/brand communications will be sending and receiv-
ing messages to target markets and specific customers. In B2B markets the target
for the message will be another company. In B2C this will be mostly the end
consumer. Bearing this in mind it is worth examining the basic communication
model (Figure 8.3).
Sender, medium and receiver

The sender, B2B or B2C organisation, must put the message in a form that will
be easily understood by the receiver – another business or the end consumer. The
medium to be used, face-to-face, direct mail, TV, etc., must be a communications
Figure 8.3
Basic
communication
model
vehicle that will be both seen/heard and understood by the receiver. The receiver,
another business or the end consumer, will decode the message so as to make
sense of it. Feedback will enable the sender to know whether the message has
been understood and, if not, readjust the message until it is understood.
Noise and feedback

By noise we mean all of the many types of interference that can stop the message
getting through to the target market and the feedback back to the sender. This is
less of a problem in B2B than in B2C. In B2B there can be close contact between
supplier and buyer, while in B2C feedback has to be representative and often has
to filter back through research companies and their ilk. Below are some of the
barriers to communications, in both sending and receiving messages, identified
under the two market types.
Noise and feedback in B2C

Feedback can cause enormous difficulty in B2C markets and many of these were
discussed when we looked earlier at market research and feedback. Consumer
markets can be huge and therefore it is impossible to talk to everybody indi-
vidually. Messages can be sent at any time (day or night) but care must be taken
that they reach the right target group. This forces use of mass communication
media such as TV, newspapers and direct mail. Feedback then becomes extremely
problematic with research used to talk to representative samples. Emotional mess-
ages, favoured in this category, can be notoriously easy to get wrong. Below are
just a few of the problems and barriers:
o Time and costs.
o Misidentification of target audience.
o Poor encoding in the message for the target segment perhaps using more or
less emotion and rationality.
o Poor decoding by receiver because of target audience level of understanding
and readiness to receive.
o Messages sent at any time but must be the ‘right’ time for the target audience.
o Poor decoding because wrong medium used.
o A multitude of competitive messages can cause confusion, hostility, cynicism
or rejection.
o Feedback by research and representative sample.
Noise and feedback in B2B

Noise in B2B is not of the same magnitude as in B2C and is of a different kind.
Audiences are smaller and can often be quickly researched to check understand-
ing. Messages are in the main functional and should not lead to receiver con-
fusion as homework on the particular segment or buyer has been professionally
undertaken. In theory it should be reasonably easy to contact the decision-maker
but sometimes it is more difficult in practice because of complexity and work rate
of important members.
Feedback can often be direct by personal contact but salespeople are not always
encouraged to take this seriously. Below are some of the differences in B2B:
o More difficult to misidentify target audience.
o DMU complex and it is possible not to ‘hit’ all members.
o Decision-maker too busy to listen.
o Messages sent predominantly during work time.
o Competition based on use and functionality, not emotion, i.e. the message
must offer a real difference.
o Feedback by personal contact not taken seriously.
Medium
The way the message is sent can be identified under the concept of the ‘medium’
and this will be discussed in much more detail later in the chapter. The main
categories, however, can be identified under person-to-person and non-human
media:
o Person-to-person media. This will include spoken, written, telephone, body
language and facial expressions, including the use of sound, vision, taste,
touch and smell.
o Non-human media. This will include the main media, TV, newspapers, maga-
zines, directories, outdoor billboards, radio, cinema, internet, direct response,
and so on.
We have argued that person-to-person media are more important in B2B and
non-human media in B2C, although both will use the two forms. All of this will
be examined later.
There are a number of factors to consider in choosing a medium. First of all
will the chosen medium reach the target audience? That this is vital should be
self-evident, but past media activity is replete with examples of adverts being
placed in newspapers or magazines, and now on the internet, that were unlikely
to be seen, for whatever reason, by a worthwhile number of the target audience.
Although more of a problem in consumer markets, it still happens in business
markets.
Second, the characteristics of the media are important. Communications
media have characteristics that make them more appropriate for one form of
message carrying than another. For example, a person selling has advantages for
products and services that need detailed question and answer explanations (B2B),
while packaging is ideal for content description on the shelf (B2C). TV might be
good at introducing simple visual products (B2C), and a magazine for more spe-
cialist complex products (B2B).
o Internal marketing communications

We outlined above how all employees are able to repel both existing and new
customers as well as other stakeholders by bad behaviour and lack of interper-
sonal skills. Many companies develop processes in the name of efficiency that
INTERNAL MARKETING COMMUNICATIONS 373
become anti-customer and anti-stakeholder, which must also be identified and

adjusted. Internal communications are about coaching and training staff to try
to see that this will not happen. Internal marketing is using marketing concepts
internally to make certain that the correct communications are applied to iden-
tify where things are going wrong, and then developing programmes to rectify
these wrongs. In true marketing style, research should be used to audit and dis-
cover the existing needs of employees. Many will be at different stages in terms
of knowledge and information attainment, personal and interpersonal skills,
human management skills, attitudes and levels of motivation, and so on. As with
external markets, personnel can be grouped into different segments based on
needs and the relevant programmes developed.
This will include such things as management education on the importance
of marketing and ultimate customer satisfaction (including managers from all
departments), how to manage staff so that all work towards this satisfaction of
needs, and knowledge of all companies’ and buyers’ needs and how to satisfy
them.
Internal marketing communications involves imparting information that will
have an effect on the development and coordination of the marketing mix
within the B2B organisation. Suffice to say that if the supplier staff, including
everybody from the shop floor to the board of directors, are not coordinated and
geared towards customer satisfaction, then sales will be lost. If every department
from finance and administration through to production and (of course) market-
ing are not working together for greater and more effective comprehensive buyer
service, then competitive advantage will eventually be lost. Internal marketing
management, working with human resource management, is an essential, con-
stant process, instigated so as to make certain this will not happen. Internal com-
munications methods include:
o Open door policies, talking to one another

o ‘Walking the talk’
o Regular meetings, conferences
o Training and coaching sessions
o Company newsletters and magazines
o Telephone
o Comment-boxes
o E-mail
o Video-conferencing
o Intranet
o Access to customer feedback.
Internal marketing in B2B and B2C

Internal marketing and internal communications have to take into account the
fact that employees in B2B organisations have to deal with buyer staff while
employees in B2C organisations have to deal with retailers and end consumers.
We have discussed throughout the book how these two groups often behave
differently from one another, want disparate benefits and expect a certain
response from the supplier organisation. This will put differing pressures on staff,
especially those on the front line.
B2C
In B2C the end consumer walks into a retailer and expects to see a choice of prod-
ucts across a range of suppliers. The salesperson is expected to be knowledgeable
about all the makes and able clearly to identify customer needs and wants, both
functionally and symbolically, and then to sell the product. Such things as retail
outlet image, colour, packaging, brand, delivery, installation and so on are
important. Backroom staff will need to be able to deal with queries based around
these benefits. To upset one customer (as unwanted as this may be) will not be
the end of the world as long as the approach is correct with all others. Similarly
the retail buyers will be concerned with things like quantity, prices, quickness of
stock turnaround off the shelves, merchandise display, consumer advertising
spend, and so on.
B2B
In B2B the buyer will want to know that supplier products and services function
in a particular way so as to satisfy their own business needs. A professional and
knowledgeable approach will be expected from supplier staff that, most import-
antly, puts (or at least appears to put) that particular buyer business at the very
centre of all supplier activity. Among other things they will expect to be treated
as if they were the supplier’s only customer. They will expect immediate, relevant
information when contact is made and value products that are delivered when
wanted and perform as expected. We know that the DMU in B2B markets can be
large and complex. Any number of influential people might make contact; upset
any one of these in B2B and the amount of business lost could be monumental.
So staff must be trained and coached to the appropriate level, in both B2B and
B2C.
Barriers to internal marketing communication

o Unawareness at the highest level of management of its strategic importance.
o Lack of a formal (or informal) strategic approach.
o Lack of realistic communications systems.
o Bureaucratic, multi-layer structures.
o Corporate functions, such as marketing, administration, human resources,
finance and production, not talking to one another.
o Inward looking, blame-fearing culture.
MARKETING, COMMUNICATIONS AND CORPORATE BRAND 375
Part 2 Managing business-to-business marketing

communications
o Marketing, communications and corporate brand

We have identified and examined many of the factors associated with business
communications including the roles that might be performed on the one hand
by corporate communications and on the other by marketing communications.
It was also suggested that there were areas of overlap. The development of cor-
porate image or the corporate ‘brand’ is one of these areas. How others, stake-
holders, perceive the organisation is important for its overall well-being because
of the many reasons identified earlier. It is equally important for the well-being
of the marketing department and the achievement of marketing objectives. This
happens to be more so in B2B markets than in B2C for reasons that are explained
below.
To repeat the adage companies will very seldom purchase from companies
they don’t know and this seems to apply particularly to B2B markets. Developing
corporate awareness is the responsibility of the marketing communications strat-
egy manager but both corporate and marketing communications will work
together to establish the name of the company in new markets both at home and
around the world.
Corporate brand in B2C

Depending on products and service brand strategies, B2C consumers will some-
times be concerned with corporate image, e.g. Sony or Heinz, and sometimes just
with product brand, e.g. Snickers chocolate bar, Persil soap powder. They may
not even be aware who the parent company is (Mars and Unilever). In the main,
although not always, consumers tend to be more concerned with product brand
than with corporate brand. So marketing communications and promotional
spend tend to concentrate on the product, and where advertising the corpor-
ate brand they do so from an emotional rather than a functional perspective.
Corporate brand in B2B

Communications and corporate image building in B2B marketing are crucial.
It has been established elsewhere that buyers in B2B markets are more interested
in corporate branding than they are in product branding. So the reputation of the
supplier’s products is based on the reputation of the parent organisation. A bad
company reputation among stakeholders and customers will ultimately percolate
down to affect the reputation of the goods and services offered.
Marketing, communications and B2B product and service

A supplier will have developed a range of products and services, through the use
of marketing research, in conjunction with small, medium and larger buying
organisations. This will include quality levels, service enhancements, packaging,

pricing, channels of delivery, and so on. Known collectively (if not simplistically)
as the marketing mix it also includes the ways that these benefits must now
be communicated to the buyer. As we have seen earlier, it will also include feed-
back, readjustment of the marketing mix offering when necessary in line with
professed needs and a recommunication of these changes. All this must be built
into the overall strategic marketing and control process. In this way the market
is constantly monitored for changing technology, innovations and customer
choices and appropriate steps taken to stay apace or ahead of the market and the
competition.
o Marketing communication strategies

The organisation has many tools and techniques available to achieve its com-
munication objectives and collectively these can be known as the communica-
tion mix. Some of the methods identified below will be used on a continuous
basis, as part of a customer relationship management (CRM) programme to build,
develop and maintain long-term relationships. Other methods will be used
specifically for short-term promotional campaigns to launch new products, open
new accounts, move existing stock, sell new features on existing stock and so on.
CRM programmes are also developed in B2C markets with both retailers and end
consumers and these will be discussed later. To understand the task of com-
munications strategies we must recognise the forces that shape and influence
company buying decisions and the target market – the ‘audience’ – must be the
most important factor.
The target audience in B2B

The B2B supplier might have just a few customers localised within easy reach, or
many thousands spread around the world. It might sell to both the private and
the public sectors. It might be serving many industries in many countries. The
product and services may be complex, requiring detailed explanation, or may be
simple, needing little or no explanation. The decision-making process may be
long and drawn out over many months, or it may be short and immediate. The
decision itself may be of high or low importance to the company concerned. All
this must be taken into account when putting together communication strateg-
ies. There is, however, an extra complication in B2B markets and that is the pos-
ible number of people that might have an interest in the purchase. Add to this
the strength of the various interests and the communication task can become
quite daunting.
Two-level approach
Supplier strategic communication approaches have to be developed at two levels.
First, for the industry and the individual companies, this will take into account
aspects such as size and number of customers in the market, the industry,
benefits wanted, competitor activities and the traditional and acceptable ways of
MARKETING COMMUNICATION STRATEGIES 377
communication. Plans, approaches and benefit messages have to be developed at

this level either in-house by the marketing and promotions department or with
the help of an outside B2B marketing agency.
At another level will be the need to identify the people who might or might
not have a vested interest in the purchase (the DMU). This can be very difficult,
especially if the customer is a large company with many divisions at home and
around the world. Whether DMU identification, qualification and approach
should be left to the salesperson, sales manager, agency, or a combination is for
senior managers to investigate and conclude whether the task should be
addressed at the strategic or tactical level. The amount that any one buyer will
contribute to supplier revenue will, of course, contribute to this particular debate.
The DMU in large organisations

The intricacies of the target audience in B2B, the so-called DMU or the buying
centre, have been well examined in earlier chapters, but are worth repeating here
in the context of communications. Messages must get through to all people
within the buying organisation who might be able to have an influence of some
kind on the purchasing process. They must also get through to every separate
company on the supplier customer list. The problem of a complex DMU can
therefore be multiplied many times over.
Identification of those who are able to influence buying decisions can be a
very real problem when the number of people might vary from very few to as
many as 20 or 30. Just to find out who they are can take considerable time and
ingenuity, even for the best of marketing or sales personnel.
To add more complications, the composition of the DMU, in terms of both
function and individuals, might possibly change from product to product. It can
be certain that the DMU membership will also be different in different com-
panies and vary from industry to industry. Separate members might also have
their own priorities and agendas on types of benefits wanted, suppliers that are
favoured, and price and value levels expected. Level of awareness by the buying
centre about the supplying company, its market ethos, products, services and
long-term view on forming close relationships must all be part of the equation.
Only when all this information is known can realistic communications pro-
grammes be constructed.
The DMU in smaller organisations

Not all companies are as complicated in how they purchase, and smaller organ-
isations will inevitably have a smaller number of people involved in buying deci-
sions. This should make contact easier and communications programmes simpler
to put together. At this level the sales management team will probably be left to
identify individual buyer needs.
Characteristics of B2B target audiences

o Complex DMU, variable number of members with differing decision-making
powers.
o Make-up of the DMU can change.

o Buying for the organisation so communications on a rational level.
o Levels of supplier awareness.
o Relatively few company buyers, easy to contact.
o Views of the individual important.
o Can be localised or spread around the globe.
o Advertising corporate rather than product brand.
o Depth of product/company awareness high.
Target audience in B2C

Target audiences in consumer markets are probably more researched, more
understood, and more promoted to than in B2B despite, or perhaps because of,
the large numbers involved. Marketing and research strategies will have seg-
mented potential and existing consumers into relatively large groups of like-
minded individuals; sampling would have identified benefits wanted and levels
of awareness and readiness to purchase. With this type of information commu-
nication strategies can be identified.
Characteristics of B2C target audiences

o Segmentation into large groups.
o Mass audience, can be difficult to communicate with.
o Simple DMU, e.g. husband and wife.
o Views of individuals relatively unimportant.
o Views of the segment important.
o Buying for self so communications on emotional as well as rational level.
o Advertising product as well as corporate brand.
o Depth of product/company awareness minimal.
o Communication and promotional methods

There are many different ways that suppliers are able to talk to buyers. The
methods chosen will depend on the communication and promotional objectives
to be achieved. They will also depend on such factors as the amount of money
available, what needs to be said, activity of the competition, plus all the factors
on the target market audience examined above, as well as on other issues
specific to B2B marketing communications that will be discussed throughout the
chapter. The following strategic communications methods are used in both B2B
and B2C marketing communications, but in different ways. They include the
following:
o Advertising
o Sales promotions
COMMUNICATION AND PROMOTIONAL METHODS 379
o Merchandising, packaging
o Direct response
o Public relations (PR)
o Publicity
o Exhibitions
o Sponsorship
o Word of mouth
o Personal selling.
Before moving on to look at these elements in more detail it might be helpful
here to explain further why so many methods of communication have been
developed.
Different techniques achieve different communication

objectives
It is important to realise that there are many different types of communication
objectives, as well as different types of audiences, which all demand different
approaches. If one communication technique were good at solving all com-
munications problems, there would be no need for such a mixture. If a seller were
able to talk personally to all customers then most other methods would be
superfluous. Unfortunately circumstances such as distance, location and time
make this all but impossible in most cases. In practice, one communication tech-
nique tends to be good at solving one type of communications problem while
another is good at solving another. Together they can integrate and work
together to solve the whole. Very rarely will one method be used in isolation.
In this respect, TV advertising is good at creating mass brand awareness among
B2C audiences and not good at getting consumers actually to try the product.
Conversely a sales promotion (e.g. two for the price of one) is good at getting the
end consumer to try the product but not good at creating mass awareness. In the
same vein, mass TV would be wasteful if used in talking to smaller B2B audiences,
but a specialist magazine might be known to be read by a company decision
maker and so therefore would be the technique to choose.
Example 8.3 Cost of TV advertising

The US comedy Friends is now the home of the most expensive advertising on US
television, according to an influential trade journal. At about $455,700 (£291,399)
for a 30-second spot in one of the hit show’s advert breaks, Friends has now over-
taken the US version of reality show Survivor and hospital drama ER. In Advertising
Age’s advert price survey, ER cost $438,514 (£280,403) per 30-second advert,
while reality show Survivor dropped to third at $418,750 (£267,765) from first
place last year. (www.adage.com)
A salesperson can introduce the company and explain product benefits in detail
but would be prohibitively expensive if not impossible to use if target markets were
Figure 8.4
AIDA hierarchy
of effects
large and widespread. Conversely, newspapers might reach a large audience but
a B2B advertisement might be missed or seen not have the same persuasive effect.
AIDA hierarchy of effects model

Hierarchy of effects models can be used when developing communication strat-
egies and many exist. The AIDA model is one of the simplest, developed to aid
understanding of the problem of the need to use different techniques to achieve
different communications objectives. It is worth noting that the model will be
used here purely as an aid to understanding the complexities of the communica-
tion process. As with most models it is not necessarily a reflection of reality and
its limitations must be continually appreciated.
There are many variations of the model but the concept is simple. The cus-
tomer is unaware of the company and/or its products (and people ‘don’t buy
products from companies they don’t know’). The marketing communications
manager must therefore use a mixture of the methods highlighted above to take
the customer from this state of unawareness through to awareness, interest, trial
and hopefully buying the product. Different techniques are necessary because
moving the customer along the process might involve different communication
tasks (with different objectives) at different stages of the process (Figure 8.4).
Different customers on different levels of the hierarchy

In markets around the world as well as in any one market, targeted buyers will
be at different levels on the AIDA hierarchy. Some customers may be com-
pletely unaware of the supplier, others may be aware of the supplier but not of
the products it sells, others might be aware, but have little interest, while others
may be interested but need more persuasion. Customers can move backwards
and forwards along the AIDA process so they could be interested now, but
because of inertia or because a decision-maker or influencer leaves, might move
back to a lower level of awareness in the future.
Suppliers should make it their business to see that existing customers are
always aware and interested in new products and services, perhaps as part of the
CRM process. With new or peripheral customers the level of awareness should be
researched and the relevant and most appropriate technique used to move the
customer into eventual action and purchase.
Simple and complex communications theory

Many argue that the idea of moving an audience up and down a hierarchy from
awareness to wanting to purchase the product is too simplistic a theory and
COMMUNICATION AND PROMOTIONAL METHODS 381
in reality the communication process is far more complex. Complex theory sees
the communication process as a constant movement back and forth between
awareness and forgetting, attention and inattention, interest and uncertainty,
decision and indecision and, depending on the intensity of the need, one decision
being quickly overtaken by another more pressing. Complex theory, if having
any truth, would support the need for the supplier salesperson in some industries
to act positively, quickly and decisively (‘strike while the iron is hot’) in selling
the benefits and close the sale before the opportunity is lost.
Setting clear communications objectives

As well as an overall strategic communications objective, clear, measurable objec-
tives must be set for every communication method used (as with all business
objectives). Only in this way can success and value for money be gauged. It is an
appalling indictment on any business activity to spend money and not know
whether it has been spent wisely. So SMART objectives (specific, measurable,
achievable and agreed, realistic and time based) must be set for every
communication and promotional task undertaken as it attempts to move the
customer through the AIDA process. Setting communication objectives for some
methods can be difficult, but this must not preclude an attempt being made.
SMART objectives
o Measurable objectives must be set for the levels of awareness achieved by the
advertising.
o Measurable objectives must be set for the levels and intensity of interest
achieved by the trade magazine.
o Measurable objectives must be set for the depth of the desire created by the
direct mail shots and telephone calls.
o Measurable objectives must be set for the personal selling, the only objective
in term of sales volumes. The rest are set in terms of customer behaviour.
Ongoing marketing communications

If there is the need to create a corporate image enhancement communications
campaign over say three years, then clear objectives must be set to take corporate
awareness from where it is now to where the company would like it to be in three
years’s time. All media used must have clear objectives that can be measured
before, during and after the corporate awareness communication campaign.
A promotional campaign
A promotional campaign will tend to be over a well-defined period of time, usu-
ally over the short term. For example, one could use magazine advertising to
create the initial awareness, direct mail with more information to create interest,
a telephone call to make an appointment and instil the desire and a sales visit
to close the sale. Again, all medium forms must have objectives that will be
measured before, during and after the promotional period (Figure 8.5).
Figure 8.5
Moving the B2B
buyer through
the AIDA
process
The concept of DAGMAR

It is worth mentioning here the concept of DAGMAR, which was developed by
Russell Colley (1961). DAGMAR is an acronym for Defining Advertising Goals for
Measured Advertising Response and is the basis of the AIDA model. Colley advoc-
ated the evaluation of advertising goals by communication goals rather than by
sales. He argued that separate behavioural objectives should be set for every
method used and every part of the process, with one objective building on the
other, going backwards when necessary, but culminating in the eventual sale of
the product. He proposed that different customers might be at different stages of
the process, so advertisers would need to adjust communications campaigns to
make allowances for these differences.
B2B communications and promotional techniques

o Used to achieve different corporate and product objectives.
o Move the audience from unawareness through to action.
o All good at different things.
o Reach different target audiences.
o To suit the amount of budget available.
o Advertising
The first rule of advertising is to get noticed.
The first of the communication and promotional tools to be identified is B2B

advertising and the following definition might be used.
B2B advertising is making it publicly known that an organisation has benefits, usually
products and services, it wishes to offer to an identified company or group of companies
in return for some other benefit, usually money, in both the short and long term.
ADVERTISING 383
Advertising – many objectives

Advertising can be used for many communication purposes, at both corporate
and product level, to create awareness and move the customer eventually to
purchase from the supplier. It can be used to inform about a new technology a
supplier has patented and to educate about its intricacies and how it might work.
It can be used to bolster the corporate image and its products and so reinforce
buyer loyalty. It can be used to persuade the trade to take in extra stock during a
time of plenty. The major forms of advertising, TV and print, tend not to used
for selling products but because of their national and international presence
they are good at creating corporate and product brand awareness and in this way
work well with personal selling. Buyers are usually very busy and will seldom see
representatives from unknown companies. If a buyer is aware of a company,
however, then the salesperson has at least a chance of an interview; the better
known the company, the more likely the chance of getting past the gatekeeper
and demonstrating the seller’s products and services. In some cases advertising is
also good at encouraging buyers to send for information, perhaps a leaflet or cat-
alogue and, if the advertiser is really lucky, to ask for a representative to call.
There are, however, some forms of advertising that will be used to sell products
and services and these are discussed below:
B2B advertising objectives

o Informing
o Educating
o Persuading
o Reinforcing
o Selling.
Example 8.4 Procter & Gamble

Fast-moving-consumer-goods maker Procter & Gamble invented the soap opera in
the 1930s as a way to sell more detergent. Since then, the maker of Bold detergent,
Head and Shoulders, Crest toothpaste and Pampers nappies has become the single
largest advertising buyer, spending in excess of $1 billion each year on ads spanning
media as diverse as radio, television and print. Now the company has signed a $300
million landmark deal with media giant Viacom that would eventually allow P&G to
pitch its products across a variety of media platforms, from the internet to bill-
boards, a strategy the ad world sees as the shape of things to come.
The media mix (above the line communications)

The media mix, known as ‘above the line communications’, consists of the major
methods of advertising used by both B2B and B2C advertisers. These are TV,
print, outdoor, radio and cinema. The bulk of UK advertising, over 90 per cent,
takes place through the TV and print media. The largest part of this is B2C, but
B2B still utilises a significant part. They tend to be used together – TV to create
the awareness and newspapers and magazines to add more detailed information
and encourage the buyer to make further investigation.
TV advertising
TV advertising is probably the most obvious of all the main media because of its
all-pervasive nature. Since it is predominantly an entertainment channel it is
used mainly in B2C markets because its strength is the creation of mass levels of
awareness among very large target markets. Those working in the B2B industry,
however, are also TV viewers so it can be used, selectively, to talk to this market.
Care would have to be taken to see that money was not wasted by paying for
air space to send messages to a non-interested audience. Examples of mass B2B
advertising in this way include IBM selling its web and e-mail services for business
use or one of the big banks advertising its services specifically for small businesses.
Example 8.5 BARB

British Audience Research Board is owned by the BBC and the UK commercial chan-
nels. BARB acts as an independent auditor of all UK TV audience figures. Its meas-
urement service provides television audience data on a minute-by-minute basis for
channels received within the UK. These data are available for reporting nationally
as well as at the ITV and BBC regional level. Viewing estimates are obtained from
panels of television owning households, representing the viewing behaviour of the
24+ million households within the UK. The panels are selected to be representative
of each ITV and BBC region. (www.barb.co.uk)
There has always been the opportunity to advertise in selective regions where
although much of the message will be wasted there is still a large enough num-
ber of buyers to justify the spend (e.g. informing farmers in the East Anglia region
on fertilisers and insecticides, or talking to caterers and hoteliers on the south
coast about catering facilities). Of course there is always the spin-off from con-
sumer advertising for companies that sell in both B2B and B2C. When Renault
advertises its cars to its consumer audience it is also building on corporate image
among suppliers and fleet car buyers (B2B). Similarly, when British Telecom runs
a campaign, because many of its products sell in both markets it is able to impact
on the different segments. Six Continents put its Holiday Inn brand on TV in
2002 in a bid to win business travellers away from rivals such as Moat House,
Thistle and Best Western, believing TV could build on emotive reasons behind
the business person’s choice of hotel. The growth in commercial 24-hour news
channels such as CNN and Sky News has also opened opportunities to get at busi-
ness decision-makers, shown by research to watch these channels. The real diffi-
culties here would be attempting to set objectives and monitor, measure and
control the advertising spend.
The fragmentation of these media into hundreds of specialist channels has
opened up the opportunity to hit the right market and its use is increasing. There
are B2B specialist channels and specialist programmes coming on stream for busi-
ness areas such as finance, horticulture, building and construction, leisure and
catering, management education, and many more. The increase in digital tech-
nology now enables narrowband TV to be projected directly onto a TV monitor
screen on the office desk with interactive capabilities through broadband inter-
net connections.
ADVERTISING 385
Example 8.6 Industrial advertising

Industry associations will often advertise to both B2B and B2C audiences in a push
and pull campaign. Scotland’s meat industry is funding a £500,000 advertising
campaign to boost consumer confidence following the foot-and-mouth crisis.
Quality Meat Scotland, the body which promotes beef, lamb and pork, says the cam-
paign is needed as sales have continued to fall despite the excellent reputation of
Scottish meat. However, they have to be careful about the claims that they make.
A complaint against the marketing of Scottish beef was upheld by an advertising
watchdog, because 5 per cent of the meat actually came from English cattle.
Quality Meat Scotland has agreed to change the wording of an advert following the
ruling by the Advertising Standards Authority (www.asa.org.uk).
Print
Print is the largest of all the ‘above the line’ media. Like TV, modern technology
has brought about tremendous progress in this medium. Information technology
now allows newspapers, magazines, books and directories to be produced and
launched more quickly than ever before, with more pages, better quality print
and higher definition colours. The print media consist of national and local
newspapers (free and paid for), magazines (free and paid for), and journals and
directories. Although the B2C market is again the biggest user of print advertis-
ing, B2B advertisers will selectively use all three types.
Newspapers
National sales of the major newspapers are over 13 million a day in the UK with
a pass-on readership of over 35 million. Most of this readership consists of end
consumers who buy tabloid newspapers such as the Sun, Daily Mirror, Express and
Daily Mail. A respectable minority of this readership figure will be the B2B target
market buying lower circulation upmarket broadsheets such as the Daily
Telegraph, The Times and Financial Times. All UK national newspapers now offer
a website version, as do others from around the world. As with the other main
media, all newspapers offer advertisers a detailed readership profile in terms of
age, occupation, social class, and so. Knowing that most of their customers will
take one of the daily broadsheets, some B2B advertisers will selectively advertise
here; an example would be the Financial Times as its readership is predominantly
business people.
Magazines
Estimates of the total number of UK magazines vary depending on the definition
employed and the moment in time chosen, as the numbers starting up and clos-
ing down have increased with developments in print technology, making it so
much easier for companies to enter and leave the business. BRAD lists nearly
6500 magazines in the UK that take advertising, a large percentage of which are
B2B magazines. Some are free (paid for by the advertising) and others invite sub-
scriptions. These are large markets for B2B advertisers and in many cases used as
the main media because there are specialist magazines, selling just a few thousand
or selling hundreds of thousands, that cover virtually every industry. The oppor-
tunity to see (OTS) an advertisement can be large as a weekly or monthly edition
might be picked up and read many times. In some cases this may be the only way
for a B2B marketer to reach a target audience, especially if some distance away or
hard to contact. Many magazines are also now available in web form. Titles
include Architect Today, Autotrader, Catering Update, PC Dealer, Heating and
Ventilating News, Marketing, and so on.
Example 8.7 Cosmetic advertisements

A report by the UK parliament Commons Health Select Committee says that
cosmetic surgery advertisements should carry health warnings. The MPs say they
are ‘disturbed’ at the claims made about cosmetic surgery in some advertisements
featured in magazines and newspapers.
Specialist magazines
Specialist magazines have the added attraction for B2B advertisers in that readers
will be more susceptible to ads that run alongside information that is of interest.
Magazine owners will be prepared to run advertiser specific articles and editorials
in return for advertising space purchased.
Example 8.8 Research finds B2B magazines essential to business

decision-makers
B2B magazines are an essential medium for business decision-makers, according to
a major new study conducted by NFO WorldGroup. The study shows that B2B pub-
lications are used regularly by 87 per cent of business decision-makers and that 73
per cent of more than 500 interviewed find that B2B magazines contain advert-
ising that is useful to their jobs. Of respondents 80 per cent went on to say that
business magazines were the source normally used when looking for good quality
job advertisements. Although B2B magazines remain the dominant medium, the
internet is quickly making an impact. Seventy-nine per cent of respondents agreed
that the internet and business publications complement each other. More than 500
business decision-makers from the 20 largest industry sectors according to advert-
ising expenditure were interviewed to measure media usage. (Periodical Publishers
Association, www.ppa.co.uk)
Journals and directories

There are over 5000 directories and yearbooks published in the UK and they cater
for every interest including business, professional, industrial, technical, educational,
and leisure. There are also all-purpose directories such as Yellow Pages (yell.com on
the web). Directories and yearbooks are very similar and advertisers tend to treat
the two as interchangeable. Containing names, addresses and other details on busi-
nesses and associations across the UK and Europe, they are an excellent medium
for B2B advertisers. Business users consult them on a regular basis so any adver-
tisement will have the opportunity to be seen many times throughout the year.
ADVERTISING 387
Example 8.9 Directory and database associations

The Directory and Database Publishers Association represents the industry and
they say that they are there to protect and promote directories and databases as
advertising media and as sources of information. Six per cent of all ad spend comes
from this source. More details can be obtained from their website (www.directory-
publisher.co.uk). The European Association of Directory & Database Publishers rep-
resents the industry across the world and has some 200 members in 37 countries
worldwide (www.eadp.be).
Online magazines and directories

Many of the magazines, directories and newspapers have complementary ver-
sions on the web, e.g. Yell.com and Yahoo.com. They attempt to persuade busi-
ness users to use both hard and soft forms in a complementary way. A word of
warning is in order here. Owners of the media are all in competition. They need
to sell advertising space to stay in business and often have the tendency to inflate
the efficacy of their vehicle. All advertising should be monitored and controlled
for value for money. If it can’t be shown to be working, it should be stopped and
the money spent on other proven methods. It is still early days as far as advertis-
ing on the net is concerned and caution should be the overriding watchword.
BRAD
British Rate and Data, published by Emap Publications (emap.com), is a business
communications monthly directory of UK advertising media. It contains over
11,500 detailed media entries covering regional newspapers, national news-
papers, consumer press, business press, new media, television, radio, poster and
outdoor. Prices, circulation and audience figures and target markets are included
(www.brad.co.uk).
Audit Bureau of Circulation (ABC)

An independent body, paid for by all media owners and users, the Audit Bureau
of Circulation (www.abc.org.uk) provides free access to the circulation, distribu-
tion and attendance data for ABC-certified magazines, newspapers, exhibitions
and directories within the UK and Republic of Ireland. Its main task is to act as
an independent auditor of newspaper, magazine and directory circulation figures
to make certain no media owner is fixing the figures. It also monitors some web-
site viewing figures.
Example 8.10 Official auditor

IPC Media, the UK’s biggest consumer magazine publisher, has appointed the
Audit Bureau of Circulation (ABC) as the official auditor for all its titles
(www.abc.org.uk).
Advantages for B2B advertisers using the print media

1. Accurate targeting. Specialist B2B editions exist for both magazines and direc-
tories. Even low circulation magazines, e.g. Sea Container, can be profitable to
advertise in if the 5000 readers all work in the industry.
2. Figures available. Detailed target audience, price, circulation, and pass-on reader-
ship figures are available from newspaper, magazine and directory owners.
Independent audits on these figures can be obtained from the Audit Bureau of
Circulation (ABC).
3. Mass coverage. All business people will read the national press and a few news-
papers, including the Financial Times and Daily Telegraph, will reach large
numbers of B2B buying centre members.
4. Longevity and high opportunity to see figures. Unlike TV, the printed word has a
certain permanency and so can be read and reread. Some magazines and dir-
ectories will lie around for months, allowing many opportunities to see (OTS).
5. More detail. As opposed to the instant nature of TV, more complex detail with
coloured diagrams and pictures can be given about the products and services
on the printed page as the reader can take time to imbue.
6. Coupon, telephone, e-mail response. As well as more detail, a B2B advert can also
include some type of coupon or response box, inviting the reader to send
away, ring, e-mail for more information, invite a rep to call, or even purchase
the product or service.
7. Costs. As with any medium, costs are relative and an effort should be made
always to attempt to have systems installed that can measure benefits obtained
against the amount of money paid out. Intermedia comparisons can then be
compared and benchmarked.
Disadvantages of using print media

1. Demands active participation. Printed matter does not have the same dramatic,
active impact on the reader that TV has on the viewer as it has to be picked up
and deliberately read. It lacks movement and sound and is not so instantly
appealing as TV. There will be extra incentive to read, however, if the content
is business relevant and can be seen to add value to individual business know-
ledge and company operations.
2. Adverts are easily missed. Adverts can easily be skipped or inadvertently missed,
especially if the ad is too small, one of many, has been placed in the wrong
position or magazine, or content and presentation fail to attract in some way.
Example 8.11 Advertising associations

o The Advertising Association is a federation of 25 organisations representing
the advertising and promotional marketing industries including advertisers,
agencies, media and support services. It is the only body that speaks for
all sides of an industry that was worth over £16.5 billion in 2001
(www.adassoc.org.uk).
ADVERTISING 389
o The International Advertising Association is the world body and represents

1000 organisations in 94 countries (www.iaagloba.org).
o The Incorporated Society of British Advertisers (ISBA) represents the inter-
ests of UK advertisers in all areas of marketing communications, including TV
advertising, new media, press, radio, outdoor, direct marketing, sponsorship
and sales promotion. (www.isba.org.uk)
o The Institute of Practitioners in Advertising (IPA) represents the advertising and
marketing agencies operating in the UK and around the world (www.ipa.co.uk).
Radio
Radio is only used in a very small way by B2B advertising. There are fewer oppor-
tunities than TV because of the nature of the medium and it is almost exclusively
a B2C medium. There are over 100 local radio stations in the UK and these can
be used in the same way as local TV stations, but the specialist radio channels,
growing on TV, are not yet available. There are only three national commercial
radio stations and only Classic FM might hit a worthwhile number of identifiable
business decision-makers. Global radio is really non-existent so the audience
reach will not match that of a commercial TV channel. At present digital radio
promises much but the uptake is very slow. It is relatively inexpensive to use and
is all-pervasive as some listeners, perhaps in a factory or workshop, have the radio
on all day, every day. On the downside, it can be seen as vocal ‘wallpaper’ (a
background noise where content is fleeting). There is bound to be lots of adver-
tising ‘waste’ and measurement is problematic. It also lacks impact and longevity
when compared with TV and print respectively. Radio accounts for about 5 per
cent of all UK advertising, most of this by B2C advertisers.
Outdoor advertising
Again predominantly a B2C medium although used selectively by B2B advertisers,
outdoor sites can be seen everywhere: on the roadside, at retail outlets, shopping
centres, airports, railway stations, leisure and sports centres, football grounds,
motorway restaurants, hotels, car parks, business parks, conference centres, on
every type of transport; in fact anywhere that people congregate. Posters spring
up everywhere – from the handle of a petrol pump, on the wall of the toilet, on
the side of a hot air balloon – and they can be small (762 mm × 508 mm) or
extremely large (3048 mm × 12,138 mm).
Technology has been used to offer an enormous number of beneficial refine-
ments. Outdoor adverts can be backlit, revolving, animated, projected onto the
sides of buildings and shown in 3D. With the use of computer technology a
‘virtual’ ad can be created to appear on the TV screen as if in situ when in reality
it isn’t.
Outdoor companies such as Maiden Outdoor (www.maiden.co.uk) offer
broadcast and narrowcast packages or individual sites. The big advantage for B2B
advertisers is that an outdoor advertisement can be selectively placed anywhere

the buyer decision-makers might be: at business events, opposite the manufac-
turer’s offices, in the aeroplane business class section, and so on. These adverts
can be researched and awareness measured. If outdoor advertising is used it would
tend to be as a reinforcement to other forms of communications. Although grow-
ing, outdoor advertising accounts for less than 5 per cent of all advertising spend
and is a minor media form in both B2B and B2C advertising as a poster can offer
only a limited amount of information and there is no guarantee that it will be
seen and/or taken in.
Example 8.12 Best ad of the 20th century

