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1. Explain the concept of the ‘relationship spectrum’. Under what conditions is a buying organization likely to adopt a collaborative approach to supplier management, and what marketing strategies are appropriate in that case?
See chapter 4 of Business-to-Business Marketing
George Day (Journal of Academy of Marketing Science, 2000) introduced the concept of the relationship spectrum. He argued that creating and maintaining appropriate customer relationships was at the core of marketing strategy, and proposed the relationship spectrum as a tool for analysing whether a deep customer relationship, or a more transactional approach to marketing, was suitable. Therelationship spectrum is asimpleyet profound tool fordeveloping a preliminary insight into the key contingencies affecting a B2B marketing strategy. It runs
from transactional exchange to collaborative exchange, with value-adding exchange lying between these two extremes. Transactional exchange occurs where neither the customer nor the supplier wishes to develop a lasting business relationship; the customer makes a purchase from the supplier, pays for it, and that is the end of the matter. At the other end of the relationship spectrum is collaborative exchange, where the customer and the supplier engage in extensive information sharing develop close social and process linkages and become committed to each other because they expect to work together for the long term and generate mutual benefits. Between transactional exchange and collaborative exchange lies value-adding exchange where, without engaging in deep customer relationship building, the strategy of the selling firm moves from a simple selling approach (appropriate for transactional exchange) to a customer retention approach.
The choice of whether to adopt a more, or less, relational marketing strategy can be analysed using the relationship spectrum. In markets for commodity items (which are very hard to differentiate), where it is not necessary to establish complex information linkages to conduct business, and where the buying organization finds the purchase neither complex nor of critical importance to its business (these can be described as ‘non-mission-critical’ purchases), then it is likely that transactional exchanges will dominate. Under these circumstances, marketing organizations should concentrate on having the best deal available to meet the needs of the customer; a strategy of substantial investment in customer relationship development is risky in these circumstances. However, as we move along the relationship spectrum from transactional exchange to value-adding exchange and then collaborative exchange, it becomes appropriate to use more and more relationship-building approaches within the B2B marketing strategy. In markets for specialized, high-technology items (which are easy to differentiate), where it is necessary to establish complex information linkages to conduct business, and where the buying organization considers the purchase to be both complex and critically important to its business (‘mission critical’ purchases), then collaborative exchanges will dominate. The marketing strategy for this type of exchange involves multi-level contacts between the buyer and the supplier, joint planning, and joint problem-solving, and it is to be expected that trust will be developed between the relationship partners. An example of this can be seen in the relationship between the telecommunications firm BT and the financial services firm Standard Life (see the video‘StandardLifeworkingwithBT’athttps://www.youtube.com/watch?v=WFlyOqy1lZk). Collaborative exchange is likely to be preferred by the buying organization when:
• there are few alternative suppliers
• the market is highly volatile
• the purchased item is a very important input
• the purchase complexity is high
• there is a need for considerable information exchange between buyer and seller
• operational linkages between buyer and seller are substantial. Under conditions of collaborative exchange, the B2B marketer would be advised to use a relational marketing strategy. That is to say, it is worthwhile investing time and resources in relationship-building activities and trying to tie the customer in, for example through specific assets (transaction cost theory) or through activity links, actor bonds, and resource ties (IMP theory).
When evaluating the candidates’ answers it is useful to think about the extent to which they demonstrate understanding of the core concept (relationship spectrum), and then how well they can explain the application of the concept. One would expect most candidates to be able to describe the concept reasonably coherently, while stronger candidates will also be able to provide a good explanation of how it is applied.
1. ‘Many marketing scholars make a distinction between industrial marketing and consumer marketing … This paper shows that this distinction is unjustified’ (Fern and Brown, Journal of Marketing, volume 48, 1984). Explain why business (or industrial) marketing is commonly distinguished from consumermarketing. Providea reasoned explanationofwhy you agree, or disagree, with Fern and Brown.
See chapter 1 of Business-to-Business Marketing
The arguments for distinguishing business markets from consumer markets:
• Derived demand. Demand for business products is derived from demand for what can be made with them, not for their intrinsic utility. The business marketer must be aware of what is happening not only at the customer level, but at levels further down the value chain, otherwise demand for the product/service may vanish through no fault of their own.
• Concentration of demand. In many business markets, demand is highly concentrated in the hands of very few important customers (e.g., automotive OEMs). Conventional mass marketing as applied in consumer markets makes little sense.
• Geographical patterns of demand. Many industries are clustered geographically (e.g. theautomotiveindustryintheWest Midlands and the ITindustryin theThamesValley) Demand for certain business products and services can exhibit strong geographical bias.
• Elasticity of demand It has been argued that patterns of demand elasticity are often different in business markets, for example, that there are occasions on which increased price can be taken as indicating a forthcoming shortage of critical components, leading to increased demand (perverse elasticity). I am not sure I really believe this argument, but I have shared it with the students (along with my doubts).
• Nature of the buying process
Organizational buyers are often professionally trained and they usually work to explicit buying criteria. Broadly, the organizational buying process is more rational than the consumer buying process.
