Business Market Analysis - Boeing Company - Case Study Example

Business To Business Market Analysis Advantages of Trading Blocks to Member Countries The cost of production per average unit of a product declines since the business can be able to acquire cheaper raw materials from other member’s states of a trading block. The economies of scales arise as a result of production in bulk and the firm is able to enjoy benefits such as quantity discount. (Benston, G.1963:64) Specialization is increased where a country is able to deal with what it produces more efficiently than other countries and acquire what it does not produce from its trading partners. . (Benston, G.1963:65) Greater variety of goods and services are available to both the final consumers as well as to the other businesses as raw materials of production. Firms are able to access the services of service industries from other countries. Disadvantages of trading blocks to member countries Due to stiff competition from foreign businesses, some domestic firms are forced to shut down. Only the strongly established businesses are left to compete with domestic firms. The firms are also subjected to more costs as a result of increased environmental requirement by the government. . (Benston, G.1963:67) Small- scale enterprises are affected negatively since they suffer from the diseconomies of scales. These small-scale firms produce goods in low quantities, and therefore they do not enjoy the economies of scales like the bigger businesses with whom they compete. As business grow in sizes, they produce at a lower cost in addition to the quantity discount that results from large scale production. . (Benston, G.1963:67) How the advantages of trading block influence the way business carry out their marketing to the business in the trading blocks. The trading blocks advantages have an impact on the way businesses market their product and services. The European Union has for instance subsidized the operations of Airbus which is a leading competitor of Boeing in the manufacture of wide body commercial jets. This subsidy has enabled it to offer to the airlines less expensive jumbo jets so as to be in a better position to compete with the innovative Boeing Company. The increased variety of goods and services that are available to consumer is an advantage to the buyers but a disadvantage to the suppliers supply .For a business to successfully market its products, then it has to convince these business that their products are unique and are of superior quality than their comp[editors. however its important to note that even though differentiation of products can result to a considerable increase in sales in the short term duration, for the business customers to become loyal to any particular products then, the goods supplied must be suitable to the kind of use they are put into. (Golden P 2001:87) When there is free movement of knowledge, a business is able to acquire a superior technology from other countries that can enable a country to be competitive in production as well as in the marketing. A firm can deal with increased environmental concern between the member states of a trading block by ensuring that products are produced in a way that does not pose any pollution threat to the environment. (Golden P 2001:89) The economic threat on smaller businesses in a member state of a trading block makes it necessary for such business to increase in size by either injecting more capital.., forming mergers or simply by increasing the level of scale of production. This would in turn help them to cut down their average cost of production as they economies of large-scale production. This strategy would improve their competitive advantage since they would be in a position to offer their products at a lower price. (Golden P 2001:89) How business gain competitive advantage A business is said to be enjoying competitive advantage when it earns economic rent cover (over and above the normal profits needed to sustain the capital in the current business) due to an advantage that it has over the other similar firms in the industry. Sustainable competitive advantage exists when the other firms are not able to duplicate or gain access to the advantage of a particular business in the long run period of time. Borenstein, S. Innovation leads to production of higher quality goods that can be able to satisfy the ever changing needs of the customers. As the customers become more satisfied, they are likely to be more loyal to the brands of one business than the ones of other businesses. This means that such a business which has managed to build loyalty of its products by consumers will spend less amounts of money on advertising its products. Due to its quality products it can either make more profits by increasing the prices of its products or by selling more commodities at a lower price. (Borenstein, S.1994:22.) For a business to be more competitive than its rival, it must invest on research and development. A business can further protect duplication of its products through registering copyrights and ensuring that the production techniques and formulae remain a secret (Borenstein, S.1994:19) Another way by which a business organization can be able to create a competitive advantage is through the use of superior information technology. Information technology is a very important resource in any business organization since it processes various business data that guides the management in its decision making process. When the level of technology is higher than for other firms, then the decision making process is faster and the firm can be able to identify and utilize business opportunities before the others. (Borenstein, S.1994:20.) However the most important resource through which a business can build a competitive advantage is by use of its human resources. Competent and highly motivated workers are an advantage that the competitors cannot easily duplicate unless they “poach” the employees of the particular organization under consideration. (Borenstein, S.1994:23.) For The business to be able to build competitive advantage through its, workers it should ensure that the training programs within the are superior in addition to presence of a recruitment and selection procedure that enables he firm to employ the better employees than its competitors. (Borenstein, S.1994:21.) A good culture that promotes commitment of the employees should also be encouraged within the organization together with suitable motivations that ensures the maximum possible output of employees is achieved. The