Abbott Mead Vickers BBDO company has judged the ‘Labour isn’t working’ advert
designed by advertising agency Saatchi and Saatchi, and seen by some as playing
a key role in the Conservative general election victory of 1979, as the best poster
advert of the century. Second place in the competition went to the 1914 poster
featuring Lord Kitchener, which urged young men to sign up to fight in World
War I.
Communications, the internet and company websites

Because it is such a new media type, advertising via the internet – either on the
company’s own site or on the sites of others – seems to sit comfortably as either
an ‘above the line’ or ‘below the line’ media form. Interested participants only
have to browse through a selection of these sites to realise that many companies
are uncertain about the objectives of the site. This is reflected in poor design,
poor content and how people should interact and move around the site.
Website uses
Owning a website has opened up wonderful communication and promotional
opportunities for the B2B industry and it is experiencing phenomenal growth.
It can be used in B2B markets for data collection, storage, analysis and the pass-
ing on of selected information. This will include catalogues on products, services
and such things as component parts, as well as advice and help on current and
future problems as they arise. It can be used for transactions such as order taking,
delivery tracking, invoicing and revenue collection.
It can also be used for marketing, which will include advertising, sponsorship,
PR, publicity, exhibitions, sales and auctions, and interactive personal selling; in
fact almost any of the media strategies identified. All organisations, buyers and
suppliers along the supply chain can share information, transact operations and
buy and sell products and services safely within secure ‘firewalls’ utilising EDI
processes.
ADVERTISING 391
Example 8.13 Internet web advertising

Yahoo, with a total global audience of over 150 million, is thought to be the world’s
most visited website. However, it is having trouble getting enough advertisers onto
its site. Unlike many of its dot.com competitors, internet portal Yahoo has managed
to turn a profit before but is now having problems. It has shaken the industry when
it blamed the difficulty in selling advertisements for its profits shortfall.
Spending on internet advertising or sponsorship has matched the amount spent
on commercial radio advertising in the past, said a spokesperson from the Institute
of Practitioners in Advertising (IPA, www.ipa.co.uk) but there is now uncertainty
about the future. (Internet advertising by bureau, www.iab.net)
Measurement and research

As with all the media, feedback measurement and control are crucial if efforts and
money are not to be wasted. Because the market is smaller it can be easier to meas-
ure effectiveness on B2B websites than B2C. The bigger companies will have own
server access so site visits to a supplier can be immediately identified. This is not
the case with B2C where millions will come through a multinational server such
as Freeserve. Smaller companies can more easily be researched in traditional ways
to identify levels of awareness and amounts of usage. Requests for information,
sales or a sales call can be recorded directly.
Example 8.14 ABC eReturns system hailed as huge success

The June end returns period saw the Audit Bureau of Circulation (ABC,
www.abc.org.uk) successfully issue over 200 certificates to B2B publishers using its
new online submissions system, eReturns. eReturns proved extremely popular with
publishers with 43 per cent of business-to-business magazine titles due to report
this period choosing to use the new system. eReturns was designed to improve
ABC’s reporting systems by using advanced web-based technology which allows
publishers to submit their circulation returns online and automatically receive their
ABC certificates via return e-mails. Publishers using the system have benefited
from a faster certification service from ABC that has enabled them to bring their
new circulation data to market faster.
Integrate website with company media use

Many companies will build and design their own sites and there have to be clear
strategic reasons behind their use. As far as communication is concerned, there
have to be clear objectives and a clear understanding on how it will integrate and
fit in with corporate image and overall corporate and marketing communica-
tions. Advantages for B2B communications on the internet include:
o Design and content opportunities covering film, colour, sound and move-
ment and interaction.
o Information, transaction, marketing and promotional uses.
o Sales and sales auctions.
o Extranet allows secure interaction of all kinds backwards and forwards along
the supply chain.
o Intranet allows secure information and transactions to take place within the
organisation and its divisions around the world.
o Multimedia opportunities, e.g. communications delivered direct to the place
of work and through the modem or TV at home.
o Almost limitless global reach potential.
o One-to-one relationships can be developed.
o Competition restricted at the point of contact.
o Opportunities abound across the whole range of communications.
Disadvantages for B2B communications on the internet include:
o Still many uncertainties about the medium, audience use and reaction.
o Measurement methods and value for money uncertain.
o Difficulties on how to integrate with conventional communication and pro-
motion methods.
o Some concern about safety and security measures.
Below the line and new media methods

All communication methods other than the main media discussed above are col-
lectively known as ‘below the line’ media.
Direct marketing and direct response

The term direct marketing is used when producers and buyers deal direct with
one another rather than through an intermediary. Direct response advertising is
when messages are sent direct (rather than through TV or print) to the B2B cus-
tomer in the hope of creating a direct and interactive line of communication. It
can be undertaken by the following methods:
o Mail
o Magazines
o Newspapers
o Telemarketing (on the telephone)
o Broadcast direct (TV, radio)
o The internet, extranet and intranet.
Growth in direct response

The enormous growth in direct response advertising in both B2B and B2C mar-
kets has come about because of the need for advertisers to provide ever greater
accountability, value for money and waste elimination. Coupled with explosive
technological developments that have improved techniques for effective person-
alised contact to a level undreamed of 20 years ago, this media form is set to grow
ADVERTISING 393
even more over the next decade. It is used among other things for sending infor-
mation, obtaining sales leads, selling products and gaining customer feedback.
Direct mail
Direct mail is still the most important and widely used of all the B2B direct
response methods, although electronic methods are rapidly catching up. Over
70 per cent of all UK direct mail (both B2B and B2C) takes place through the Post
Office (www.royalmail.com). They offer a comprehensive service including buyer
list rental or purchase, sales letter creation, catalogue packing, promotions, order
taking, order processing, distribution, billing and payment. They also offer spe-
cial deliveries, international deliveries and person-to-person recorded deliveries.
The Post Office monopoly is now under threat from many commercial B2B mail
and parcel delivery companies. Well-targeted direct mail sent to a named deci-
sion-maker can be a very effective way of making buyer contact. Most people will
open letters and packages if they seem relevant and interesting and offer the
possibility of benefits. A preparatory or follow-up phone call will utilise the
method to its fullest advantage.
Example 8.15 Bucking the downturn

While advertising spends shrink around the globe, direct marketing has been boom-
ing. UK industry figures show a jump of nearly 10 per cent in the second quarter
of this year. That is partly because it can be easier to track direct marketing. With
budgets becoming scarcer, every penny has to work, and if it doesn’t work you have
to know why, a direct agency spokesperson said. Every year the Royal Mail handles
five billion direct mail items, a number expected to grow as competition in the
postal sector drives prices down.
Direct response in magazines and directories

Many magazines and directories will offer a direct response facility, called off-
the-page advertising. Certain suppliers, perhaps selling component parts, will use
this to advertise direct to the buyers to sell or elicit a response of some kind. In
response to a request, the supplier might post a catalogue or leaflet and then fol-
low up with a phone call. Specialist, small component parts might be dispatched
by post, or delivered by road if larger, or a representative will call bringing the
product and looking to sell more.
Direct response in broadcasting

TV and radio both have a direct response facility similar to that offered by
magazines and directories. Response is invited by telephone, e-mail and letter.
It is not used much in B2B except on the specialised TV channels because of the
disadvantages of the broadcasting media in B2B advertising.
Telemarketing and direct response

The use of the telephone for direct response is another growth area. It is quick
and relatively inexpensive. Many business people are willing to come to the
telephone, especially if asked for by name, even where the ‘gatekeeper’ is adept
at blocking communications. Many suppliers will outsource their telephone mar-
keting, sales and advertising operations and many specialised companies now
exist. Telemarketing is also used extensively to follow up mail shots, to prepare a
customer for a mail shot, to make appointments, or to invite buyers along to sup-
plier events.
Direct response and the internet

Such is the ease of usage that the internet seems to have been built for the direct
response industry. The direct mail industry plays down consumer fears that
people could be swamped by large numbers of e-mails and text messages. While
for some businesses – such as those in IT – e-mails are an ideal marketing tool and
make up a large percentage of the marketing mix in general, digital media make
up only 5 per cent of the industry.
Junk messages
Unasked for and unwanted mail, telephone calls, faxes and e-mails – so-called
‘junk’ – are constantly growing problems in both B2B and B2C markets. Suppliers
would need to weigh the advantages of extra sales contacts against the amount
of damage that could be caused by upset customers. It is argued that junk mess-
ages are those which were wrongly directed and if all were targeted correctly there
would not be a problem. E-mail seems particularly susceptible to junk down-
loading. Known as ‘spamming’, it consists of advertisers using computer pro-
grams to target thousands of buyers around the world and sending mass messages
in the hope of a small percentage take-up. Even large, reputable companies are
guilty of this activity. Software now exists for buyers and internet servers to block
unwanted messages.
Example 8.16 Spamming

Internet direct marketers are also keen to distance themselves from the spam mer-
chants. But there are clearly still many operating outside its parameters – one-third
of the 300 million e-mails sent in the UK each day are reckoned to be spam. When
you can buy one million e-mail addresses cheaply, it might only need a 0.01 per cent
response to make money. The E-mail Marketing Association has been set up to
bring best practice into digital marketing and legislation has gradually given con-
sumers more ways of opting out of mailing lists. Permission marketing is the con-
cept where customers are first asked if they want to receive e-mails on product
updates, etc. If permission is given then the chance of that e-mail being read is
increased.
Direct response customer lists

At the heart of good direct response advertising practice is the need to have up-
to-date, relevant and correctly constructed business names and addresses.
Nothing can be more unprofessional in direct response marketing than to send
addressed material to a buyer who has left, retired or died. There are many list
brokers that rent, lease or sell business lists. These can contain business names
ADVERTISING 395
and addresses, telephone and fax numbers and e-mail addresses of departments
and individual personnel. Some will even offer a brief resumé of the companies’
buying habits as well as a description of the decision-making unit members. The
better address lists will be regularly updated and cleansed for impurities such as
wrong names and addresses and audited by an independent body such as the
Audit Bureau of Circulation (ABC) to make certain that everything is above
board.
Direct response, relationship and database marketing

The enhanced capability offered by the use of the marketing information system
for database marketing enables the supplier to develop an ever-closer relationship
with existing customers on a direct response, long-term basis. Research has
shown that it is much more expensive to gain new customers than it is to hold
on to existing customers. It has also shown that by focusing attention on all cus-
tomer needs and matching to supplier portfolio benefit offerings, more sales and
long-term value can be achieved. Computerised programs allow messages to be
customised to meet the needs of each individual customer as and when required.
Systems can be programmed so that relevant messages are sent at times when the
buyer will be responsive to contact. This will be when the customer might need
a product, product services, information, help or advice. The role of B2B direct
response includes:
o Use as part of a customer relationship management programme, communic-
ating and obtaining customer feedback and undertaking continuous market-
ing research.
o To send information, leaflets or catalogues or to invite the respondent to
send in for a catalogue.
o To send out invitations to seminars, conferences or product launches.
o To attempt to make appointments for the sales team and sell products
directly.
o To inform the prospect that a telephone call, letter, fax or e-mail will follow.
o To open new accounts.
Direct response advantages include:
o Direct relationship with the customer, bypassing the intermediary, thus
allowing relationships to be built.
o Relatively inexpensive way of making and maintaining customer contact.
o Solo contact with the customer cutting out the competition.
o A quick way of contact when speed could be of the essence.
o Often the only way to make contact with the decision-maker.
Direct response disadvantages include:
o Intrusive nature can cause buyer annoyance and/or short- or long-term harm.
o Can be very wasteful, especially if expensive promotional material and cata-
logues are dumped because of disinterest.
o Will only work with a certain section of the market and be ignored by the
others.
Example 8.17 Direct marketing associations

The Direct Marketing Association can be contacted on www.dma.org.uk.
The Direct Selling Association can be contacted on www.dsa.org.uk.
o Point-of-purchase and merchandising in B2B

Point-of-purchase (POP) has grown by leaps and bounds in the B2C market with
the realisation that many purchase decisions are actually made in the retail out-
let at the time of purchase. Creativity, innovation and technology have been
expertly exploited so that merchandising, enhancing the consumer experience,
is now an art form.
Although much less used for B2B products because they are not considered to
need too much ‘flowery wrapping’, there are times when merchandising – that is
making the product look as attractive as possible for customer appreciation – is
used to full advantage in B2B. This might be at trade fairs and exhibitions, con-
ferences and seminars, as well as in B2B intermediaries. New product launches
can employ the use of ‘theatre’ where selected dealers are invited to watch some
kind of glamour show, perhaps with display stands, flashing lights, funky music
and dancers, as a prelude to the showing of the product. Just as important in B2B
as in B2C, however, is the availability of sales literature such as booklets, videos
and DVDs that will explain benefits and help sell the product. There are many
instances where costly display material is thrown away without ever being used.
It also includes the use of free give-aways such as putting the company name
and/or its products on pens, calculators, desk pads, clocks, and so on. Merchand-
ising material can be very expensive so objectives should be set and results mon-
itored to make certain value for money is achieved. First, these can be in terms
of advantageous display; second, in terms of customer attention, interest and
take-up of promotional material. The role of merchandising in B2B includes:
o Setting the right ambience for the product display.
o Enhancing the product and attracting attention.
o Supplying its take-away information about product and services.
o Generating sales leads.
o Disadvantages might be costly promotional material never used.
Exhibitions and trade fairs

Exhibitions or trade fairs are an essential strategic part of B2B communication
and promotional activity. They can be seen as a temporary marketplace for the
showing of products and services. In many cases they are the only way in which
some suppliers are able to meet the buyers in their industry in one place. They
can be broadly divided into public fairs in the B2C market (e.g. Ideal Home
Exhibition) and trade fairs in the B2B market. Public or general fairs are open to
the public and can be either general interest fairs or special interest fairs. General
POINT-OF-PURCHASE AND MERCHANDISING IN B2B 397
interest fairs are used to exhibit a wide and diverse range of products and services
to the general public. These types of exhibitions are widely promoted so as to attract
as many people as possible. Special interest fairs are targeted at specific segments
of the general public (e.g. leisure pursuits, technology, computer games, and so on).
In B2B markets, trade fairs can be horizontal, vertical, conference bound, or
trade mart fairs. Trade fairs in general are open to people working in a certain
field of activity or industry. Horizontal trade exhibitions invite people from a
single industry. At vertical trade fairs, different industries exhibit their goods
and services to one specific target group from one industry: e.g. producers of uni-
forms, linen, crockery, food samples and office furniture may participate in a
trade fair aimed at the hotel industry.
Conference bound exhibitions are usually small and linked to a conference,
e.g. a medical conference on heart disease. They have a low but highly selective
reach and are able to target with pinpoint accuracy. A trade mart is a hybrid kind
of exhibition and will have permanent stands. In some industries trade shows are
the only way that suppliers can meet buyers, e.g. selling into the government
defence industry or the security business where attendance is strictly by appoint-
ment only.
When planning the trade show strategy, clear objectives and policies should
be identified about why the supplier is going to attend, who they hope to meet
and what might the end objectives be. B2B exhibitions can be very costly in
terms of setting up equipment, space rental and staff manning and extremely
wasteful if little seems to be achieved. In most cases the objectives will not be set
in terms of sales (they will not be refused of course), but more in terms of con-
tacts, appointments made and sales leads taken. As with all media types, object-
ives must be set in measurable terms and monitored and controlled during and
after the event.
Example 8.18 ABC announces programme of support for the UK

exhibition industry
The Audit Bureau of Circulation (ABC) and the Association of Exhibition Organisers
(AEO) have announced a strategic alliance which will see the two parties working
together to build the profile and importance of auditing in the exhibition industry to
ensure the continued raising of standards.
Example 8.19 Examples of UK B2B trade exhibitions

National Franchise Exhibition, NEC Birmingham.
IDMF – International Direct Marketing Fair, Earls Court, London.
Total Marketing Solutions, NEC Birmingham.
Brand Licensing London, Business Design Centre, London.
Retail Interiors, Earls Court, London.
More can be seen on the Trade Fairs and Exhibitions UK website
(www.exhibitions.co.uk).
Trade fairs and exhibition associations

Trade Fairs and Exhibitions UK is the official website for the UK exhibition indus-
try, sponsored by Trade Partners UK, the new UK government organisation
responsible for all trade promotion and development work. (More information
can be seen at www.exhibitions.co.uk.) The roles of exhibitions include:
o To make new contacts, make appointments and take leads for the sales staff
to follow up.
o To meet existing customers, reinforce relationships, generate goodwill and
improve public relations.
o To show off the product range as well as new innovations.
o To gather market research, examine competitors’ products/services, new
technology and innovations.
o To sell products and services.
Disadvantages of exhibitions include:
o Lack of clear objectives.

o Can be time consuming.
o Opportunity cost of using sales staff to look after the exhibition stand.
Sales and trade promotions

Sales promotions (known as ‘below the line media’ as opposed to main media
advertising known as ‘above the line’) are heavily used in B2C and less so in B2B
markets. They can take many forms and refer to any short-term incentive (added
value) used mainly to encourage and persuade buyers and end consumers to try
or buy the seller’s product or services. This might be the manufacturer taking in
raw material supplies (B2B), the retailer taking packaged brands for resale (B2C),
or the end buyer for own consumption (B2C). They are more popular in B2C
markets because consumers buying for themselves are more readily emotionally
attracted by extra incentives such as ‘buy one, get one free’, points collection for
prizes or competitions. Professional buyers, on the other hand, are buying for the
company and effectiveness and efficiency are the most important considerations,
not short-term, superficial perks.
Advertising is used to create the awareness and perhaps gain access for the
salesperson. Sales promotions are offered to get the buyer at least to try the prod-
uct. They are also used at such activities as trade fairs, conferences, factory visits
and sponsorship events to encourage buyers to make appointments to see sales
representatives, or to try or buy products and services.
Sales promotions are also used to encourage and motivate the company
sales force to sell more of particular products. In this way products are pushed
through the distribution chain through to end users. It is important to realise
that the incentive is additional to basic benefits provided and is used to encour-
age purchase over a designated period. If the additional benefit is adopted on a
continuous time basis it will no longer be seen as an additional benefit, but as an
integral part of the product.
PUBLIC RELATIONS AND PUBLICITY 399
B2B sales promotions

Offering the buying centre an extra incentive to try a new product or service is a
well-established practice in business markets. It is an added weapon in the mar-
keting and sales departments’ armoury, allowing the sales manager to offer some-
thing special that in some way might lessen the risk for the buyer in trying a new
company or product. So a lower price or extra product value might be offered on
the first order; it might be a free trial of some sort, or the supplier being willing
to take back the products if they do not sell. It might be the offer of extended credit,
perhaps 60 days instead of 30 days, or free installation and operating advice or
extended warranties. Care should be taken not to use a sales promotion too often
as the added incentive will come to be expected rather than discretionary.
In some cases it could be offering the individual buyer some kind of personal
incentive such as redeemable points on products that are purchased, entry into a
competition or holiday vouchers. Care must be taken with this option as many
buyer companies now frown on and actively discourage such practice. This is be-
cause they insist that purchases should be made for objective, pragmatic reasons
and not because of personal reward. The role of a B2B promotion includes:
o To persuade the buyer to make an appointment to see the supplier

representative.
o To lower buyer risk and encourage trial of a new company, product or service.
o To encourage larger purchases and so block out the competition.
o To shift stock from the supplier warehouse so more or new can be bought.
o To motivate sales staff.
Disadvantages of a B2B promotion include:
o Sales tend to increase during the sales promotion and then decrease as soon
as it stops.
o It can encourage ‘cherry picking’ – only buying sales promotion stock.
o Public relations and publicity

The role of public relations (PR) in an organisation is to create and maintain a
favourable image for the company on a continuous basis with regard to both
internal and external stakeholders. This will require PR personnel to commun-
icate with all interested parties seeking to build and maintain harmonious
relationships. As we discussed at the beginning of the chapter, it is the process of
strategically communicating with the people who are important to the business.
For package tour operators and packaged goods manufacturers alike, keeping the
trade informed is as important as targeting the public. In addition there are
whole groups of industry and professional services that have no need to talk to
the end consumer but do need to talk to suppliers and customers. As a result B2B
publicity is consistently shown to be bigger than consumer publicity.
To support the process, the larger company will have a dedicated PR or cor-
porate communications department as well as working with outside PR agencies.
The smaller company, because of the costs involved, might choose to work solely
with a PR firm. Some PR will be seen to be the responsibility of the marketing and
promotions department while other PR work will be the responsibility of the cor-
porate communications or PR department; of course both will work very closely
together. PR, as used as an integral part of the marketing communications mix,
will be about rectifying problems that will impinge on how the company and its
products are viewed by the suppliers, intermediaries and especially the customers
and to build and maintain harmonious customer relationships. The B2B market-
ing communications managers will use planned publicity to strategically gain
free exposure in the media for news stories and articles that portray the company
and its products in a good light.
The practice of PR should not be confused with the role of publicity. PR is
what you ‘do’ and publicity is what you ‘get’. Some PR is about alleviating prob-
lems, e.g. product faults and complaints, that you would not want publicised,
while other PR is about publicising events that you do want to publicise, e.g. the
use of new technology.
Gaining publicity
To gain publicity the marketing communications department, in both buyer
and seller organisations, will attempt to cultivate long-term relationships with
B2B and B2C media owners, editors and journalists, talking to them about what
information, presented in what particular way, would best suit their readership,
viewers or listeners. In this way favourable news stories issued by a supplier
would then appear on TV, in the press or on the radio, showing the company in
a worthy light. The B2B firm can gain successful publicity from good stories
appearing in either the B2B or B2C media. The target customer will be hit directly
and in B2C media the target will still be hit or be hit indirectly. The good effects
can be the same.
Publicity tools and techniques

There are many tools and techniques that can be used to elicit free publicity.
What is important is that the whole publicity-seeking process is planned and
integrated in exactly the same way as any other component of the communica-
tion mix. As with advertising, sales promotions, merchandising, etc. clear meas-
urable objectives should be set, a budget given and measurement and control
mechanisms instigated. Techniques include:
o Events and similar activities
o Sponsorship
o News conferences
o Press and broadcast releases
o Lobbying.
Magazines, newspapers, TV or internet sites all need to unremittingly fill their
pages and programmes with interesting and lively news stories day after day and
week after week, sometimes 24 hours a day. A planned and well executed pub-
licity campaign with stories that are orientated towards each particular media
PUBLIC RELATIONS AND PUBLICITY 401
audience will be welcomed with open arms by the news-hungry media, and so
valuable media exposure will be obtained at little or no cost. As with other com-
munications strategies, it can be difficult if not impossible to set objectives in
terms of sales (much as the publicist might like to do this), so other more real-
istic methods should be used. This will include setting a target, linked to the
budget, according to the amount of free exposure achieved in the media and
comparing this with the costs if payment had been made (known as media equi-
valents) and/or trying to measure by research and awareness methods.
Uncontrolled publicity
Much generated publicity can be uncontrollable and so cannot be used in the
formation of publicity plans. Unexpected events can cause stories and news items
to appear that are beyond the influence of the organisation. This is not a prob-
lem if the items are favourable, but can be disastrous if they are not. Unforeseen
events can happen to the most well-prepared organisation and the difficulty
with even the well-designed, expertly written press release is that the newspaper,
magazine, TV or radio journalist ultimately has control over what appears in the
media.
Example 8.20 Publicity

Procter & Gamble, the global leader in the hair care business, has admitted to spy-
ing on its closest rival, Unilever. It is alleged to have searched through the rubbish
of Unilever, which owns the Organics and Sunsilk brands of shampoo, to try to dis-
cover any information that would help in marketing its own new hair care brands.
Press reports say that Unilever is demanding a settlement – potentially running to
tens of millions of pounds.
Publicity and word of mouth

There is no doubt that employees in an industry, by talking to one another and
passing on their experiences, disseminate good and bad images of organisations
and their products. This will be more of a factor in B2B markets than in B2C
because of the relatively small number of buyers in business markets compared
with consumer markets. People working in a particular industry for many years
get to know other suppliers and buyers and will talk with one another at confer-
ences and trade association meetings about the levels of service and value they
might have had from one company rather than another. The difficulty is the
inability of the communications manager to control the process. The answer
must be that if a quality service is offered at all times this will be passed on when
one company recommends another. The role of publicity is to communicate
good images of the organisation to customers and other relevant stakeholders
and to do this through articles and stories appearing free in the media as news,
thus being seen as legitimate, third-party endorsement.
One of the disadvantages of publicity is that it can be difficult to control.

Although free at the point of issue, there are background costs such as hiring PR
and publicity agencies, setting up events and entertaining media staff.
Example 8.21 Top five UK PR B2B agencies

Annual turnovers
£ millions
1. Weber Shandwick Worldwide 14,862,000
2. Countrywide Porter Novelli 14,659,000
3. Hill & Knowlton PR 9,350,000
4. Euro RSCG Corporate Comms 8,615,000
5. Edleman PR Worldwide 6,589,000
Sponsorship
Sponsorship is used in both B2B and B2C markets and can be seen as ‘the giving
of some form of support, usually money, to an event, organisation or person in
return for some form of association and communications opportunity’. Widely
used in B2C, it is applied selectively and in a smaller way in B2B markets. Under
certain conditions a supplier will find it profitable to pay to have its name linked
and associated with an organisation, event, or happening. This could be on a
short promotional campaign or on a more long-term basis.
Example 8.22 2008 Olympics sponsorship

China-based multinationals have been lining up to sponsor Beijing’s Olympic bid
committee overseeing the 2008 Olympics. Procter & Gamble, which sells Lux soap
and shampoos in China, is said to have donated $362,000. Telstra, the Australian
telecoms giant, has sponsored with equipment and facilities. The brewer of
Budweiser, Anheuser-Busch, is expected to be the official sponsor for the Chinese
Olympic team for the third year running.
Corporate hospitality
Although used in B2C, corporate hospitality – ‘the entertainment of customers
and other important stakeholders at staged events in order to reward and encour-
age loyalty and to seek out new customers’ – is used more in B2B markets. It will
include inviting selected guests to events such as the Open golf tournament,
Wimbledon tennis tournament, Grand National horse racing or Henley regatta,
as well as trips to the factory to view new production methods. There might
be hospitality tents set up in the grounds and guests given food and drink. It
can be a free-standing event or part of a sponsorship arrangement. There is the
hope that by invitations such as these profitable relationships can be built and
DIFFERENCES IN PERSONAL SELLING IN B2B AND B2C MARKETS 403
Figure 8.6
Advertising
value chain
business between buyer and seller increased. There should be a clear attempt to
integrate a hospitality event into the overall communications and promotional
activities. Results can be difficult to monitor and control but measures must be
taken to make certain that value for money is being achieved (Figure 8.6).
Part 3 The strategic role of personal selling in B2B markets

Because of its nature, the role that personal selling plays in B2B and to a lesser
extent in B2C marketing cannot be underestimated. Strategic sales planning and
selling can be seen as the marketing climax. Without adequate sales the whole of
the marketing effort has to be seen as failure. Although some products will sell
themselves – packaged, branded products sitting on the retailer’s shelf – most
products and services need some type of personal selling, whether into another
manufacture, into a retailer, or off the shop floor to the end user. Any form of
communications or promotions that involves direct interaction between a com-
pany salesperson and the customer can be seen as personal selling. It involves
strategic and detailed operational planning, skill, knowledge, commitment and
hard work. The customer might be another business, an intermediary, a retailer
or an end consumer.
In B2B markets the customer will be a manufacturer or producer of some kind,
buying for own use. In B2C the customer will be a wholesaler or retailer buying
products and services for end consumer use, or selling to the end consumer by
direct contact. In many industrial markets using personal selling is the only
viable strategy to communicate with the customer because of the complex prod-
ucts, information needed and the possible large size of the order for both initial
and long-term purchases.
o Differences in personal selling in B2B and

B2C markets
Personal selling is the dominant form of communicating and selling goods and
services in the B2B market because the number of potential customers is rela-
tively small compared to consumer markets, while the revenue possibilities from
each customer can be many times higher. Conversely, personal selling is used to
a lesser extent to communicate and persuade purchase in B2C markets. Because
of the millions of potential customers, mass advertising makes much more sense.
Paradoxically, depending on the definition of personal selling, there will be more
people employed in B2C markets if all those employed in retail are included.
In B2B markets the sales representative will be selling products and services to
other organisations for their own use or to sell on to other businesses for their
own use. In B2C markets the salesperson will be selling consumer branded prod-
ucts and services to consumer wholesalers and retailers or direct to the end con-
sumer. In B2B markets the goods and services might be component parts, capital
equipment or services used in the production of these goods and services. In B2C
markets the products and services will have been packaged by the supplier into
consumer usable benefits and sold either through retail outlets or direct to the
end consumer. Salespeople in B2B markets are:
o Sales representatives employed to market goods and services to other busi-
nesses, in both the public and private sectors, for use in the business.
o Sales representatives used by a B2B wholesaler to sell on to other businesses
for their own use.
Salespeople in B2C markets are:
o Sales representatives used to sell producer branded goods and services to
wholesalers or retailers to sell on to the end consumer.
o Salespeople used to sell goods and services direct from the producer or manu-
facturer to the end consumer.
o Salespeople used in retail outlets to sell direct to the end consumer.
Strategic and tactical role of the salesperson

The role of salespersons has become increasingly complex and challenging. They
will need to be constantly upgrading knowledge and skills to keep apace with
new market and customer demands. As buyers become more professional in the
way they perform business and make purchases, so must the sales staff, if rep-
utations are to grow and be maintained.
In many cases, the sales manager and sales representatives are the only sup-
plier staff that the buyer will see. The corporate image, ways of running the
business and company policy are all conveyed by how the sales staff behave and
present themselves. They will be expected to have comprehensive knowledge of
each and every customer on their area, as well as knowledge of the market and
competition at both macro and micro levels. They will be expected to know the
current and past industry’s and companies’ revenue, cost and profit figures, so
that comparisons, calculations and predictions can be made. Laptop computers
with access to online information and presentation ability will help in making
the process as professional as possible.
Performance of many tasks

The salesperson will often perform a multitude of tasks, both strategic and tac-
tical, for the company. They will include prospecting, that is looking for new
customers and making first contact, as well as constantly calling and satisfying
existing customers. They will then be expected to build on this, developing and
maintaining close contact, discussing the buyer’s problems and helping to sup-
ply benefit solutions through the use of both existing and new products and ser-
vices. They should be on hand to offer help, information and advice and deal
with customers’ dissatisfaction and complaints, both with the immediate buyer
and if necessary the buyer’s customers. They should also collect and feed back
information about general happenings in the marketplace. The sales director,
sales manager and sales representative will often all be involved in price nego-
tiations. This might be the sales director and sales manager at board level if
negotiating long-term contract pricing with a large organisation or the salesper-
son if negotiating a one-off transactional price at operational level. The amount
and level of responsibility will increase the higher the salesperson is within the
organisation.
The buyer’s representative with the selling organisation

Meaningful long-term relationships are built on sincerity and trust and the sales-
man or saleswoman will be central to this process. While never forgetting that
they are employed by the supplier, in many cases they should become the
buyer’s representative within the supplier organisation. In this way they will be
able to report back to R&D, production, transport, finance, and so on about addi-
tional benefits needed, difficulties with products and services, financial issues and
delivery problems. Setting up this kind of circuitous communication process will
then become part of a wider customer relationship strategic programme.
Strategic and operational role of selling in B2B marketing

o Opening new accounts.
o Monitoring and building existing accounts.
o Communicating and imparting information and advice.
o Gathering customer, market and competitor information.
o Acting in a PR role as the supplier’s representative in the marketplace.
o Dealing with complaints, coming up with solutions and solving problems
anywhere relevant along the supply chain.
o Promoting benefits and persuading the purchase of products and services.
o Acting as the buyer’s representative within the supplier organisation.
o Negotiating price, terms and conditions in both long-term and transactional
negotiations.
o Working with other functions within the organisation as well as with other
channel members.
o Contributing to the implementation and running of a CRM programme.
Communications working together to build customer

relationship programmes
All supplier business functions and processes, both internal and external, must
work cohesively together to build customer relationship management (CRM) and
customer retention programmes. Driven by the need to build long-term relation-
ships, based on constantly seeking better solutions to customers’ problems, the
interactive communication relationship becomes a consultative one rather than
a straightforward business transaction. CRM takes on added difficulties when the
interaction is on a global basis. Whether the market is national or global, the

strategic approach taken to customers and the language used must be consistent,
standardised and controlled to maintain the highest optimum quality. It will
include all members along the supply chain, as well as consultants and outsourcers,
collaborating and communicating by the use of electronic data interchange sys-
tems. The use of an extranet will allow customers to have the same access to online
information as the supplier staff so that there is instant rapport. The intranet will
be able to communicate and update the CRM programme to all staff members,
sending out market information and updating customer developments.
We live in a time when customers are under increasing pressure to cram

more into each day. By thinking broadly about the challenges your cus-
tomer faces, rather than narrowly about what you can sell them, you can
always find ways to make their lives easier. That more than anything else
will earn their loyalty.
(Harvard Business Review, May 2001)
Building a value-based sales force

The sales force will play a crucial role in any customer relationship management
and customer retention management programme. Constant upgrading, coaching
and training in human resource management (for sales managers), innovations
and new technology, personal and interpersonal skills and motivation methods,
as well as knowledge on new developments with customers and markets, will be
an essential part of the process. The front-line sales force must be supported by a
sales support team supplying up-to-date continuous and ad hoc data from the
marketing information system about customers and markets, on both sales and
technical problems. An integrated CRM programme should offer backing to the
whole sales team, if necessary on both a national and international basis.
Software can be acquired to enhance the sales effort in many different ways.
By profiling all customers, identifying benefits and products purchased over a
period, complementary products can be cross-sold and future needs predicted.
The most profitable and most costly can be analysed, reasons sought for differ-
ences and business processes implemented to build on the strengths and minimise
weaknesses. New technology and software programmes can automate e-mail and
telephony response processes so that both inbound and outbound messages are
segmented and customer-centred responses formulated. Sales force commun-
ications can be also automated so that customer call times, sales readiness states,
current and past purchases, as well as customer needs and problems, can be
instantly transmitted to the sales team. It can also encompass monitoring, feed-
back and control mechanisms. The website can be used to issue informational
and pictorial updates on products, services and component parts, as well as on
changes and developments in company policies, terms and conditions.
More than one person

Depending on the sales force strategy adopted, there will often be more than one
supplier employee visiting the supplier DMU. Because B2B problems can be
specialised and technically complex, the supplier sales representative may not have
the requisite knowledge and skill to understand the problem and so recommend
the correct solution. Technical experts will therefore have to accompany sales
staff to spell out what the solution might be. Sometimes other staff members
might also need to go along. This may include finance staff if convoluted costs
and prices need clarifying, legal staff if a long, detailed contract is in the offing,
and production and R&D if a new process might be needed. It is not unusual for
supplier staff to spend time, perhaps months, in the buyer organisation working
and learning to help solve problems and then supply the right solutions.
Change management
Employees cannot be expected to work efficiently and effectively with new ideas,
new technology and new methods without help, advice, coaching and training.
A CRM programme will only work if the internal sales team and the external sales
force are given solid support from the top down. Internal change management
strategies should be integrated in tandem with the internal marketing pro-
grammes discussed earlier. As CRM systems and processes are introduced, staff
are prepared and motivated, welcoming what is happening and understanding
why it is necessary. Tasks should be clearly detailed, responsibilities allocated,
control mechanisms implemented and feedback given.
Benefits of CRM strategies

The benefits to be had from a well thought out and implemented strategy will
1. Better and stronger customer loyalty. Close contact and personalised service
offerings, while constantly outmanoeuvring the competition, will encourage
customer loyalty and increased sales.
2. Better customer management. At every point across the changing customer life-
cycle, needs and wants can be more effectively identified and managed.
3. Better focus. The whole organisation is customer focused.
4. Improved customer service. Sales representatives will have up-to-date informa-
tion on products and services across markets and be able to offer help and
advice on both sales and after-sales service problems.
5. Reduced costs. Costs are reduced through an optimal mix of channels and
streamlined customer service operations.
6. Increased revenue. By identifying and taking advantage of cross-selling oppor-
tunities based on accurate customer data and comprehensive employee
training, the revenue is increased.
7. Partnership agreements. Working closely with suppliers, outsourcing compan-
ies, consultants and other channel members will allow a cross-fertilisation of
information and other resources.
8. Enhanced profitability. Detailed customer analysis, coupled with more effective
benefit offering, will give better insight into how costs and profits are affected.
9. Innovation opportunities. CRM networks should identify opportunities for
innovation and new technology from around the world.
Why CRM programmes fail

As with all business initiatives, there is always the possibility of failure. Trying to
implement customer value added or customer retention programmes is no dif-
ferent. Failure might come about for many reasons, including the following:
o No real strategic commitment from senior managers.

o Too many staff entrenched in old ways of working.
o Not enough commitment, understanding, knowledge and skill development
for the staff.
o Internal politics and individual/departmental objectives working against the
overall CRM business objectives.
o Poor and misunderstood IT processes and systems.
o Lack of integration across all involved areas.
o Poor implementation, monitoring and control mechanisms.
o Different level of readiness for global divisions and countries around the
world.
o Managing the sales force

