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  • 1. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Student Study Guide Chapter 9: Formulating Business to Business Marketing Strategy Summary Questions Activity Case Study The Auditing Process, The Mission Statement and The Planning Process Supplementary Information 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 buyer and organisational continual satisfaction as the driving force behind strategic choice and strategic implementation. In the same vein the need for the B2B supplier to constantly collect information on the competition (both immediate and potential) assess competitive advantages, and work to gain superiority was discussed, examined and recommendations were made. The importance of marketing, at both management and strategic levels was identified and an attempt was made to show how this becomes the guiding force in th4e 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 and this was broken down into the internal and the external environment. The external environment was discussed under the acronyms ‘PEST’ and ‘SPICC’ and the internal environment under the acronyms ‘8s’ and the ‘8ps’. The SWOT model was used in the second part of the process to collect and analysis the information for future strategic decision making. We then moved on to look at the next stage in the planning process, strategic choice. The role of the corporate mission statement and corporate objectives were briefly outlined before moving on to examine the role of sales forecasting and gap analysis in the setting of B2B marketing objectives. 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, relevant competition and to set SMART strategic marketing objectives and control mechanisms for each selected strategy was discussed before moving on to examine the last category in strategic planning process, strategic implementation. All the factors that should be considered when looking at the tactical implications and implementing strategic programmes in B2B markets were now scrutinised with the reminder that strategic planning without successful implementation was a waste of time and a recipe for failure. It was shown how tactical objectives arose from short-term strategic objectives and then broken down in detail, with clear performance indicators, across a designated time period, 12 months in this case. Finally all important areas and stages used in programming and tactical planning were shown and briefly discussed including, target organisations, immediate competition, marketing mix day-to-day planning requirements, allocation of responsibilities, timings and budgets and the building in of feedback monitoring and control mechanisms. Moving on to the website we then identified and the examined the many strategic approaches that different B2B organisations might take in successfully running a business at both the national and international level. As an initial approach we took the four basic generic strategies identified by Ansoff. Beginning with existing products in existing markets the possible business strategic approaches were described in some detail including market penetration, consolidation, divestment and liquidation. They other generic strategies, product development, market development and diversification where then Pearson Education © 2004
  • 2. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide examined and options outlined. Strategies according to market positioning, first to market, follow the leader, me-to and niche marketing were then discussed and B2B examples given to explain how they might be used. More strategic approaches were identified including the need for adaptive strategies, a small selection of proactive and reactive strategies as well as the problems associated with strategic when strategies wear-out and become no longer applicable. Finally in this section the need to manage B2B products and services across the product life cycle from introduction, growth through to maturity decline was examined and suggestions made on the problems that might have to be faced in each area. Still on the website we then examined the business strategic options used when marketing in international business markets was the subject of debate. The nature of business markets were briefly outlined before going on to look at how and why companies decide to market abroad beginning with a discussion on indirect market entry strategies. Piggy backing, export houses, international trading houses, importing agents, foreign distributors were all briefly touched on before going on to talk in more detail about the different types of contracting. Under contracting we examined licensing, franchising, management contracts, outsourcing, strategic alliances, cooperative working and international value chain relationships. We then went on to identify and evaluate direct entry methods. Here the use of agents, a direct sales force, acquisitions and mergers and the building on green field sites were shown as ways a business should consider when entering markets in this way. The meaning of globalisation was then explained problems sketched out and the pros and cons of a centralised and decentralised approach given before the different types of international and global market structures were shown. In the third section the future of national and international B2B marketing was the general subject of debate. Pearson Education © 2004
