Business to Business Marketing - Term Paper Example

? Business to Business Marketing Grade This paper aims at exploring the pricing aspect and how the marketing managers differ in approach when it comes to a difference in the market i.e. a B2B market or a B2C market. This paper would discuss various aspects and scenarios, and how negotiation is done on behalf of the marketing manager towards the customers. Introduction Kotler (2005) states that the term marketing is derived from the basic structure of a market; the latter is a place where exchange of commodities, goods, and services takes place while the former define the activities that take place in the market. Marketing is a broad spectrum of activities that define the function of a market – technically, markets provides grounds for exchange of value. In past days, it was goods vs. goods i.e. the barter system while in present days, its goods vs. monetary terms – the money value. In simpler terms, seller puts a price tag on the products and services, buyers reach, negotiate, and purchase – this is a simple market cycle/activity. Marketing includes all these activities and beyond as well – activities that start from attracting the customer to the point of sales, completion of transaction, and relationships beyond to ensure repeat purchases. Prior to pouring deep in the project and research of the said paper, it is important to understand the forms of markets that exist. The fundamental form of division of markets based on the customer type is the area of interest for this research paper. In accordance with Hooley (2007), there are mainly two types of markets that exist across the broader scale in marketing terms; Consumer Markets & Industrial Markets – the latter is also known as Business Markets. The further description and analytics of the two is discussed in the forthcoming sections. Industrial Markets According to Doyle (2006), Industrial Markets, also known as B2B (i.e. Business to Business) Markets involve the sales of goods and services between businesses – not aimed directly at the customers. These may include examples such as: Selling raw material from one organization to another e.g. wood seller to furniture maker like IKEA Selling final products from one organization to another e.g. a firm purchasing Blackberry handsets from RIM (Research In Motion) Corporate Wing Corporate Sales of Services Outsourcing deals such as call centres Manufacturer to Whole-seller, Whole-seller to Retailers i.e. the intermediary set up Thus, if in a transaction, the buyer and seller both are businesses, then the arrangement is known as a B2B market/structure/arrangement. According to Aaker (2007) B2B markets have small number of buyers, with larger requirements; for example, Wal-Mart may purchase a number of laptops from IBM or Dell, but an individual consumer may purchase just one – so fewer transactions but individually, the worth of a single transaction is on the higher side as more units are involved (Menon, 2005). B2B purchases are generally a lengthy, systematic, and structured process that involves at least one department and a number of individuals from either side. Other than routine purchases that involve regular order placing, the process starts by raising a RFQ (Request for Quotation), to which firms respond with an EOI (Expression of Interest); generally, the supply chain or procurement department analyzes the quotations with a variety of processes, and then gradually the purchase is made (Wardell, Wynter, and Helander, 2008). The different processes include searching, short listing, discussions, negotiations, sampling, contracts, order placement, order delivering, replenishment, etc. With long term commitments, strategic alliances are formed between the businesses. Payment terms are also negotiated – the transactions generally do not have a quick outflow of cash but credit terms. For each product being sold, there are a number of suppliers and manufacturers involved behind the product’s formation. In B2B transactions, there are lesser intermediaries – almost as good as none (Harmon et al, 2009). Individual/Consumer Buyers In accordance with Doyle (2006), Individual/Consumer Markets, also known as B2C (i.e. Business to Consumer) Markets involve the sales of goods and services between businesses and individuals, aimed directly at the consumer. These may include examples such as: Supermarkets that sell to the customer directly IKEA, Nike, Pepsi, Samsung, etc. all selling to individual customers come under the definition of B2C Retailers, corner stores, electronic markets, etc. all selling to individual customers come under the definition of B2C Thus, if in a transaction, the buyer is an individual consumer, while the seller is a business, then the arrangement is known as a B2C market/structure/arrangement. The market of business to consumers is considerably larger than the markets for business to business organisations. Baye (2010) states that the B2C markets have large number of buyers, with small requirements; for example, an individual going to Wal-Mart may purchase a number of items of various brands and different products but the individual unit or quantity count may not be on the higher side – so more transactions but individually, the worth of a single transaction would be on the lower side compared to the transactions of a B2B purchase. Channels of Distribution The channels of distribution in the B2C markets are firstly the producer, then to the agent/broker, then to the wholesaler, then to the retailer, and then finally to the consumer. The channels of distribution in the B2B markets are firstly the producer, then to the agent/broker, then the wholesaler and then finally to the business user (Kotler, 2005). B2C purchases are generally a short process – less systematic, and more of regularity buying or impulse buying or combination of both. It involves the buyer who either is the direct consumer or purchases on behalf of the actual consumer. In B2C transactions, there would either be no intermediary, in case of direct