People cannot be managed. Inventories can be managed, but people must
be led.
(H. Ross Perot)
Managing the business-to-business sales force in an effective and coordinated

way is fundamental to the success or otherwise of the company’s marketing
effort. In the B2B industry the sales force comprises the people that have contact
with buyers on a day-to-day basis and can make or break any initiative designed
to give absolute customer satisfaction. We have seen that they are an integral
part of any CRM programme and failure here would cause failure throughout the
system. Large organisations might have a sales director on the board as well as
a marketing director. With smaller or less sales-orientated companies the sales
function would probably sit within the marketing function. The sales director
might then have sales managers covering specific regional or other country areas,
depending on size of the market and number of customers. There would then be
a team of salespeople working for each sales manager.
Example 8.23 Selling in financial services

The door-to-door and B2B financial salesman is fast becoming a thing of the past
as consumers turn to the internet for financial services. Thousands of salesmen
have lost their jobs as a result of companies saving money by selling online instead
– savings they feel can be passed on to the customer. Many companies see online
selling as the easiest and quickest method for customers.
MANAGING THE SALES FORCE 409
The sales manager

The sales manager will be the person with overall responsibility for the manage-
ment process of planning and forecasting, organising and coordinating, direct-
ing (motivating, decision making, communicating, delegating), controlling and
evaluating (PODC) the sales effort and the sales staff towards agreed organisa-
tional customer satisfaction and sales targets. Sales managers will operate in both
B2C and B2B markets. In B2C markets the sales manager will be responsible for
selling into retailers, and in B2B for selling into other industrial businesses.
Because B2B customer needs are usually more technical and complex than B2C,
the organisation of the sales management team and the strategies adopted take
on added importance. Sales management strategies will cover the following.
Sales objectives
The sales targets will be set and agreed within the umbrella of the overall mar-
keting objectives and take into account levels of demand and the quantitative
and qualitative sales forecasting methods discussed at length in Chapter 2. The
sales manager will be responsible for breaking down the sales target into individ-
ual targets for the whole sales team. Other sub-objectives will include number of
new accounts opened and selling across the product portfolio, as well as com-
municating and collecting information. As well as yearly targets, the sales force
will be an integral part of any short-term promotion campaign and be given sep-
arate sales targets to achieve within this period.
Sales strategies
How sales objectives are achieved will determine the sales strategies to be used.
This will include whether the sales force is direct or indirect, in-house or using
outsourcing, the size of the sales management team and skills required, and the
make-up of the sales team needed to visit each customer. A clear identifica-
tion of the needs of the industry, of the individual buying company and all the
members of the buying centre and levels of influence will be necessary. It will
also cover the overall approach to be taken, i.e. personal calling, telephone, web-
site, electronic conferencing, or a mixture.
Example 8.24 Selling the wrong products

The UK Financial Services Authority (FSA) has announced that the pensions
misselling scandal will have cost insurers and financial advisers at least £11.8 billion
in compensation payments. More than one million customers who were missold
personal pensions and pension top-ups are in the process of receiving pay-outs.
Financial services organisations were accused of encouraging their sales force to
sell customers the wrong products by paying high switching commission rates.
(www.fsa.gov.uk)
Sales force organisation

The way the sales force is organised will depend on factors such as costs, size of
the company, type of product, number of customers and geographical spread.
Probably the most common method is by geographical spread. This might be by
towns, districts, regions, country or even trading bloc. This has the attraction of
minimising costs, with the salesperson living in the centre of the region as well
as knowing all customers within the designated area. It has the disadvantages of
expecting the salesperson to be responsible for all products and services in the
range as well as all customers – small, medium or large.
The areas could be organised according to the products and services produced.
This is particularly appropriate where the company has a large and/or complex
range of products and services requiring specific knowledge, skills and under-
standing. On the other hand it could be the buyer that has technical and com-
plex needs and this would indicate the necessity to have the sales force arranged
according to specific customer needs. This method would also be used where
some customers are more valuable than others – major accounts – or there is a
customer buying for all the company’s divisions spread around the country –
known as national accounts. Both these methods can be costly because sales-
people will have to cover the length and breadth of the country or continent,
with some passing fellow sales employees doing the same thing. In reality sales
teams tend to be a mixture of all methods identified.
The sales call rate varies according to the size and value of the customer and
can be anything from once every six months to every week. With all the issues
discussed under the concept of CRM, successful major and national accounts pro-
grammes now adopt a strong relationships marketing perspective, with sales-
people constantly on call to solve problems and meet customers’ immediate and
long-term requirements. The right ambience must therefore be created involving
such concepts as job satisfaction, the right rewards and professional levels of
support for the sales manager and the team if this is to happen.
Example 8.25 Gaining superior global sales and marketing IT strategy

First, planners must align global IT strategy with the needs and goals of the entire
company. Second, they must implement excellent processes and tools that sup-
port the needs of both internal and external customers. This requires dedicated
ongoing efforts to improve IT tools through pilot programmes, training and adapta-
tion of best operating practices. Finally, executives must ensure that they wisely
incorporate emerging technologies. These new tools offer great value, but they
must be managed to control costs and ensure delivery of promised benefits.
(www.benchmarkingreports.com)
Sales force administration

The successful sales management team will required continuous support and
back-up involving help in recruitment, selection and induction training, as well
as ongoing coaching and management development. Industrial marketing will
PERSONAL SELLING AND OTHER ELEMENTS OF THE COMMUNICATION MIX 411
often need specialist salespeople who are able to talk in highly technical language
about macro and micro issues that could affect a particular industry both at home
and around the world. This will have to be combined with all the personal and
interpersonal skills required to talk to buyer management at all levels from the
boardroom to the shop floor. It can be very expensive with regard to recruitment
costs and sales lost if the wrong type of person is employed and then found out
to be poor in performance. Ongoing coaching and training are crucial for all staff,
but never more so for the sales manager and sales team. Backroom support must
also be there to supply information, help and advice the moment it is needed –
perhaps covering the sales team anywhere in the world. Order processing, invoic-
ing, delivery and after-sales service should be of the highest quality, leaving no
room for sales team embarrassment and loss of face. The pace of change happens
more and more quickly and buyer contact people must keep ahead of what’s hap-
pening in the market if they are to retain credibility with the professional buyer
and industrial buying centre. The salesperson is the single most costly resource
for the supplier and must be cosseted, measured, evaluated and benchmarked at
all times to make certain that value for money is achieved.
o Personal selling and other elements of the

communication mix
Personal selling cannot be viewed in isolation from other elements of the com-
munication mix. Although in many cases the most important method in B2B
markets, personal selling will inevitably be used with many other methods, both
as part of the communication strategy and as part of a specific promotional cam-
paign. This will be outlined below and discussed in more detail when we look at
the need to integrate the whole communications and promotional strategies into
a synergistic whole.
Personal selling and advertising

It is possible for the salesperson to work in isolation while selling the company’s
products and services, unaided by any other elements of communications mix,
to move the customer through the decision-making process from unawareness
through to desire and purchase of the product. However, even in B2B, where
personal selling has such a strong reputation, it is still the exception. Customers
will always tend to be wary about buying anything from a salesperson when they
are unaware of the company or the brand name. The aphorism that ‘people don’t
buy products from companies they have never heard of’ tends to be true. If the
salesperson is lucky, it could be that an appointment is gained through word of
mouth and a recommendation from another buyer. Usually, however, other
communication methods would generally be used to create organisational and
product awareness and so support the selling process. Advertising in the trade
press or through sponsorship, direct response or appearance at a trade fair might
be used to create the initial awareness. Then when a personal visit or telephone
call is made the buyer, having heard of the supplier, will be willing to make a
sales appointment to discuss the products on offer.
Personal selling, exhibitions, sponsorship

Personal selling will also be used with sponsorship and exhibitions. Sales staff
will look after the exhibition stand, talk to buyers, demonstrate existing and new
products and services, obtain leads, follow through and try to convert the leads
to trial and product sales. If sponsorship is involved, salespeople will be on hand
at the event, perhaps in the hospitality tent, to talk, reinforce and build relations
with new, existing and old customers.
o Marketing communications and promotional

campaigns
Having stated at the beginning of the chapter that the concepts of communica-
tions and promotions will be used interchangeably, it might be worthwhile to
show how the two terms could be used in a slightly different context.
Marketing communications
A B2B company will be using marketing communications to continually talk to
its customers. This might be through the media types identified above, direct
response, sponsorship, publicity or even advertising, but overwhelmingly by use
of the sales force. Salespeople will be out in the sales territory daily, seeing and
communicating with small, medium and large customers in both the public and
private sectors. Information can be imparted and collected, products presented
across the product portfolio, and added features or new products discussed and
sales orders obtained. Yearly area sales targets will be agreed with sales managers
and broken down for each individual salesperson. Budgets will be set, time points
agreed, and monitoring, feedback and control mechanisms agreed.
Promotional campaigns
A promotional campaign, however, is the use of the communications mix to
develop and integrate a communications programme over a shorter period and
usually for a particular reason. It might be a campaign to increase awareness of
the corporate name, launch a new service, try to increase the sales of existing
products and services in a new market, or open new customer accounts.
It will take place over a specific period of time, perhaps three to six months.
Promotional campaigns will be used in both B2B and B2C markets – the differ-
ence being the target audience and the make-up of the promotional mix to be
used. Partnership promotions are sometimes used horizontally, where similar
suppliers work together to break into a market, or vertically where buyer and sup-
plier share costs to promote to customers along the supply chain.
Responsibilities will be allocated and clear, measurable objectives will be set
(SMART). Budgets will be agreed, the promotional mix selected and results mon-
itored before, during and after the promotional period to check that results are as
MARKETING COMMUNICATIONS AND PROMOTIONAL CAMPAIGNS 413
Figure 8.7
Relative
importance
of the basic
strategic
promotional
elements in
B2B compared
with B2C intended. It will be very likely that B2B marketing and advertising agencies will
be used to run the campaign and a research agency used to monitor and control
the process (Figure 8.7).
A promotional mix that works effectively for B2B markets can be different
from that for B2C for the following reasons:
o Communication more technical in nature.

o Relatively small number of potential buyers.
o The geographical dispersion of customers.
o Complex nature and time length of the buying process.
o Decision making often the result of group discussions.
o Customers have more knowledge and understanding.
o Individual customers more important and more difficult to replace.
o Fewer alternative products and services.
o Fewer competitors.
o Customer and supply chain relationships more important.
Integrated marketing communications (IMC) and

promotional campaigns
Integrated planning is at the heart of B2B marketing communications; only

if we all know where we are going can correct and adequate resources be
integrated and made available and monitoring and measurement controls
be implemented so as to ensure a satisfactory outcome.
(Account manager)
All communication programmes and promotional campaigns will inevitably use

more than one strategy to achieve the end objectives. It is important that the
communication or promotional strategies adopted are well planned and shown
to work together harmoniously to achieve overall objectives. In this way synergy
can be achieved. This should motivate all departments to work together, but
because of different agendas this isn’t always the case. Integrated marketing is
strategic in that the content and delivery of all messages by all media used are the
result of an overall communications or promotional plan. IMC should be based
on clearly researched and identified organisational and buying centre needs.
Once the target audience has been selected and needs identified, communication
objectives can be set. This might be raising corporate awareness over a long time
period or the market share wanted from the launch of a new product. Budget
will be agreed and the best methods of contact chosen. The company/product
positioning statement and message content, style and presentation should be
understood by everyone so that all communications, from whichever media, are
consistent and market the same identified benefits to all selected target segments.
Because the process may involve taking the audience from unawareness
(remember the hierarchy of effects model discussed earlier) through to interest,
desire and action – that is buying the product – different strategies will be used:
advertising to create awareness; direct mail shot description and benefits to build
interest; a sales visit to close the sale. Different strategies might be used because
the media forms have attributes that are more likely to be read or seen by one
target group rather than another: specialist magazines for detail; the website for
interactive communications; telephone for contact, and so on. What is import-
ant is that all media forms used must have clear, measurable objectives that can
be monitored, controlled and measured to see that objectives are being achieved.
All separate media objectives should build and integrate to meet the one overall
objective for the programme or campaign.
Measuring communication and promotional performance
If you can’t measure it, you can’t manage it!
All organisations would like to measure the value of all money spent, whether
production costs, human resource productivity, or transport efficiency. Market-
ing and promotional communications are no different. Most companies would
like to measure the results according to sales and revenue generated, but except
for the role of the sales force this is not always possible. However, this should not
prevent an attempt being made to put performance indicators on strategies used.
Without a measurement of some kind the results achieved cannot be compared
with past performances, benchmarked against the competition, and improve-
ments made so as to gain better cost/benefit ratios. Wherever possible, ultimate
objectives will be set according to an increase in revenue figure, because this is
the most obvious and direct way of judging the success or otherwise of a com-
munications or promotional programme. But in many cases this is not possible
so surrogate behavioural objectives such as levels of awareness and interest, as
well as intentions to buy, will be used.
Measurement, control and monitoring of objectives should take place before,
during and after a communications programme or promotional campaign. The
target market can be consulted as the campaign progresses and adjustments made
if parts are found not to be working. This can be undertaken by marketing
research, talking to a sample of the target market, number of requests for infor-
mation and catalogues received, sales leads taken or increase in sales. Research
agencies will sometimes be used to undertake this type of research. The success
or otherwise of any programme will be judged by objectives being achieved.
Budgeting for marketing communications

Budgets should be part of the planning process and this will be discussed in more
detail in the following chapter. Too often budgets are set before the communica-
tions planning process has been thought through, leading to some projects being
underfunded while others are in surplus. Budget allocation should be part of the
overall communications integrating process. If budgets are set individually for,
say, advertising, sales promotions and exhibitions, when communication strateg-
ists attempt to integrate for optimum performance it might be found that there
hasn’t been enough allocated for exhibitions and too much for sales promotions.
Bureaucracy and departmental barriers may then prevent the transfer of monies
from one to the other.
Methods of budgeting
Ideally the best method of budgeting in all areas, including communications and
promotions, should be by task and objective. The overall integrated objectives
and best strategies are identified, costs ascertained and then budgets set. In real-
ity this is not the way it is always done and the following methods may be used:
o By what the company can afford – probably the most popular method.
o The same as last year with or without a percentage increase for inflation.
o As a percentage of current or expected turnover or profit.
o Based on the industry and market norm.
Planning and control in the communications process

There will be little discussion here on the communications planning process as
the overall B2B planning process will be examined and evaluated in comprehen-
sive detail in the next chapter, but it might be worthwhile just to outline the fac-
tors involved (Figure 8.8).
Use of B2B marketing and advertising agencies

Experience has taught me that advertisers get the best results when they
pay their agency a flat fee . . . It is too unrealistic to expect your agency to
be impartial when its vested interest lies wholly in the direction of increas-
ing your commissionable advertising.
(David Ogilvy)
Many communication campaigns are planned and instigated by working with

outside marketing and advertising agencies. The big advantage is the expertise
and professionalism that the agency personnel will bring to the project. Agencies
will offer general services in both B2C and B2B markets, while others will spe-
cialise in one industry or marketing area. The downside is the costs involved as
it can be very expensive to employ such organisations. Services offered will
Figure 8.8
Factors
involved in
the B2B
communication
planning
process
o Target identification and benefits wanted

o Corporate and product positioning
o Strategy choice
o Message construction
o Media selection
o Media payment
o Sales support
o Research, monitoring and control
o Integrating the whole communications effort.
Example 8.26 The B2B full service agency

Cross-Border Communications, or CBC, is a full-service, business-to-business advert-
ising agency based in central Copenhagen, Denmark. They say that they specialise
in providing marketing communications services to international businesses across
four broad areas: corporate branding, product positioning, lead generation and
strategic sales support (www.cbc.dk).
Innovation in B2B communications

One of the real difficulties with communications in both B2B and B2C markets
is the problem associated with ‘clutter’ – the term for all the interference between
message sender and message receiver that can prevent meaningful contact (iden-
tified when we discussed the basic communications model). It is more of a pro-
blem in B2C markets because of the need to reach millions of individuals at the
same time as thousands of other advertisers, predominately through the use of
mass advertising – a one-way medium. Because B2B markets are smaller, we can
use personal selling – a two-way medium more favourable to good communications
and understanding. We know that there are times, however, when other media
methods must be used, often as a complement to personal selling. Innovative com-
munication ideas and processes are used to attempt to break through this clutter
and try to make certain that one company’s messages are seen above all others.
This will embrace all customer contact material such as advertisements,
catalogues, merchandising material, letters, e-mails, faxes and videos where
approach, style, content and promotions must be constantly explored, upgraded
and measured to try to make certain that they stay fresh and welcoming so that
contact is made. Good B2B advertising agency account managers should discuss
such issues continuously with supplier marketing staff demonstrating innovative
approaches and making recommendations.
Use of technology in B2B communications

There has been an enormous upsurge in the use of technology in B2B marketing
communications in an attempt to improve reception and feedback. All forms of
electronic conferencing make it possible to have interactive supply chain meet-
ings with people contributing across the whole market. Adverts can be digitised
and sent to media agencies instantaneously – again almost anywhere in the
world. They can be altered at a moment’s notice to incorporate up-to-date infor-
mation and news. Computer technology can plan, place and track ads using
mathematical and statistical theory, undertaking advanced testing, response
modelling and performance prediction to maximise the effectiveness of a cam-
paign in all media. This can be used in conjunction with traditional research
methods to give an all-round measurement approach.
Advertisements can now be made interactive, with instant feedback obtained
through specialised TV and computer modems. LED screens allow TV-type ads to
be run on outdoor sites. Computerised virtual ads can appear on TV screens at
any event without being actually present. Sales promotions can offer information
on DVDs and video and computer chips can be embedded into merchandising
gifts and calling cards.
Web ads are being designed with banners that allow users to interact, for
example by adjusting the size, shape, colour, etc. of the product to see the effect.
Flashing, buzzing and pop-up interactive ads, as well as larger ad formats, are
already appearing on popular sites. Another up-and-coming form is the ‘super-
stitial’. A TV-style ad pops up and plays a 20-second animation or video with a
talking head or product demonstration. In the world of technology it now seems
that almost anything is possible to enhance the communications process in an
attempt to improve the supplier’s chance of being noticed and their products
eventually purchased. Ultimately, of course, it will depend on the receptiveness
of the receiver, perhaps overstimulated by too much information, and the use-
fulness of the products on offer.
Example 8.27 Billboard technology

High street billboards could soon start talking to people walking past as advertisers
look to harness new technology. Poster adverts could be made to speak, play music
or produce sound effects when a potential customer is within range. An infra-red
sensor clipped to the back of the ad site detects the presence of people and activates
a recorded audio message about the product. We already have billboards that are
lit, move and rotate. Soon they will send text messages on our mobiles as we pass.
Legal concerns in B2B communications

There are legal aspects and ramifications to consider in all business activities, and
communications and promotions are no different. There is always the tempta-
tion for salespeople to exaggerate product and service benefits to clinch the sale.
This can prove extremely costly if the law considers this to be unfair or even
criminal. Salespeople must be seen to be truthful in B2B and B2C markets.
Adverts must be seen to be honest, legal, truthful and decent (ASA) and not give
offence to any reasonably minded person. Recruitment ads must abide by equal
opportunity legislation and be seen to be operating in an ethically acceptable
manner. Advertising and promoting on the web have thrown up many legal
conundrums, not least where the law should be enforced – at the home base of
the advertisers or where the ad is received. Law in this area is still being debated
and the jury, as they say, is still out.
Example 8.28 ITC looks at banned areas

Groups from escort agencies to hypnotists could be allowed to advertise on tele-
vision under plans to relax the strict rules surrounding advertisements. The
Independent Television Commission (ITC) is consulting on whether to scrap many
of the restrictions which dictate what can and cannot be advertised on television.
There are currently 30 categories of goods and services that are banned.
(www.itc.org.uk)
Although consumer law is more detailed and comprehensive than in B2B

markets, the feeling being that companies are more able to look after themselves
than individual consumers, it is still a force to be reckoned with where there is a
proven case of deliberate misleading. The ultimate sanction for a supplier (or
buyer) is bad publicity and loss of customers. The law will have an effect on all
types of communication discussed throughout this chapter, at both UK and EU
level, and the movement is towards standardisation across the trading bloc and
world markets.
UK broadcast and print regulatory bodies

A new regulatory body for the broadcasting media has now come into force in
the UK. Ofcom says it will regulate TV and radio by means of a new framework
that will allow flexibility for industry while fully meeting the expectations of
viewers and listeners and maintaining high levels of quality and diversity. The
five organisations that will merge to form Ofcom are Oftel, the Radio Commun-
ications Agency, the Radio Authority, the Independent Television Commission
and the Broadcasting Standards Commission (www.ofcom.gov.uk).
The Advertising Standards Authority (ASA, www.asa.org.uk) is the UK body
responsible for regulating print advertisers, including newspapers, magazines and
directories as well as the sales promotions industry. It issues codes of practice and
now publishes its complaints and adjudication reports about accused companies.
It is a self-regulating body, however, and some commentators argue that it lacks
any power to enforce its judgements. Similar bodies exist in the EU and around
the world with varying amounts of power.
EU body
The European Advertising Standards Alliance (EASA) is a non-profit organisation
based in Brussels. The alliance says ‘it acts on behalf of the European advertising
industry, and is the single authoritative voice on advertising self-regulation issues
promoting high ethical standards in commercial communications by means of
effective self-regulation, while being mindful of national differences of culture,
legal and commercial practice’ (www.easa-alliance.org). The EU has a European
Commission which oversees advertising law and instigates new European
legislation.
Example 8.29 EU and advertising law

The European Commission has put forward new legislation that would stop
cigarette adverts in newspapers, magazines, on the radio and internet. A previous
EU law banning advertising was overturned after the tobacco industry challenged
it in the European Court of Justice.
o Summary
In this chapter we have examined the role of communications at both the cor-
porate and marketing levels, evaluating its users in both areas and outlining
how it might be used at different levels. As with all other chapters there was an
attempt to differentiate between communications in B2B and B2C markets, with
particular reference to both intentional and unintentional marketing communi-
cations at both corporate brand and product brand levels. Two communications
models, the individual basic and the corporate basic, were highlighted to show
how it works and to stress the fact that simplicity in understanding communica-
tions should not be forgotten. The importance of market segmentation, research,
customer profiling and identification of benefits to the communications process
was recognised.
We then went on to talk about how the organisation might manage the com-
munications process, identifying the need to set clear, measurable objectives that
match the needs and benefits of each clearly selected industry, company and
decision-making unit in the target audience. Communications and promotional
strategic methods were discussed and evaluated. These included the use of both
‘above the line’ and ‘below the line’ media. Above the line media were recognised
as the media mix or main media and include TV, print, radio, outdoor and the
internet. Again comparisons were made between B2B and B2C usage. A simple
‘hierarchy of effects model’ demonstrated how communications might work
using a combination of communications strategies.
Below the line methods were then identified and discussed. These include
direct response, trade sales promotions, merchandising, PR, publicity, exhibitions
and sponsorship. The need to measure, research, monitor and control all indi-
vidual media as well as the overall communications results was emphasised, argu-
ing that value would be lost if this was not conscientiously performed.
The importance of personal selling in the B2B communications and promo-
tion programmes was recognised and sales and sales management strategies were
discussed. This included the absolute priority to build long-term relationships
with many buyers, under the umbrella of customer relationship and customer
retention management schemes, if value is to be maximised. The different parts
that the supplier salesperson could enact for buyer benefit were described before
we went on to look at the sales force as a whole and how it might be organised
under the supervision of the sales manager. It was recognised that, though of
utmost importance in B2B markets, personal selling could not usually work effec-
tively on its own and needed to be incorporated into the whole communications
programme. The difference between communications programmes and promo-
tional campaigns was then given, before moving on to discuss the need for the
total integration of all the media into one holistic approach to the target audi-
ence if synergy is to be achieved.
Finally we looked briefly at budgeting methods, innovation and technology in
communications and the legal aspects.
BIBLIOGRAPHY 421
1. Discuss the full implications of business-to-business communications and examine
and evaluate all the factors that have to be taken into consideration when looking
at communications planning.
2. Identify the differences between corporate and marketing communications. How
might B2B and B2C differ in the use of the two business functions?
3. Discuss communications and the internal marketing process in B2B marketing.
How would a company need to set about undertaking such a programme and
what might the difficulties be?
4. Identify the major forms of communications and promotion used in both B2B and
B2C marketing. Why might the mix be different? Give real live examples whenever
possible.
5. What role might B2B marketing research play in promotion and advertising?
Discuss the methods that might be used, paying close attention to the advantages
and disadvantages.
6. Discuss the part that advertising and sales promotion play in B2B markets. Some
commentators would want to argue that they are both sometimes undervalued in
the B2B marketing process. How would you address this criticism?
7. How relevant are models such as the AIDA hierarchy of effects model? What are
their advantages and disadvantages?
8. Identify all the possible media types and evaluate usage for advertising in the B2B
market.
9. The sales function is considered the most important communication strategy in
B2B markets and advertising the most important in B2C markets. Why might this
be so? Examine and evaluate the role of the sales representative in business
markets. Give live examples.
10. Discuss how innovation and technology is affecting all aspects of B2B
communications. Give live examples and attempt to speculate on what you think
the future will hold.

o Bibliography
Books
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Cox, J. (1996) ‘Making a case for trade shows’, Business Marketing, 81: T4.
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09 Formulating business-to-business
marketing strategy
Planning is everything – the plan is nothing.

Chapter
Aims and objectives

1. Demonstrate an understanding of the importance of strategic thinking to
the success of the small, medium and large B2B organisation in the public
or private sector.
2. Identify all the factors that make up the strategic planning process and be
able to transfer this learning to a real situation.
3. Identify and analyse the problems associated with the tactical
implementation of strategic plans.
Part 1 The need for business marketing strategy
o Introduction
Not all organisations, whether in the B2B or B2C markets, will look very far into
the future in an attempt to ascertain what direction markets might take and what
future demand might be. Some managers are so busy ‘firefighting’ and managing
the business from day to day that they don’t have the time, energy or where-
withal to look any further than a month or more into the future. This is espe-
cially so with small and medium sized businesses but still the case with the
occasional larger business. This is not to say that some businesses, usually owned
or managed by an entrepreneurial type, cannot succeed in this way, if only in the
short term. There are also times when markets are so unstable and unpredictable
in some industries that any long-term planning seems to be not worthwhile; any
planning becomes just a series of short-term plans as market conditions change
almost from month to month. These problems, however, do not mean that for-
mal strategic planning should be abandoned, only that the process and tech-
niques used must be made more flexible, adjusted and constantly reviewed to
take into account changing circumstances.
424 CHAPTER 9 • FORMULATING BUSINESS-TO-BUSINESS MARKETING STRATEGY
o Importance of strategic thinking

Most organisations realise the importance of strategic thinking, looking ahead
and attempting to understand how market conditions might change, how the
levels of demand might alter and what the reaction of competitors might be.
Imaginative and entrepreneurial thinking unguided by a strategic perspective is
much more likely to fail than to succeed. Innovation, the use of new technology
and new product development are all meaningless if not linked into an idea of
future customer wants and needs. For example, attempting to alter employee cul-
ture, implementing motivation projects and putting on management coaching
and training programmes to improve performance without aligning it all to how
the organisation intends to build competitive advantage is a recipe for confusion
and mismanagement and just plain unprofessional.
Very few B2B companies, whether in the service industry, manufacturing,
retail or electronics, have been able to escape the unremitting competition or the
movement in markets coming at them from every corner of the globe. Deregula-
tion, privatisation, anti-competitive legislation, unpredictable stock markets, global-
isation and phenomenal technical and innovative changes have attacked industry
after industry. The problems that good planning seeks to solve – future needs of
buyers, what competitors will do in the future, how the economy will influence
events, how to gain and maintain competitive advantage – will never alter.
Example 9.1 An uncertain world

The UK stock market notched up the longest losing streak in its history yesterday
as fears of an impending war with Iraq triggered an unprecedented ninth success-
ive daily fall in share prices. The FTSE 100 index of leading shares has seen £80
billion wiped off its value since 13 January. Anxiety is growing at the impact of a
conflict on already fragile global markets. There are also fears that the price of oil
could soar if an invasion of Iraq leads to prolonged turmoil in the Gulf. The wider
FTSE All Share index has not experienced such a sustained fall since November
1974, when Britain was struggling towards the end of the previous massive bear
market. Many are asking where it will all end.
Changing planning environments

Business and market environments around the world are, to a lesser or greater
extent, always in some kind of change process that will have ramifications for the
organisational planning process. The change might be environmental, economic
or social and affecting all markets at the same time or, as is more likely, the
change will affect one part of the world or one country at different times. Global
companies might be affected in all markets at the same time, as in a world reces-
sion, or only in one trading bloc or country because of relatively localised factors.
The changes might be gradual, e.g. brought about by demographic factors, or
sudden and unexpected, e.g. OPEC raising the price of oil. Sudden change might
also affect one industry more than another, either positively or negatively, e.g.
terrorist attacks devastating air traffic but leading to an increase in other types of
IMPORTANCE OF STRATEGIC THINKING 425
transport and/or leisure activity. Generally the retail environment and B2C mar-
kets will alter less often and more slowly than B2B markets as change factors take
longer to filter down through the supply chain, but this will vary according to
the B2B industry and market.
Stable and dynamic planning environments

Although most world market environments are more liable to change than in the
past, markets in some sectors will be more susceptible than others. In some
industrial markets change is constant almost month after month, e.g. informa-
tion technology, while others barely change from year to year, e.g. pharmaceut-
ical markets with long-term patents. In some industries, such as cars and lorries,
the lead time (planning horizon) for producing new products and introducing
new processes will be much longer than in other industries such as publishing
because of the resource implications involved. Although the pace of technology
now makes it easier for most industries to adapt more quickly to market circum-
stances than in the past, it will always be quicker to change direction in some
sectors because of products and services offered, design times, skills training,
financial commitment and risk, level of competition, and so on. The size of the
company, its structures, systems and scope of its market activities will also have
an enormous influence. A company the size of General Electric will take longer
to radically adjust than a company employing 50 or 60 people and operating in
only one market. Taking all these factors into account will make any form of
long-term strategic planning more predictable and so much easier in some areas
and some companies than in others. It should also be noted that the longer the
strategic planning time period, the more uncertain will be the power of pre-
dictability; therefore the less detailed and more problematic the plan will be
(Figure 9.1).
Planning in turbulent economic times

Strategic planning is much easier when major economic forces, inflation, inter-
est rates and employment levels are stable and relatively predictable. It is much
more difficult when times are turbulent and economic factors fluctuate. Under
these circumstances long-term planning has to be constantly revised, perhaps
every year, and so becomes a series of shifting short-term plans. Some comment-
ators argue that under conditions of complexity and chaos strategy is developed
on the hoof and emerges in the manner discussed below under prescriptive emer-
gent planning (Figure 9.2).
Ability to plan for change

The ability of the organisation strategically to plan for change will depend on the
following factors:
o Predictability of the change at political, economic and industrial level.
o How sudden or gradual the change might be.
o Susceptibility of the industry/organisation to changing circumstances.
Figure 9.1
The strategic
planning
challenge
Figure 9.2
o Long-term, detailed, prescriptive planning becomes problematic
Strategic o Short-term, emergent, reactive planning becomes the norm
planning under o Decisions made must still link to company mission, goals and values
uncertain o Constant, up-to-date ‘sensing’ of information on environments and markets crucial
circumstances o Knowledge, experience, intuition and a flexible mind become overriding management
characteristics
o Wherever possible strategic decision making should be decentralised
o Responsibilities must be given to managers nearest the problem so that decisions can
be made quickly and efficiently
o Constant, meaningful communications across all departments and between
headquarters and divisions must be embedded into the culture
o Regular strategic meetings should be used for continuous planning updates
o Monitoring and control mechanisms should be kept to the minimum without
threatening overall company viability
o Stability of the country or trading bloc served.

o Products and services offered.
o Markets served.
o Strategic horizontal and vertical alliances formed.
o Ease of competitive entry.
o Size, diversity and geographical spread of the organisation.
o Structure, culture and preparedness of the organisation.
o Level of understanding about the planning process.
IMPORTANCE OF STRATEGIC THINKING 427
Strategy and implementation gap

Strategic planning should never be seen as something to be discussed and agreed
by senior managers at boardroom level, detached from the implementation. Too
many rigid, formal plans end up never being acted upon in any meaningful way
because the strategists abdicate responsibility once the plan has been formalised
at the higher level and never become involved in seeing it through to the tac-
tical and operational level. This has given formal strategic planning a bad name
in many quarters, leading to disillusionment and rejection by many practitioners
and commentators alike. To be effective, it must be part of an agreed process
including the implementation and then judged on both strategy and operation
as to whether or not it has been successful.
Example 9.2 Operational effectiveness and strategy

According to Michael Porter (1996), operational effectiveness (OE) and strategy are
both essential to superior competitive performance but they work in different ways
and so should not be confused. Operational effectiveness means performing day-
to-day, week-to-week and month-to-month activities more effectively and effici-
ently than the competitors. Companies must be structured and managed in a
flexible way so as to respond rapidly to competitive and market changes as (or
before) they happen. They must benchmark continuously and outsource aggress-
ively to achieve best practice and to gain efficiencies. However, he argues that on
its own this is not enough as few companies will be able to constantly keep ahead
of the competition in this manner because rivals will also have access to the same
operational efficiency processes.
On the other hand Porter sees strategy as the creation of a unique and valuable
corporate position in the market that unifies and focuses all individual activities
into a market and customer approach that is different from or superior to the com-
petition. There must be a continual search for ways to reinforce and build on this
selected company position so that the competition finds it impossible to imitate.
He goes on to identify three generic ways that this might be achieved by an
organisation.
1. Variety-based positioning – producing products or services that are different,
better or cheaper than the competition.
2. Needs-based positioning – serving the needs of a particular customer group, for
example, a public sector area.
3. Access-based positioning – segmenting customers who are accessible in differ-
ent ways, perhaps by direct personal contact, through partnerships or by private
internet connections.
While operational effectiveness is about achieving excellence in individual activit-
ies, strategy is about combining all organisational activities so that a ‘fit’ exists
between positioning strategy and clearly identified industry and customer needs.
Porter sees this as fundamental to obtaining and sustaining competitive advantage:
‘It is harder for a rival to match an array of interlocked activities than it is merely
to imitate a particular sales-force approach, match a process technology, or repli-
cate a set of product features.’ Finally he goes on to suggest that an overall fit
amongst a company’s activities will improve operational effectiveness as transpar-
ent interdependency will quickly identify and rectify areas of weakness.
Strategic planning and implementation gap

The strategic planning and implementation gap might come about for the follow-
ing reasons:
o Market positioning strategy not understood, communicated or agreed by all

employees.
o More kudos given to the strategic planning process than its implementation.
o Management and marketing strategists unwilling to be measured by practical
implementation performance indicators.
o Too harsh a dividing line between strategic and front line managers.
o Lack of focused interlinking, interconnected systems.
o Lack of consultation and a breakdown in communications between all inter-
ested members.
o Strategic plans too rigid and thus defying translation into practical forms.
o Uncertain levels of responsibility.
o Involvement of managers and all company functions

Managers at all levels and across all functions, from the line managers upwards,
should be involved in the process of discussion and debate, including marketing
and sales managers, production, finance, administration, human resource, R&D,
and so on. In this way a sense of ownership and commitment is engendered as
everybody can feel a part of the process. Strategic thinking should not be some-
thing that occurs rigidly once a year but be part of a continuous ongoing debate
where, if necessary, sections of the plan are altered as and when circumstances
force this to happen. A good, coordinated plan will translate down to operational
detail over the shorter period, be discussed, agreed and acted upon by all parti-
cipants. Systems should be put in place that invite back comments, suggestions
and requests for new information needed so that the strategic plan is constantly
updated to meet the needs of the changing environment (Figure 9.3).
Figure 9.3
o Encourages discussion, argument and debate, among all managers as part of a
Good strategic continuous process
and tactical o Dissemination of information should give a sense of long-term direction for all
planning involved in the process
o Can empower and motivate employees allocated clear responsibilities
o Provides leadership
o Resources can be garnered, organised, upgraded and coordinated in preparation for
change
o Monitoring and control mechanisms, at all levels, permit the plan to be managed
effectively and efficiently
o Encourages the continual monitoring of the internal and external environment
o Built-in flexibility allows changes to be adopted as and when environmental and
market circumstances demand
o Should not become a substitute for good operational management decision making
INVOLVEMENT OF MANAGERS AND ALL COMPANY FUNCTIONS 429
Size and type of organisation

The size of the organisation will have an effect on the planning process. It should
be easier to plan in small companies than in very large companies, especially
those with many divisions across the world (although more professional help will
be available for the larger organisations). One organisation might have a policy
of central planning while another might opt for decentralised planning. One
company might have an autocratic planning procedure while another might
have the opposite – a democratic planning procedure. Planning in the public sec-
tor will usually be more rigid and formal than in the private sector because of the
involvement of government and other stakeholders.
Prescriptive planning
Care has to be taken when making assertions about the level of planning that
may or may not take place within an organisation. Formal, prescriptive strategic
planning – discussing, agreeing and translating a plan into a written document
covering perhaps three years – is not the only method applied. In some cases
strategic thinking is happening but is not presented in the formal way described
above. It is only when we look back at how a company got to its present position
that we can see a distinct and logical strategic pattern taking it from whence it
came to where it is now. It is as though the entrepreneur running the busi-
ness has been thinking about the long term and reacting strategically, and often
intuitively. In many cases the entrepreneur is able to transmit this to surround-
ing managers so that all will hopefully be moving in the same direction.
Planning under emergent circumstances

Other strategic thinking and planning takes place in reaction to emergent cir-
cumstances rather than to clearly identified objectives. The marketing depart-
ment will know what it achieved in the previous year and hope to improve on it
in the current year. Performance targets will be set at all levels at the beginning
of each year with this in mind. A post mortem will be held at the end of each
period, but a full audit will not be held at the beginning of the next period.
Strategy tends to be changed in reaction to circumstances, either as they happen
or a short time before they happen. There may well be an awareness of the pos-
sibility of future events but, unless cataclysmic in nature, a reaction will only take
place as events appear within the working time frame.
Example 9.3 Emergent change

