Character of Business Marketing

1. Character of Business Marketing

2. Classifying Commercial Enterprises • NAICS= North American Industrial Classification System • Replaces SIC (Standard Industrial Classification) codes • Common for NAFTA countries • NAICS hierarchical structure: XX Industry sector XXX Industry subsector XXXX Industry group XXXXX Industry XXXXXX U.S., Canadian, or Mexican national specific http://www.naics.com/cgi-bin/search.pl (continued)

3. NAICS Codes Divides economy into 20 major industry sectors (at two-digit level): 11 Agriculture, Forestry, Fishing, 54 Professional, Scientific, and Technical and Hunting services 21 Mining 55 Management of Companies and Enterprises 22 Utilities 56 Administrative and Support, Waste 23 Construction Management, and Remediation Services 31–33 Manufacturing 61 Education Services 42 Wholesale Trade 62 Health Care and Social Assistance 44–45 Retail Trade 71 Art, Entertainment, and Recreation 48–49 Transportation 72 Accommodation and Food Services 51 Information 81 Other services (except Public Administration) 52 Finance and Insurance 92 Public Administration 53 Real Estate, Renting, and Leasing (continued)

5. Supply Chain Management • Technique for linking manufacturer’s operation with those of all its strategic suppliers, key intermediaries, and customers.

6. Supply Chain Characteristics • Supply chains • Are multi-tiered • Are customer driven • Exist externally AND internally • Require a cross-functional effort • And their management are ongoing journeys – not destinations • Require good procurement activities • Source: Roberts, Julie S. (2003) “The Buzz About Supply Chain,” Inside Supply Management, (July), 24-28.

7. Supply Chain Example Source: Roberts, Julie S. (2003) “The Buzz About Supply Chain,” Inside Supply Management, (July), 24-28.

8. Procurement (Purchasing) Goals • Uninterrupted Flow of Materials • Manage Inventory • Improve Quality • Develop & Maintain Supplier Relationships • Achieve Lowest Total Cost • Reduce Administrative Costs • Advance Firm’s Competitive Position

9. Evaluating Potential Vendors Basic Considerations • Performance Considerations • Plant Visits • Geographic Locations • Capacity

10. Performance Considerations Must predict supplier’s total ability to fulfill the contract as it relates to: • price • delivery • quality • service

11. Plant Visits • Be sure to visit the supplier’s plant if possible • Try to gain insight into the: • type of facility • personnel • housekeeping • procedures • Serves as indication of vendor’s ability to provide necessary pre- and post-sale service

12. Geographic Location • Long distance shipments increase the chance of • accidents • strikes • acts of God • Geographic disadvantages can be overcome with • special transportation arrangements • inventory make-and-hold service

13. Capacity Must consider several items • Physical plant and facilities • Supplier’s technical skills • Supplier’s managerial skills

14. Vendor Rating Systems • The Categorical Plan • The Weighted-Point Plan • The Cost-Ratio Plan

15. The Categorical Plan • Buyers keep notes on supplier dealings as events occur • Buyers compare notes (usually at monthly buyer meetings) • Suppliers are categorized as being in the good, neutral, or unsatisfactory category • Highly subjective, but easy to use & understand • Disadvantage is it’s subjectivity: relies on memory, personal judgment, and the experience/ability of the buyers.

16. Categorical Method Example Vendor Cost Quality Speed Total AGood(+) Unsatisf(-) Neutral(0) 0 B Neutral(0) Good(+) Good(+) ++ C Neutral(0) Unsatisf(-) Neutral(0) -

17. The Weighted Point Plan • Assign weights (importance) to quality, price, and service (or other relevant criteria) • Should fit buying organization’s needs • Sellers are rated on each factor • Simple, but effective plan that can be modified to suit specific conditions • Somewhat more objective than the categorical plan

18. Weighted Point Plan Example:Quality

19. Weighted Point Plan Example:Price

20. Weighted Point Plan Example:Service

21. Weighted Point Plan Example:Composite Total

22. The Cost-Ratio Plan • All activities regarding a supplier’s performance are valued in terms of dollars • Total cost of buying is determined including: • letters, telephone calls, visits, etc • Total (real) cost varies from vendor to vendor based on vendors’ skills & dependability • Future vendors selected on basis of lowest total cost incurred

23. Cost Ratio Plan Process • Initial costs associated with Quality, Delivery, and Service are determined • Each cost is then converted to a ratio • Ratio expresses cost as a percentage of the total value of the purchase • Sum the three individual cost rates to obtain overall cost ratio • Apply overall ratio to quoted unit price

24. Abbreviated Example:Cost-Ratio Plan

25. Governments & Institutions • Compliance Programs • Must maintain affirmative action programs for minorities, women & disabled • Set-Aside Programs • % of contracts offered only to small or minority-owned businesses • Other aspects of non-profit buying will be addressing in Pricing

26. Two Types of Contracts • Fixed-price contracts • A price is agreed to before contract is awarded and payment is made at conclusion of work. • Provides for the greatest profit potential. • Poses greater risks. • Cost-reimbursement contracts • Reimbursement for allowable costs may be allowed and sometimes a number of dollars above costs as profit is allowed.