shop, factory outlet, franchising, etc, or there may be several intermediaries such as whole seller, retailer, etc (Hinterhuber, 2008). How does B2B differ from B2C? The unique aspects There are some fundamental distinctions between B2B and B2C transactions. According to Drummond (2007), some point out are discussed as below: Mode of Sales In B2C scenario, products are displayed alongside competitors, e.g. in supermarkets; customers visit the display, analyze the cost-value proposition, and check out other variables such as marketing, branding, word of mouth, etc. and make a quick decision. In an example such as super market, the purchase decision doesn’t take more than a few minutes to finalize the decision. Appearance, price, ease of usage, branding, advertising, etc. – any or all of these variables can influence customer decision making. These transactions are generally made on cash terms. In B2B scenario, purchases are made via relationship management – the only success in B2B sales comes via good relationship managers. It is important for a sales person in such a structure to know the forms and routes of B2B sales thoroughly and can manage relations accordingly. These transactions are generally credit based with varying terms and conditions (Gale and Swire, 2006). Market Medium B2B are generally narrow segmented markets, and specialized segments. The seller is generally the manufacturer. B2C are wider segments, and mass markets. Sellers are generally retailers, sometimes whole sellers, and seldom manufacturers. Number of Buyers; Volume and Size of Transactions B2B transactions witness small number of buyers, lesser number of transactions, while each transaction has large number of units associated. B2C transactions have a wide audience to cater to – there is higher number of transactions, while each transaction associates a lesser number of units being sold. Decision Making Process B2B purchases go through a tedious, long, well structured, and systematic process. Such purchases are generally a long process, taking into account departmental involvements B2C are relatively either impulse or planned buy-outs that do not take a very long time to complete the purchase process. Cash Cycle B2B transactions have a longer cash cycle as the purchases are generally on varying credit terms. On the contrary, B2C transactions are generally cash transactions or quick credit ones that mature very quickly. Negotiation Power of Buyer/Seller In today’s market, buyer always has the negotiation power over the supplier primarily because of excessive choice and ease of access to international sellers When referring to the B2C market, prices are generally fixed – e.g. when one goes to the super market and a can of Pepsi is for $1, there is no bargain or negotiation unless the quantity required is on the higher side, and then too, it’s more of a bulk buying discount. In corporate deals i.e. B2B setup, there are discounts and negotiation that define the route of success or otherwise when a deal or a purchase is underway. Pricing Strategy There are various pricing strategies used by marketing managers depending on the consumer and the respective target market, in terms of B2C pricing. When talked about B2B pricing strategy, its generally Cost-Plus-Pricing that is used (Doole and Lowe, 2005). Relationship Marketing Jobber (2006) states that there is a thin line difference between B2B and B2C markets, and that thin line arises due to the difference in nature of the ‘customer’ – this difference of buyer leads to all other differences amongst the two structures. Managing these markets is a difficult task for marketing managers because of various factors. While addressing the need of the customer, their profile and background study is important; along the same lines, marketing managers profile the individual and corporate customers accordingly to target them in an appropriate manner. The marketing strategy, advertising, branding, etc. all vary (Lancioni, 2005). Approach to Pricing for a Marketing Manager – B2B vs. B2C Decision Buying Aspects Johnson (2008), states that the Marketing Managers have a strong say in terms of setting up prices – factors taken into account are the product costs, marketing cost per unit, admin cost and overheads, taxes, and so on. Added to that, the profit margins, and compared to the competitive arena, gives the prices of a commodity. There are various mechanisms of determining the price levels, the discussion of which is out of the context and scope of this research (Ingenbleek, 2004). When Marketing Managers in a B2B scenario evaluate pricing, in accordance with McDonald (2011), they take into account the marketing costs of a relationship manager and the investment it would take for a long run relationship. There are margins for negotiations, and prices are set taking into account what the competitors are offering (Indounas, 2009). A marketing manager would first analyze the unique selling points that his product is offering to the customer, and compare the whole deal to the competitor’s offering and then develop a customized solution for the business (Brennan, Canning, and McDowell, 2007). Consider the example of a software house; when marketing their software, they would consider what the competition is offering. If there is a feature that is not part of the basic requirements and is adding to the cost factor, then there are chances that the marketing manager would drop that accessory to reduce its pricing (Erickson and Rothberg, 2009) Similarly, if a cheap cost feature is adding value, it would be added to the offering. The pricing element keeps into consideration several factors, as identified by Mullins (2010), e.g.: There is no way a customer would accept the price at its face value – thus there has to be a negotiation factor or margin that has to be included The competition pricing would also be flexible and would give their level best to ensure that they get the deal One deal is an entrance point in the organization – then the re-ordering is what produces maximum profits It