Many practitioners and business commentators argue that the future is unknow-
able in any real meaningful way and a business can only react to circumstances as
they happen. Emergent change is the whole process of developing a strategy where
the outcome only emerges as the strategy proceeds. There is no defined list of
implementation actions in advance of the strategy emerging, although experience
and intuition will hopefully inform senior managers on the best course of action to
take. Emergent corporate/marketing strategy is a strategy where the final object-

ive is unclear and whose elements are developed during the course of its life, as the
strategy proceeds. ‘Logical incrementalism’ is the process of developing a strategy
by small, incremental and logical steps interacting with circumstances as they
happen.
Prescriptive planning – the future is knowable

o Past, present and expected situations are audited.
o Clear short, medium and long-term quantitative objectives set.
o Long-term strategies discussed and developed to reach long-term objectives.
o Strategic marketing plans (3–5 years) written up identifying future courses of
action.
o Tactical plans (six months to one year) written up detailing implementation
requirements.
o Whole process is monitored and controlled and alteration made as happen-
ings demand.
Emergent planning – the future is uncertain and basically unknowable

o Unclear objectives, developed as strategies proceed.
o No single final objective.
o Based on assumptions that strategies are not always logical and rational.
o Tries to take into account the reality of management decision making.
o Constantly influenced by internal and external factors.
o Decisions emerge in reaction to circumstances as a system of experiment,
negotiation, discussion and small steps forward.
o Organisational structures and systems must be flexible and able to respond
quickly to change.
Practical consequences of planning

Students and practitioners becoming involved with the planning process will
find that they have to adapt to two basic sets of circumstances. First, from a prac-
tical perspective all companies probably approach the planning process in differ-
ent ways. This will not be a problem as long as those involved understand that
this will always be the case whatever the organisation they are involved with.
Having learnt the prescriptive formal approach discussed throughout this chap-
ter, it will be a matter of adjusting and adapting as circumstances demand. This
might mean making adjustments in a minor way, perhaps just according to the
different language used, or it could be in more major ways, perhaps a different
emphasis on certain areas.
LEVELS OF STRATEGIC DECISION MAKING 431
Second, the company planning process might take the emergent and more
informal form. Again, an understanding of the formal process should be a posit-
ive help, almost as an ‘ideal type’ example which the planner will be able to
manipulate and adapt in a flexible and orderly fashion as company and market
circumstances demand. For example, long-term measurable objectives may not
seem possible but shorter term objectives could be used and changed in instant
reaction to changing environments.
Finally, it should be said that planning at whatever level is not easy because it
is an attempt to look into the future; no one can know with any certainty what
tomorrow might bring, yet alone next year. We only have to go back and look at
some of the previous year’s predictions by so-called economic and business
experts to see how terribly wrong some of them have been. Nevertheless experi-
ence has shown it to be better to attempt to minimise the risk by planning and
forecasting than just leaving everything to chance. Ultimately, it is crucial to take
part in the discussion: Planning is everything – the plan is nothing.
o Levels of strategic decision making

Both strategic and operational planning take place at all levels and across all
functions within the organisation in both B2B and B2C industries and include
the following areas now discussed.
Corporate planning
Planning at the corporate level involves all managers from all areas working
together so that the whole company functions in a holistic way to meet the
overall objectives of the corporate body and to add value for the shareholders. If
synergy cannot be achieved in this way then shareholders may sell and so reduce
the value of the company. It could also be argued that the organisation should
be split up and sold if greater shareholder value could be achieved in this way.
Of course this will not apply to NFP or public sector organisations because of
ownership differences.
Finance cannot plan if expected marketing and sales are unknown; production
cannot invest in new machinery if uncertain about customer benefit wanted
from new products; human resources cannot develop people without knowing
how many employees might be wanted. The larger the organisation, the more
difficult it will be to organise, coordinate and manage the planning process. It
is important that all interested parties, at all levels, take part in the debate, and
all contributions are valued. In practice this is easier said than done as some man-
agers will have more power than others and so be able to push opinions at the
expense of others. This is why wide-open debate should be encouraged and
include an amalgam of bottom-up and top-down aspects of planning (Figure 9.4).
Marketing planning
All planning takes place within a larger planning framework. Marketing, finance,
production and human resource planning will take place within the wider
Figure 9.4
Corporate
planning
framework of corporate planning. Communications planning will take place

within marketing planning and exhibition planning within communications
planning, and so on. Most employees will be involved in lower level functional
or departmental planning rather than at corporate level. This can mean that by
the time participation takes place the corporate and marketing objectives might
already be given and planning has to be accepted within this constraint.
Strategic and tactical change at different organisational levels

It can be confusing when strategic and tactical issues are discussed, as at times
they may seem interchangeable. What is important to understand is that strategy
and tactics can change depending on the organisational level. What might be
strategic at one level will be seen as tactical from a higher level and similarly what
may be tactical at a higher level will be seen as strategic at a lower level. An exam-
ple might be advertising. At the boardroom level advertising methods, e.g. TV or
magazines, will be seen as tactical, but at the marketing communications depart-
ment level they will be seen as advertising strategies. Similarly the sales force
approach to customers might be seen as strategic at the marketing level, but
tactical at the corporate level. There is no one clear definition as to what is tac-
tical and what is strategic. It will depend on the product, the company and the
long-term importance of the activity to the well-being of the organisation.
Market-driven management
Although there are different approaches when attempting to prepare an organisa-
tion for what might happen in the future, most commentators and practitioners
would argue that every company manager should be thinking in a strategic man-
ner. This would include some kind of forward-looking, strategic plan that takes
account of both external events and internal situations. Organisational resources
can be upgraded and coordinated so that new challenges, new legislation, tech-
nological changes, substitute products, etc. can be taken on from a position of
strength.
Although some organisations still operate in monopoly or oligopoly markets,
we have discussed throughout the book the fact that most industries are open-
ing up to more and more competition. When operating in competitive markets,
market-driven management would always consider planning from the perspective
of past, current and potential segments and customers. There have been many
examples of suppliers becoming complacent about the needs of the customers
and finding that innovative products, better channels of distribution or new
communication methods have allowed a competitor to steal a customer before
defence action can be taken.
CRM AND CUSTOMER RETENTION SCHEMES 433
Marketing intelligence, marketing research, MIS

Market communications are at the heart of good marketing management; con-
tinually talking and listening to knowledgeable and respected market practi-
tioners, both inside and outside the organisation, and market commentators,
as well as suppliers, intermediaries and customers. Senior management in the
organisation should drive this quest for good information and be involved in all
stages of the project so that the focus is on asking the right questions and report-
ing the data in such a way as to drive performance. Marketing strategy decisions
will be made on information gathered in this way and fed through a sophistic-
ated and constantly updated marketing information system (MIS). Marketing
intelligence systems should collect information on such things as industry and
market trends, current and predicted competitive behaviour, market growth (or
contraction), and potential and expected developments in products and services.
A good strategic plan must clearly identify industrial market segments and the
individual companies and customers within those segments. There should be a
clear statement of what constitutes value in the industry as a whole and for the
organisations within that industry. Detailed cost benefit analysis should have
been used to identify customers that make the most money and those that make
less or even cost money. Many suppliers in B2B markets will have national or
multinational customers that are responsible for a large part of company revenue
and profits. It is these buyers that have to be treated with the most respect and
their needs and wants spelt out quite specifically in the plan. Ultimately the sup-
plier must be able to evaluate business markets and country demand if strategies
are to be chosen and implemented successfully. Demand evaluation was dis-
cussed in some detail in Chapter 2.
Too much rigidity regarding knowledge leads to the stultification of cre-

ativity. Knowledge management thrives in a chaotic environment.
(Begbie and Chudry, 2002)
o CRM and customer retention schemes

It is now a generally accepted truism that it costs much more to look for and
obtain new customers than it does to keep existing customers. Examples abound
where suppliers spend lots of effort and money on wooing new customers and
seem to take existing customers for granted until it is too late and they have
moved elsewhere. Customers appreciate being valued and they change their sup-
pliers due to a number of small errors rather than one large error.
We have discussed at length the growth in customer relationship management
programmes and how important they are in relation to customers. Good market-
driven management must therefore have customer retention systems as part
of this programme as well as new customer generation systems. Customer loy-
alty, customer relationship management (CRM), relationship marketing, one-to-
one marketing, whichever term you use, all comes down to building successful
relationships to promote profitable customer behaviour. A successful customer
loyalty programme can have significant commercial impact, delivering increased
profitability, improved customer retention, incremental revenue, greater share of
customers, lower cost of sale and a medium for more cost-effective marketing.
Understanding the business

Customer loyalty, however, is not a simple isolated issue. It touches every part of
the organisation – the boardroom, back office and front office staff, business
managers, salespeople and intermediaries through to the customer contact point.
It requires skills that cross every corporate function from strategic planning and
systems to database marketing and customer service. Too many expensive CRM
projects have failed almost inevitably because they have been driven by IT sys-
tems at the expense of the overall cultural change required to make them work.
Building successful loyalty strategies requires comprehensive analysis and careful
planning throughout an organisation to fully understand the business, the com-
pany culture and operational issues and how these interact with customer needs
and wants. Resources need to be examined and questions asked about the suit-
ability of such things as the current IT infrastructure and its capability to man-
age the required degree of customer information, the core customer database. Is
it sufficiently integrated for efficient collection and effective use of data? What
are the limitations on delivery to the customer?
Types of customers
We then look at the customers themselves, profiling the existing base, identify-
ing potential and defining existing patterns against which to track the impact of
future activity. There are a number of ways that a supplier can categorise the
types of organisations that buy its goods and services and each should choose the
best method for them. They might be categorised in terms of the amount and
types of products and services purchased over a given time period, and the busi-
ness potential. Most importantly, customers should be categorised by the impor-
tance of benefits expected. For example, speed of delivery may be important for
one buyer; for another quality; for another the range of components available,
and so on. These ‘soft’ facts can then be incorporated into a database that will
then include a detailed ‘commitment’ code for each customer. All this informa-
tion will then have massive implications for database management, marketing
and customer relationships that must be comprehensively understood to be
implemented and administered successfully.
Example 9.4 QCi CRM consultants (www.Qci.co.uk)

QCi has created an audit methodology that scores companies against 400 bench-
marks. The Customer Management Assessment Tool (CMAT) is now used around
the world by systems consultants and suppliers such as IBM, Axion and BT to ana-
lyse the needs of their blue-chip customers. In this way they hope to determine how
their treatment of customers impacts on the bottom line, or where improvements
need to be made. QCi staff might spend two or three weeks interviewing staff and
managers, learning what they do and don’t do and scoring their activities. They
cover marketing, sales, service, IT and HR, and focus especially on customer-facing
departments.
CRM AND CUSTOMER RETENTION SCHEMES 435
Figure 9.5
The wheel of
customer
retention
programmes
Building the customer retention loyalty proposition

Only after a thorough internal and external quality audit, understanding the
market and analysing customers’ requirements, buying behaviour, market ana-
lysis and segmentation, and customer satisfaction/retention, can strategic loyalty
programmes be built (Figure 9.5). These will consist of a set of loyalty initiatives
benchmarked to meet a company’s objectives, which will fit the specified budget
and be workable within a given infrastructure. The customer retention pro-
gramme will include:
o Continuous buyer/DMU focus processes

o Management/employee cross-functional involvement
o Management/employee ongoing coaching and training
o Benchmarking, measurement and control
o Continuous service/product improvement.
Managing the implementation
Strategic thinking sets the context for planning but, as we outlined earlier, this is
only part of the process. Just as important is the strategic execution. A strategic
customer relationship or customer retention programme is useless if it is not
implemented or carried out in an ineffective way. Marketing intelligence and
research will help identify organisational and individual customers’ needs, but
knowledgeable, skilful and well-motivated managers and other staff are essential
for successful implementation. It is trite but true that good employees are the
major asset of the successful business organisation and can make or break the
soundest of strategic plans.
Example 9.5 Marketing tactics

It’s all about constantly keeping in contact with the customer, always being there,
knowing their buying cycles, preferences, and any problems they have experienced
while using the services. In this way trust can be built. Dealing quickly with com-
plaints while reassuring the customer of their value keeps their trust. Courtesy calls
and after-sales and services are important. If there is a large order from any cus-
tomer, a call to acknowledge their business indicating appreciation and giving
acknowledgement can make all the difference to the next order. Customers should
be kept informed about the progress of their purchase; for example, whether it
needs after-sales care, when the guarantee expires, etc. Call to let the customer
know that their products are being delivered on time. In some cases a call just
to say ‘hello, how are you?’ can retain a customer. Remember that in B2B word
of mouth plays a major part in either increasing or decreasing loyalty and sales,
depending on the quality of service received.
o Assessing competitive advantage

Most B2B organisations have core competencies that, if managed properly, are
capable of giving the company a competitive advantage in an intensely compet-
itive world. A well-thought-out strategic plan should contain a detailed awareness
of what constitutes general competitive advantage in any one industry and a
more detailed description of competitive advantage in any one market segment.
The switching costs for a buyer to move from one supplier to another may be
high, but if a supplier becomes complacent and unfocused about its benefit offer-
ing over a prolonged period the buyer might suddenly move to a competitor. If
this happens then any attempts to win back the customer can be costly and time
consuming with no guarantee of success. What constitutes competitive advant-
age will also be continuously moving and changing as innovations, technology
improvements, management efficiencies and cost savings translate into ever-
increasing customer expectations. This must drive an organisation never to stand
still and always to be looking to upgrade its goods and services from a standpoint
of strength, rather than from a position of weakness with such changes being
forced upon it by the competition.
Understand the competitive advantages of competitors

There should be an analysis of both existing and potential competitors so as to
understand the strategic competitive advantages they might enjoy at the present
time, as well as those they might develop in future (Figure 9.6). Competitive
channels are now opening up worldwide and marketing managers must remain
aware of possible new entrants into their markets. All competitive advantages are
relative and one supplier will be constantly measured against another supplier.
Innovation, low costs, good after-sales service, quality products and services do
not really make sense in isolation; only when one supplier is compared with
another will they make any sense.
ASSESSING COMPETITIVE ADVANTAGE 437
Figure 9.6
o Lower costs and high efficiency and effectiveness
Broad sources o Portfolio of products across the product life cycle matching customer needs
of competitive o A strong customer base
advantage o Leading edge research and development capacity
o Highly qualified people, including entrepreneurs, creators and strong skilful managers
o Knowledgeable sources of venture or investment capital
o A comprehensive and meaningful management/marketing information system
o A culture of innovation, learning and service to the customer
o Access to new technology
o Knowledge-sharing infrastructure
o Channels of distribution and access to markets
o Partnerships at many levels, both horizontal and vertically along the value chain
o Corporate and product brands, patents, licences and copyrights
o Ultimately a clear, comprehensive and integrated corporate position strategy based
upon clearly identified industry and customer needs
Understand the detailed nature and sources of

competitive advantage
As well as making broad generalisations about relative strengths and weaknesses
and opportunities and strengths (SWOT analysis), managers will want to know in
more detail about the sources of competitive advantage, for example: Why does
a particular firm possess a culture of innovation? How does it have access to con-
stant technological updates? Why does it have such a broad customer base and a
reputation for communications excellence? All sources must be explored, if they
are relevant to a particular market.
We have identified costs as a major source of competitive advantage that will
allow lower prices, greater sales and bigger profits. This will then enable the lean,
efficient and effective organisation to obtain many of the other sources of com-
petitive advantage identified above. An organisation will therefore try to estimate
its competitors’ cost positions and look at differences in activities in order to
understand why and where its competitors’ costs differ from its own. An attempt
should be made to understand why large differences in profitability are sustained
within the same industry and to identify major cost drivers for competitors’ value
chain activities. If possible, precise measurable figures would need to be obtained
so that direct comparisons could be made and the reasons analysed as to why one
company is doing better than another so that competitive advantages can be
benchmarked and improved.
Those firms that manage to embed the development and exploitation of innovation and
intellectual assets deeply within their business may be able to create competencies that
cannot be easily copied and these will therefore differentiate them from the competition.
The value chain and competitive advantage

Partnerships and value chain relationships were discussed in Chapter 6 where it
was recognised that competitive advantage was enhanced by organisations, both
vertical and horizontal, working together. Competitive advantage is gained by
business cooperation and so comparison has to be made between the strategic

differences in a company’s value chain activities and the competitor’s value
chain activities to find out why one works better than the other.
Detailed analysis
As well as the comparison between one value chain and another, there should
also be detailed analysis along the competitor’s value chain. This will then be
compared with the supplier’s own value chain so that sources of competitive
advantage or otherwise can be highlighted across the different supply chain
member firms. As with an individual company, one value chain can then be
benchmarked against another.
Changing sources of competitive advantage

In many cases the broad sources of competitive advantage identified above are no
longer enough to maintain that advantage. Incessant competition, improved
understanding of the importance of strategic thinking and a greater understand-
ing of all the issues that must be considered in strategic implementation have
brought competitors closer together with regard to factors such as cost efficiency,
use of new technology and employee motivation. This has encouraged the more
enlightened organisations to revisit customers, to discuss in more detail needs
and wants, and then to examine their internal resources to identify core com-
petence and look towards more personalised, customised products and services.
So factors such as service, innovation, quality products and add-on services are
still ways that B2B suppliers can gain competitive advantage, but they are used in
ways that tailor the benefit offering more closely to each buying organisational
need. This approach is exemplified by the customer relationship and customer
retention management schemes talked about earlier.
o Strategic role of marketing

There is now no doubt in management circles that marketing, with its emphasis
on customer understanding and satisfaction, plays a pivotal role in corporate and
marketing planning in both B2B and B2C markets. Time and time again, how-
ever, many of the basic truths associated with the concept of the organisation as
a customer value creating entity seem to get forgotten. Many organisations ini-
tially produce products and services that are wanted by customers, but then seem
to become complacent and expect a period of plenty and customer loyalty to last
forever. It is as if they revert back to the comfort zone of product orientation and
are taken by surprise when the buyers begin to move elsewhere. The relentless
pace of change, more and more competition and constantly growing customer
demands drive marketing and an obsessive concern with customer satisfaction to
the top of the strategic agenda. It is not enough to run ‘investment in people’
programmes, total quality projects or benchmarking exercises separately from an
overall customer and market-driven strategy, where value is defined not by the
organisation but by constant customer feedback on satisfaction levels and experi-
ences with the supplying organisation. This concern for customer satisfaction,
STRATEGIC ROLE OF MARKETING 439
the need to exceed customer expectations, should permeate every activity and be
the measure by which all business initiatives are judged. Successful companies are
continuously altering themselves so as to deliver more customer-driven value
over the long term. This becomes a business promise that informs every strategic
decision and should be revisited time and time again. If at all possible, short-term
imperatives will not then be allowed to interfere with this overriding commitment.
Marketing and other company functions

All other company strategic functions, finance, human resources, administration,
production, and so on, should be there to support the strategic marketing object-
ives and policies, with all working together in a coordinated and consistent way
to offer benefits that meet the needs and wants of the customers more effectively
than the competition. This can be more difficult in practice as day-to-day depart-
mental problems affect employees’ attitudes, causing concern for the customer to
be pushed into the background. The danger is that this approach becomes so
entrenched that it solidifies as part of the company culture. Customer relation-
ship management schemes and employee coaching programmes should have
feedback, monitoring and control mechanisms built in at every critical point to
make certain that these unwanted developments are avoided.
Example 9.6 CRM gone wrong

We have all had experiences of being hooked into a system of telephone calls that
moves us from one recorded message to another, often seeming to go on for ages.
We are asked to punch in our telephone number and our account number some-
times twice or even three times as we travel around a soulless system. At any time
we may be cut off, told that we are in a queue and perhaps it would be better if we
phone back, or forced to listen to mindless renditions of Vivaldi or Elton John. When
we reach a human voice it is only to be told that the journey hasn’t ended and we
are entered back into the system. We could be talking to somebody in London,
Liverpool or Calcutta. We are told that this endless circle of technical manoeuvring
is to our benefit, enabling the supplier to offer a much better service. I don’t believe
it! I would rather have a phone that rings for ages and at least the possibility of con-
versing with a human being than go through this mind-boggling, time-wasting,
intensely irritating process. It’s a product-driven, cost-cutting exercise masquerad-
ing as a customer relationship management programme – and it’s fooling no one.
Part 2 The B2B marketing planning process

At the beginning of the book we looked at different definitions of marketing
and identified a management process that anticipates, identifies and satisfies
customers’ needs and wants at a profit (or cost effectively). Another definition we
touched on was that marketing could be seen as a strategic process ‘developing
and matching the resources of the organisation to meet the needs of the target
market while taking into account the demands of the market environment’. This
definition lends itself more readily to the idea of B2B strategic marketing plan-
ning and control.
So marketing planning is about taking all the areas of marketing within the
organisation and combining these resources in such a way that products and
services are offered that meet the current and future needs and demands of the
business marketplace better than the competition. This will include such factors
as marketing research, understanding organisational behaviour, R&D, innova-
tion and product development, the use of technology, pricing, distribution and
channel relationships, promotion, and so on.
To be able to do this successfully the whole marketing process must be rigor-
ously planned, taking into account the state of current organisational resources
and the present and future market and environmental direction. This is why mar-
keting planning must begin with an investigation into prevailing company and
market circumstances before any decisions can be made about long-term strategic
direction. All relevant members of staff should be involved in the discussion pro-
cess from senior management down. The investigation should begin with the
collection, classification and analysis of all information that would be relevant to
the company’s present (and perhaps past) market position. It would be impos-
sible, for argument’s sake, to make decisions about selling existing products into
new markets without knowledge of the company’s product portfolio mix and
present financial situation, or the level of competition and potential sales growth
in the selected new market.
o Scope of strategic planning

Therefore stage 1 of the planning process consists of asking questions and
collecting and analysing as much information about the current situation as is
considered both manageable and relevant. This we call the strategic situation
analysis or the strategic audit. Once the audit has been conducted we can move
on to stages 2 and 3 in which the analysed information is used to decide both
the marketing objectives and the strategic methods that must be employed to
achieve these objectives.
1. Strategic situation analysis: Where are we now?
Seeking to understand the organisation’s internal and external strategic situation.
2. Strategic choice: Where do we want to go?
Choosing between the strategic courses of action and setting objectives.
3. Strategic implementation: How are we going to get there?
Putting the chosen course of action into effect.
We can now look at each of these areas in more detail, beginning with the mar-
keting audit.
o Strategic situation analysis: Where are we now?

There exists an infinite amount of information both within an organisation and
in the outside world where it operates. The difficulty that faces the B2B market-
ing manager, business consultant or marketing student is where and how to start
this information gathering process: how to decide what information is relevant
STRATEGIC SITUATION ANALYSIS: WHERE ARE WE NOW? 441
and should be collected and considered; what information is irrelevant and

should be discarded; whether to start the process from outside the company look-
ing in, or from the inside looking out, and so on.
The job of the audit is to collect, classify and analyse information so that understanding can
take place and realistic decisions be made about future organisational direction.
To facilitate understanding, the intention here is to look at the marketing

auditing process in two parts:
1. Collection and classification of information from:
(a) the external environment
(b) the internal environment.
2. Analysis of the information collected.
1. Collection and classification of information

To help in this part of the auditing process, information collection and classifica-
tion, we can return to the simple model developed and briefly discussed in
Chapter 1.
Factors in the external environment

Under the heading of the external environment we identified two areas for
consideration: the wider or macro environment and the immediate or micro
environment. Within these two areas, acronyms were developed to guide us.
Wider or macro environment

The factors to be considered here can be identified under the acronym PEST,
which stands for:
Political/legal – Economic/demographic – Social/cultural – Technical/physical
Information that might be needed from the wider or macro environment on the
B2B market, at both national and global levels, would include the following:
o What laws are relevant or could be relevant in the future?
o What is the political climate? Is it hostile or appreciative to foreign busi-
nesses, and will it change?
o How stable is the market region under investigation?
o What is the economic level and trend of activity – GDP, per capita income,
income spread, disposable income?
o What are the interest/exchange/inflation/employment rates?
o What are the organisational demographic movements?
o How important is social class? Is English spoken?
o What are the major business cultural norms and mores? Are customs and
practices changing?
o How important is innovation and technology?
o What infrastructures are in place? How important is the climate? Are global
markets changing?
Immediate or micro environment

The factors to be considered here can be identified under the acronym SPICC,
which stand for:
Suppliers – Publics – Intermediaries – Competition – Customers and markets
The types of questions that might need to be asked here will have been identified
and discussed throughout the book. Below we have identified just a few examples:
o Who has the power along the supply chain – the producers, the intermedi-
aries or the buyers?
o How many buyers/suppliers are there? How efficient are they? What are the
pricing and delivery policies? How is value added along the supply chain?
o How active or strong are pressure groups, local communities or the media in
any particular industry?
o What is the structural role of the intermediary? How much control do they
have over distribution channels?
o Who is the competition? Who are the major players and market leaders in
the relevant market? What are the competitors’ product portfolios and prod-
uct advantages? How easy is it to enter and leave a particular industry?
o Who are the customers – size, spending power and how might they be
distributed across the country or global market? Is the market growing or
declining and are new markets opening up?
o Which customers are the most/least profitable? Can lifetime customer value
be ascertained?
This is just a very small indication of the types of questions that might be asked
across the B2B macro and the micro environment. Of course in reality the ques-
tions to be asked and the answers to be obtained would need to reflect the par-
ticular circumstances of each industry and organisation.
The macro and micro B2B environment

It should be recognised that in reality there is no dividing line between the macro
and micro environments, between PEST and SPICC, as both are in the organisa-
tion’s external environment. The division is artificial and the separation is purely
to help understanding.
Factors in the internal environment

We can now look at the business organisation’s internal environment. This
information was identified using a model that incorporated the acronyms of
the eight Ss and the eight Ps.
The eight Ss
It is impossible to look in isolation at the conventional marketing mix (product,
price, place and promotion) without consideration for other back-ups such as
structures and systems; satisfactory product and service delivery are so dependent
on other organisational factors. For example, a good product that is offered
through a substandard system is bound to lose competitive advantage. We want
to look at these so-called ‘back-up’ factors under the acronym of the eight Ss,
which consist of the following: structures, strategies, systems, staffing, skills,
shared values, style, sustainable competitive advantage. A small example of the
type of information required will include the following:
o What sort of structure does the organisation have? Is it bureaucratic? Is it tall
and hierarchical or flat and flexible? Is it centralised or decentralised? Which
structure will be more conducive to the company’s marketing effort?
o What systems and processes (MIS, communications, finance, training, cus-
tomer complaints, etc.) are in place? Are they adequate and sufficiently
customer orientated? What control mechanisms are in place?
o Is there evidence of long-term strategic thinking across all marketing areas or
is short-term thinking dominant?
o Are staffing levels sufficient to meet the needed customer service levels?
o What skills, or lack of skills, exist and what training and development pro-
grammes are in place and also might be needed?
o What is the culture (shared value) of the organisation? Is it customer orient-
ated? Are the staff happy, innovative and enthusiastic?
o What is the style adopted by the company? Is it democratic, autocratic or
patriarchal? Is it consistent across the whole corporation and how does it
affect the corporate image from the customer’s standpoint?
o What are the core assets of the organisation that might help it build and
maintain sustainable competitive advantage: its culture, its people skills, its
approach to technology/innovation/service or having access to a valuable
customer database or long-term channel relationships and alliances built on
trust and loyalty? It might have market leader brands, legally protected
patents and low-cost operations, all giving an organisation possible superior
advantages.
The job of the audit is to unearth answers to these and very many other
questions.
The eight Ps
At the heart of the B2B marketing audit is the marketing mix. This will cover an
examination of the use of marketing research, the company’s product portfolio
(including people, especially if there is a large service input), its supply and dis-
tribution channel relationships, pricing policies and the amount and type of
communication and promotion carried out. The marketing mix will also be con-
cerned with costs, profit levels and cash flow ratios. We will look a little more
closely at the type of information needed, beginning with marketing research
and moving on to look at the other factors identified under the acronym of the
eight Ps.
The evidence of a marketing information system will give some indication of

how important the company considers the need for an up-to-date marketing
database. Questions can also be asked about the level/type of quantitative/quali-
tative marketing research undertaken (if any), how it is used and to what degree
it involves the use of information technology.
We have identified the marketing mix under the acronym of the eight Ps.
Again it is worth reminding the reader that this is an arbitrary method used as a
memory aid and to assist in understanding. The eight Ps model has been devel-
oped from the basic four Ps model beloved by marketers down the ages. The types
of questions to be answered in each category might include the following:
Products/services
o What is the organisation’s product/brand portfolio? How interrelated are its
components and is there synergy? Where are they on the BCG and PLC models?
o Are the sales levels increasing, decreasing or stable?
o What are the cost and profit structures?
o What is the level of new product development/innovation/new technology
and how important is all this in this kind of industry?
o What do customers/suppliers/intermediaries think about the products and
services offered and how do they compare with the competition?
Place or the channels of distribution

o Have any channel relationships/partnerships been developed and what are
their value?
o Is the company getting the quantity and quality coverage it wants? Are the
existing channels still relevant? Is there a possibility of opening up new
channels without causing channel conflict?
o What physical distribution techniques are used? Is there centralised or
decentralised warehousing? How is information technology being used and
what costs are being incurred?
Price
o What pricing methods are used and are they sufficiently customer orientated?
o Is there an adequate return on the prices charged on all products and from
all buying organisations?
o What is the relationship between fixed and variable costs and between costs,
profit and volumes?
o How does pricing relate to the other elements of the marketing mix?
Promotion
o What is the level of promotional spending in relation to the level of sales and
to other companies in the industry?
o How is communications success controlled and measured and does it make
sense?
o What promotional mix methods are used and are all methods integrated to
give a uniform approach? Is an advertising agency used? If so, how long has
the same agency been used?
People
Information will be required that covers all the areas which relate to the people
who in any way represent the organisation and its products. This is especially
important if the service content is significant in the product marketed.
o What are the marketing/customer skills of the management/workforce/
marketing department/salesforce/all other departments? Are they adequate
and is there training and coaching available to supplement and improve wher-
ever necessary?
o Is there a shared company culture/values and is it positive and motivating?
Is it geared towards innovation, customer satisfaction and overall marketing
orientation? Do all departments work together?
Profit
There are commentators who argue that marketers should disregard profit as a
marketing mix factor because it will eventually come about through a customer
satisfaction focus. It could be argued that this approach is not realistic and all
marketers and salespeople must be aware of ‘bottom line’ issues.
o What are the fixed and variable costs across the product portfolio and how
do they relate to total costs and sales volume?
o Is the company making an overall profit? On which products and from
which customers?
o Are there synergies between costs, volumes and profits? What part will price
and demand elasticity play?
o How do the organisation’s financial ratios compare with competitor and
industry ratios? Is there heavy company debt and does it have any liquidity
problems?
Physical evidence
The P for physical evidence is included here because many buyers will judge a ser-
vice supplier on some kind of physical attribute, as they will be unable to exam-
ine a tangible product.
o Do the sales representatives appear to be professional and know what they
are talking about? Have they the latest technological aids and access to up-
to-date relevant information?
o Are the sales literature, brochures and catalogues attractive, informative and
presented in a professional manner?
o Is the corporate image consistent with the type of service on offer?
Processes
Excellent products and service offerings can be nullified if the back-up processes
and systems are substandard. To order a product and then have to wait an un-
acceptable amount of time is the quickest way to lose a customer.
Figure 9.7
1. Collection and classification using
Tools of the Internal environment External environment
B2B marketing
audit Eight Ss, Eight Ps (Immediate) (Wider)
SPICC PEST
2. Analysis using the SWOT model
2. Analysis of the information collected

Once all the relevant information has been collected and classified, it can be
discussed, argued over, examined and analysed. Information will continue to be
collected as discussions and suggestions throw up more options and open up
other areas for investigation. Of course in practice the whole auditing process is
very organic, with many things going on at the same time, so there is bound to
be a certain amount of analysis taking place at the same time as collection, but
definitive judgement should be postponed until an overall picture is obtained
(Figure 9.7). Many different models are available to simplify and help in the pro-
cess of analysis. We look at two: SWOT analysis and force field analysis.
SWOT analysis
Probably the most popular model is SWOT, which stands for strengths, weak-
nesses, opportunities and threats. Opportunities and threats are used to analyse
the external informational factors collected (PEST and SPICC factors). Strengths
and weaknesses are used to analyse the internal factors (the eight Ss and eight Ps).
It is important not to confuse internal and external factors because if this
happens it might also confuse both the management approach and decisions
eventually taken. The SWOT process can continue as long as the participants feel
it is still productive, with the SWOT information being brought forward and
refined through argument and discussion. Eventually there should be some form
of agreement on which to reject and which to retain so that the final SWOT will
contain only the major strategic marketing external opportunities and the major
strategic organisational internal strengths and weakness.
SWOT as a strategic matching process

It should be recognised that the SWOT is a matching process. Ideally the organ-
isation would like to match its strengths to the opportunities in the marketplace
(you may remember the strategic marketing definition as a matching process, i.e.
matching the resources of the organisation to the demands of the market). How-
ever, this is not always immediately possible because of the circumstances per-
taining to the organisation and the state of the market environment. Therefore
it can be the case that the weaknesses of the company are such that it cannot take
advantage of the external opportunities. In this case it might have to seek some
form of outside resource investment (e.g. financial investment or even a merger)
so that it can take advantage of these opportunities.
The SWOT analysis might show the company to be in the unfortunate position
where the threats from the external environment are so large and the weaknesses
Figure 9.8 The

SWOT strategic
options
internally so dire that the only organisational strategy possible might be to divest
or liquidate, depending on the seriousness of the situation. Figure 9.8 lists a num-
ber of SWOT situations with possible options on how to rectify the position.
As with the whole planning process, the value of the audit process and SWOT
exercise is in the ‘doing’ rather than in the final document that might be arrived
at. So practitioners should not be afraid to argue, discuss, adjust and readjust
before coming up with the end product. The important thing is that debate takes
place and involves all interested parties.
Force field analysis

An example of another model that might be used for discussion, debate and ana-
lysis is known as force field analysis. It is a useful technique for trying to under-
stand the pressures for and against change and for looking at all the forces for
and against adopting one strategy over another. It is a method of weighing up
the pros and cons for making one decision rather than another and is a useful
technique for looking at all the forces for and against a plan. It helps participants
to weigh the importance of these factors and decide whether a plan is worth
implementing. To carry out a force field analysis, follow these steps:
o List all forces for change in one column and all forces against change in
another column.
o Assign a score to each force from 1 (weak) to 5 (strong).
o Draw a diagram showing the forces for and against change. Show the size of
each force as a number next to it. A simple, rough example is in Figure 9.9.
Once the analysis has been carried out, decisions can be made on whether the
project is viable. Where it has been decided to carry out a strategy or project, force
field analysis can help managers to work out how to improve the probability of
success. Two choices are shown here:
o To reduce the strength of the forces opposing a project.
o To increase the forces pushing a project.
Figure 9.9
Force field
analysis
There are other models that encourage investigation, argument, discussion and
debate during the audit analysis; here we have identified just two.
Figure 9.10
The
organisational
audit
Where the B2B marketing audit sits within the overall

company audit
The marketing audit is part of the much wider company or business audit
and will only be undertaken in isolation if senior management decides there is a
special need in this area. Even if this were the case, it would still demand cross-
company consultation. A corporate or business audit should be undertaken by
the whole organisation, division by division, function by function, department
by department. So personnel, finance, production, administration, marketing,
etc. will all collect and analyse information within their departments, working
in joint consultation with all other departments. All the information will then
be brought together into a corporate management or business audit and SWOT
(Figure 9.10). Much smaller audits may be undertaken within the marketing mix
such as a product, promotion or sales audit, as and when deemed necessary.
STRATEGIC CHOICE: WHERE DO WE WANT TO GO? 449
Figure 9.11
Model of
business-to-
business
marketing as
a matching
process
Auditing in B2B and B2C

The structure of strategic business planning in B2B and B2C markets is virtually
the same, the differences being in the manner of the processes involved. The
models identified above can be used in both markets, with the difference being
in the type of information collected. For example, in B2B the emphasis will be on
quantitative secondary macro information about companies and markets, while
in B2C it will be qualitative micro information on individual consumers. There
are many more differences and these have been highlighted throughout the book.
The ‘matching process’ involves gathering and analysing information from
both the external and internal environment and then identifying, examining
and evaluating strategic issues in the light of strengths and weaknesses internally
and opportunities and threats externally. The most attractive strategies can then
be developed (Figure 9.11).
A strategic definition sees marketing as a ‘matching’ process: matching the internal

resources of the organisation to the external demands of the marketplace.
o Strategic choice: Where do we want to go?