result of “total quality employees” of a firm is a reduction in cost and increase in the productivity of every worker. Such workers are also less likely to misappropriate the other organization resources such as finances. (Borenstein, S.1994:23.) Another way through which a business builds a competitive advantage is by ensuring that the firm has a more competent management teams than its competitors. The business s can either train its management personnel or it can hire managers from other firms that have proved themselves in similar position. (Porter, M 1998:42) Good managers should encourage the workers to move an extra mile in their work and make timely and proper decisions regards the various issues of a business. They should also encourage the employees under them to participate in problem solving and decision making. (Porter, M, 1998:42) A business organization whose country is a member of a trading block should consider using E- commerce to reach out to a lot of potential customers in other countries. A company can use the services of call centre to advertise its products online and get immediate feedback from its customers about their individual needs relating to the firms products. The business is therefore in a position to promptly act to improve or rectify any weaknesses that might be inherent in their products (Porter, M, 1998:43) Factors that hinder a firm from gaining competitive advantage Government policy In some countries, the government can subsidize the operations of domestic firms and thereby lowering the competitive advantage that was previously enjoyed by foreign establishment. The subsidized firms are enabled to operate at a lower production cost leading and as a result they can price their products lower than foreign firms and make a reasonable profit margin. (Porter, M. 1998:46) Lack of finances The management may have a sound plan for building a strong competitive advantage but unless the firm not has the necessary funds to implement such a plan, then such a business will only manage to break-even. (Porter, M.1998:46) Availability of skilled labor and modern technology In some developing countries, the level of skills and technology is relatively low and even if the business decides to outsource these resources they can do so at a higher price cost. Therefore the domestic businesses in such countries are constrained by such resources to build a competitive advantage against their foreign competitors. (Porter, M.1998:47) Infrastructural constraints Infrastructure that leads to success of a business undertaking is include transport communication systems, electricity, security, banks and other supporting industries. If any of these infrastructural resources is not in good condition, then the firm is forced to function less efficiently than its competitors that are located in country that has better infra-structure. .(Michael S 2001:158) The state of the economy is another barrier that can hinder industries located in a particular country to be less than their rivals in a strong economy. Issues such as inflation or recession downplay the efforts of businesses to build competitive advantage.(Michael S 2001:156) Derived demand along the supply chain Derived demand is a situation where the demand of a business’ products partially depends on the demand of a firm that is higher in supply chain whose demand also is derived from the firms that are higher.( Busse, M.2005:49.) How business stimulate derived demand A business can stimulate derived demand through advertising the products that it deals with. The increase in final consumer demand will “ripple” through the supply chain leading to an increased demand for a firm’s product. However it is important for a business to forecast whether the increased demand of its product is sufficient enough to justify for a higher advertisement budget. (Busse, M 2005:50) A firm can also stimulate derived demand by reducing their selling price and recommending a lower retail price for its products. For example, suppose a firm reduces the price of wheat flour. The success of this price reduction strategy will only work if the firms that are higher in the supply chain of respond by lowering the prices of their products say bread that have been made from wheat. . (Busse, M 2005:52) The business can also reduce the price leading to increased demand by cutting down on the supply chain to the minimum required middlemen required to deliver the product to final consumer. Another way through which a business can improve on its derived demand is by making improvement on its products. This is especially the case in technology goods such as computers and mobile phones whereby the emergence of a advanced model tend s to boost demand to a great extent. Packaging of commodities in convenient quantities in addition to introduction of low priced commodities increases demand since a new market of low income consumer are enabled to afford a product they could not have afforded earlier Basis of segmentation in business to business marketing Geographic regions The firms may be grouped according to countries from which they operate. We can also group firms that are located in large cities from the ones that are located in rural areas. We can also use the company size to segment. Smaller firms which consume small quantities are grouped different from big firms that have higher demand. . (Busse, M 2005:50) Example The Boeing Company has segmented its market according to: the market of jumbo jets such as model 777and 747, there is also a market segment for slim body long distance jets, in addition there is a market segment for military plane and helicopters. Standard industry specification can also be used as a basis of segmentation since they indicate the uses a product applied to. Examples of such segment include spring manufacturing, sheet metal manufacturing, construction machinery and legal services. Macro versus micro segmentation Macro segmentation is broader classifications of buying organization in order to implement a general product strategy while micro strategy on the other hand is a detailed grouping of buyers with homogenous characteristics within the macro segment. Purchasing strategy, buying decision criteria and perceived importance of the product are among the example of micro segmentation bases while type of the institution, and geographic location forms bases of macro segmentation. Added value in business to business marketing As the products move from one level of supply chain to the other, some value adding activities are performed