should be priced appropriately enough to develop long term working relationships with the clientele As stated by Mulcaster (2009), pricing of B2B structures is mostly unique in all cases because, carrying on the example of a software solution, one organization may have different set of rules and requirements than the other, and therefore, the required ‘modules’ may differ. At the same time, even if the software is completely same on the whole, there might be difference in the services contract based on the buyer requirements (Brennan, 2002). Another noticeable point is that there is lesser overhead and marketing cost associated with corporate deals because it mainly requires a team of individual that continues the process required via an RFP. In addition, there is the bulk buying factor, which implicates discounting possibility. According to Nag (2007), when Marketing Managers in a B2C scenario evaluate pricing, they take into account all possible factors that were mentioned in the introductory part of this section. The consumer market is a bit technical in nature; due to vast customer base sharing some homogenous needs that derives the purchase of a product, marketing managers need to account for the demographics and nature of the target audience – this audience is large and consists of masses. In B2C markets, products are more or less homogenous in nature, and therefore, customer loyalty is difficult to attain, whilst switching is easy and impulse decision. There is a very simple scenario; a marketing manager attracts the customer to come to a super market, and make a purchase of his brand but at the last moment, the customer sees a competing brand that is offering almost the same product at a bit reduced price, and decides to buy the later – this is an impulse decision. The marketing manager, thus, needs to ensure that the pricing proposition is such that the customer does not change the decision at the last moment. There is hardly any negotiation when it comes to B2C markets, but there are of course some exceptions (Chun and Kim, 2005). These days, the prices are set, generally, at a competitive level, unless there is a brand differential; e.g. a can of Pepsi would be the same price as a can of Coke. However, a Nokia mobile would be at a different price level than that of Samsung, even if specifications are the same – the differential is a brand value. The later example also applies to branded and non-branded clothing or foot wear. The pricing keeps into consideration several factors, according to Ferrel (2005), e.g.: There is hardly any negotiation at the retail level but the competition is probably in the same display box, thus, pricing has to be an attractive feature The brand value needs to be compensated in the pricing The price setter must know the value of the product compared to competition as well as compared to other brands – the brand persona needs to be clear Pricing should be standardized across the board e.g. the price of a can of Pepsi in North America should be the same in South America – same goes for Texas, Florida, New York, etc. unless geographical pricing is applied. Pricing should be such that it becomes a good value proposition for the customer rather than a onetime buy In accordance with Cole (2011), pricing of B2C is more or less the same in all cases, even with brands that exist across geographical boundaries; pricing is more or less the same, with addition of currency and taxes differentials. Manufacturers tend to establish factory outlets or direct selling units to reduce margins, and thus, to provide favourable rates to the end consumer – this strategy has been a very successful one especially when it comes to brands or major FMCGs (Fast Moving Consumer Goods). Optimal Pricing Strategy According to Baines (2010), there is only one rule of thumb in business – that there is no rule of thumb; each situation has its own uniqueness and its own parameters that require actions to be taken. Situations may vary in their intensity and nature and the pricing element needs to be adjusted accordingly keeping in view the situation. Pricing point has been one of the major causes of concerns for marketers considering economic downturn and rising levels of inflation. Inflation impacts the pricing decisions to a very large extent. According to Cravens (2010), price elasticity has been one major challenge for marketers, in both B2B and B2C markets. However, they do need to take into account the affordability factor for the consumers. Pricing strategies, as stated by Grant (2010) differ for corporate and individual customers, which is mainly due to the extra services that corporate buyers bargain for due to the heavy transaction size. The opportunity lies for the intelligent marketer to develop their own optimal pricing strategy that has in account all the required variables and consideration issues that were discussed in the previous section of this research. Once those issues are taken into account, the right pricing strategy can be formulated for the right target market. Proper pricing formulation strategies are an important requirement so that the desired results of success are attained by the organisation. Conclusion The pricing factors are different for business to business markets from the business to consumer markets. In business to business markets, the business customers are not price sensitive whereas in the business to consumers markets, the consumers are highly price sensitive. The marketing managers have to accordingly cater the customers according to the market they belong to as pricing in both markets differ considerably. Situations and nature of business impact the pricing decisions to a very large extent. References Aaker, D & McLoughlin, D., 2007 Strategic Market Management. European Edition. John Wiley & Sons. Baines, P. Fill, C. & Page, K., 2010 Marketing. Oxford: Oxford University Press. Baye, M., 2010. Managerial Economics and Business Strategy. McGraw-Hill Higher Education Brennan, R., 2002. 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