A choice now has to be made between the strategic courses of action and setting
objectives.
At some point in the B2B planning process the company mission should be
clearly defined and overall corporate objectives set. The importance of the B2B
organisational mission statement and its corporate objectives must not be for-
gotten as marketing planning will need to take place within the framework set by
both the mission statement and the corporate objectives.
The need for common overall objectives cannot be over-emphasised because
experience has shown that disaster can occur when all or some departments
within the same organisation ignore, confuse, or seem to be unaware of overall
company direction and behavioural policy, preferring instead to implement their
own aims and objectives. The end result of this could be each department or area
Figure 9.12
All functional
objectives
operate under
umbrella of
corporate
objectives
and mission
statement
going its own way, causing the company to perform its corporate function in an
inefficient and uncoordinated fashion, promising eventual bankruptcy.
The company mission statement

The mission statement (vision statement, corporate values, etc.) should lay down
the long-term corporate aims and values and answer the following questions:
1. What business are we in (in broad terms), e.g. entertainment, branded pack-
aged products, road transport, and so on?
2. What constitutes value to our shareholders, e.g. adequate return on capital
employed, an acceptable dividend pay-out?
3. Who are our customers, i.e. the relevant target market and organisational profile?
4. How should the company conduct its business with regard to our customers,
our employees, all other stakeholders, and the environment?
o Our customers – offering high quality, technically innovative solutions.
o Our employees – treating them as we would like to be treated ourselves.
o All other stakeholders – seeking mutually beneficial long-term relation-
ships with suppliers and intermediaries.
o The environment – acting as a responsible and caring citizen.
The answers to these questions should be understood by all, hopefully believed
by all members of the organisation and should be the overall guiding principle
that gives direction and moves the company forward (Figure 9.12). For a mission
statement to work, it should be offered in a simplified form, have meaning for all
employees and be in use continuously in the day-to-day running of the business.
Otherwise it will remain nothing other than a list of esoteric intentions gather-
ing dust at boardroom level (see case study on the B2B Marketing website.)
The mission statement can be imputed at the beginning or end of the business auditing
process depending on the level of organisational change that might be taking place.
Corporate objectives
The corporate objectives are the business objectives for the whole organisation
(including production, human resources, administration, finance, marketing,
etc.) and should spell out for all stakeholders the exact purpose of the organisa-
tion. As with all business objectives, corporate objectives should be quantified
over time (SMART) so that results can be monitored and controlled. If the organ-
isation is in the private sector then the corporate objectives will most probably
be set in financial terms, this being the return to the owners of the company,
the shareholders, for the use of their capital (e.g. ROCE, ROI). This can then be
broken down, if necessary, by division. If the organisation is in the not-for-profit
or public sector, then the corporate objectives may be set in ways that reflect the
guiding principle of the organisation as well as in financial terms: for example,
speed and coverage for the fire service; revenue generated for a charity; efficient
use of capital for a hospital. All B2B planning will take place under the umbrella
of the corporate objectives.
All business objectives should be SMART – specific, measurable, achievable (agreed),

realistic, time-based.
Marketing objectives
The planning process discussed up to now would apply to all functions of the
organisation, each making its contribution to the overall corporate objectives.
Although discussion will take place across the whole of the company, the B2B
marketing role in the planning process really begins with the setting of market-
ing objectives. The marketing objectives are the overall performance targets
for the whole of the marketing function and will tend to be set in terms of sales
volumes, units, market share and profit, and should be SMART. The time period
will vary depending on the company and industry, but would usually be about
three to five years and then broken down to cover short, medium and long term.
Closed and open objectives

It is worth mentioning here that there are closed and open objectives. As stated
earlier, all business objectives should be closed, SMART. However, an organisa-
tion will sometimes use open or secondary objectives, usually for consumption
outside the organisation. These objectives are less defined and not capable of
clear measurement: ‘to create greater customer satisfaction’; ‘to develop more
innovative products’; ‘to contribute to a safer environment’. Although having
meaning to some stakeholders, they would have to be quantified over time to be
of use to managers within the company.
Estimating demand and sales forecasting

An important function of the B2B marketing manager is to identify demand and
forecast future sales potential and of course marketing objectives cannot be set
without this taking place. The importance of reliable predicted sales forecasting
cannot be overestimated as it is on this figure that all other budgets are based.
Figure 9.13
Gap analysis
Methods of estimating market demand and qualitative and quantitative methods

of sales forecasting were discussed in depth in earlier chapters. Suffice to say that
this will take place on a constant basis during the audit, at the setting of overall
marketing objectives and again during the discussion on strategic marketing
alternatives and the setting of strategic marketing objectives. More detail on sales
forecasting can be found on the B2B Marketing website.
Gap analysis
Once the sales forecasting has taken place and marketing objectives have been
set, strategies must be developed to show how these objectives are going to be
achieved. This introduces us to the model and concept of gap analysis. Gap ana-
lysis is a model that can be used for looking at the difference (the gap) between
where the company’s sales will be in X years’ time if present strategies are fol-
lowed (sales A in Figure 9.13) and where shareholder/corporate board pressure
and/or research and forecasting methods demand they should be. Like all mod-
els, gap analysis can be used to stimulate discussion and debate on possible strate-
gic directions the organisation will be able to take.
Objective A shows the sales that the company would achieve in three years’
time if existing strategies remain unaltered. Objective B (the overall marketing
objective) shows where the company would like to be according to demand
estimates and sales forecasting. Possible strategies to ‘fill’ the planning gap are
discussed below.
B2B marketing strategies

Strategy is the combination of methods used by the company to obtain its long-
term corporate and marketing objectives. Corporate objectives are, hopefully,
obtained by corporate strategies involving the integrated use of finance, produc-
tion, administration, HR, marketing, etc. working together in harmony. Likewise
marketing objectives will be achieved through the use of marketing strategies,
bringing together all the marketing areas. These will be discussed below.
Corporate and marketing strategies should do the following:
Figure 9.14
B2B Ansoff
strategic choice
matrix
Source: Ansoff,
H.I. (1957)
‘Strategies for
diversification’,
Harvard Business
Review,
September–
October 1. Clearly describe the major ways that the organisation intends to achieve its
objectives.
2. Be long term.
3. Act as a coordinating umbrella giving the same direction to relevant functions
and departments.
B2B marketing strategic options

Having decided on the overall marketing objectives, the various methods that
can be used to achieve these objectives – the strategic marketing alternatives –
must now be analysed to find the most fruitful and productive methods. (It is
worth mentioning once again that, although identified here, the process will
have been discussed throughout the auditing and objective setting stages.) To
assist this process, another model known as the Ansoff strategic option matrix
can be used.
The Ansoff matrix

Like all models, the Ansoff 4×4 matrix is a method used to encourage argument
and debate and to simplify a very complex situation. It should not be judged as
an ultimate reflection of reality. In very simple terms, through the use of the
Ansoff matrix it can be argued that there are four major strategic alternatives that
a marketer could use when looking for ways to fill the planning gap, identified
earlier, and so achieve marketing objectives (Figure 9.14). Many different stra-
tegic approaches can be used within these four options and these will be dis-
cussed in more detail below. The four basic methods are:
1. Existing products in existing markets – market penetration.

2. New products in existing markets – product development.
3. Existing products in new markets – market development.
4. New products in new markets – diversification.
Existing products in existing markets – market penetration

This strategy will only be possible if there is market growth and/or one company
is able to take sales from another. It should be noted that the competition would
most likely retaliate if an attempt were made to capture more market share. It
tends to be more difficult to gain more market share in a B2B market than in a
B2C because of limited buyers, existing loyalties and almost instant information
being available on competitive movements.
New products in existing markets – product development

The second alternative is to develop new products/services/benefit solutions for
existing customers. B2B buyers will always welcome new solutions as long as they
offer more productive ways of running a business. More on new product devel-
opment and innovation can be found on the B2B Marketing website.
Example 9.7 New products

The Japanese motorbike and compact car maker Suzuki Motors has said it will
increase output this year thanks to the introduction of many new models. Motor-
cycle production is set to be boosted by strong demand from China and the release
of a new 50cc scooter called ‘Choinori’. Suzuki has also unveiled a new two-seater
‘Twin’ car, the first minicar to offer a hybrid engine which can run on either petrol
or electricity.
Existing products in new markets – market development

The third alternative is to find new markets for existing products. This might be
new customers, new usage or new geographical markets. The more ambitious B2B
company will have salespeople scouring the world in search of market opportu-
nities. The growth in the internet will have greatly helped this process.
New products in new markets – diversification

The fourth alternative is to develop new product solutions for new markets.
This might be considered the most risky because of the ‘double’ risk involved
with developing both new products and new markets at the same time. The risk
can be lessened in B2B markets by the development of strategic alliances and
partnerships.
‘New’ and ‘existing’ definition

Confusion is sometimes caused by the terms ‘new’ and ‘existing’. As with all
models, the Ansoff matrix is a marketing tool used to simplify and help managers
when examining and evaluating strategic choices. The value is in the discussion
and argument. Whether a product/service is new, or an added feature to an exist-
ing product, or whether a market is new or not is really only important in terms
of customer perception. Whether the buyer considers something to be new or
just an added feature will dictate the marketing approach and so is important
only with regard to this aspect.
Strategic choice
Having identified the four basic strategic options the B2B company must decide
on the marketing strategies it will use to fill the planning gap, the sales and profit
it will achieve if nothing is changed, and the sales and profit objectives demand
and forecasting analysis have shown could be achieved.
Evaluation in strategic choice

A thorough, ongoing evaluation needs to take place before some strategies are
rejected and others are chosen. This will be an organic process coming about
through discussion, argument and debate involving employees across the organ-
isation, as well as the possibility of supply chain members. It will be inextricably
linked to the audit, the results of the SWOT and demand and sales forecasting
analysis.
Criteria for strategic choice

Criteria for strategy rejection and strategy selection based on a form of superior
benefit offering will include some the following:
o Company mission/corporate objectives/corporate image. The chosen strategies

must sit comfortably within the scope of the mission statement, corporate
objectives and corporate image. To adopt a moral stance to business and then
become enmeshed in the armaments industry would not go down well with
some stakeholders.
o Results of the audit/demand and forecasting analysis. Research and information
analysis, if used properly, should have identified the more obvious attractive
strategic directions.
o Business organisational need. A real organisational need for the identified solu-
tion not offered by others must exist.
o Competitive structure of the industry. High competitive rivalry and low profits
in some markets may preclude some strategic options. Similarly the presence
of a market leader with a high market share and high economies of scale will
severely limit what can and cannot be done.
o Target markets. Some markets may be growing and others declining. Some
will be more profitable, some more approachable and some match more
closely the skills developed within the organisation.
o Strategic alliances. Strategic alliances may exist between buyers and sellers that
could make it difficult, if not impossible, to enter a market.
o Level of risk involved. Some strategies will be riskier than others and the cost
of failure will have to be weighed against the level and certainty of reward.
o Financial implications. All strategies have financial implications and one
project must be compared with another to judge investment and payback
levels.
o Opportunity costs. There will always be opportunity costs involved in going for
one strategy rather than another and these will have to be measured.
o Time and speed. Timing and speed may be important. There could be a need
to block others, quickly build market share or support other products.
o Existing marketing mix. All marketing mix factors must be considered, includ-
ing the need to maintain and develop portfolio synergy, profit margins, cost
advantages, value chain relationships and promotional expertise.
o Creativity, innovation and learning. These relate to the ability of the organisa-
tion and skills of the staff to stay ahead of the competition in information
and knowledge attainment, as well as use of new technology.
o Core competencies giving possible competitive advantage. Customer base and loy-
alty, supply chain relationships, patents, brands, knowledge and skills, etc.
are core competencies to consider.
o Overall company resources. Ultimately the balance of all company resources
and core competencies, physical, financial, human and informational, must
be considered when matching to identified strategies.
Weight the strategic choice criteria

Many models exist to help formulate discussion and argument among senior
managers when looking towards strategy analysis and choice which can be used
in either B2B or B2C markets. Many organisations have customised or built their
own versions so as to stimulate debate in an area that relates specifically to their
own needs and wants. Basically, strategic choice participators should attempt to
put some kind of importance weighted measurement (perhaps on a scale of 1 to
10) on the various internal and external factors that will contribute to the suc-
cess or failure of a particular strategy. A very brief outline of the models that can
be used is given here.
Criteria product and market models

An example of models that have been used will include the following:
o BCG 2×2 matrix
o General Electric (GE) matrix
o Shell matrix
o Balanced Scorecard.
BCG 2×2 matrix

The most well known to marketing students and practitioners alike is the BCG
2×2 matrix, which attempts to measure product market share against market
growth, comparing one company with the competition.
General Electric (GE) matrix

This is a 3×3 matrix (Figure 9.15) that attempts to put a measure on internal fac-
tors, under the heading of ‘competitive business strengths’, and external factors,
under the heading of ‘market attractiveness’:
o Market attractiveness is measured and weighted under criteria such as
‘market growth rates’, ‘market size’, ‘competitor strength’, ‘sales and profit
opportunities’, and so on.
o Competitive/business asset strength is measured and weighted under criteria
such as ‘market share’, ‘customer base’, ‘alliances and distribution’, ‘access to
technology’, and so on.
Figure 9.15
Example of
a 3×3 matrix
Shell matrix
Very similar to the GE matrix, the Shell matrix adopts the 3×3 matrix but uses
‘prospects for sector profitability’ on the horizontal axis (instead of market attract-
iveness) and ‘enterprise’s competitive capabilities’ (instead of competitive/
business strength) on the vertical axis.
Balanced scorecard approach

Kaplan and Norton developed the ‘balanced scorecard’ strategic approach to
planning in the early 1990s. Recognising some of the weaknesses and vagueness
of previous management approaches, the balanced scorecard suggests that we
view the organisation from four perspectives and, to develop metrics, collect data
and analyse it relative to each of these perspectives:
1. Learning and growth perspective. This highlights the importance and value of
employees. An attempt should be made to measure cultural attitudes and
employee coaching and training related to both individual and corporate
self-improvement. In the current climate of rapid technological change, it
is becoming necessary for knowledge workers to be in a continuous learning
mode.
2. Business growth perspective. This refers to internal business processes. Metrics
based on this perspective allow managers to know how well their business
is running and whether its products and services conform to customer
requirements.
3. Customer perspective. If customers are not satisfied they will eventually find
other suppliers that will meet their needs. Poor performance from this per-
spective is thus a leading indicator of future decline, even though the current
financial picture may look good.
4. Financial perspective. The need for timely and accurate financial data will
always be a priority, but it must not be the only business driver and its usage
must be ‘balanced’ with the need to consider the other three perspectives.
Example 9.8 The Balanced Scorecard Institute

The Balanced Scorecard Institute is an independent, non-profit, educational institute
that provides training and guidance to assist agencies and companies in applying
the balanced scorecard to strategic management (www.balancedscorecard.org).
Limitations and problems in using models
Models such as those described above should never be confused with reality.
They are used by managers as way of simplifying, describing and analysing often
very complex and difficult business situations, stimulating argument and debate
and in doing so, hopefully, increasing participants’ knowledge and understand-
ing about some problem associated with the need for future development of
products and markets. When using models, care should be taken with regard
to the following points:
o Over-simplification – complex problems can lose meaning.

o Confusing the model with reality – a model will always remain a model and
should never be seen as a true picture of the world.
o Predictive value – models cannot predict, but can only be seen as an aid to
understanding. Ultimately managers will have to make decisions about the
world based on experience and information from many sources.
o Important factors missed – the use of models will not guarantee that all mar-
keting factors are identified and discussed.
o Subjective measurements – comparative measurements used, weighted or
otherwise, on most business models will be subjective and can be both over-
and under-generous.
When planning, clear succinct reasons should always be given why one particular strategy
has been selected and another has been rejected.
Assumption and constraints

Planning and forecasting look into the future so certain assumptions must be
made and articulated about major future happenings by marketing planners to
indicate awareness. If not, the whole exercise could be called into account by
senior managers questioning the relative wisdom of particular strategies. Sim-
ilarly, there will always be constraints that might prevent a company taking a
particular strategic direction and these too should be made known within the
marketing plan (Figure 9.16).
Figure 9.16
The B2B
strategic
planning
options
Strategic positioning of the B2B marketing mix

Under each selected strategy, market penetration, new product development, mar-
ket development and diversification, a little more information is needed about the
long-term direction that should be taken with regard to the marketing mix ele-
ments (shorthand for the eight Ps). This concerns the coordinated strategy that
will be adopted for the product, price, place and promotion, and can be identified
as the marketing mix strategic positioning. A marketing mix strategic positioning
statement will broadly outline the long-term approach to be taken with regard to
the marketing mix elements. Below we have identified, in very simple terms,
some of the marketing mix strategic options across the four Ps basic mix.
1. Products/service strategy options. Make the product better/different/cheaper.
2. Price strategy options. Premium/penetration/discriminatory/niche pricing.
3. Place. Indirect/direct/extensive/selective/partnership distribution.
4. Promotion. Personal selling/advertising/trade promotions/exhibitions.
All the following (as part of the eight Ps model) will also need consideration at
this strategic level: people, profit, processes, physical evidence.
A marketing mix positioning strategy will need to be developed for every mar-
keting strategy adopted by the organisation.
Other resource implications

All marketing planning will have resource implications for other areas of the
business. These can be identified under this common heading; for example, if
more systems need implementing or skills need upgrading, other business areas
will be need to be involved.
Strategic marketing objectives

Each identified strategy will now need a SMART objective known as a strategic
marketing objective (SMO) set in term of sales. All strategic marketing objectives
will add up to the overall marketing objective. The SMO will need to be moni-
tored and altered if long-term demand and forecasting circumstances dictate. Un-
realistic sales objectives will give a false impression of the company’s market and
financial position and could cause irreversible damage when yearly results are
published.
Target market and competition

Each strategy adopted should have a clear target market/organisation/buyer
profile written into the strategic plan so that every participant in the planning
process will be in no doubt about the make-up of the target market and the
benefits demanded. Similarly there will be some level of competition in the
market to be attacked and a full description, with the likely response, should be
given. The plan should be systematically adjusted as customers and competition
develop and change.
Strategic monitoring, feedback and control mechanism

Monitoring, feedback and control mechanisms must be added to all forms of
planning, whether at the strategic or tactical levels. This is to make certain that
the plan follows the course set down and achieves the desired results. At its sim-
plest, strategic monitoring and control mechanisms would consist of weekly
strategic planning meetings where open argument, discussion and debate should
take place. It is worth repeating here that the strategic plan should not be seen as
set in stone as it is an overall guide to future action and should be regularly
adapted and changed whenever the strategic management team think necessary.
All marketing environments are subject to constant change: existing markets
may begin to lose sales and sales potential and new markets may start to open
up. To allow for strategic planning adjustments whenever and wherever neces-
sary, the marketing audit, both internal and external, should be conducted on a
regular basis so that opportunities and threats can be anticipated and action
taken to exploit the former and defend the latter. The more dynamic the market,
the more intense this process will become. We will look in more detail at control
mechanisms when we look at planning implementation. It is now possible to
identify the whole B2B strategic planning process (Figure 9.17).
Figure 9.17
The B2B
strategic
planning
process
o Strategic implementation: How are we going to

get there?
I try to keep in touch with the details — you can’t keep in touch with them
all, but you’ve got to have a feel for what’s going on. I also look at the prod-
uct daily. That doesn’t mean you interfere, but it’s important occasion-
ally to show the ability to be involved. It shows you understand what’s
happening.
(Rupert Murdoch)
Putting the chosen course of action into effect

We can now move on to look at the last stage in the planning process – the
implementation of the B2B strategic plan. All stages of the planning process are
important, but making certain that the strategic plan is implemented and actu-
ally works is probably the most difficult and most important part.
There is little point in the marketing management team spending hours,
weeks and months on the planning process if the strategic plan ends up gather-
ing dust in a boardroom cupboard and no action is taken. Problems can still arise
even as an attempt is made to put the strategic plan into operation. Departmental
or personal agendas, fear of change, cultural differences across functions and
strategic partnerships and lack of senior management commitment to see the
process through can all impair or negate the successful running of the strategic
programmes.
Beginning of the implementation process

The implementation process begins with taking the three- to five-year strategic
marketing plan and then developing every strategy adopted in detail over a
shorter period, usually the first six months. This must be written out in intricate
detail because this is the working document that everybody within the organisa-
tion is going to work with on a day-to-day basis. This can be called the market-
ing tactical or action plan.
Marketing tactics and marketing strategy

There is often confusion about the terms ‘strategy’ and ‘tactics’. This is not sur-
prising since the meaning shifts as we move down the organisational hierarchy.
What is seen as strategic at corporate board level can be viewed as tactical when
given to the level below for further development. Similarly, what is seen as stra-
tegic by this lower level can be viewed as tactical when passed on for development
to the level below them, and so on down through the organisation. To add to the
confusion, whether a factor is strategic or tactical will depend to a certain extent
on management opinion. Basically, the differences between tactics and strategy
can be summed up according to the following:
STRATEGIC IMPLEMENTATION: HOW ARE WE GOING TO GET THERE? 463
o Marketing strategy is long term; marketing tactics are short term.

o Marketing strategy is a broad description of what needs to be done to achieve
marketing objectives; marketing tactics show how resources are to be
garnered and tailored so as to implement strategy.
o Marketing strategy gives an organising and coordinating framework providing
the same direction for all company functions over the long term; marketing
tactics spell out detailed action over the short term.
Difficulties associated with strategic plan implementation

The difficulties involved with the implementation of a B2B marketing plan can-
not be over-emphasised. It has to be the most difficult and problematic part of
the whole planning process. It is almost certain that problems will arise because
of the following:
o Planning and attempting to look into the future will by its nature have a level
of unpredictability.
o Making certain that all departments and divisions work together can be most
difficult because of rivalry, confused and competing objectives, differences in
culture and bad communications. This becomes even more of a problem
when attempting to work with alliance partners.
o Poor information dispersion and communication systems.
o Inadequate skills and confused allocation of responsibilities.
o Lack of cohesive leadership and disagreements over priorities.
o Failure to have the right resources available when needed.
o Lack of adequate monitoring, feedback and control mechanisms.
Example 9.9 Bounded rationality

Bounded rationality is the principle that managers reduce tasks, including imple-
mentation, to a series of small steps, even though this may grossly oversimplify the
situation and not be the optimal way to proceed. In this way ‘things’ are seen to
happen and change becomes much less threatening.
Elements involved with the implementation process

We can now examine the many elements that are involved with the imple-
mentation process. It is probably artificial to make the distinction between stra-
tegic and tactical because of the interconnectedness of the two areas. Many of the
factors identified and discussed here will relate to both the strategic and opera-
tional planning but this should not cause a problem as long as this is recognised.
The other point to remember is the need to understand the concept of strategic
thinking taking place at different levels in the company. So bearing this in mind
we can proceed.
Marketing tactical objectives

The overall marketing objectives (e.g. over three years) need to be broken down
into the short, medium and long term (perhaps years 1, 2 and 3 sales objectives).
The short-term objective, the tactical marketing objective, is then taken and broken
down into a detailed description. This is the plan to be used for the imple-
mentation and will become the working document for most employees, senior
and junior managers, supervisors and individual workers.
Detailed target segment and organisational profile

The target segment will have been outlined in the strategic plan but it is at this
level that more detail will be added. This will consist of such facts as the number
of organisations, their size, growth rate, product benefits wanted, and even, if
relevant, a description of the DMU and buying policies.
Timing
The tactical plan will be broken down into realistic and relevant time periods
over the 12 months (e.g. every week) across all programme areas, detailing clearly
what needs to be done by whom and by when. Rolling marketing tactics consist
of taking each strategy and detailing the plan, rolling it out over the first 12
months, adding on a new month as the old month is completed and in this way
moving through the three-year strategic plan.
Allocation of responsibility
Crucial to effectiveness and efficiency of the marketing planning process is the
allocation of responsibility. The managers who have to implement the plan must
be adequately empowered and will need to have personal and interpersonal skills
in organising, garnering and allocating resources, monitoring progress, and com-
municating and interacting with others, both inside and outside the organ-
isation. Staff should be assigned clear responsibilities so that everybody is aware
of who is responsible for every task and no area of possible confusion exists.
Coaching and training must be made available to overcome problems associated
with personal and interpersonal skill deficiencies, and help and advice must be
offered where lack of motivation might hinder implementation. Ideally those
responsible for an area of control should play a part in the performance indica-
tor setting and have knowledge of the broader planning picture. Every manage-
ment control area should have a monitoring back-up system so that checks can
be made across important areas. Care should be taken to ensure that monitoring
and control structures and systems do not become too bureaucratic and inflexi-
ble, thus restricting the smooth running of the marketing programmes. The
higher up the organisation, the greater will be the level and importance of the
decision-making process. Ultimately there has to be a certain amount of trust if
the process is going to work efficiently and effectively.
Detailed marketing mix planning

A detailed marketing mix plan for every strategy is at the heart of the strategic
plan and will include the following:
o Marketing research plan
o Product/service/packaging plan
o Price and finance plan
o Place (distribution) plan
o Personal selling plan
o Promotion plan, advertising, trade promotions, exhibitions, sponsorship
o Internet plan.
Budgeting
All elements of the planning process, both strategic and tactical, will involve
some degree of costs. To a certain extent, the sales forecast figures, the expected
revenue for the year, will decide many other budgets as it will determine what
needs to be spent to achieve a certain level of sales.
Methods of deciding the budget amounts

Many budget amounts will be more or less decided because of the tasks that need
to be undertaken. For example, cost of sales will include such things as the pur-
chase of raw materials, production and distribution costs and be linked directly
to the projected year’s revenue figure. Other budgets, however, are more specu-
lative and the amount can be decided in different ways. For example, the advert-
ising or marketing research budget will not be linked directly to sales and so will
be decided more by managerial discussion combined with prevailing circum-
stances. The following methods might be used by companies in setting these
types of budgets:
o Task and objective – ideally the most effective way of allocating budgets
o Same as the competitors
o Same as last year
o Same as last year with an increase for inflation
o What the company can afford
o As a percentage of sales
o As a percentage of profit.
The marketing control process

Monitoring and control, ‘making certain that what is expected to happen, happens’,
are crucial to the successful running of any business, whether in the profit or not-
for-profit sectors. To set goals and performance indicator targets, whether for the
long or short term, and then not effectively monitor and control them is a recipe
for disaster. The daily newspapers are replete with examples of organisations that
have lost millions because of projects that have failed or run enormously over
budget because of lack of controls. The need to set SMART objectives across the
whole of the business marketing process was outlined earlier because numbers
of any sort should be easier to track, but this must only be the beginning. The
numbers must be constantly monitored from the top of the organisation down
through all levels to the very smallest department or activity. Management must
find ways of making this happen, even in cases where open and not closed object-
ives are used.
We know whether improvements work because we can measure them.
Feedback, monitoring and control at different

organisational levels
At the strategic level
The control process can and should be applied at any level within the organisa-
tion from the strategic down to the tactical. We discussed earlier the need for
frequent evaluation on whether general B2B marketing strategies were working
effectively and whether they were still appropriate with regard to market,
customer and competitor changing circumstances. At this level senior managers
will need to monitor every aspect of the marketing effort to be sure that optimum
effort and the most efficient allocation of resources are happening. Anticipa-
tion and a certain degree of informed speculation are important at this higher
level, as management decisions will have to be made about long-term strategic
direction. This will inevitably take time in collecting internal and external envir-
onmental information and pulling together more or different resources and
changing particular approaches. The faster the change in the market, competi-
tion and customer needs, the more that strategy might have to be altered, the
greater the flexibility that will have to be built into structures and control sys-
tems. It is at this level that benchmarking activity with others can be promoted
down through the organisation so that the best standards are built in and
maintained. Strategic marketing control will entail feedback from all other
departments as well as information from all factions of the marketing depart-
ment. This will also apply across partnering companies where alliances have been
constructed. Regular strategy meetings should be used to ensure discussion and
argument from the strategic planning team and in this way keep the plan on
course.
At the tactical level

It is just as important to know that all the individual elements in any one
marketing strategy are working effectively at all levels down through the organ-
isation. New product development, marketing research and data development,
sales training, advertising, sales promotions, and so on must all be monitored
and controlled for optimum effectiveness. Management might also want to
compare and evaluate scarce resource allocation, say between the use of personal
selling and direct response or between direct and indirect distribution.
At the operational level

The B2B tactical plan was described earlier as the breaking down of the strategic
plan into intricately detailed programmes, one for each strategy, over a shortened
period, perhaps six months to a year. The strategic objectives identified in the
strategic plan will have been broken down into smaller performance standards,
costs, sales and profit, over the six months. These performance standards become
the benchmark against which actual performance is measured. If, for example,
we take the forecast sales figure for the six months, this might be broken down
month by month and actual sales figures compared with the budgeted sales
figure. The sales figures can then be broken down into cost to sales ratios, taking
into account such things as cost of materials, administration, distribution, advert-
ising, selling, and so on. Sales analysis is an attempt to determine why actual
sales varied from planned sales, then allowing corrective action to be taken.
Control mechanisms should be built in at relevant points across the six-month
period so that variance checks can be made between actual and planned perfor-
mance indicators.
Approaches used in control

Control approaches can be broken down into financial and non-financial terms.
Financial controls
Financial controls look at costs and profits across a whole range of indicators
comparing the planned budgets with the actual outcome. They will look at such
things as cost of goods purchased, stocking and delivery costs, labour costs,
administration costs, product and packaging costs, advertising costs, salespeople
costs, etc. B2B management should also be concerned with target market and
individual buyer organisation sales costs and profits, possibly breaking them
down into individual product fixed and variable costs, share of market and profit
contribution. Financial ratios should be used to compare efficiency and effec-
tiveness past and present and attempts made to benchmark with the best, not
only in the industry of operation but the best in other industries. Use will be
made of cost and profit centres and accounting methods such as activity based
costing (ABC). These were discussed in some detail in Chapter 7.
Example 9.10 Examples of financial ratios

o Sales, costs and profits, by market segment, by sales channel, by buyer organ-
isation, by sales team and by individual salespersons.
o Sales, costs, contribution per sales call, costs of opening new accounts.
o Product portfolio sales, costs, contribution by product line, individual products.
o Advertising costs and effectiveness by media, promotion costs.
Non-financial controls
Non-financial controls should be implemented to cover important areas such as
production and delivery times, product availability and product returns, cus-
tomer satisfaction and complaints, competitor activity, and so on. Ongoing use
of internal reports, marketing intelligence and marketing research should be
made to help in this area.
Control methods
o Regular meetings, discussions, interaction, video-conferencing, appointments,
feedback.
o Feedback deadlines in person, memo, e-mail, intranet, extranet.
o Financial/computerised blocking when cost reaches an agreed level.
o Internal and external ongoing marketing research.
o Clear allocation of responsibilities and person-to-person back-up checking
system.
o Regular benchmarking.
Contingency plans
Once business marketing strategy is formulated and implemented, the B2B mar-
keting manager must continually evaluate the target segment/individual organ-
isation response in order to ensure that any discrepancy between planned and
actual results is kept to a minimum. Of course this is easier to arrange in stable
markets than in the more dynamic, but there will always be differences between
what is predicted to happen in the market environment and what actually
happens. It is better to be prepared than to be taken by surprise. Contingency
plans allow resources to be made available to take into account changes in mar-
ket circumstances. No organisation, however, can really make contingency plans
for totally unexpected events such as the September 11 2001 terrorist attacks in
New York. This might be where crisis management planning comes into play.
Crisis management planning

Many organisations (usually large) now have a crisis management planning pro-
gramme in place so that broad management tactics and strategies to major un-
expected events can be discussed and put into place. Proactive crisis management
activities include forecasting potential crises (often by scenario planning) and
planning how to deal with them, not in detail but in general terms. These plans
are then translated into document form, outlining areas of responsibility and
alternative courses of action in both the short and long term.
Example 9.11 Perrier’s crisis

Fifteen years ago Perrier immediately withdrew millions of bottles of mineral water
from stores around the world when it was revealed that there were traces of
benzedrine hidden in its bubbles. This instant action, although costly, showed the
company in a responsible and caring light and long-term damage was avoided – an
example of crisis management planning.
SUMMARY 469
Tactical planning process

o Marketing three years’ objectives broken down into the short, medium and
long term (perhaps one, two and three years’ sales objectives).
o Marketing tactical objectives – the short term (perhaps 12 months’ sales
objectives).
o Detailed target segment and organisational profile.
o Competition – detailed description of the immediate competitors.
o Timings – important measurement milestones across the 12 months (perhaps
every week).
o Marketing mix plans for marketing research, products and services, price and
finance, distribution, sales and communications, etc.
o Allocating responsibilities – selecting adequately skilled staff (training where
necessary) and describing individual task requirements.
o Budgets – allocation of expected cost amounts across the marketing mix and
all areas of expenditure.
o Monitoring, feedback and control mechanisms – for all performance indicator
measurement points at all levels, followed by a planning review.
o Contingency plans.
Strategic planning in a changing world

Throughout the book we have identified and discussed the internal and external
factors that confront managers when attempting successfully to pilot the B2B
organisation through the sometimes murky, troublesome and stormy waters,
especially in international and global markets. The greatest challenge facing any
organisation is the need to develop a coherent and appropriate strategy that is
based on internal resources and able to take advantage of external opportunities,
thus building sustainable competitive advantage. Managers have to be able to
undertake this task in a series of different markets across the globe which are for-
ever developing and changing as new competition enters, technological possib-
ilities multiply, and customers become more demanding. Despite the fact that
environments change, managers must methodically plan at both the strategic
and tactical levels so that decisions can be made about future direction and
resources allocation based upon sound informed judgements. It must be remem-
bered that one company’s opportunity is often another company’s threat. Those
with established market presence could lose significant share if they do not adjust
to changing market conditions.
To examine in detail the strategic B2B options available to an organisation go
to the B2B Marketing website at www.booksites.net/wright.
o Summary
In this chapter we have taken all the elements of marketing and attempted to
pull them together to show how they might be used in the B2B planning process.
Marketing planning is about taking a systematic, disciplined approach in deciding
the future direction of the organisation. We re-examined the concept of marketing
driven management, stressing the critical importance of continual buyer and

organisational satisfaction as the driving force behind strategic choice and strate-
gic implementation. In the same vein the need for the B2B supplier constantly to
collect information on the competition (both immediate and potential), assess
competitive advantages, and work to gain superiority were discussed and exam-
ined and recommendations were made. The importance of marketing at both
management and strategic levels was identified and an attempt made to show
how this becomes the guiding force in the planning process.
We then went on to look at the planning process itself, categorising it into
three areas: strategic analysis, strategic choice and strategic implementation.
Strategic analysis, or ‘where are we now?’ is the environmental auditing process,
broken down into the internal and the external environment. The external envir-
onment was discussed under the acronyms PEST and SPICC and the internal
environment under the acronyms of the eight Ss and the eight Ps. The SWOT
model was used in the second part of the process to collect and analyse the infor-
mation for future strategic decision making.
We then moved on to look at the next stage in the planning process – strategic
choice. The roles of the corporate mission statement and corporate objectives
were briefly outlined and the roles of sales forecasting and gap analysis in the
setting of B2B marketing objectives were examined. The Ansoff matrix strategic
choice model was used to assist the process of strategic direction analysis and
strategic choice. The need to produce clear marketing mix strategic positioning
statements, identify target segments and relevant competition and set SMART
strategic marketing objectives and control mechanisms for each selected strategy
was discussed before moving on to examine the last category in the strategic
planning process – strategic implementation.
All the factors that should be considered when looking at the tactical im-
plications and implementing strategic programmes in B2B markets were then
scrutinised with the reminder that strategic planning without successful imple-
mentation was a waste of time and a recipe for failure. It was shown how tactical
objectives arose from short-term strategic objectives. They were broken down in
detail with clear performance indicators across a designated time period, 12
months in this case. Finally, all the important areas and stages used in program-
ming and tactical planning were identified and briefly discussed, including target
organisations, immediate competition, marketing mix, day-to-day planning require-
ments, allocation of responsibilities, timings and budgets, and the building in of
feedback monitoring and control mechanisms.
1. Identify in general terms the differences between strategic and tactical planning.
What are the advantages and disadvantages of strategic planning and do you
think that it is necessary for all successful organisations?
2. Formal planning is said by some to be unrealistic and not the way that business
managers actually look to the future. Discuss this premise and identify reasons
why it may or may not be true.
3. Discuss the development of customer retention programmes. Identify and
critically examine the part that computer programs might play in the process with
reference to relevant websites.
BIBLIOGRAPHY 471
4. What do you understand by the concept of market driven management?