In good answers students will explain these differences clearly and will also provide a cogent explanation of the ways in which these factors affect the marketing mix – for example, the extensive use of personal selling as a key promotional strategy because of the concentration of demand and the nature of the organizational buying process.
Authors who dispute the distinction between B2B and B2C markets and marketing, such as Fern & Brown (in the Journal of Marketing, 1984), do not really dispute the practical differences between consumer and business markets. They argue that mostly these are differences of degree rather than of principle and, therefore, that there is no fundamental difference of principle between business/industrial marketing and consumer marketing. They may well be right! However, for practical purposes the difference is of considerable importance. (Note: Fern and Brown article is in the module handbook and is compulsory reading for the module.)
1. Explain how the concepts of buying decision criteria, the buying centre, and risk reduction behaviour in organizational buying, could be of use to an industrial (B2B) sales-person. Illustrate your answer by referring to both of the following buying situations: (a) a salespersonfor asmall commercialcleaning company trying to persuadeasmall local firm to usetheminstead ofVeolia; (b)asalespersonforCaterpillartrying to persuadeanational house-building firm to buy their products rather than those of a major rival. [Note: Veolia is a multinational environmental services firm; Caterpillar is the world’s leading supplier of heavy construction equipment.]
See chapter 3 of Business-to-Business Marketing.
The buying decision criteria approach to organizational buying behaviour assumes that firms pursuemoreorless rational decision-makingapproaches, withinwhichthedefinitionoflargely objective, measurable decision criteria is a key step. These criteria are specified in terms of characteristics such as quality, price, total cost of ownership, performance requirements, aftersales support, and so on. The buying centre model focuses on the people who are associated withthebuyingdecision.Thisvariesconsiderablyinsizedepending onthenatureofthebuying organization and the nature of the purchase decision; different members of the buying centre will often have different priorities for the buying decision criteria. The roles found within the buying centre are the initiator, the buyer, the decider, the influencer, the use, and the gatekeeper. Finally, it is known that organizational buyers tend to act to reduce the risk that they perceive in a buying situation. They may do this by gathering additional information, or by trying to dilute the responsibility for the decision by seeking the advice (and implicit agreement) of powerful organization members, or by choosing the ‘safe’ supplier rather than necessarily the ‘best’ supplier.
The three concepts apply rather differently to the two cases. A small local firm will not have a complex buying process and may only have a buying centre of one; buying cleaning services is usually regarded as a commodity purchase (obviously not the case in the case of ‘clean rooms’ used in the production of such products as microprocessors and pharmaceuticals, but a good generalization); buying from a small cleaning firm will be perceived to be ‘risky’ compared to buying from Veolia; and price is likely to be a very important decision criterion in this case. A national house-building firm, when buying major pieces of construction equipment, will probably involve several people in the buying centre, each bringing their professional expertise; this is a differentiable product; Caterpillar, as the global market leaders, can present themselves as the safe and sensible (risk-free) choice; although price will be among the decision criteria, it is very unlikely that the nominal purchase price of the equipment will be a deciding factor (functionality, reliability, after-sales support, and total cost of ownership are probably more important).
There are clearly many different degrees of sophistication at which this question can be answered. For a low pass, candidates need to demonstrate that they understand the three concepts and at least have some notion of how to apply them to the specified ‘scenarios’. Good quality answers will be characterized by their clarity of definition of the concepts, and their accurate and well-developed application of those concepts to the ‘scenarios’.
The thing that will most clearly differentiate a good answer to this question from a mediocre answer is the accurate application of the concepts to the scenarios.
1. According to Millman & Wilson (1995), a key (or strategic) account is ‘a customer in a business-to-business market identified by a selling company as of strategic importance’
What reasons motivate B2B firms to implement key account management? What criteria can be used to identify a company’s key (or strategic) accounts?
See chapter 9 of Business-to-Business Marketing.
Key Account Management (KAM) is a strategy that is used in the implementation of relational approaches to B2B marketing. The literature suggests a number of reasons to adopt a KAM strategy:
• A competitive marketing strategy designed to increase market share;
• A strategic marketing decision to allocate more corporate resources to those customers that generate the largest share of revenue;
• A strategic marketing decision in order to more closely tailor solutions to the needs of customers (closer matching between our technological capabilities and their technological needs);
• A strategic marketing decision designed to deepen long-term relationships with customers;
• Response to competitor action, or to wider market-place pressures;
• Re-positioning the organization to be more attractive to larger clients.
The key criterion for identifying key accounts is the ‘strategic importance’ criterion mentioned by Millman and Wilson. However, this can be interpreted in a variety of different ways. The most important are:
• The volume of potential business available from the client;
• The volume of past sales to the client;
• A client account that is subject to actual or potential competitor action; that is, where there is a real threat of losing business from an important customer to competitive action;
• The overall size of the customer organization;
• The industry sector of the customer;
• Managerial discretion (e.g., an account – such as a government agency – may be deemed to be politically important, even though it is of relatively low economic importance).
In a good answer the candidate will demonstrate a clear understanding of the concept of KAM; that is, that it is a form of strategic marketing directed at individually important B2B customer accounts, and will then provide a clear explanation of the rationale behind KAM, and the selection criteria used in identifying the key accounts.