27. Relationship Marketing • All marketing activities directed toward • establishing, developing, and maintaining • successful relational exchanges • for the mutual benefit of all involved parties.

28. Partners in Relational Exchanges Goods Suppliers Services Suppliers Business Units Supplier Partnerships Competitors Focal Firm Internal Partnerships Lateral Partnerships Employees Non-Profits Buyer Partnerships Government Functional Dept.’s Intermediate Customers Ultimate Customers

29. Value of RM to Sellers • Helps to ensure substantial and reliablepurchase volumes at adequate margins. • Helps to determine the buyer’s choice the next time around.

30. Value of RM to Buyers • Costs of carrying safety stocks, and those of high return rates, numerous reorders, & long lead times have steadily risen. • RM helps to eliminate waste and improve system economies. • inventory reduction • decreased line shutdowns • purchasing labor savings

31. REQUIREMENTS FOR HIGH PERFORMANCE RELATIONSHIPS • BEYOND THE FINANCIAL CONSIDERATIONS: • INTEGRITY • FAIRNESS • LOYALTY • FLEXIBILITY • INPUT INTO PARTNER’S STRATEGY • PARTNER’S INPUT INTO YOUR STRATEGY • COMPLIANCE WITH PROCEDURES & AGREEMENTS

32. Types of Relationships • Discrete Transactions • have a distinct beginning, short duration, and sharp ending by performance. • Value-Added Exchanges • Focus shifts from attracting customers to keeping customers. Begin focusing more closely on understanding & fulfilling needs. • Relational Exchange • traces to previous agreements, and is longer in duration, reflecting an ongoing process.

33. Why is Trust So Important? • The parties have confidence in their relational partner’s reliability and integrity • Without trust, there is NO commitment • Without commitment, future exchanges are questionable at best • Without trust and commitment, negotiation costs are increased • Without trust and commitment, monitoring costs are increased

34. Synthesis and Extension Model of Relationship Management Relationship Termination Costs Constraint-Based Relationship Knowledge Relationship Commitment Relationship Benefits Dedication-Based Relationship Involvement Trust Shared Values Trust Dimensions Opportunistic Behavior Communication

35. Different Customer Motivations • Constraint-Based Relationships • One party believes it cannot exit the relationship due to economic, social, or psychological costs. • The strength of the constraints is a function of the party’s perceived dependence upon the other.

36. Different Customer Motivations • Dedication-Based Relationships • Party remains in relationship because he/she is committed to the relationship and wants to remain. • Dedication generally arises due to dependence and/or trust.

37. The Consequences Constraint-Based Relationship Dedication-Based Relationship Acquiescence Propensity To Leave Cooperation Enhancement Interest in Alternatives Identity Advocacy

38. Outcomes Associated with Constraint-Based Relationships • Interest in Alternatives • lasts only as long as constraints • individuals in constrained relationships attempt to restore freedom to chose. • increased attempts to identify alternative suppliers. • more environmental monitoring • more receptive to competitors’ relationship offers.

39. Outcomes Associated with Constraint-Based Relationships • Acquiescence • degree to which partner accepts or adheres to another’s specific requests or policies. • passive agreement to maintain the relationship.

40. Outcomes Associated with Dedication-Based Relationships • Cooperation • active participation for mutual benefit • Enhancement • broaden/deepen relational bonds • buying additional services • providing capital, information, labor, or other resources • participating in company events

41. Outcomes Associated with Dedication-Based Relationships • Identity • thinks of relationship partnership as a team and considers the partner in proprietorial terms.

42. Outcomes Associated with Dedication-Based Relationships • Advocacy • ultimate test of relationship • promote relationship partner to others • defend relationship partner against detractors • main purpose is to, of course, benefit from positive word-of-mouth.

43. SUGGESTIONS FOR MAKING B2B RELATIONSHIPS LAST • On-site visits • Trade personnel • Manage total dependence with alternate suppliers • Continuous service • Develop a relational contract (????????)