Give real examples of its use and identify when it might not be feasible.
5. How might a B2B organisation gain competitive advantage? What might be the
differences, if any, between B2B and B2C in developing and maintaining
competitive advantage?
6. Identify the major factors involved in the process of auditing. What criticisms
might you make about the process as identified in this chapter?
7. Discuss the relationship between the company mission statement and the
hierarchy of objectives identified in the B2B strategic planning process.
Why must business objectives always be quantified over time?
8. Identify all the factors involved in the B2B strategic planning process.
What are the differences in strategic planning between B2B and B2C markets?
9. Discuss all the factors involved with tactical planning and tactical implementation.
10. It can be forgotten that the implementation of a plan is a crucial part of the
strategic planning process. Why do you think this might be and what are the many
problems that might be associated with attempting to make a plan happen?

o Bibliography
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10 Strategic business approaches
to different and changing
market conditions
Chapter
The biggest joke about ‘business management’ is that

the majority of people in business don’t have business
management education, while the majority of people,
who have business management education, are not in
business!
Aims and objectives

1. Examine and evaluate the business strengths and weaknesses that will be
of importance in the future world of business-to-business marketing.
2. Examine and evaluate the strategic role that new technology and the
internet will play in the development of business-to-business marketing,
both now and in the future.
To examine in detail the strategic B2B options available to an organisation go to

the B2B Marketing website at www.booksites.net/wright.
Part 1 Future of national and international B2B marketing

It can be argued that the world changed irrevocably on September 11 2001 with
the terrorist attack on the World Trade Center. Such is the impact that the USA
has on world trade that any action or reaction on its part will have an enormous
effect on all other markets. The USA has the largest and most technologically
powerful economy in the world. With a GNP of over $10 trillion, imports of $1.5
trillion and exports of nearly $800 billion, it accounts for over a quarter of all
world trade. ‘When the US sneezes the rest of the world gets a cold’ is a saying
that might accurately reflect its effect on world trade. There is no doubt that any
business which engages in international trade, at whatever level, will be affected
by what happens in other parts of the world (this especially applies to what happens
in the USA). Global events therefore require constant monitoring. Concomitant
with this will be the need to build and maintain business strengths, both strategic
and tactical, so that market reactions can be both timely and appropriate.
474 CHAPTER 10 • STRATEGIC BUSINESS APPROACHES TO DIFFERENT AND CHANGING MARKET CONDITIONS
Figure 10.1
The well-respected Fortune 500 US business magazine invites speculation on America’s
Fortune most admired global companies by asking 10,000 of the top executives across many
500 nine industries. The key attributes identified below are given a score of between 1 and 10 and
key attributes then the scores are added and averaged to obtain the most admired companies. The key
of reputation attributes used are interesting and enlightening.
score industry
Key attributes Industry rank out of 10
rank 1. Innovativeness
Sources: 2. Employee talent
www.fortune.com, 3. Use of corporate assets
Fortune, 3 March 4. Social responsibility
2003 5. Quality of management
6. Financial soundness
7. Long-term investment value
8. Quality of products/services
9. Globalness
o Business strengths
B2B organisations have to be strong to face up to future global market challenges

(Figure 10.1). This applies to their internal capabilities and the suitability of their
market entry strategies. The meanings of internal strengths and weaknesses have
been discussed throughout the book, but it is crucial for management to appre-
ciate the different challenges to be faced when marketing abroad and in global
markets.
Strength in home markets

Research has shown that strength in home markets can be a springboard for mov-
ing abroad, as well as providing support to maintain and grow a strong presence.
Access to resources of all kinds can then be utilised to enhance strategic direction
as required. Problems in the home market can soon percolate into foreign mar-
kets and force a company to retrench in some way so as to move resources back
into the original base market. Marks & Spencer is an example of a company
forced to sell off most of its foreign businesses because it ignored detrimental
changes in its home markets.
Example 10.1 China’s airline industry merges for strength

China’s nine biggest airlines are to merge and shares in Air China, the flagship inter-
national carrier, will be listed on international stock markets. The airlines will be
consolidated into three major new international players, Air China, China Southern
Airlines and China Eastern Airlines. This will give the industry the strength to com-
pete with major airlines around the world. The carriers will control about 80 per
cent of the domestic market and almost all international routes flying out from
China.
BUSINESS STRENGTHS 475
Figure 10.2
($million)
Top ten global 1. Wal-Mart Stores 219,812.0
companies by 2. Exxon Mobil 191,581.0
turnover, 2001 3. General Motors 177,260.0
Source: 4. BP 174,218.0
www.fortune.com 5. Ford Motors 162,412.0
6. Enron 138,718.0
7. Daimler Chrysler 136,897.3
8. Royal Dutch/Shell Group 135,211.0
9. General Electric 125,913.0
10. Toyota Motors 120,814.4
(revenue figures reflect sales and purchases in both B2B and B2C markets)
Niche and mass global market strengths

As with home markets, the smaller B2B player will still be able to market spe-
cialised goods and services abroad to smaller niche markets. The increased need
for effectiveness, efficiency and economy compels buying organisations to
become more demanding in the specification of products and services they buy
from other organisations. This is forcing business suppliers constantly to upgrade
and customise benefit offerings and problem solutions, thus allowing market
opportunities to the smaller company able to dedicate itself to innovation and
development in one focused area of business. In some cases the very large com-
pany can make use of technology to build a mass customised product but there
will still be parts of the business where this will not be possible or cost effective.
Mass market strengths

The major players in the global markets are companies such as Exxon Mobil,
Ford, Shell and General Electric, each with an annual turnover larger than half
the countries of the world (Figure 10.2). Although total earnings in 2001 for
Fortune’s Global 500 companies were less than half those of 2000 and 297 com-
panies saw profits fall, future global revenue figures are expected to continue to
rise long term, with these world behemoths expected to grow ever larger and
more dominant. (The terrorist attack in New York on September 11 and a world
teetering on the edge of recession, rather than any long-term endemic problem,
seem to have caused the downturn.)
A turnover of anything between $10 billion and $200 billion will continue to
open up mass market opportunities to these major players in growth markets
such as China, Brazil and Indonesia which would not be possible for lesser com-
panies. Enormous spending power, economies of scale, political influence, and so
on should enable large companies to build on market growth strategies, as well
as opening new markets unavailable to the smaller players.
Partnership for strength

We discussed in an earlier chapter the importance of working with other com-
panies in some sort of partnership across the world to open up markets, build
market share and restrict the activities of the competition. This is expected to
continue. Even some of the largest companies are finding it advantageous to
work with others in sharing risks and resources as well as knowledge and exper-
tise. For the smaller company or niche player it still might be the only way to
grow and improve market share. Partnerships are also expected to grow between
companies not in direct competition with one another where mutual benefits are
apparent. This will cover such areas as purchasing, information sharing, bench-
marking, distribution and customer sharing.
Partnership with governments

Although governments have pulled out of direct involvement with many com-
panies, either by privatisation or by reducing and eliminating subsidies to increase
competition, it would be naive to believe that under certain circumstances they
will not continue to get involved in the future. Although member countries vote
to improve internal trading bloc anti-competitive laws, there will always be
circumstances where national interests outweigh the interests of the many. On
occasions, the government in one country may still provide subsidies to protect
industries or large companies against competition which is threatening to over-
whelm from another country. Many of the large global companies and industries
are now too important to the national well-being in terms of jobs, income and
prestige to let them go out of business. So despite the commitment to free trade,
governments will continue to subsidise in some sort of way. For example, Airbus
Industries, the aeroplane manufacturer, competes against the American giant
Boeing for commercial jetliner sales. Airbus was started with capital supplied by
several European governments and continues to enjoy financial support. Despite
being the bastion of capitalism and free markets, the USA continues to impose
import tariffs and quotas on products and services it feels threaten home indus-
tries and companies. This will not change in the future.
Example 10.2 Competition between countries

President Bush risked provoking a trade war with Europe when he imposed tariffs
of up to 30 per cent on steel imports despite a last-minute appeal by the EU not to
damage EU and US relationships. He argued that it was to stop the illegal subsidised
dumping of steel exports from both the EU and Far East. Outraged by US steel
tariffs, which threaten the EU with £1.5 billion annual losses, the European Commis-
sion is almost certain to vote for levies on US airlines in Europe and for a restric-
tion of their landing rights. US carriers had benefited from a £10 billion government
rescue package since the terrorist attacks on September 11, allowing them to slash
fares on transatlantic routes.
Networking for strength

Many companies find it profitable to talk to one another in an informal way,
sharing information and knowledge on a networking basis. This interaction is
bound to increase as communications become so much easier around the world.
MARKET CHALLENGES AND FUTURE OF GLOBAL AND BUSINESS MARKETS 477
It makes sense for strategic managers in non-competitive industries to talk and

share experiences about strategies and systems, helping one another on a recip-
rocal basis. Many senior managers from the Fortune 500 top companies talk and
meet on a regular basis to discuss issues such as benchmarking, value chain rela-
tionships and global market change.
o Market challenges and future of global and

business markets
There are many challenges facing the B2B organisations operating in interna-
tional markets as we move through the first decade of the twenty-first century.
Successful businesses will have to be constantly looking for better and cleaner
ways of working, in terms of both offering buyer choice and value and how they
conduct their market activity. Many of these challenges have been discussed and
alluded to throughout the book and some of the major issues can be highlighted
here.
International market growth

Ignoring short-term economic recession, many business home markets are either
not growing or only growing at a relatively slow rate. Long-term economic
growth in modern western economies is averaging about 2 per cent a year. In
many other countries around the world, however, economic growth is much
larger and set to grow at higher rates well into the future. Not only are there huge
expected growth rates, but the size of the potential market in some of these coun-
tries is enormous. Managers know that they must be in these markets if their
companies are to remain serious global players.
China has a population of nearly 1.3 billion (ten times that of Japan) and
expected growth rates of 8 per cent. Brazil has a population over 270 million with
expected growth rates of over 4 per cent. Indonesia has a population of nearly
230 million with expected growth rates of nearly 5 per cent. Of course some
exporting industries and companies will be more welcome than others. Global
companies such as IBM, Shell, GE and Microsoft are already in and carving out
market share. China, to take the most important example, is slowly opening up
its markets to imports from around the world and has shown real commitment
to the concept of free trade across most industries by joining the WTO in 2001.
European Union growth

The European Union is set for more expansion with applications from 13 coun-
tries. Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland,
Slovakia and Slovenia are expected to become members some time in 2004, with
Bulgaria, Romania and Turkey following. There are approximately 376 million
people living in the EU member countries, of which Germany has the largest
population. Some 170 million people live in the 13 candidate countries. Turkey
is the largest with a population of 64 million, and Malta is the smallest with a
population of 380,000. Eventually there could be a market of some 446 million
people, offering enormous expansion possibilities. There will be hundreds of

industries and hundreds of thousands of organisations all competing in one
barrier-free market.
Breaking down world trade barriers

Although many countries find new ways to protect their industries against for-
eign competition with barriers that hinder or exclude sales of products and ser-
vices, there is no doubt that the spirit of free trade is driving world economic and
political agendas. Although the USA may voice concerns about importers selling
below cost or receiving subsidies and dumping steel on their markets and the EU
threatens retaliation if trade barriers are erected against EU industries, under the
auspices of the WTO, the movement for free trade travels inexorably forward.
International cooperation and legislation are forcing industries and companies to
face up to competition and the need to become increasingly more productive and
customer driven.
o Environmental concerns
The realisation that economic activity is damaging the earth and its resources has
pressurised politicians and governments around the world into taking some kind
of action to try to repair and prevent any more damage that could cause suffer-
ing to both present and future populations. Legislation has been enacted, with
much more to follow, to prevent environmental abuse by business organisations.
Huge fines and even imprisonment can be imposed on senior managers
who ignore or attempt to circumvent environmental rules and regulations. Con-
sumers are also now aware of these concerns and seem increasingly vociferous
in condemning errant organisations, with some even refusing to buy products
and services.
Most if not all large corporations now have codes of conduct and ethical
values statements that clearly set out how they intend to operate with regard to
concern for the environment. The companies state that they have taken this
approach because they are responsible corporate citizens, while the more cynical
might argue that it is because of fear of bad publicity and boycott actions that
customers might take against organisations that fail to conform (Figure 10.3).
Many of the policies being adopted by business organisations could restrict the
scope of marketing activity and ways of working, causing higher costs and lower
levels of productivity. The creative and innovative company could avoid such
negative effects and even gain competitive advantage through improvements in
its ways of working. All business functions will be affected including production,
Figure 10.3
o Genetic engineering or genetic modification of food
Environmental
o Depletion of ozone layer
concern issues o Climate change leading to flooding, droughts and unstable weather patterns
o Depletion of natural resources on land, sea and air
o Damage to ecosystems
o Long-term health problems
ENVIRONMENTAL CONCERNS 479
processes, distribution, transport, packaging, promotion, advertising, and so on.

If all companies conform, however, the playing field will be level and the envir-
onment safeguarded.
Example 10.3 Recycling programme

All electrical goods sold in Europe after 2005 will have to be recycled at the manu-
facturer’s expense after a vote in the European parliament yesterday. Under the
new legislation, householders will not be allowed to throw away unwanted elec-
trical goods but will have to sort them out ready for collection and recycling. The
legislation will cover TVs, washing machines, stereos, computers, mobile phones,
vacuum cleaners, hairdryers or anything considered electrical or electronic.
Legislation requiring old cars and fridges to be recycled already exists. The cost of
collection, dismantling and recycling will be borne by manufacturers but they are
expected to pass it on to consumers. Authorities say prices for electrical goods are
likely to rise by up to 5 per cent. Green groups are delighted with the new rules and
believe they will force manufacturers to design more environmentally friendly
products.
Pressure group activity

There is no doubt that the growth in information technology and use of the
internet have encouraged the activities of many different pressure groups around
the world. Individuals are able to talk to one another, disseminate ideas and for-
mulate aggressive strategies against organisations they feel are acting irrespons-
ibly and mistreating both people and the environment. Such is the power of some
groups that they are able to muster hundreds of thousands of activists to protest
on the streets or outside premises, boycott goods and services, synchronise com-
plaints, stage publicity-seeking events, and so on. Successes in the past, such as
Greenpeace forcing Shell to reconsider sinking an oil platform in the North Sea,
have made even the largest of the multinationals wary of creating situations that
could cause pressure group attention, leading to bad publicity and customer boy-
cott (Figure 10.4).
Figure 10.4
o Anti-globalisation groups bring thousands onto the streets to protest at the meetings
Pressure
of the WTO, IMF, World Bank and G7
groups o Human Rights Watch (HRW) challenges governments worldwide to end abusive
practices and support human rights laws (www.hrw.org)
o Liberty works to promote human rights and protect civil liberties through a
combination of test case litigation, lobbying, campaigning and research
(www.liberty-human-rights.org.uk)
o Greenpeace International fights on environmental issues (www.greenpeace.org)
o National Society for Clean Air and Environmental Protection – self-explanatory
(www.nsca.org.uk)
o Corporate Watch is a non-profit organisation which holds the corporate world
accountable for its actions from economic and ethical perspectives
(www.corporatewatch.org.uk)
o Human Genetics Alert is concerned about the ethical side of this technological
revolution (www.hgalert.org)
Global terrorism
Global terrorism continues to pose a clear and present danger to the interna-
tional community and no business can afford to be complacent about its effects.
The effects of the attack on the Twin Towers in New York on September 11 2001
are still reverberating around the world. Any country or company can be consid-
ered vulnerable to an attack of some kind leading to possible loss of life, destruc-
tion of property and heavy costs. Industries such as travel, tourism and insurance
are particularly susceptible and businesses need to have contingency measures in
place for any such attack. As well as the loss of revenue, a huge rise in the cost
of insurance cover for war and terrorism risks could result in heavy losses and
even ruin of some businesses operating in areas such as the airline and tourism
industries.
Increased litigation
National and supranational governments are increasingly bringing in new laws,
rules and regulations about how organisations must conduct their operations.
Individuals, groups and organisations are now much more likely to resort to
legislation to overcome a problem they may have with a business. Increased
knowledge and easy access to lawyers, often with a ‘no pay-out, no fee’ clause,
encourages all to take this kind of action when a wrongdoing is perceived. Mis-
creant organisations can now expect customers, communities, employees, regu-
lators and governments around the world to take legal action to recover damages,
sometime running into millions of pounds, for actions considered inappropriate
or wrong. This might be because of the harmful effect of products and services
being sold, the way a company operates in a market or the manner in which
employees are treated. Global organisations must be aware of the possible local
legislative differences which, coupled with language and geographical barriers,
can lead to expensive and protracted problems. Below we have identified some of
the key issues, discussed throughout the book, that relate to the future of busi-
ness markets.
Key issues in the future of business marketing

o Integrating marketing in all departments, divisions and functions of the
organisations with total strategic commitment from the CEO downwards.
o Training and developing employees at all levels across all divisions to put
concern for the business customer, as well as ethically acceptable ways of
working, at the very centre of all activity.
o Making certain that up-to-date, relevant information on customers, markets
and environments around the world is readily available to all employees for
decision making at both strategic and tactical levels on a continuous basis.
o Streamline business strategies. Lean strategies provide efficiencies to save
costs and increase profits. Take stock of what is measured and why. All meas-
urements should be aligned with business strategies.
o Constant seeking out of new markets and new customer benefit solutions
wanted.
BUSINESS-TO-BUSINESS AND NEW TECHNOLOGY 481
o Giving every buyer customised products and services that offer benefit solu-
tions to individual problems across mass markets, with built-in controls that
constantly monitor and measure satisfaction levels and new demands.
o Optimising the use of technology in an innovative and customer-driven
manner in all areas of the business, including manufacturing, communica-
tions, delivery, servicing, information collection and dispersion as well as
bringing all relevant stakeholders into the process.
o Forming mutually beneficial partnerships and alliances across all areas of the
business.
Part 2 Use of technology in the growth and maintenance

of business strength
Nobody doubts the importance of technology to the success or otherwise of the
business organisation, whether in B2B or B2C markets. Although we have talked
about the growth of technology and its use across all business activities through-
out the book, such has been its dramatic and awesome growth over the last
decade that it must have the final word in the discussion on the future of global
marketing. No area of the business can fail to benefit from clearly thought out
application in researching and building B2B problem-solving products and ser-
vices and customer satisfaction.
o Business-to-business and new technology
Research has shown that the number of organisations in a country that are active
in a technology may indicate that country’s ability to innovate and its potential
for innovative activity. It also associates clusters of innovation with higher rates
of innovation, productivity growth, and new business formation. If customers
are to be won and held and competitive advantage sustained, senior manage-
ment must understand and be totally committed to innovation and the applica-
tion of advanced technology to increase the effectiveness of business relationships
between trading partners. This is particularly true in B2B markets where technol-
ogy must be continually updated to meet the knowledgeable needs of buying
organisations. Professional buyers are aware that if their own company, as well as
suppliers, cannot upgrade to the latest technology, competitive advantage will be
lost along the whole supply chain. Governments and pressure groups are increas-
ingly strident about products and services that use up scarce resources and ways
of working that cause harm to the environment. New technology is important
across all business operations from ordering, inventory management, innova-
tion, design and production through to warehousing, distribution and customer
service. We see its marketing application in factories and offices, management,
production, engineering, transport, packing, research, advertising and promo-
tions as well as in innovative products and services.
Example 10.4 Intelligent product

Cars already come equipped with navigation systems, but soon they will become
smarter in other ways. Computers will diagnose problems with the car and send
information about the car’s performance back to the factory. Home appliance manu-
facturers will begin adding intelligence to washers, dryers and refrigerators. It will
allow the history of the product to be monitored, faults immediately diagnosed and
even let the user call home and make sure that the cooker has been turned off.
Radio chips in supermarket products will allow shopping trolleys to be scanned as
they move through the checkout without taking the goods out. Pervasive comput-
ing means that every device, every appliance, everything we have including the
things we wear is going to have computer capability.
Leading edge technologies

New or leading edge technologies (not without controversy in some areas) are
emerging across a whole range of industries and offering the innovative company
almost unlimited opportunities. The US Bureau of Census has classified the fol-
lowing areas for exporting and importing purposes:
1. Biotechnology. The medical and industrial application of advanced genetic
research to the creation of drugs, hormones, and other therapeutic items for
both agricultural and human uses.
2. Life science technologies. The application of non-biological scientific advances to
medicine. For example, advances such as nuclear magnetic resonance imaging,
echocardiography and novel chemistry, coupled with new drug manufactur-
ing, have led to new products that help control or eradicate disease.
3. Opto-electronics. The development of electronics and electronic components
that emit or detect light, including optical scanners, optical disk players,
solar cells, photosensitive semiconductors and laser printers.
4. Nanotechnology. The ability to create materials from building blocks smaller
than atoms will unleash unprecedented capabilities. Cars and aeroplanes,
chemicals and plastics, computers and chips, cosmetics and drugs – all of
these industries and plenty more are facing upheavals that could make the
advent of the internet seem like a minor adjustment. Pocket-sized super-
computers, material one hundred times stronger than steel but a sixth of the
weight, 1000 miles to a gallon of fuel, car batteries the size of small torch
batteries are only some of the opportunities.
5. Information and communications. The development of products that process
increasing amounts of information in shorter periods of time, including fax
machines, telephone switching apparatus, radar apparatus, communications
satellites, central processing units and peripheral units such as disk drives,
control units, modems, and computer software. We will look in more detail
at this area below.
6. Electronics. The development of electronic components (other than opto-
electronic components), including integrated circuits, multilayer printed
circuit boards and surface-mounted components, such as capacitors and
resistors, that result in improved performance and capacity and, in many

cases, reduced size.
7. Flexible manufacturing. The development of products for industrial automa-
tion, including robots, numerically controlled machine tools and automated
guided vehicles, that permit greater flexibility in the manufacturing process
and reduce human intervention.
8. Advanced materials. The development of materials, including semiconductor
materials, optical fibre cable and videodisks, that enhance the application of
other advanced technologies.
9. Aerospace. The development of aircraft technologies such as most new
military and civil aeroplanes, helicopters, spacecraft (with the exception of
communication satellites), turbojet aircraft engines, flight simulators and
automatic pilots.
10. Weapons. The development of technologies with military applications,
including guided missiles, bombs, torpedoes, mines, missile and rocket
launchers, and some firearms.
11. Nuclear technology. The development of nuclear production apparatus,
including nuclear reactors and parts, isotopic separation equipment and fuel
cartridges.
Example 10.5 Hydrogen fuel cells

Honda cars using the highly promising hydrogen fuel cell system will be introduced
in Los Angeles later this year as part of a test campaign. Honda is one of the major
auto manufacturers currently vying for a mass market commercial launch for the
technology in the next two to three years. Five models will initially be used in LA in
the year-long trial, with a further 25 to be added at a later stage. The development
is a result of the California Fuel Cell Partnership, which brings together manufac-
turers, fuel suppliers and government authorities. Other companies involved in the
scheme include Ford, Nissan, VW, ExxonMobil and the US Environmental Protection
Agency. Fuel cells are regarded as zero-emission, and widespread use will reduce
inner city air pollution levels. Infrastructure for consumer refuelling is widely seen
as the main barrier to a fast-track introduction of the technology, therefore closer
relationships with vehicle manufacturers, fuel producers and local authorities.
(www.greenconsumerguide.com)
Example 10.6 Human Genome Project

The Human Genome Project has generated huge amounts of information on genes
and gene fragments. In 2000, the US Patent and Trademark Office (PTO) issued
about 2000 patents on full-length genes for all species. The patentability of genes
and gene sequences in the USA is based on the 1980 Supreme Court decision
Diamond v. Chakrabarty, which ruled that genetically engineered living organisms
could be patented. This decision was followed by internal actions by PTO in the mid-
1980s that extended patentability to plants and non-human animals. (United States
Bureau of Census – www.nsf.gov/sbe/srs/)
Managing the technological transfer process

Technology transfer can be defined as the successful advancement of a techno-
logy through the development chain from research to commercial application in
the home or overseas market. Ultimately the measure of success of any develop-
ment is its commercial uptake. Technology platforms support product platforms,
which in turn support families of new products. All technology development
needs to have some market awareness. The market drivers strengthen the closer
one gets to the commercial application stage.
High-tech products are developed from technologies, whether internally
developed or externally acquired. The responsibility of technology management
is to identify opportunities for applying new technologies and to fully develop
the technology inputs that will form the foundations of new products. The
technology management process thus incorporates technology assessment and
selection, technology development and/or acquisition, technology transfer from
research to development and from development to manufacturing, and the peri-
odic review and upgrading of key underlying technologies, all of which are vital
to effective product development and product life cycle management.
The degree of risk in developing a new product is determined by the riskiest
indispensable element. If that element is a piece of core technology, the risk can
be enormous. Despite this fact, companies routinely launch product develop-
ment projects without having all the necessary technological underpinnings in
place. Organisations can become so fixated on rushing new products to market,
in fact, that they end up trying to fold technology development activities into
the product development process, leaving product development teams scaveng-
ing for missing pieces of technology or improvising their way around immature
technology elements. Formal strategies and processes for selecting, incorporating,
and managing the right technologies for a company’s product and market ambi-
tions should be discussed, agreed and implemented.
Communications, information and web technology

Nowhere is the technological revolution more apparent and widespread than
in the world of information and web technology. Manufacturing and services
companies alike are under tremendous pressure to reduce overheads, speed
production and improve flexibility. Increasing competition and globalisation
of operations continue to fuel this trend. No wonder business organisations
throughout Europe have implemented business-to-business systems to enhance
business efficiency. Today information technology is being deployed to help
manufacturers minimise expenditure on raw materials, match output to orders
and deliver on time. Service industries must offer customised benefits at ever-
lower costs and both sectors must adapt quickly to changes in customer demand.
Perhaps nowhere is the impact so great as in the area of supply chain manage-
ment. Integration with supplier systems helps ensure that the raw materials are
available when needed, which in turn enables manufacturers to meet customer
requirements and satisfy demand without ending up with unwanted goods. Even
transportation can be managed and controlled more efficiently when integrated
with back office and manufacturing production systems. Below are examples
of how web technology has revolutionised the working practices of some nation-
ally and internationally known B2B organisations.
Example 10.7 Intel and Barclays Bank

Barclays and Intel have worked together to build a web-based enterprise-wide risk
management system capable of monitoring credit exposure across all of its accounts
worldwide. It now has a system that enables the production of management reports on
global risk exposure, analytic simulation of over 30,000 economic scenarios multiple
times a day, and the provision of on demand recalculations for ‘what if’ analysis.
Example 10.8 Philips – information technology and manufacturing

Manufacturing companies such as Philips are under tremendous pressure to reduce
overhead, speed production, and improve flexibility. Increasing competition and the
globalisation of operations continue to fuel this trend. No wonder manufacturers
throughout Europe have implemented business-to-business systems to enhance
business efficiency. Today, information technology is being deployed to help manu-
facturers minimise expenditure on raw materials, match output to orders, and
adapt quickly to changes in customer demand. Perhaps nowhere is the impact so
great as in the area of supply chain management. Integration with supplier systems
helps ensure that the raw materials are available when needed, which in turn
enables manufacturers to meet customer requirements and satisfy demand with-
out ending up with unwanted goods. Even transportation can be managed and con-
trolled more efficiently when it is integrated with back office and manufacturing
production systems. (www.philips.com)
Example 10.9 Audi – design development

o Virtual car crashes for Audi can be performed using powerful computers
enabling an increasing number of more lifelike simulations for increased
vehicle safety and reduced costs.
o Faster time-to-market with new, safer well-designed cheaper cars lead to
increased customer satisfaction and loyalty. (www.audi.com)
Example 10.10 Xerox – Supply chain management strategy

Xerox, the office equipment and software manufacturer, has embraced the internet
with open arms and now offers a B2B comprehensive internet channel strategy for
its markets and different categories of resellers around the world that delivers
numerous benefits. It has put its complete product portfolio catalogue on line and
its customers can now customise needed benefits, immediately obtain prices, order
the finished product and then follow delivery, online, from factory through to buyer
premises. It also offers training, promotions and personalised e-mails or faxes
regularly to notify resellers of new information and programmes. Payment can be
made online. It has a customer web-based follow-up, monitoring and control system
reporting and forecasting on such things as customer satisfaction and future sales
demand. The one internet site offers the same consistent customised service,
whether the buyer is in Hong Kong or New York, all within a safe, secure environ-
ment. (www.xerox.com)
o Internet uses in both B2B and B2C markets

The world wide web and use of the internet now permeate every corner of every
business activity. Even the most fervent technophobe must now be aware of its
many uses, if not actually using it in day-today operation of his or her job. It is
used extensively in both B2B and B2C markets, with organisations operating
through both their own websites and those of others. A successful e-enterprise is
an entity that blends the traditional assets of a bricks-and-mortar company with
the speed and agility of net commerce. ‘Click-and-mortar’ enterprises combine
net business models to create a new kind of organisation. E-enterprises will also
combine business-to-consumer and business-to-business initiatives with a fluid-
ity that defies all past experience. These uses can be discussed under the follow-
ing headings (TIMES):
1. Transactions
2. Information
3. Marketing
4. Entertainment
5. Selling and buying.
1. Transactions
Both B2B and B2C organisations now use the internet extensively for transac-
tions of all kinds. The ability to talk to others in any part of the world, in ‘real’
time, has opened up mind-boggling opportunities, especially for B2B businesses
of all kinds. Information can be exchanged, product complexity reduced, deals
negotiated and finalised, payments and settlements made, views exchanged and
advice given. Documents, invoices, contracts, scripts, videos and music can be
downloaded in an instant and immediate decisions made. Tax and VAT pay-
ments can be discussed with government departments and payments made.
Architects, engineers, scientists, accountants, lawyers, marketers and advert cre-
ators can discuss projects and swap and build on ideas, saving enormous amounts
of time and costs in the process. Surgeons talking and offering advice and using
miniature cameras can perform medical operations many thousand miles apart.
Overall this should reduce transaction costs. Encryption and decryption software
is getting better all the time, building security firewalls to protect sensitive busi-
ness activity. Private networks allow transactions to be made between partners
using such processes as EDI. User detailers can be sent and downloaded and
goods and services for delivery around the world can be tracked and monitored
every step of the way from source through to arrival by suppliers and buyers
alike. A third party processor/agency/outsourcer can be hired to undertake many
of the tasks identified here, including sending out bills and collecting payments
on behalf of a company using their own e-commerce infrastructure. The buying
and selling of goods and services is the biggest area and this is discussed in more
detail below.
INTERNET USES IN BOTH B2B AND B2C MARKETS 487
2. Information
Never has so much information been available to so many at the click of a mouse.
In Chapter 3 we examined the many research sources now available. B2B firms
can obtain industry and market information from governments, trade associations
and commercial companies, either free or for an agreed fee. Access to partner
suppliers’ and buyers’ information systems can be negotiated and information
obtained on product component parts, services and finished products as well as
new products and processes in the pipeline. Daily, weekly or monthly e-bulletins
can be issued to keep all concerned employees and customers up to date. Vast
databases can be developed to inform on customer preferences, purchases, costs
and profits. Intranets can be used to keep all employees informed about every
relative company development. B2B businesses can buy into media services that
will customise and send almost anything online, including news, health, travel,
legal information, training courses, company and industry information, and so on.
3. Marketing
The internet is used heavily by both B2B and B2C in all the following marketing
areas.
Marketing research and market testing

The internet is used for marketing research in B2B and B2C business areas at
local, national and international levels. Both quantitative and qualitative research
can be undertaken. It is an easy and simple way of obtaining rich information,
particularly in B2B where decision-makers can be targeted by name and com-
pany. Research seems to indicate that click-through response rates for permission
based market research in B2B campaigns are about 5 per cent but can reach as
high as 20 per cent. Opt-in, permission-based e-mails are people who have spe-
cifically requested information within their area of particular interest.
Advertising
After a healthy start advertising revenues for both business areas have faltered
and in some cases fallen because of the uncertainty in measuring results and an
economic downturn. Companies can advertise corporate and brand awareness
both on their own site and on the sites of others. Although seen in B2B, adver-
tising is mainly used in B2C markets. Internet advertising should be planned and
strategically integrated with all forms of traditional communications. Traditional
advertising can be used to drive buyers to a website.
Sales promotions
We know that sales promotions offer extra value over a short period and are used
in B2B marketing to get potential buyers to respond to e-mails or to get them to
delve deeper into a company website. A recent study by Harte-Hanks Technology
found that B2B sales promotion e-mails had response rates of between 2 per cent
and 10 per cent.
Sponsorship
Sponsorship is often confused with advertising. A sponsoring organisation will
want their company or products to be deeply associated with the values of the
company it is sponsoring. Perhaps a mention all through the site should be
made, including sales promotional tie-ups and merchandising material.
Sales and selling

Sales and selling are discussed in more detail below under a separate heading.
Website and tracking

All marketing on the web should be measured and controlled to judge value for
money. Each individual promotional campaign must be tracked to establish
response rate. Each target market can be assigned a unique URL for that indi-
vidual list, category, offering or message. Each ‘unique’ user entering the site
from a targeted campaign will be tracked and analysed to determine the best
response rate and return on investment.
4. Entertainment
As would be expected the use of the entertainment medium is heavy in B2C
markets and light to non-existent in the B2B. Individual and interactive games,
music, films, chat rooms, etc. are growth areas and, because consumers spend
large amounts of time on a site, a great way to both advertise and sell products.
5. Selling and buying

The web is heavily used to sell both B2B and B2C products and services. Although
early interest centred on the growth of retailing on the internet, forecasts are that
B2B revenue will continue to exceed B2C revenue into the future. According to
studies published in early 2000, the money volume of B2B already exceeds that
of ‘e-tailing’ by ten to one. Over the next five years B2B is expected to have a
compound annual growth of 41 per cent. The Gartner Group estimates B2B rev-
enue worldwide to be $7.29 trillion by 2004.
In B2C conventional retail sites as well as auction sites are growing (and clos-
ing down) week by week, selling everything from cars and carpets to alcohol and
groceries. Their uses are slowly growing as consumers and business buyers become
confident about credit card transactions, and security increases. In theory any-
thing can be bought and sold on a retail site, including groceries, clothes, cars,
cosmetics, holidays and transport. B2B markets are similar in choice although
products and services can be both bought and sold either in a straightforward
INTERNET USES IN BOTH B2B AND B2C MARKETS 489
manner or by a bidding process. Organisations also join together to reap the

benefit of economies of scale. Brokering sites act as an intermediary between
someone wanting a product or service and potential providers. Equipment leas-
ing is an example. It has opened the opportunity for even small firms to purchase
component parts from around the world, which would have been practically
impossible in the past, particularly in specialised areas. The ability to put a whole
catalogue of parts online is a real bonus for suppliers and buyers alike, saving
both costs and time for all participants. Buyers can be given constant access
through virtual private networks (extranet), allowing new product updates to be
shown and customised benefits instantly communicated.
Net B2B market

The term ‘net markets’ is used generically to describe all online marketplaces
where buyers and sellers congregate to exchange goods and services for money.
One descriptive term that has been widely adopted is butterfly market or butterfly
hub. Imagine that one wing of the butterfly is made up of buyers and the other
made up of sellers; where they meet – the body of the butterfly – makes up the
hub. There are a number of other markets, including the following:
1. Horizontal markets cut across many industries, typically providing a common
service such as financial services, benefits management and MRO (mainten-
ance, repair and operating) equipment procurement process management.
Popular examples are Ariba Network and Commerce One’s MarketSite.net.
2. Vertical markets concentrate on one specific industry such as agriculture and
chemicals and seek to provide all the services needed by that industry. Popular
examples are VerticalNet, Chemconnect and Covisint.
3. Buy-centric markets exist where a few big buyers join forces to build a market-
place where small fragmented sellers can sell their goods. This is great for buyers
since it permits quick and easy price comparison shopping.
4. Sell-centric markets are markets where one or a few big sellers work together
to build a marketplace for many small fragmented buyers. Typically revenues
are derived from ads, commissions on sales, or fees for delivering qualified
leads to suppliers. Examples are GlobalFoodExchange.com, E2Open.com and
TradeOut.com.
5. Neutral exchanges appear where both the sellers and buyers are fragmented. In
this environment, a third party creates a neutral exchange and performs the
transactions through a bid/ask system. The middleman will receive a cut or
transaction fee for each deal.
Web-based enabling technologies

The ability to conduct business-to-business electronically has been around for
years, but the industry has recently experienced an explosion of web-based
applications and technologies to automate B2B over the internet. Search engines
allow customers to find what they are looking for on the site. Streaming media
video clips can be used to illustrate content and syndicated content providers can
be used to provide interesting and relevant news and stories to ensure that cus-
tomers return to the site.
Security and encryption software allow secure transactions over the web while
virtual private networks or private marketplaces enable approved suppliers to
bid on a large buyer’s business or permit more cost-effective transactions under
negotiated terms. Personalisation and analytics applications remember users,
provide personalised experiences, and decrease transaction times. Analytics help
site owners analyse past activity on the site in order to uncover crucial aspects of
visitors’ activities. It is easier on B2B sites than on B2C to identify users as most
of the big organisations have their own dedicated servers. On B2C sites, indi-
viduals come through one of the major commercial servers such as Freeserve.
Wireless logistic mobile commerce (M-commerce) is the next frontier for B2B,
building the tools and infrastructure to stay constantly in touch with customers
and employees through wireless devices such as cellphones and personal digital
assistants. Benefits from using web technology include:
o Fully customised products and services.
o Creativity, innovation and design.
o Instant customer monitoring and feedback.
o Shortened buying cycles.
o Market research, market sensing, scenario planning.
o Economic demand and sales forecasting.
o Reduced time from conception through to market.
o Online catalogues, design facilities, product service display, ordering, pay-
ment and settlement.
o Buying, selling, exchange and bartering opportunities.
o Procurement including strategy, sourcing, purchasing, inventory control, etc.
o Auctions: one seller, many buyers; reverse auctions – many sellers, one buyer.
o Promotion campaign management, electronic newsletters and product
updates.
o Transactions and record keeping.
o Workflow tracking on multi-party projects.
o Customer and market risk analysis.
o Printed material elimination.
o Reduced process and delivery costs.
o Logistics, distribution, storage, monitoring and control facilities.
o Competitive bidding to cut costs.
o Up-to-date, relevant information on customers and markets.
o Access to world markets.
o New ways of supply chain working such as auction sites, EPOS, EDI, co-
managed inventory, CADCAM, cross-docking, MRM, CRM, ERP and wireless
technology.
o Internal and external communications improvements including the
intranet/extranet, e-mail, videoconferencing and WAP phones.
STRATEGIC OPTIONS ON INTERNET APPLICATIONS 491
o Information gathering and dispersion – access to databases around the world.

o Coaching and training opportunities.
o Home office working, reducing office costs and improving flexibility.
o Strategic options on internet applications

Organisations might use the internet for the following strategic applications.
Information only
A company information website can be used to tell people about the company
and its products and services, perhaps being seen as a 24-hour mini trade exhibi-
tion. Sometimes a company website serves as the entrance to an exclusive
extranet available only to customers or registered site users. These may be simple
or very complex. Other sources cite the web’s use as an information tool by cus-
tomers who later make purchases in the so-called bricks-and-mortar stores.
Sell products and services

A company might choose to use the web to sell products and services. This might
be all products, with detailed selection options, or an appropriate selection.
Customer services
Many B2B products and services require extensive after-sales service in terms of
help, advice and add-on products and services. For example, an interactive in-
depth informational website could be used to show buyers the component parts
needed for service or repair, explicit product or service diagrams, new upgrades
and recommendations for changes to current models, as well as the ability to dis-
cuss problems online. An extranet (private site over the internet), which allows
customers or clients to do transactions electronically that otherwise might require
telephone calls or paper transactions, can now be used as a part of the process.
Export
The corporate website can be used as a relatively inexpensive way of exporting
products or services, either as a stand-alone business or as a way of inexpensively
entering a market. More traditional ways could then be used if demand was seen
to be high enough.
Subsume into existing business

The internet can be subsumed into the existing business and be used as an extra
option or channel. In this way a greater service can be offered to the customer.
Some products might be offered for sale or information might be given on the
website and then the buyer invited to visit the supplier or offered a visit by the
company’s representative.
Set up as a separate business

There is the option to set up the internet as a separate business aimed at a differ-
ent target market, even using a different corporate brand name. Some companies
see this as the best way forward, either setting up a web company from scratch
or buying a promising organisation already trading. This may be for the follow-
ing reasons:
o The management feels that the market and/or the buyer is different and so
demands a unique strategic approach.
o The internet business has the potential to pirate business from the parent
company.
On the downside this approach can lead to duplication of infrastructure and
investment and thus be very costly. The new company will have to be built up
from scratch and not be able to take advantage of the economies of scale asso-
ciated with an already well-known overall corporate image and a single focused
business approach. Since launching in October 1998, Egg has established itself as
one of the UK’s most recognised names in internet financial services. Its customer
base now exceeds one million customers. Egg is owned by the Prudential.
Mixed systems (clicks and mortar)