on it resulting to an overall value added that is more than the sum of the values of the activity of each stage in the supply chain. Such value adding activities include processing, sales and marketing, maintenance advertisement, packaging storage and transportation. It is however important to note that the cost added in particular supply chain stage does not necessarily reflect the value added in that level. Currently, many management strategists are trying to “capture the value generated along the supply chain to gain a competitive advantage. The concept of value added in a business to consumer market is to some extent different from added value in business to business market in that some value added by a business may be distorted along the supply chain y firms that are higher. For example the other firms may unpack the items and package them into smaller quantities. In the other hand in business to consumer market all the value added to a firm reaches the final consumer before they are distorted. (Ekelund.R P:36) Marketing of products and services In business to business marketing, the value added is determined by kind the economical use that the product is put into while in the other hand business to consumer marketing depends on the perception of the consumers regarding the product. The business to business involves small customers who require personalized marketing such as customized commodities and prices while business to business marketing deals with a big number of customers that are generally similar. (Goldberg, P: 2001:104) While a business to business marketing involves complex and long buying procedures with many players that contribute to “demand chain decision” the consumer marketing are simple and takes short duration of time to implement. The business to business also deals with large customers that buy in large units while business to consumer deals with smaller consumers and transactions. (Bonoma 1984:14) In business to business, the sales effort are directed on many purchasing influencers and while in business to consumer marketing, the sales activity are directed on the end user of the product. The business to business marketing also is channel oriented and involves a deeper partnership with different players up lower and higher in the supply chain while customer marketing monitors transaction towards the end user o f a product. (Borenstein, S.1994:.72) Example The Compaq Company produces the cheap desk tops computer with low storage capacity and computing ability and on the other hand it produces the costly mainframe computers and other superior designs to cater for the needs of large companies that require a massive storage capacity and faster processing speed. Contribution of marketing campaign The marketing campaign enables the firm to build a valuable relationship with the customers leading to loyalty of a firm’s product as a result of improved communication and feedback system. (Bonoma 1984) The marketing efforts also enable the firm not only to maintain the existing customer but also acquire new customers as well.( Borenstein, S.1994:67) The marketing efforts also enables the firm to identify the valued customers that have started to show disengagement in a firms product by consuming less of a firm’s products and have given to competitors tenders that they would have normally awarded to the firm. Customers that have stopped paying their bills are also identified early in advance before bad debts pile up. The marketing campaign also enables a firm to be able to determine whether it is attaining its retention targets as well as developing sales forecasts that a firm is likely to make. (Borenstein, S.1994:67) Pricing factors in business to business versus business to consumer marketing The business to business marketing is different to business to consumer markets in that the business market are more ready to pay a premium price than consumer markets without lowering the levels of sales to a great extent.. (Porter, M 1998:48). In consumer markets the elasticity of price change to quantity demanded should guide the setting of prices while on the other hand, in business markets firms should set prices in consideration to the use that the product is put into. Government policy: the consumer market is normally protected by the government where the government may restrict prices in some regions to prevent exploitation. Under such condition the supplier cannot set price above the specified limit. However this is not usually the case in business markets. Businesses to business markets can collude against suppliers to set lower prices especially in a market with fewer big buyers. On the other hand the consumer market cannot be able to achieve this since their consumption is less and they are too many. In business markets the price should always be set higher to allow for discount that the customer may request for. However this is not usually the case in consumer markets. Business is able to charge different prices in different regions for the following reasons: The price of products may be higher in countries in which copyrights rules are strict than in countries where copy rights are less strict where counterfeits can easily be developed. The prices can also vary in two different countries due to the use in which the product is put into. (Porter, M 1998:46) The supplier can also charge different prices in different countries because of various trade barriers including transport barriers that prevent low priced products to flows into countries where the prices of products are higher.(Michael S 2001:150) References Benston, G. 1964. Commercial bank price discrimination against small loans: Journal of Finance Bonoma and Shapiro 1984 Segmenting Industrial Markets, Idaho, Lexington Books. Borenstein, S. & Rose, N. 1994. Competition and price dispersion in the U.S. airline industry. Journal of Political Economy. New York Busse, M.& Rysman, M. 2005 Competition and price discrimination in yellow pages advertising. Journal of Economics, Edinburgh, Blackwell publishers. Ekelund.R. Price discrimination and product differentiation in economic theory: Quarterly Journal of Economics, Massachusetts, MIT Press. Goldberg, P. & Verboven, F. (2001). The evolution of price dispersion in the European car market. Michael & Speh, Thomas (2001), Business Marketing Management: A Strategic View of Industrial and Organizational Market: Orlando Harcourt College Publishers, Porter, Michael (1998) “Competitive Advantage: Creating and Sustaining Superior Performance. New York, Free Press. Read More