Many companies are learning to combine the advantages of high-tech e-
commerce with traditional service and distribution techniques through an integ-
rated ‘clicks and mortar’ approach. Companies large and small have used the web
in this way and examples include Schwab Investments, Circuit City, Toys ‘R’ Us
and Barnes and Nobel. These are just a few of the retail and service businesses
that have entered cyberspace. Even big car-makers are carving out a niche, with
both General Motors and Ford forming alliances with Sun Microsystems and
Microsoft respectively.
Switch fully onto the web

The best option may be to fully switch to the internet as the method of under-
taking the business, but this would of course depend on the particular busi-
ness and its suitability for this channel of communication. Although the set-up
costs could be extremely high, the advantages come through concentrating all
resources on the one business strategy. Amazon and Dell computers are examples
of companies that market and sell products and services only on a website basis.
STRATEGIC OPTIONS ON INTERNET APPLICATIONS 493
Ignore and revitalise the existing business

During the explosion of interest in developing websites during the 1990s many
firms were driven to adopt web strategies more through the fear of losing out
than in strategically thinking through the whole process. When the furore died
down, many companies reassessed, and decided that perhaps this was not the
best way to move the company forward. Other companies deliberately chose to
ignore the internet, using the threat of this business model to update and revit-
alise the existing strategic approach to business.
Move offshore
Goods and service producers have used offshore resources for many years because
they are able to build the same high quality products or offer better services for
less. Because web technology can be utilised in any part of the world, depending
on the skills and resources available, many businesses are now transferring part
or the whole business process to other countries and either managing it them-
selves or, as is more usual, outsourcing to a specialist company.
The B2B internet model

The use of web technology as an integrated part of the business is still relatively
new and strategic success or otherwise still open to usage, speculation and the
movement of time. Some business models have already, quite dramatically failed;
others are limping along and others seem for the moment to be successful. Some
products, services and types of markets lend themselves to its use while others do
not. Similarly some organisations have chosen to adopt one strategic approach
while others in the same business have chosen different strategies. Organisations
around the world lost many billions of pounds in the headlong rush not to be
caught out and miss the boat. Things have now settled down and a more pro-
fessional, calm and calculated appraisal of the internet’s strategic and tactical
advantages and disadvantages for B2B activity is now taking place. Senior man-
agers will not and cannot spend money like water on half-baked and ill-thought-
through internet ideas because large amounts are no longer available. Having
said this, however, the world of marketing will never be the same since the web’s
inception and to be successful organisations will need to be constantly searching
for increasingly innovative ways of using its awesome power.
Example 10.11 E-commerce

According to a report released this week by Forrester Research, the vast majority
of US corporations will move aggressively to e-commerce in the next two years,
drawn by emerging ‘e-marketplaces’ where goods are sold through auctions, bid
systems and exchanges. The study of several reports on business-to-business (B2B)
e-commerce issued recently by major US research firms predicts that US B2B sales
will reach $2.7 trillion in 2004, as e-commerce evolves from one-on-one transac-
tions to larger marketplaces that facilitate multiple buyers and sellers.
o Summary
Under the heading of business strengths we looked at the many areas that might
constitute success when operating in foreign markets. This included using
strength in the home market as a springboard, niche and mass global market
strength, partnerships between other commercial organisations as well as govern-
ments and finally networking for strength. We then went on to study the market
challenges and the future of global and business markets. International market
growth, EU growth, the breaking down of world trade barriers, environmental
concerns, pressure group activity, global terrorism and increased litigation were
all identified as issues and challenges that business marketers will increasingly
have to address.
Because of its enormous importance and quite phenomenal growth, the use of
technology in the expansion and maintenance of business strength was deliber-
ately left to the last section. Examples were given of areas of new technology
that will increasingly confront many organisations as they attempt to sell their
products and services around the world. A brief description was given of the
management problems this will cause. Last but by no means least, the role that
communications, information and web technology now play in the success of
B2B marketing, and will play into the future, was examined. Under the acronym
TIMES, its uses in both B2B and B2C were compared and examples given of how
some companies are taking advantage of this phenomenally innovative medium
to gain competitive advantage. The benefits to be had from web-based enabling
technologies were briefly delineated before outlining the options open to B2B
organisations when choosing the strategic approach to take when deciding their
internet strategy.
Discussion questions (in conjunction with website)

1. Examine the different strategies that might be used by a B2B supplier in its
existing markets. Give examples of how each identified strategy might be used.
2. Discuss the different problems that might face a B2C exporter compared to a B2B
exporter. How might a direct or indirect approach be taken?
3. Identify and discuss the many B2B strategic methods that might be used for
market entry into foreign countries. What might be the best method for a
medium-sized company manufacturing specialised computer components?
4. What are the reasons that might force a company to consider selling its products
in overseas markets? Evaluate the problems compared with staying in the home
market.
5. Discuss the premise ‘the downstream activities are more important than
upstream activities along the supply chain’. What are the particular problems
associated with international value chain management?
6. It has been argued that customers around the world are becoming more
homogeneous in their needs. Discuss whether you feel that there is any truth
in this assertion. Would your conclusions apply equally to both B2B and B2C
markets?
BIBLIOGRAPHY 495
7. Evaluate the differences between an adaptive strategy compared with a

standardised strategic approach to every market. Give examples of the use of
each strategy.
8. Discuss the assertion that ‘there will never be real free trade around the world
because ultimately governments are more concerned about national issues than
they are about world issues’.
9. How might B2B suppliers deal with unexpected world events? Is it possible to
make contingency plans to take into account such things as world economic
disasters and terrorist attacks?
10. Discuss global business-to-business marketing and speculate on what you think
the future might hold. What part will web technology and the internet play in this
development?

o Bibliography
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Index
Note: emboldened pages indicate major treatments of topics. Most references are to business-to-
business marketing, which is omitted as a qualifier.
Abbott Mead Vickers 390 personal selling 411

ABC see activity based costing; Audit Bureau of pricing and 323
Circulation promotion 415–17
Aberdeen Journals 29 see also media mix
ABM (activity based management) 287, 339–40 Advertising Association 388
Accenture 141 Advertising Standards Authority 385, 418, 419
access-based positioning 427 advisor 151
accessory goods 213 Aerospace Systems 240
accuracy 142, 302 Africa 19, 62, 63, 285
ACNielsen Worldwide 127 agencies/agents
ACORN classification 137 advertising 415–17
acquisitions see mergers distribution 268
activity based costing (ABC) 287, 339, 467 indirect distribution channels 262
activity based management (ABM) 287, 339–40 information gathering 109–10, 113
added value 214, 225–9 next-step 44, 122–3
core product 226 non-government 46, 50
primary 226–7 research 121–7
prioritising 228–9 specialist marketing research 138, 139–40
supplementary 227–9 supplier selection 149
administration see also independent controlling agencies
integration 279 Agreements on Technical Barriers to Trade 21
sales 410–11 agriculture 178
services 212 AIDA hierarchy of effects model 380–2
adulterated competition 39, 344–5 AIM (Alternative Investment Market) 40, 42
advanced materials 483 air travel 75, 257, 294
advanced planning and scheduling (APS) 288 Air Traffic Control 110
advantage alliance 245
brand 242–5 business strengths 474
comparative 78–9 fighter aircraft 45, 216
competitive 77–8, 102–4, 198–9 government partnerships 476
adversarial price negotiation 350 leading edge technologies 483
advertising 382–96, 398, 413, 415–17, 487 leasing 208
direct marketing and response 392–6 market environment 27, 30
ecologically damaging 369 Airbus Industries 30, 476
interactive 417–18 Airspace Safety Analysis Corporation 240
objectives 383 AK Steel Corporation 72
498 INDEX
ALF (Animal Liberation Front) 170 B&Q 264

alliances 50, 245, 294–5, 455 B2B see business-to-business
Alternative Investment Market 40, 42 B2C (business-to-consumer) marketing 2–3, 4–5,
ambition 189 32
Ambulance Service 13, 110 added value 225–6
Ameritrade 294 branding 241–2, 243
Amway 239 changing markets 486, 487–8
Analytical Services Statistical Information System channels 253, 261, 265, 268, 271, 287
14 communications, strategic 363–5, 413, 417
Andersen 140, 146, 367 corporate/product 366–7, 368, 370–2
Anheuser-Busch 402 internal 373–4
Animal Liberation Front 170 marketing 375, 396, 398, 400, 401
Ansoff Matrix 94, 453–4, 459 media 385, 389, 390, 393
APEC (Asia Pacific Economic Cooperation) personal selling 403, 409
34–5 cultural influences 67–8
Appeals Tribunals 28, 347 decision-making 153, 160, 161, 164–5
Apple 175, 295 defined 2
APS (advanced planning and scheduling) 288 marketing research process 136–7
Arabic language 69 marketing research, secondary 120
Arco (Atlantic Richfield Co.) 274 markets and demand 92
Ariba 269, 489 packaging 245, 246, 248
ArvinMeritor 72 pricing 317, 318, 357
ASA (Advertising Standards Authority) 418, 419 elasticity 348, 349
ASAP (Association of Strategic Alliance listed 360
Professionals) 294–5 marketing mix 319–20, 322, 323, 324
Asda 74, 329, 344 objectives 327, 329–33 passim
ASEAN (Association of Southeast Asian Nations) strategic factors 340, 342, 344, 345, 351,
27, 34 353, 355, 356
Asia 205, 285 research 117, 120, 135–7
Pacific Economic Cooperation 34–5 segmentation 165, 171–2, 173, 176, 181, 190,
see also China; India; Japan; South-East Asia 193
AsiaInfo 239 strategic advantage 213, 217, 219, 246
Assist 14 strategic planning 423, 438, 449, 456
Association of Electrical Producers 64–5 unique selling proposition 231
Association of Strategic Alliance Professionals see also FMCG; retail
294 –5 BAE Systems 46
AT&T 80 balanced scorecard approach 223, 457–8
attitudes as buyer factor 189 banks 6, 169–70, 359, 485
attractiveness, market 194–6, 456–7 Bank of England 11, 61, 124, 170
Auchan 72, 213, 359 Baring’s 155
auctions 213, 358–9 and insurance converging 244
Audi 485 Barclays Bank 485
audience, target 368, 376–8 barriers
Audit Bureau of Circulation 130, 387, 388, 391, to communication 374
395, 397 to entry 77
Audit Committee 148 to trade 20–3
audit, market 449, 455 bartering see under reciprocity
Australia 19, 35, 60, 285, 402 BASF 72
Austria 22 Bass Brewers 28
automation 69 BBC 384
Automobile Association 52 BCG 2×2 matrix 456
Avis Rent a Car 257 BDD (buying decision difficulty) 161–5
Axion 434 Begbie, R. 433
INDEX 499
behaviour 172, 182–5, 324 Britain

see also influences under competition changing markets 479
Belbin, R. Meredith 187–8 channels 257, 260, 279, 283, 290
Belgium 22, 28, 277 communications, strategic 409, 418–19
benchmarking 114, 223, 234, 280, 281–2 marketing 384, 387, 393, 397–8, 402
benefits competition 27, 28, 29, 36, 39, 80, 82, 124,
Agency 44 170
rather than price cuts 324 decision-making 145–9 passim
trade-offs 191–2 environment influences
best practices 232 competition 80, 82
bidding for contracts 45 demand 87, 90–1, 95–6
biotechnology 479, 482, 483 macro-envrionment 60, 61, 62, 64–7, 72
Birds Eye Wall’s 38–9 ethics and morality 146–8, 169–70
BIS (business information system) 108 market environment 1, 9–10, 11, 13–14
Blair, Tony 11 characteristics 15, 16, 19, 22
Blue Circle Cement 335 classifications, strategic 33, 35, 36, 38–9, 45,
BMRB 114, 137 48, 49, 51
Body Shop 169 in G7/G8 20
Boeing 30, 75, 79, 240, 476 government involvement 27–30
Bombardier 209 international trade statistics 12
boom 86, 91 privatisations 27
Boots 72, 213, 359 pricing 321, 337, 343, 344, 359
BorgWarner 72 legislation 346–8
Bosch 242 objectives and strategies 327, 329, 332
Boston Consultancy Group 222, 250 research
bounded rationality 188, 463 information 107, 110, 114
BP/BP Amoco 274, 465 marketing research sources 122–6, 127
BRAD (British Rate and Data) 387 segmentation 166, 169–70, 196
branding/brand 237–50 macro- 176–9 passim
advantages 242–5 Stock Exchange 40, 42, 110, 147
alliances 245 strategic advantage 213, 217, 221
awareness 238, 379 strategic planning 424
copyright 238 British Airports Authority 217
corporate 238, 239–42 British Airways 27, 217, 294
defined 237–8 British Audience Research Board 384
equity 238 British Petroleum 274, 465, 475
evaluation 245 British Railways 27
goods 240–1 British Steel 27, 166
management 9 British Telecom 27, 206, 217, 223, 384, 434
mark 238 British Tourist Authority 124
name 238 Broadcasting Standards Commission 31, 419
own/private label products 241 brokers 262
packaging 245–9 Brunei Darussalam 34
piracy 238 BskyB 340
pricing 323 BT see British Telecom
stripping 238 budget 118, 465
superbrand 240 Budweiser 402
terms listed 238 Bulgaria 23, 477
Branson, Richard 74, 244 BUPA 52
Brazil 475, 477 bureaucracy 21
break-even pricing 356 Bush, George W. 11, 476
brewing 28, 38, 64, 402 business growth perspective 457
bribery 148 business information system 108
500 INDEX
business market analysis 235 Campbell’s Soup 247

business process outsourcing (BPO) see Canada 12, 147, 277
outsourcing market environment 9, 20, 35
Business Superbrands 237 NAFTA 11, 21, 27, 34
business-to-business marketing 2–5 capacity requirements planning (CRP) 288
defined 2–4 capital goods 150, 181, 207–11
reasons for 5–6 equipment (installations) 207
see also changing markets; channels; foundation 207
communications; competition; decision- government expenditure 209–10
making; environment influences; market leasing and renting 208–9
environment; pricing; research; licensing 209
segmentation; strategic advantage; capitalism as dominant concept 26
strategic planning Capozzi, J.M. 168
business-to-consumer marketing see B2C carbon dioxide emissions 310
buy-centric markets 489 Caribbean 19
buyer’s representative 405 Carrefour 239
buying/purchasing cars see vehicles
barriers to entry 77 cartels 36–7
BDD (buying decision difficulty) 161–5 OPEC 37, 94, 210, 344
centres/centralised 149, 156, 183, 187, 265 category management 287
see also DMU CBC (Cross-Border Communications) 417
criteria and importance 186 CBI (Confederation of British Industries) 63
decentralised 149, 183 CCT (Compulsory Competitive Tendering) 290,
discussions 198 358
ethics 148 Ceefax 121
expectations 255 central banks 66
group 187–8 Bank of England 11, 61, 124, 170
individual 188–90 centralised buying 149, 183
internal information on 111 CFPR (collaborative planning, forecasting and
and internet 488–91 replenishment) 285–6
inventory requirements 186 changing markets 473–95
market environment 42 ability to plan for 425–6
organisation 182–5 planning environments 424–5
policies 187 see also future; technology
power 200 channels, management of 253–315
power parity (PPP) 43 conflicts and disintermediation 266–7
public sector 27–8, 44, 179, 209–10 strategic alternatives see distribution channels
risk 155–6 supply see supply chain relationship
role 151 see also logistics management
sectors and strategic advantage 216–17 characterisation of markets 15–32
situation 185–90 barriers to trade 20–3
stage in decision-making 185 harmonisation of laws 15–20
value, optimum 46 see also classification; economic systems;
value in use 186 private sector; public sector
see also channels; customer/s; distribution; charities 6, 51, 148
suppliers Charities Aid Foundation 51
Byers, Stephen 38–9 Charity Bank 51
Charity Commission 49, 53
CAA (Civil Aviation Authority) 124, 347 Chartered Institute of Marketing 6
CACI 137 Chartered Institute of Purchasing and Supply 83,
Cadbury/Cadbury Schweppes 64, 269 221
Cambodia 34 Chevron 294
campaign, promotional 365, 381–2, 412–19 Child Support Agency 44, 110
INDEX 501
Chile 35, 216 forms of 364–5

China 103 marketing 375–403
brands 238, 239 promotional methods 378–82
business strengths and growth 474, 475, 477 strategies 276–8
channels 277 see also advertising; point-of-purchase
economic system 24–5 role of 363–4
environment influences, culture 68 see also corporate/product; personal selling
International Criminal Court not recognised 60 Communism 24, 36
international trade statistics 12 Companies House 124
market environment 9, 17, 35 company profile, market segment 196–7
motor cycles in 454 Compaq 294
Olympic Games 209, 238, 402 comparative advantage 78–9
segmentation 178 competencies, core 77–8, 456
services sector 176 Competition Act 28, 80
trade union repression 62 Competition Commission 80, 124, 170
in WTO 10, 239 channels 279, 293
Christie’s 146 European 30, 331
Chundry, F. 433 market environment 27, 28, 36, 39
CIM (competitive intelligence systems) 73 pricing 332, 346, 347
CIPS (Chartered Institute of Purchasing and competition/competitive
Supply) 83, 221 adulterated 39, 344–5
Civil Aviation Authority 124, 347 advantage 77–8, 102–4, 198–9
classification, market 32–55 costs 437
global 33–5 strategic planning 436–9, 455, 456
national and regional 33 between countries 476
see also types under trading free 344
clustering 175 global 78–9, 331, 332
clutter (in communication) 417 imperfect 39, 344–5
CMAT (Customer Management Assessment Tool) influences on organisational behaviour 73–81
434 CIM 73
Coca-Cola 72 competitive advantage 77–8, 102–4
branding 238, 242 dynamic market 76–7
Branson challenges 244 global 78–9
channels 269 government power and 80
ecologically damaging advertising 369 intensity of competition 76
packaging 246 knowledge of competitor 74
strategic advantage 208, 219 market leaders and followers 75–6
cognitive style as buyer factor 189 market structure 73–4
collaborative planning 70–1, 72, 285–6, 287 strength 456–7
collaborative working on, innovation 236 legislation against 11
Colley, Russell 382 monopolistic 344
Colombia 62 new products and 234
colonialism 19 pricing 332, 333–4, 344–5, 346
COM (customer order management) 302–3 profile 197
Comet 329 segmentation 194
Commerce One 72, 489 strategic channels 274, 275
commercial enterprises see private sector target market and 460
commercial information gatherers 127 complex environment 85
commitment, total 295 components 181, 211
commodity goods 213–14 Compulsory Competitive Tendering 46, 290, 358
communications, strategic 363–422 computers 175
above the line see media -aided design (CAD) 248
below the line 392–6, 398–9 chips see Intel
502 INDEX
computers (continued) marketing 368

failures 13–14 relationship marketing 369–70
fashion industry 91 stakeholders 366, 367, 368, 370
manufacturers 30, 93, 294 see also Microsoft corruption 45–6, 148
parts 207 cosmetic surgery 386
see also information technology cost/s
concept 26, 47, 205, 382 activity based 287, 339, 467
testing 235 communications, strategic 407
concrete industry 259 competitive advantage and 437
Confederation of British Industries 63 customer relationship management 117
conferences 397 decision-making 162
conglomerate integration 278 direct 338
conjoint analysis 191–2 distribution 256–7
consolidation and branding 244–5 facilities and administrative 338
constraints, strategic choice 458 fixed 337
consultants 109–10, 221 goods and services 217
consumer goods 207 goods and strategic advantage 217
see also customers; fast-moving consumer indirect 338
goods internet and Web failures 110
Consumers’ Association 332 marketing 336–7
Continental (company) 107 marketing research 141
Continental Graphics 240 mixed 337
contingency plans 468 opportunity 455
continuous replenishment see CRP overhead 338
contract, transport 309 -plus pricing 354–5
contracting out 208, 305 pricing and 322, 336–41, 354–5
contractual integration 278 profit centres 338
control 467–8 promotion 379, 415
maintaining 256 services 162, 217
mechanism 460 stock levels/inventory 297–8
in PODC 9 switching and decision-making 162–3
strategic planning 466–8 television advertising 379
controlled monopoly 343 variable 337
OFCOM, OFWAT, OFTEL, OFGAS 31, 38, 343 warehousing 303, 304–5
convenience, goods 214 Costa Rica 62
Co-operative Bank 169–70 country characteristics 194
cooperative pricing 350, 352 country demand potential 95
co-ordination of information 112 coverage, strategic channel 270–2
core competencies 77–8, 456 Covisint 72, 489
core product and added value 226 creativity see innovation
corporate brand strategy 238, 239–42 creditors, wholesalers as 264
corporate family branding 240 crisis management 53, 468
corporate level of planning 431 CRM (customer relationship management)
corporate objectives 450–1, 455, 459 benefits 407–8
Corporate Watch 479 communication 376, 380, 405–8 passim, 410
corporate/product communications, strategic customer retention schemes 433–6
366–74 distribution channels 255, 259, 288, 303
audience targeting 368, 376–8 failure 408, 439
basic 370–2 research 116–17
crisis management 53 strategic advantage 215
integration 369 see also sales force
intentional and unintentional 368–9 CRMP (customer management relationship
internal 372–4 programmes) 224
INDEX 503
Cross-Border Communications 417 buying decision difficulty (BDD) 161–5

cross-docking 307 decision-maker 152
CRP (capacity requirements planning) 288 difficulty (DMD) 291
CRP (continuous replenishment) 220, 287, 299 ethics 146–8
see also just-in-time pricing 319
cultural influences 67–9, 296, 353 process (DMP) 156–60, 162, 291
Curry’s 4 strategic planning 431–3
customer/s strategic and tactical, information for 101–17
database 256 style as buyer factor 189
demand potential 97 supplier, choice of 149–50
-driven pricing 356 unit see DMU
expectations 255 decoding 370–1
large numbers of 332 defence 87
lists (IT) 394–5 deflation 66
Management Assessment Tool 434 delivery see transport and delivery
management relationship programmes 224 Deloitte, Touche & Tomatsu 141
markets 81–5 demand 85–98
analysis 81 analysis 455
external environments 84–5 chain management 311
global 33–5, 83–4 derived 86–8, 321
types of 82–3 estimation 451–2
new 330, 340 fluctuating 89–90
new product and 234 forecasting 93, 197
order management (COM) 302–3 horizontal 88
perspective 457 inelastic 89
pricing 341–3, 356 joint 89
relationship management see CRM managing 86
relationship marketing 115–17 measuring 88, 93–4
retention schemes 433–6 new and improved products 90
small customer base 331 potential 94–8
see also buying/purchasing; distribution; pricing 345
loyalty; suppliers trends and shifts in 90–3
customised marketing research 138 vertical 89
customised product 218–19 demographic segmentation 172
Customs and Excise 123 Deng Xiaoping 25
Cyprus 23, 477 Denmark 22, 417
Czech Republic 19, 23, 24, 241, 477 density of location of industries 175
Departments and Ministries
Daewoo 294 Britain 6, 48, 123–4
DAGMAR concept 382 Agriculture, Fisheries and Food 123
DaimlerChrysler 72, 180, 352, 475 Defence 13, 44–5, 95–6
Data Protection 30, 125 Health 13
Data Warehousing Institute 117 Social Security 13–14
database marketing 115, 395 Trade and Industry 28, 31, 66, 107, 124, 346
Datamonitor 113 Japan: Ministry of International Trade and
Datek 294 Industry 217
DBF (design build finance) 47 United States: Defense 14
DBFO (design build finance operate) 47 see also public sector
DBGO (design build guarantee operate) 47 derived demand 86–8, 321
DCM (demand chain management) 311 design build concepts 47
debts, bad 341 desk research see secondary research
decentralised buying 149, 183 Deutsche Bank 359
decision-making 145–65 development, market/product 453, 454, 459
504 INDEX
Diamond Packaging 249 EASE (European Advertising Standards Alliance)

differential pricing 331–2, 352 419
direct costs 338 Eastern and Central Europe 19, 24
direct distribution channels 254, 255–60, 265 – 6 future EU membership 23, 241, 477
combined with indirect 268–70 Eastman Kodak Company 89
methods used 258–60 ecologically damage 369
direct mailing 130 e-commerce 260, 493
direct marketing 225, 322, 392–6 see also information technology
direct response 392–6 economic influences 11, 65–7
Director General of Fair Trading 28, 347 see also exchange rates
Director General of Telecommunications 31 economic systems 24–32
directories 386–7 market economy 25–6
discriminatory pricing 331–2 mixed economy 26–7
disintermediation 266–7 planned economy 24–5
Disney 242 economies of scale 36, 341, 489
dissenters pressurised 188 ECR (efficient consumer response) 284–5, 322
distribution channels 212, 254–75 EDI (electronic data interchange) 70, 150, 286,
disintermediation 266–7 303, 390
internet in supply chain 267–8 EDLP (every-day-low-prices) 329
limited 36 EDS (US) 110
reintermediation 267–8 efficiency 69, 284–5, 322
strategic channel selection 270–5 ego risks 156
see also direct distribution; indirect Egypt 69
distribution; physical distribution EIPP (electronic invoice presentment and
diversification 453, 454, 459 payment) 215
Dixons 31, 72, 213, 329, 359 elasticity, price 348–9
DMD (decision-making difficulty) 291 electronic/s 482–3
DMP (decision-making process) 156–60, 162, 291 data interchange 70, 150, 286, 303
DMU (decision-making unit) 151–6, 161, 162, invoice presentment and payment 215
187 see also computers; information
buying centres 156 technology
channels 258, 291 Elmes, Simon 267
communication strategies 377, 406 email see information technology
factors affecting 153 E-mail Marketing Association 394
group influences on 154 emergent planning 429–30, 431
horizontal 154 EMI 244
individual influences on 154–5 emotions 189–90
pricing 342 employees 20
risk management 155–6 see also sales force
strategic planning 464 encoding 370–1
vertical 153–4 end user 152
Dow Jones 60 energy 212
Drucker, P. 109 Enron 146, 367, 475
DTI see Trade and Industry under Departments enterprise resource planning 215, 299, 300
Du Pont 209, 241 Enterprise Zone 125
dual pricing 331 environment influences 58–100
dual sourcing 210 see also demand; influences under competition;
Dulux 173 macro-environmental factors; markets
Dun & Bradstreet 137 under customers
dynamic environment 84, 425 environment, natural 478–81, 483
dynamic market and competition 76–7 key issues in future 480–1
dynamic pricing 333 litigation, increased 420
Dyson 205 pollution (Kyoto Protocol) 17, 310
INDEX 505
environment, natural (continued) evolutionary markets 103–4

pressure groups 19, 62, 479 exchange rates 21, 43, 66–7, 353
recycling 479 exhibitions 259–60, 396–8, 412
environmental model 7–8 expectations
EPOS (electronic point-of-sale) 128 buyer’s 255
equipment, capital 207 performance indicators 223
equity, brand 223–4 expenditure, public sector 27–8, 44, 209–10
eReturns 391 experience 189, 340
Ericsson 294 experimental marketing research 128
ERP see enterprise resource planning extension, brand 244
e-Steel 267 external benchmarking 282
Estonia 23, 24, 477 external customers, new products for 232–3
Ethics in Government Act (US) 148 external environment 84–5, 441–2
ethics/morality 146–8, 169–70, 188 external processes 73
Ethiopia 63 external sources see agencies
EU (European Union) and Europe 126 external value chain 282–9
channels 277, 285, 309 demand and supply 284
communications, strategic 387 development of 283–4
Council of European Union 17 ECR (efficient consumer response) 284–5, 322
Council of Ministers 59, 64 managing 283
currency (euro) 67 techniques 284
Eastern Europe to join 23, 241, 477 extranet 286, 392
EEC 17 Exxon Mobil 180, 279, 475, 483
environment influences 59, 60, 64, 65, 79
European Bank 61 F&A (facilities and administrative) costs 338
European Commission 10, 17, 59, 64, 274, face-to-face encounter 259
419, 476 facilitating goods 213
European Competition Commission 30, 331 factor scoring and market attractiveness 195–6
European Court of Human Rights 17, 60 factoring debts 341
European Court of Justice 17, 147, 419 farming 48, 257
European Parliament 17, 59, 64 fast-moving consumer goods see FMCG
market environment 9, 11, 27, 30, 55 favourable markets 85
classifications 34 fax 121
European Charter of Fundamental Rights Federal Reserve Bank (US) 61, 86
15–16 Federal Trade Commission (US) 29–30, 36, 80,
in G7/G8 20 274, 347, 352
harmonisation of laws 16–17 FedEx 302, 335
international trade 12, 476 feedback
members listed 22–3 communications 370–2
trade dispute with US 19 market research 224
mergers 274 strategic planning 460, 466–8
number of people in 22–3 technology use 417–18
recycling electrical goods 479 finance/financial
segmentation 177 budgeting 118, 465
strategic advantage 241 controls 467, 468
European Advertising Standards Alliance 419 Financial Services Authority 30, 51, 409
European Competition Commission 37, 80, 347 perspective 457
Euroquest: European Research Co. 137 public expenditure 27–8, 209–10
Eurostar 244 risks 156
evaluation sales 408
brand 245 scandals 367
post-purchase 160 services 221
strategic 274, 455 see also banks; cost/s; payment; Stock Exchanges
506 INDEX
Finland 19, 22 FTSE 100 index 424

fixed costs 337 fuel cells 483
fixed price 317 Fujitsu 93
flexible/flexibility full service wholesalers 264
manufacturing 483 future of marketing 473–81
message 366 business strengths 474–7
pricing 332–3 challenges 477–8
fluctuating demand 89–90 see also environment
FMCG (fast-moving consumer goods) 3
branding 241 G7 and G8 countries 19–20, 26
buying decision 161 G15 and G20 countries 20
channels 285 Gaming Board of Great Britain 124
information on 105–6 Gap 72, 213, 329
packaging 245–6 Gartner Group 268, 488
pricing 329 gas companies 27, 185
soap operas and 383 gatekeepers 152
see also retail Gates, Bill 69
focus groups 134 GATT (General Agreement on Tariffs and Trade)
food industry logo 88 18, 126
Food Standards Agency 30 see also WTO
force field analysis 447–8 GDP (gross domestic product) 9, 82
Ford Motor Company 107, 180, 264, 475 cut in 92
changing markets 492 growth 65
environment influences 72, 74, 87, 89 public expenditure as percentage of 27–8, 43
fuel cells 483 services 176
pricing 340, 352 General Agreement on Tariffs and Trade see
forecasting GATT
analysis 455 General Electric 11, 79, 180, 285, 359
CFPR 285–6 changing markets 492
demand 93, 197 market growth 475, 477
marketing research process 142 strategic choice matrix 456
sales 97–8, 451–2 strategic planning 425
formal information-gathering 108 General Motors 11, 72, 475
formal marketing research 234–5 channels 266, 279, 294
Forrester Research 137, 493 pricing 352, 359
Fortune 500 companies 34, 246, 474, 475 genetics 479, 483
foundation goods 207 geodemographic information systems 137
France 12, 22, 83, 277 geographic segmentation 172, 174–6
market environment 9, 19, 20, 21 Germany 22, 107
meat exported to Britain 48 channels 277
franchise, distribution 268–9 economic system 24
free competition 39, 344 environment influences 83
free market regulators 28–32 international trade 12
free speech 60 market environment 9, 20, 40, 42
Free Trade Area of Americans (FTAA) 34 population 477
see also NAFTA reunified 24
Freedom of Information Act 125 Gilbert, R. 276
Freight Transport Association 309 GKN 242
Friends of the Earth 19, 62 GlaxoSmithKline 331
FSA (Financial Services Authority, formerly SIB) global laws, harmonisation of 17–20
30, 51, 409 global markets 33–5, 83–4, 475, 489
FTC see Federal Trade Commission competition 78–9, 331, 332
FTL (full truckload) 310 global companies listed see Fortune 500
INDEX 507
global markets (continued) guaranteed outlet 256

IT strategy 410 Guinness Four 60
Mining Initiative (GMI) 147
pricing 353–4 ‘Hamburger index’ 43
top ten companies listed 465 harmonisation of laws 15–20
see also entries beginning International harmony in strategic planning 426
global organisations 126, 359, 389, 479 Harte-Tanks Technology 487–8
channels 269, 270 Hastings, J. 276
environment influences 59, 62, 63 health care 138
market environment 20, 22 heavy user 183
see also United Nations hegemony integration 279
GNP (gross national product) 9, 204, 220 Heinz 72, 375
going rate pricing 355–6 Hewlett-Packard 175, 294
goods and strategic advantage 204–22 hierarchy of effects model 380
accessory 213 high pricing compared to norm 330–1
approach to marketing 221–2 Hinduism 68
balanced product portfolio 221–2 hi-tech see information technology
branding/brand 240–1 Holiday Cottage Group 38
buying sectors 216–17 Holiday Inn 384
capital 150, 181, 207–11 homosexual market 169
commodity 213–14 Hong Kong 12, 35
contract 217–18 horizontal decision-making 154
convenience 214 horizontal demand 88
cost of 217 horizontal integration 277
customer benefits demanded 219 Hospital Information Support Systems 13
customised 218–19 hospitality, corporate 402
definitions 205–6 hostile markets 85
facilitating 213 Human Genetics Alert 479
importance of purchase 217–21 Human Genome Project 483
integrated solutions as category 215 human rights 15–16
marketing approaches 216 Watch 479
materials and parts entering 209–11 Hungary 19, 23, 24, 477
search-out 215 Huntingdon Life Sciences 170
services different 220 hydrogen as fuel 483
standardised 218
see also product i2 Technologies 269
government see Departments; public sector IBM
Grass, Gunter 141 channels 269, 295
Greece 22 market growth 477
Greenpeace 19, 50, 52, 62, 479 segmentation 166, 173
Greenspan, Alan 61 strategic advantage 239, 242
grid of market attractiveness 196 strategic planning 434
gross domestic product see GDP ICC (International Chamber of Commerce) 63
gross national product 9, 204, 221 ice cream market 38–9
groups 154, 187–8 ICJ (International Court of Justice) 18
group think 188 idea
pressure 19, 62, 479 generation methods 233–4
growth of markets 9 –15 product as 205
anti-competition legislation 11 identity formation 369
governments, role of 10–11 IMC (integrated marketing communications)
international trade statistics example 12 413–14
technology, pace of 13–15 IMF (International Monetary Fund) 20, 126, 479
GSS (Government Statistical Service) 123 imperfect competition 39, 344–5
508 INDEX
implementation, planning 427–8, 435 information 101–17

implementation, strategic 440, 462–9 competitive advantage 102–4
beginning 462–3 evolutionary markets 103–4
difficulties 463 -gathering process 108
elements involved 463–6 overload 107
feedback, monitoring and control 466–8 as power 102–7
tactical process 469 pricing 332
import quotas 20 as reason for research 105–7
IMS Health 127 research 101–17
income tax 92 IT 120–1, 123, 125, 131, 137
Incorporated Society of British Advertisers risks 156
389 search and decision-making 158
independent controlling agencies 61–5 at tactical level 104–5
ICC 63 see also information technology; knowledge;
lobbying 63–5 MIS
trade associations 63 Information Commissioner 125
trade unions 50, 52, 62 information technology, internet and Web
see also pressure groups 69–73, 120–1
Independent Television Commission 31, 418, adoption 14–15
419 auction sites 214
India changing markets 482, 484–91
airport leases 208 entertainment 488
environment influences 69, 79 marketing 487–8
fighter jets bought 45 selling and buying 488–91
Himalayan advertising 369 strategic options 491–3
Hinduism 68 transactions 486
segmentation 178 channels 260, 269, 281, 285, 286
indirect costs 338 outsourcing 289
indirect distribution channels 261–6 reintermediation 267–8
agents 262 warehousing 306–7
brokers 262 communications, strategic 365, 390–2, 394,
chains, long and short 261 410, 418
combined with direct 268–70 see also print
pricing 321 companies folded 175
supplier 261, 262 components databases 211
wholesalers 263–4 database of customers/marketing 115, 256,
individual buyer 188–90 394–5
individual influences on decision-making unit decision-making 148, 152
154 –5 E-commerce 217
Indonesia 103, 475, 477 environment influences 63, 71–2, 74
market environment 27, 34, 35 failures, expensive 110
industry/manufacturing 177–8 gone wrong 13–14
demand potential 95–6 junk and spam 394
execution systems (MES) 288 market environment 3, 13, 18, 27, 30
heavy, death of 90–1 classifications 35–6
life cycle 97 order processing 302
resource planning (MRP) 288 overload 107
sector see sector of industry pace of 13–15
stimulation of derived demand 87 pressure groups 479
see also firms under vehicles pricing 331, 333, 335, 351–3, 359
inelastic demand 89 public sector procurement 45
inflation 66 research 120–1, 123, 125, 131, 137
informal marketing research 234–5 strategic planning 434
INDEX 509
information technology, internet and international organisations see global

Web (continued) organisations
tracking 488 International Reciprocal Trade Association 270,
transport 308, 310 359
UN 18 international standardization 21–2
warehousing 306–7 international system see global markets
see also comupters International Trade Centre 18, 126
infrastructure 175 internet see information technology
Inland Revenue 110 interviews, marketing research 134
innovation 97, 236, 407, 456 inventory see stock levels
see also new products investment guidance to LDCs 63
instinct 189–90 invulnerability, illusion of 188
Institute of Directors 63 IOD (Institute of Directors) 63
Institute of Management 107 Ionica Group 36
Institute of Practitioners in Advertising 50, 52, IPA see Institute of Practitioners in Advertising
389, 391 IPC Media 387
Institute of Purchase and Supply 148 Iraq, war with 210, 424
Institute of Supply Management 148 Ireland 22
intangible product see services ISBA (Incorporated Society of British Advertisers)
integrated marketing communications 389
413–14 Islam/Muslims 69, 210, 424
integration of communications, strategic 369 ISO (International Organisation for
Intel 30, 88, 175, 295, 485 Standardisation) 22
intellectual influences on buying 189–90 Israel 60
intelligence, marketing 112–13, 433 IT see information technology
intentional strategic communications 368–9 Italy 9, 12, 20, 22, 83
Interbrew 28 ITC (Independent Television Commission) 21,
interdepartmental consultation 112 418, 419
interest groups see pressure groups ITC (International Trade Centre) 18, 26
interest rates 11, 66 ITO (IR outsourcing) 289
intermediaries 83, 321, 322 Itochu 180
internal benchmarking 282
internal communications 372–4 Janis, Irving 188
internal customers, new products for 232 Japan
internal environment and strategic situation channels 271
analysis 442–5 deflation 66
internal processes 73 E-commerce, growth of 217–18
internal sources, secondary research 121 environment influences 68, 93
internal value chain 280–2 international trade 12
benchmarking 114, 280, 281–2 market environment 9, 19, 20, 35, 40
development 285–9 segmentation 177, 178
International Advertising Association 389 see also just-in-time
International Chamber of Commerce 63 Jeep 4
International Confederation of Free Trade Jeppeson Sanderson 240
Unions 62 JIC (just-in-case) 297, 298
International Court 147 JIT see just-in-time
International Court of Justice 18 job responsibility as buyer factor 189
International Criminal Court 60, 80 job/batch contract work 290
International Franchise Association 269 John Lewis 72, 213, 329, 359
international markets researched 139–40 joint demand 89
International Monetary Fund 20, 126, 479 joint ventures 50, 294, 295
International Organisation for Standardisation Jong, E. 156
22 just-in-case 297, 298
510 INDEX
just-in-time libel 60
channels 286–7, 297, 298–9, 300 Liberty (pressure group) 479
decision-making 150 licensing 208, 270
strategic advantage 210, 220 life cycles 91–2, 97–8, 334–5
life science technologies 482
kanban 298 lifestyle 172, 189
Kantar Group 114, 127 light user 183
Kaplan, R. 457 Lithuania 23, 477
Kaufman, M.T. 161 lobbying 63–5
Kellogg’s 246 local strategic partnership 47
Kimberly-Clarke 241 location 304, 369
Kingfisher 72, 213, 359 Lockheed Martin 216
Kit-Kat 246 logistics management 296–311
knowledge 296 reverse logistics 296
workers 13, 155 see also physical distribution
see also computers; information London Stock Exchange 40, 42, 110, 147
KPMG Consultants 141 long-term strategic pricing 335–6
Kyoto Protocol 17, 310 loss leader 340
Lotus 169
Lafarge Group 335 low pricing compared to norm 329–30
Lamy, Pascal 19 loyalty, customer 117, 407
language 68, 69 pricing 324, 330
Laos 34 strategic planning 433, 434, 435
large enterprises 179–80, 185 LSP (local strategic partnership) 47
economies of scale 36, 341, 489 LTL (less than truckload) 310
top ten listed 180 Lucas 180
Latin America Luxembourg 22
business strengths 475 Lyons, Jack 60
credit 264 Lyotard, J.-F. 102
culture 69
market environment 19, 35 McDonald’s 43, 67, 219, 242
strategic advantage 216 macro-environmental factors 58–73
trade union repression 62 cultural influences 67–9, 296, 353
Latvia 23, 24, 477 economic 65–7
law and legislation 125, 148, 478 see also independent controlling agencies;
genetics 483 PEST; politics; technology
harmonisation 15–20 macro-segmentation 173–82
international, breach of 60 geographical 174–6
market environment 11, 28, 49 industrial and/or consumer markets 173–4,
pricing 332, 346–8, 353 176–8
promotion 418–19 Maiden Outdoor 389
viability of segmentation 170 mail 146, 393
LDCs see least developed countries maintenance 212–13
leading edge technologies 482–3 Malaysia 9, 27, 34, 35, 69
learning 340, 457 Mali 63
leasing and renting 292–3 Malta 23, 477
capital goods 208–9 management
pricing 357 business marketing role 8–9
transport 310 choice of supplier 149
least developed countries 63 consultants 140–1, 152
see also Africa; Asia; Latin America definition of marketing 6
legislation see law and legislation services 212–13
level of service, pricing by 325 technology 73
Lewis (John) 72, 213, 329, 359 manufacturing see industry
INDEX 511
market international markets 139–40

attractiveness 194–6, 456–7 IT used 136
competitive influences 73–4 management consultants listed 140–1
demand potential 96 objectives 118–19, 141
development 453, 454, 459 strategic concerns 141–2
-driven management 432 syndicated and customised 138
economy 25–6 top five companies listed 127
leaders and followers 75–6 see also MIS; primary research; secondary
life cycle and demand 91 research
penetration 453–4, 459 Marketing Systems Databases 137
pricing 343–5 markets, new 167, 329, 340
research 222–5, 235–6 Marks & Spencer 72, 213, 359, 474
segment see segmentation Mars 219, 375
share retention 329 Marx, Karl/Marxism 24, 36
target 455 mass markets 475
testing 235–6 see also global markets
market environment 1–57 master production scheduling (MPS) 288
definitions 1–9 materials requirement planning 288, 299
manager, role of 8–9 MCS (Management Consulting Service) 152
model 7–8 media
see also business-to-business; business-to- of message 370–1
consumer; characterisation of markets; non-human see media mix
forms under trade; growth of markets OFCOM 31
marketing person-to-person 372
control process 465–6 user 183
costs 336–7 see also information technology
defined 6–8 media mix (above the line) 371, 383–92
information system see MIS industrial 385
as philosophy 7 information technology, internet and Web
planning 431–2 387–92
services 256 outdoor 383, 389–90
strategy 7, 215 print 383, 385–9, 393
see also marketing mix radio 31, 383, 389, 393
tool, pricing as 324 television 379, 383, 384, 393
marketing mix (eight Ps) 8, 199–200, 455 Mercedes 242, 323
listed 449 merchandising see point-of-purchase; retail
and pricing 8, 318–26 mergers and acquisitions 274, 293–4, 295,
delivery and distance 326 332
distribution and 320–2 MES (manufacturing execution systems) 288
payment method 325–6 message flexibility 366
product and 319–20 methods of segmentation 173–93
promotion and 323–5 criteria listed 191
quantity demanded 325 see also macro-segmentation; micro-
value and 319–20 segmentation
see also people; physical evidence; place; Mexico 12, 19, 35, 176
pricing; process; product; profit; NAFTA 11, 21, 27, 34
promotion MGM 244
marketing research process 114, 118–42, 433, Michelin 70
487 micro environment see SPICC
budget 118 micro-segmentation 173, 182–90
commercial organisations listed 137 group buyer 187
costs 141 individual buyer 188–90
forecasting 142 organisation buying behaviour 182–5
formal and informal 234–5 purchasing situation 185–90
512 INDEX
Microsoft 36 NAFTA (North American Free Trade Agreement)

channels 269, 295 11, 21, 27, 34, 55
environment influences 77, 79, 80 NAICS 126
market growth 477, 492 nanotechnology 482
strategic advantage 206, 237, 242 national accounts 183–4
Middle East 60, 62, 210, 424 National Audit Office 13, 30, 327, 348
migration of companies 205 National Consumer Council 44
Milk Marketing Association 87 National Farmers’ Union 48
mindguards 188 National Health Service 32, 44, 237
mining ethics 147 national and local government see public sector
Ministries see Departments National Lottery 53
Mintzberg, Henry 1 National Publishing Group 123
MIS (marketing information system) 108, National Society for Clean Air and
109–17, 143, 352 Environmental Protection 479
channels 256 National Society for Prevention of Cruelty to
information storage and analysis 115–17 Children 50, 52
intelligence system 112–13 Nationwide Building Society 50, 52
internal information 110–11 natural monopoly 37
outside consultants 109–10 needs-based positioning 427
process 110–17 negotiation 159, 317, 349–50, 352
research 114 Netherlands 12, 22, 170
segmentation 166–7 networking 476–7
strategic approach in setting up 109 neutral exchanges 489
strategic planning 433, 443 new customers 330, 340
mission statement 450, 459 new industries 91
Mitsubishi 93, 180 new markets 167, 329, 340
mixed economy 26–7 new products 90, 231–6, 484
MMSD (mining, minerals and sustainable best practices 232
development) 147 culture 233–5
monitoring defined 231–23
market research 224 development 231–6
strategic planning 460, 466–8 external customers 232–3
monopoly/monopsony 35–7, 254, 343 internal customers 232
Monopolies and Mergers Commission 28, leading edge technologies 482–3
38 need for 236–7
monopolistic competition 344 pricing 334–5
see also controlled monopoly strategic planning 453, 454
morality/ethics 146–8, 169–70, 188 see also innovation
Morgan 169 new purchase 161–2
Mori 114 new technology, see also information technology
motor cars see vehicles New Zealand 19, 35
motor cycles 454 newspapers see print
Mozambique 63 Next 4
MPS (master production scheduling) 288 next-step agencies 44, 122–3
MRO (maintenance, repair and operating) 489 NFO WorldGroup 127, 385
MRP (manufacturing resource planning) 288 NFP see not-for-profit
MRP (materials requirement planning) 288, NGA (non-government agency) 46, 50
299 NGOs (non-government organisations) 50
multinationals 239–40 niche markets 169, 175, 475
multiple source user 183 Nike 323, 330
multi-sourcing 150 Nikki 242
Murdoch, Rupert 462 Nissan 72, 352, 483
Myanmar 34 noise and feedback 371–2
INDEX 513
non-financial controls 468 oil and oil companies 38, 180

non-government agencies 46, 50 channels 274, 277, 279, 294
non-government organisations 50 demand and embargo 94
non-user 183 mergers 274
North America OPEC 37, 94, 210, 344, 424
Industrial Classification System 174 payments delayed 185
see also Canada; NAFTA; United States petrol blockade 11
Northcote Parkinson, C. 145 prices 82, 94, 210, 344, 424
Northern Foods 241 OLED (organic light-emitting diode) 89
Northrop Grumman 294 oligopoly/oligopsony 38–9, 274, 343–4
Norton, D. 457 Olympic Games 209, 238, 402
not-for-profit sector 2, 49–53, 83 Oman 62
ethics 148 Ombudsman 32
non-government agencies 46, 50 omnibus marketing surveys 132
pricing 327–8, 343 OMS (order management systems) 302–3
segmentation 178–9 one-off buyer 184
Nova 241 ONS (Office of National Statistics) 122–3
NPD (new product development) 231–6 OPEC (Organisation of Petroleum Exporting
NSPCC 50, 52 Countries) 37, 94, 210, 344
NTL 206 open bidding pricing 358
nuclear technology 483 operating
effectiveness 427, 467
objectives style and communication 369
corporate 450–1, 455, 459 transparent 52–3
marketing 450, 451–2, 459 opportunity costs 455
closed and open 451 optimum buying value 46
demand estimation and sales forecasting opto-electronics 482
451–2 Oracle 72, 121, 175
gap analysis 452 order processing 301–3
research 118–19, 141 organic light-emitting diode 89
segmentation viability 168–9 Organic Milk Suppliers Cooperative 283
strategic market 460 Organisation of Arab Petroleum Exporting
tactical 464 Countries 94
observation 128–9 Organisation of Petroleum Exporting Countries
OE (operational effectiveness) 427 see OPEC
OECD (Organisation for Econmomic Cooperation organisation/al
and Development) 11, 19, 26, 34, 126 buying behaviour 182–5
OFCOM 31, 343, 419 demand potential 96–7
Office of Fair Trading see OFT mission and strategic channel 273
Office for National Statistics 66, 82 politics 186–7
Office of Government Commerce 179 stimulation of derived demand 87
Office of National Statistics 122–3 organising in PODC 9
Office of Rail Regulator 31, 38 ORI (overseer regulated industry) 41
off-line pricing 352 original equipment manufacturers 180
off-the-page advertising 393 ORM (overseer regulated markets) 43
OFGAS 31, 343 ORR (Office of Rail Regulator) 31, 38
OFGEM 31, 38 OTS (opportunity to see) 386, 388
OFT (Office of Fair Trading) 27, 28, 29 outside sources see agencies
pricing 321, 332, 346 outsourcing 221, 289–92
OFTEL 31, 38, 419 marketing process 291–2
OFWAT 31, 38, 343 not job/batch contract work 290
Ogilvy, David 415 public sector 46, 290
Ogilvy PR 245 reasons for 291
514 INDEX
overhead costs 338 personal selling 403–12, 413

overseer regulation 41, 43 administration 410–11
Owens-Brockway Glass Containers 247 advertising 411
own label products 241–2 buyer’s representative 405
Oxfam 62 customer relationship building 405–6
exhibitions and sponsorship 412
P&G 3–4, 72 manager, sales 409
packaging 245–9 market research 224
panels, marketing research 134 objectives 409
Papua New Guinea 35 salesperson’s role 404–5
Pareto 80/20 rule 112 strategies 409
Parliamentary Group for Renewable and value-based salesperson 406–8
Sustainable Energy 65 personality as buyer factor 189
Parliamentary and Health Service Ombudsman 32 person-to-person marketing surveys 131–2
Parnes, Anthony 60 Peru 35
partnerships 41 PEST (macro environment) 7–8, 117, 342, 441–2,
business strengths 475–7 446, 449
buying behaviour 184 PetroChemNet 267
communications, strategic 407 Peugeot Citröen 72
private public 46–7, 209 PFI (private finance initiative) 47, 110
supply chain relationship 295–6 pharmaceutical firms 114, 331
technological 70–2 Philippines 27, 34, 35
parts (components) 181, 211 Philips 485
past user 183 physical distribution management (PDM)
Patent office 35 297–311
patents 97, 483 order processing 301–3
payment transport and delivery 302, 307–11
method 263, 325–6 see also stock levels; warehousing
record of buyer 184–5 physical evidence 8, 445
slow/late 185, 325–6 Pilkington Glass 180
PBP (performance based pricing) 290 pink pound 169
PC World 4 piracy, brand 238–9
PDM see physical distribution place
Pechiney 277 in marketing mix 8
penetration, market 453–4, 459 product as 205
people 8, 445 strategic planning 444
see also sales force see also distribution channels
Pepsi 369 planning 9
perceived risk 155–6 advanced planning and scheduling (APS) 288
perfect competition 39, 344 capacity requirements 288
performance collaborative 70–1, 72, 285–6, 287
based pricing 290 contingency 468
indicators, expected 223 enterprise resource 215, 299, 300
promotional campaigns 414 environments 424–5
risks 156 manufacturing resource 288
Performing Rights Society 14 market research 224
Periodical Publishers Association 386 materials requirement 288, 299
perks 148 planned economy 24–5
permission marketing 131 PODC 8–9, 117, 409
Perot, H. Ross 408 see also strategic planning
Perrier 468 Plato 189
Persil 219 PLC (product life cycle) 91, 334–5
person, product as 205 PLCs (public liability companies) 40, 42
INDEX 515
PODC (planning/organising/directing/ Prestel 121

controlling) 8–9, 117, 409 Preston Group 240
point-of-purchase and merchandising 396–9 Preussag.com 38
public relations 399–403 PriceWaterhouse Coopers 140, 152
sales promotions 398–9 pricing 316–62
word of mouth 401–2 competitive 332, 333–4, 344–5, 346
see also exhibitions; retail cost-plus 354–5
Poland 19, 23, 24, 241, 477 costs 322, 336–41
Policy Commission on Future of Farming and differential 331–2, 352
Food 257 going rate 355–6
Political/Economic/Social/Technical see PEST incomes policy 347
politics/political influences 10, 59–61 performance based 290
EU growth 59 process 317–18
interference by politicians 61 product positioning 318
organisational 186–7 public sector 46, 327, 343, 345
party 92 strategic planning 444
policies 47 tactical 336, 356–60
world bodies, growth of 59 see also strategic factors and under marketing
see also laws; PEST mix
pollution (Kyoto Protocol) 17, 310 primary added value 226–7
POP see point-of-purchase primary research, marketing 119, 128–38
Porter, Michael 76–7, 79, 80, 280, 427 experimental 128
Portugal 22 observation 128–9
positioning 198–9, 318, 427 see also surveys
Post Office 35, 393 print media (newspapers/magazines) 383,
Postcomm (Post Office Commissioner) 31, 38 385–9, 393
posters 389–90, 418 prioritising added value 228–9
post-purchase evaluation 160 private finance initiative 47, 110
potential demand, market 95–7 private label products 241–2
Powell, Hugh 28 private public partnership 46–7, 209
power private sector 40–3, 209
pricing 332, 354 buying sectors 216–17
public sector 80 privatisation of public sector 27, 76, 217
purchasing 43, 200 segmentation 178–9
supplying 200 selling into 41–2
PPFI (Public, Private, Finance Initiative) 128 types of company 40–1
PPP Healthcare 107 problem-solving and purchasing 185–6
PPP (private public partnership) 46–7, 209 process 8
PPP (purchasing power parity) 43 market segmentation 166, 192–200
PR (public relations) 399–403 corporate/product positioning 198–9
practical consequences of planning 430–1 identify basis for 192–3
PRASEG 65 important characteristics determined 193–4
predatory pricing 341 market attractiveness evaluated 194–6
predictability in strategic planning 426 selection of segment 196–7
Preece, J. 141 product as 205
preferred buyer status 159 strategic planning 439–61
premium pricing 330–1 see also situation analysis
prescriptive planning 429, 430 technology 73
present user 183 Procter & Gamble 169, 221, 383, 401, 402
press 29 product
pressure groups/interest groups 50, 52, 61–2 costs and decision-making 162
environmental 19, 62, 479 defined 205–6
harmonisation of laws 19 demand potential by 97
516 INDEX
product (continued) expenditure 27–8, 209–10

development 453, 454, 459 and growth of B2B 10–11
life cycle 91, 334–5 involvement and market environment
in marketing mix 8 27–30
portfolio, pricing across 319 public asset sell-off 27
positioning 198–9, 318 regulators 28–32
strategic channels 274 markets and demand 92
strategic planning 444 optimum buying value 46
strategy in USP 229–31 outsourcing 46, 290
substitute 77 partnerships with 476
technology 73 planned economy 24–5
types and segmentation 180–1 political policies 47
variety 332 power 80
as whole organisation 206 PPP (private public partnership) 46–7, 209
see also corporate/product; goods; new pricing 46, 327, 343, 345
products private finance initiative 47, 110
professional trade associations 127 privatisation of 27, 76, 217
profit purchasing 179
communications, strategic 407 quangos 44
cost centres 338 segmentation 178–9
in marketing mix 8 selling into 44–5
pricing 356 social policies 47–8
strategic planning 445 source for marketing research 121–6
promiscuous shoppers 117 Statistical Service 123
promotion, sales 8 see also Departments
agencies and advertising 415–17 publicity 400–2
campaigns 365, 381–2, 412–19 see also advertising; media
changing markets 487–8 purchasing see buying/purchasing; suppliers
costs 379, 415 ‘push’ and ‘pull’ 88, 323 –4
IMC 413–14
legal concerns 418–19 Q8 38
measuring 414 Qatar 62
methods 378–82 qualitative marketing surveys 133–5
pricing and 323–5 quality
strategic planning 444–5 programmes 220
technology use 417–18 signals 222
see also advertising; point-of-purchase total quality management 287, 288
Prontaprint 240 Quality Meat Scotland 385
Ps, eight see marketing mix quangos (quasi-autonomous non-governmental
Ps, four 459 organisations) 44
psychographic segmentation 172 quantitative marketing surveys 133, 135
psychological pricing 356 quantity demanded, pricing by 325
public liability companies 40, 42
Public, Private, Finance Initiative 128 R&D 236
public relations 65, 399–403 radio 31, 383, 389, 393, 419
public sector/government 43–9 Radio Authority 31, 419
bidding for contracts 45 Radio Communications Agency 31, 419
buying 217 Radius 257
Compulsory Competitive Tendering 46, 290, Railtrack 43
358 rationality, bounded 188, 463
corruption 45–6 raw materials 82, 181, 210–11
as customer 44, 83 see also suppliers
ethics 148 Raynet Electric 267
INDEX 517
rebuy 161 revenue 45

receiver of message 370–1 communications, strategic 407
recession 86, 91, 221 pricing, target 356
reciprocity rights, human 17, 60, 479
bartering 270, 359 risk 455
buying 184 decision-making 155–6, 162
distribution 269–70 sharing 296
pricing 359 tolerance as buyer factor 189
recycling 479 roads 175, 308–10
redundancy 20 see also vehicles
refrigerated transport 309 ROCE (return on capital employed) 326–7, 451,
regulators, free market 28–32 459
reintermediation 267–8 Roddick, Anita 146
relationship ROI (return on investment) 326–7, 451
building 130, 330, 405–6 Romania 23, 477
see also CRM Ronson, Gerald 60
marketing 115–17, 369–70 Rover 74
supplier 265–6 Royal Dutch/Shell 180, 210, 456, 475, 477, 479
wanted 274–5 Royal Society for Prevention of Cruelty to
religion 68 Animals (RSPCA) 50, 52
Renault 72, 352, 384 Russia 12, 35, 60, 241
renting see leasing and renting environment influences 69, 79
repeat purchaser 184
research 101–44 Saatchi and Saatchi 390
and development 236 Safeway 72, 213, 344, 359
information 101–17 Sainsburys 3, 31, 241, 344
IT 120 –1, 123, 125, 131, 137 sales see selling
see also marketing research sales force/salesperson 374, 410
resellers 83 channels 258–9
resources new product and 234
allocation 296 role 404–5
costs and decision-making 162 value-based 406–8
viability of segmentation 169 Sanyo Electric Co. Ltd. 89, 93
responsibility, allocation of 464–5 Sara Lee Corporation 3
retail (mainly supermarkets) 3, 4, 31, 72, 83, Sarnoff, David 80
169 Saudi Arabia 60
brands 241 Saunders, Ernest 60
business strengths 474 SBS International 240
car sales 74 SBU (strategic business unit) 41, 354–5
channels 261, 264, 279 SCM (supply chain management) 311
computers in shopping trolleys 482 Scotland 385
distribution channels 36 SDR (special drawing rights) 20
loss leaders 340 sealed bid pricing 357–8
non-supermarkets mentioned 31, 72, 213, 329, search-out goods 214–15
359 seasonality 325
pricing 329, 330, 337, 344, 359 secondary research, marketing 119–28
purchasing 213 external sources 121–7
research 105, 117, 129 internal sources 121
segmentation 173 IT and Web 120–1
strategic advantage 213, 220 sector of industry 176–8
World Wide Retail Exchange 72, 213 see also manufacturing; not-for-profit; private
see also FMCG; point-of-purchase sector; public sector; services
return on capital/investment 326–7, 451, 459 security of research 142
518 INDEX
segmentation 165–201, 194, 464 Shell see Royal Dutch/Shell

changing importance of 190–2 Shenzen province (China) 24
pricing 341–2 short-term tactical pricing 336
reasons for 165–6, 167–8 SIB (Financial Services Authority) 30, 51, 409
see also market under process; methods of SIC see Standard Industry Classification
segmentation; MIS; viability of ‘silent salesman’ see FMCG
segmentation Silicon Valley 175
self-censorship 188 simple environment 84
self-image as buyer factor 189 Sina.com 239
selling/sales Singapore 9, 12, 27, 34, 35
at or below cost 340 single sourcing 150, 183
forecasting 97–8, 451–2 situation analysis, strategic 440–8
and internet 488–91 analysis of data 446–8
market environment 42 collection and classification of data 441–6
in NFPs 51–3 external environment 441–2
into private sector 41–2 internal environment 442–5
promotions see promotion situation, purchasing 185–90
into public sector 44–5 size of organisation
sell and lease-back 292–3 segmentation 168, 179–80, 194
sell-centric markets 489 strategic planning 429
see also personal selling; suppliers; supply; see also SMEs
unique selling proposition SK Display Corporation 89
sender of message 370–1 Slovak Republic 23, 477
services Slovenia 23, 24, 241, 477
costs and decision-making 162 small firms see SMEs
marketing approaches 215 SMART objectives 381, 412, 451, 460
new 91 SMEs (small and medium-sized enterprises)
positioning 427 124–5, 179–80, 185, 325, 377
segmentation 76–7, 181 Smith, Adam 25, 78
strategic advantage 204–22, 211–12 SNC-Lavalin 209
administration 212 soap operas invented 383
approach to marketing 220–2 social policies 47–8
branding/brand 240–1 social risks 156
buying sectors 216–17 socio-economic segmentation 172
contract 217–18 Sony 294, 375
cost of 217 Soros, George 161
customer benefits demanded 219 Sotheby’s 146
definition of 206 sourcing see suppliers
energy 212 South Africa 46, 69
goods different 220 South Korea
importance of purchase 217–21 channels 294
listed 221 environment influences 79
maintenance 212–13 international trade 12
management 212–13 market environment 9, 19, 35
waste disposal 212 trade union repression 62
see also transport South-East Asia 60, 103
strategic channels 274 business strengths and growth 475, 477
strategic planning 444 environment influences 69, 79
strategy in USP 229–31 international trade 12
suppliers 82 market environment 9, 27, 34–5
technology 73 services sector 176
see also retail Spain 22, 331
shadowing 135 spam 394
INDEX 519
spare capacity 340 strategic communications see communications,

special drawing rights 20 strategic
specialised attention 255–6 strategic concerns in marketing research 141–2
specialist marketing research agencies 138, strategic factors determining price 326–48
139 – 40 competition 346
specialist wholesalers 264 costs 336–41
speed 325, 455 customers 341–3
SPICC (micro environment) 7–8, 117, 442, 446, demand 345
449 elasticity 348–9
sponsorship 402, 412, 488 global markets 353–4
Sports Council 124 internet and 351–3
SRA (Strategic Rail Authority) 43 legislation 346–8, 353
Ss, eight 8, 443, 449 market structures 343–5
stable environment 84, 425 methods 354–60
stakeholders 44, 366, 367, 368, 370 negotiation 317, 349–50, 352
Standard Industry Classification 126–7, 174, objectives 326–36
177– 8 tactical methods 356–60
standardisation 21–2, 218 strategic fit 295
Standish Group 14 strategic marketing 7, 276–8, 409, 460
Stationery Office 123 strategic options and IT 491–3
Statistics Commissioner 125 strategic planning 423–72
steel imports to US 476 competitive advantage assessed 436–9
stereotyping of outsiders 188 CRM and customer retention schemes 433–6
Stock Exchanges 14, 40, 42, 110, 147, 424 decision-making levels 431–3
stock levels/inventory 186, 297–300 involvement in 428–31
continuous replenishment see CRP monitoring 460, 466–8
costs 297–8 process 439–61
direct procurement 299 see also situation analysis
ERP (enterprise resource planning) 215, 299, strategic role of marketing 438–9
300 strategic thinking 424–8
kanban 298 see also implementation, strategic; strategic
MRP (materials requirement planning) 299 choice
VMI (vendor managed inventory) 299–300 Strategic Rail Authority 43
see also just-in-time strategic segmentation 166, 200–1
storage 212 see also segmentation
strategic advantage 204–38 strategic thinking 424–8
see also branding; goods and under services stress of information overload 107
strategic alliances 294–5, 455 stretching and branding 244
strategic approaches see changing markets subsidies 347
strategic benchmarking 282 substitute products 77
strategic business unit (SBU) 41, 354–5 suggester role 151
strategic change and planning 432 SULEV (Super Ultra Low Emissions Vehicle) 70
strategic channel selection 270–5 Sun Microsystems 492
strategic choice 440, 449–60, 453–4, 459 Super Ultra Low Emissions Vehicle 70
Ansoff matrix 453–4, 459 super-brand 240
assumption and constraints 458 supermarkets see retail
balanced scorecard approach 457–8 supplementary added value 227–9
corporate objectives 450–1, 455, 459 suppliers 36
criteria 455–6 barriers to entry 77
evaluation 455 choice of 149–50
mission statement 450, 459 hidden 257
strategic positioning 459–60 indirect distribution channels 261, 262
see also objectives, marketing intermediary relationships 265–6
520 INDEX
suppliers (continued) Taiwan 9, 12, 35, 79, 122

internal information on 111–12 tangible product see goods
order processing 301–3 target
power 200 audience 368, 376–8
preferred 257 Group Index 137
/Publics/Intermediaries/Customers/ market 455, 460
Competition see SPICC revenue pricing 356
raw materials 82 segment 464
risk and decision-making 162 tariffs 20, 476
service 82 Taurus 14
see also buying/purchasing; supply tax 92, 110
supply chain relationship 275–96, 485 Taylor Nelson Sofres 127, 138
derived demand along 87 TBC (buying centre) 156, 187, 265
joint ventures 294, 295 Technology Bank 209
leasing 292–3 technology and changing markets 481–93
mergers and acquisitions 274, 293–4, 295, 332 new 481–3
other business relationships from 293–6 see also information technology
partnerships 295–6 transfer 484
pricing and costs 322 see also computers; electronic/s
SCM (supply chain management) 311 telemarketing 393–4
segmentation 194 telephone 121, 130–1, 309
strategic alliances 294–5 television 31, 379, 383, 384, 393, 400, 417, 419
structure 275–9 Telstra 402
see also distribution channels; outsourcing; tendering 159, 290, 357–8
value chain terrorism, global 473, 475, 480
surveys, marketing research 129–36 Tesco 3, 4, 74, 241, 277
direct mailing 130 pricing 329, 337, 344
internet and Web 131 testing
omnibus 132 concept 235
permission marketing 131 market 235–6
person-to-person 131–2 Texaco 294
post 130 TGI (Target Group Index) 137
qualitative 133–5 Thailand 60, 69, 176
quantitative 133, 135 market environment 9, 27, 34, 35
telephone 130–1 Thomson’s Holiday Travel 38
videoconferencing 131 thought, levels of 189–90
sustainable development 147 3M Co. 75–6, 268
Suzuki Motors 454 time 455
Sweden 22, 28, 60 concepts of 69
SWOT analysis (strengths, weaknesses, order processing 302
opportunities, threats) 437, 446–7, 448 pricing by 325
symbiosis 175 research 142
syndicated marketing research 138 tactical plan 464
system pricing 333 Tiptree 14
TMS (transportation management system) 288,
tactical change and planning 432 303, 310
tactical decision-making 101–17 TN (Taylor Nelson Sofres) 127, 138
tactical level, information at 104–5 total commitment 295
tactical marketing 436, 462–3 total quality management 287, 288
tactical objectives 464 tourism 38
tactical planning process 466–7, 469 Toyota Motors 180, 475
tactical pricing 336, 356–60 TPS (transportation planning and scheduling)
Taiichi Ohno 298 310
INDEX 521
TQM (total quality management) 287, 288 defence/arms 294

Trade Partners UK 398 environment influences 60
trade unions 50, 52, 62 competition 79, 89
trade/trading demand 86, 93
agreements and blocs 22–3 patents 97
see also EU; NAFTA ethics 147, 148
associations 63, 149 International Criminal Court not recognised
exhibitions 259–60, 396–8, 412 60
forms 40–53 international trade statistics 12
commercial enterprises see private sector market environment 1, 3, 9–10, 11, 17
national and local government see public APEC 35
sector classifications 33
mark 238 in G7/G8 20
promotion and pricing 323 government expenditure 28
types 35–9 Stock Exchange 40, 42
adulterated/imperfect competition 39, trade dispute with EU 19
344 –5 see also NAFTA
free (perfect) competition 39, 344 marketing research 126, 127
oligopoly/oligopsony 38–9, 274, 343–4 NAICS 126
see also competition; monopoly pricing 347, 352, 359
transfer pricing 353 segmentation 176, 177, 178
Transora 74 strategic advantage 207, 216
transport and delivery 212, 307–11 terrorist attack (World Trade Center) 473, 475,
distance 326 480
FedEx 302, 335 trade union repression 62
management systems (TMS) 288, 303, 310 world trade 478
rail 43, 244 Unocal 277
see also air; roads; vehicles unpredictability in strategic planning 426
TRW (firm) 294 users of products 180
turbulence in strategic planning 426 see also buying/purchasing
Turkey 23, 241, 477 USP see unique selling proposition
UT Starcom 239
Uganda 63 utilities 27, 64–5, 289
unanimity, impression of 188
Unilever 72, 340, 375, 401 value
unintentional strategic communications 368–9 -based salespersons 406–8
unique selling proposition 209, 229–31, 246, 324 in use 186
United Airlines 294 see also added value
United Arab Emirates 62 value chain 280–9
United Kingdom see Britain and competitive advantage 437–8
United Nations 18, 126 other resources see APS; CRM; CRP; MES; MPS;
Commission on International Trading Laws MRP; TMS; TQM; WMS
(UNCITRAL) 18, 59 see also external value chain; internal value
Conference and Trade and Development chain
(UNCTAD) 18, 63 variable costs 337
harmonisation of laws 18 variety-based positioning 427
International Criminal Court 60, 80 Vauxhall 74
International Trade Centre (ITC) 18 vehicles (mainly cars)
WIPO 18 after sales problems 107
United States 107 Avis Rent a Car 257
changing markets 483, 493 categories 207
channels 267, 274, 277, 285, 294 changing markets 492
communications, strategic 367, 379, 384 collaborative development 72
522 INDEX
vehicles (mainly cars) (continued) system, choice of 305

communications, strategic 384 WMS (warehouse management system) 288,
computers in 482 303, 306–7
demand for paint for 87 waste disposal 212
firms producing 4, 11, 107, 180 ‘Watchdog’ (BBC) 332
channels 264, 266, 279, 294 weapons 483
environment influences 72, 74, 87, 89 in Web see information technology
global top ten 475 Welch, J. 156
fuel cells in 483 Wellcome 52
gas and electric 70 Wessex Regional Health Authority 13
market environment 52 what-the-market-will-bear pricing 356
new developments 483, 485 Whirlpool 3–4, 169
pricing 323, 340, 352, 359 wholesalers 263–4
sales outlets 74 Windows 219
segmentation 171, 172, 193 WIPO (World Intellectual Property Organisation)
strategic planning 454 18
see also roads WMS (warehouse management system) 288, 303,
vendor managed inventory 299–300 306–7
vertical decision-making 153–4 women 69
vertical demand 89 word of mouth 401–2
vertical integration 38, 276–7, 278 world see global; International
vertical markets 38, 489 World Bank 20, 34, 50, 126
viability of segmentation 168–72 World Intellectual Property Organisation 18
basis for 170–1 World Trade Organisation 59, 126
ethical and moral perspective 169–70 changing markets 477, 478, 479
law 170 China joins 239
objectives of organisation 168–9 environment influences 79
Viacom 383 market environment 10, 11, 20
videoconferencing 131, 134 classifications 34, 39
Vietnam 34, 35, 59 free trade 26
VIN (vehicle identification number) 4 harmonisation of laws 18–19
Virgin brands 74, 244 Uruguay Round 21
VMI (vendor managed inventory) 299–300 WorldWide Retail Exchange 72, 213, 359
voluntary integration 278–9 World Wildlife Fund 62
voluntary trading groups 264, 325 WorldCom collapse 367
Volvo 171, 172 world-wide-retail exchange 72
Wright, R. 190, 426
Wall’s Direct 39 WTO see World Trade Organisation
Wal-Mart 3, 11, 180, 279, 329, 475
warehousing 303–7 Xerox 166, 485
centralised 305–6
costs 303, 304–5 Yahoo 391
cross-docking 307 Yeo Valley 283
direct supply to manufacturer 305 Yili Dairy Products 239
distribution strategies 304
location 304 Zimbabwe 62

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Wright

• Comparisons between B2B and B2C marketing

Instructor and Student Resources

To enhance your learning, go to www.booksites.net/wright where you will find an instructor’s

Under a range of well-known imprints, including

To find out more about the complete range of our

Visit us on the World Wide Web at

First edition 2004

© Pearson Education Limited 2004

All rights reserved. No part of this publication may be reproduced, stored in a

ISBN 0 273 64647 8

British Library Cataloguing-in-Publication Data

Library of Congress Cataloging-in-Publication Data

Typeset in 9.25/12pt Stone Serif by 35

The publisher’s policy is to use paper manufactured from sustainable forests.

Chapter 1 The business marketing environment in the

Chapter 2 Understanding environment inﬂuences affecting

Chapter 3 Understanding business marketing environments 101

Chapter 4 Decision making and segmenting business markets 145

Market segmentation 166

Chapter 5 Managing business products/services for strategic

Chapter 6 Managing business marketing channels 253

Chapter 7 Pricing strategies for business markets 316

Aims and objectives 316

Chapter 8 Business-to-business strategic communications 363

Aims and objectives 363

Chapter 9 Formulating business-to-business marketing strategy 423

Aims and objectives 423

Chapter 10 Strategic business approaches to different and

Business-to-business marketing involves one business marketing products and

o A book with a global approach

o Structure of the book

Supplement download site

tell you that they plan, organize, coordinate and control.

Aims and objectives

Part 1 What is the business market?

o What is the business-to-business market?

Business-to-business compared with business-to-consumer

Example 1.1 Marketing in B2C markets

Business-to-consumer marketing, B2C deﬁnition

Business-to-business market deﬁned

intermediaries such as agents or wholesalers before they are bought by companies

Business-to-business marketing, B2B deﬁnition

Example 1.2 Marketing in B2B

Business-to-business and business-to-consumer markets

Example 1.3 B2B and B2C in retail markets

o Why business-to-business marketing?

It is felt to be important at this early stage to establish clearly what we mean by

Management deﬁnition of marketing

Identifying, anticipating, satisfying (exceeding), customer needs and wants at a proﬁt

Strategic deﬁnition of marketing

A strategic deﬁnition sees marketing as a ‘matching’ process:

The internal and external environmental model

o Strategy, Structure, Systems, Skills, Shared values (culture), Stafﬁng, Style

The eight Ss back up the marketing mix:

The use of models

The role of the business marketing manager

o Planning and forecasting – forecasting demand and planning the marketing

Example 1.4 Brand management