  • 3. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Questions 1 Identify in general terms the differences between strategic and tactical planning. What are the advantages and disadvantages with 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 is 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 programmes might play in the process with reference to relevant web sites. 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 with 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 of the factors involved in the B2B strategic planning process. What are the differences in strategic planning between B2B and B2C markets. 9 Discus 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? Web addresses All UK Government web-sites – (www.open.gov.uk) BBC business website - (www.bbc.co.uk/worldservice/business) Business Advice Online (UK government) – www.businessadviceonline.gov Business online magazine – (www.business.com) Compaq – www.compaq.com Dell Computers – (www.dell.com) Federal Trade Commission – www.ftc.gov Fujitsu – (www.Fujitsu.com) Guardian Business News - www.guardian.co.uk/worldnewsguide Hewlett Packard – (www.hp.com) Marketing resource base – (www.marketingshout.com) Mintel Marketing Research Company – www.mintel.co.uk PIMS Europe management consultants – www.pims-europe.com Q ci CRM consultants (www.Qci.co.uk) Ray Wright website – www.studentshout.com The Balanced Scorecard Institute (www.balancedscorecard.org) The Benchmarking Centre – www.benchmarking.co.uk The Outsourcing Centre – (www.outsourcing-center.com) Pearson Education © 2004
  • 4. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Activity 1 Surf the Internet and identify the present state of the HP market, try to discover whether the merger could now be considered a success or failure. 2 Go onto the Hewlett Packard and Compaq website and identify the mission statement and the planning processes of both companies. Also try to identify how it segments its B2B world customers for its products. Website addresses All UK Government web-sites – (www.open.gov.uk) BBC business website - (www.bbc.co.uk/worldservice/business) Business Advice Online (UK government) – www.businessadviceonline.gov Business online magazine – (www.business.com) Compaq – www.compaq.com Dell Computers – (www.dell.com) Federal Trade Commission – www.ftc.gov Fujitsu – (www.Fujitsu.com) Guardian Business News - www.guardian.co.uk/worldnewsguide Hewlett Packard – (www.hp.com) Marketing resource base – (www.marketingshout.com) Mintel Marketing Research Company – www.mintel.co.uk PIMS Europe management consultants – www.pims-europe.com Q ci CRM consultants (www.Qci.co.uk) Ray Wright website – www.studentshout.com The Balanced Scorecard Institute (www.balancedscorecard.org) The Benchmarking Centre – www.benchmarking.co.uk The Outsourcing Centre – (www.outsourcing-center.com) Pearson Education © 2004
  • 5. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Case Study Hi-tech merger The year 2001 was a bad year for the sales of computers and associated products. After years of phenomenal growth, both in the US and around the world the economic downturn seemed to take most commentators by surprise and cause a slump in sales much more severe than analysts had originally expected. With hind site, however, few should have been surprised. The end of 2000 saw the bursting of the high-tech bubble as dot.com after dot.com went bust and shares plummeted in a sharp and unexpected reverse of the heady boom of the late 1990s. Of course business experts should have foreseen the collapse as it was impossible for market share prices to remain so unrealistically high. At one time the highest top world 100 companies, by market value, contained internet companies that existed almost in name only with few sales, little structure, excruciating costs yet inundated by investors wanting to put ever increasing amounts of money in to the company based on a ‘gold-rush’ mentality and wishful thinking. Crazy prices In January 2000 America Online was worth more than GM, Ford, and the entire American steel industry combined. Yahoo was worth far more than Burlington Northern Sante Fe, Union Pacific, Norfolk Southern, CSX, and all the rest of America's railroads combined. Amazon.com was worth more than Sears, Kmart, J.C. Penney, Saks, and Nieman Marcus Group combined. EBay, the auction site, was worth about the same as the New York Times Co., Dow Jones, and the Washington Post combined. Red Hat, which marketed software could be obtained free off the Internet (the Linux operating system), was worth more than British Airways, Japan Airlines, and KLM Royal Dutch Airlines combined. Technology giants, Dell and Hewlett-Packard (HP), where an integral part of the dream process. Initially they had both faired extremely well having, unlike many dot-com companies, sound business propositions based around researched marketing plans and concrete customer benefits, and not on empty hopes and skeleton structures. At the beginning of the year 2001 the top PC markers in the world were Dell, with sales of nearly 4 million, Compaq, with sales of 3.59 m, IBM with sales of 2.13 m, HP with sales of 2 m and Fujitsu with sales of 1.375 m. (source IDC). In the middle of 2001, like almost the whole of the IT industry, the computer sector was hit with the harsh reality of a world coming to terms with the fact that most of the world was in the grip of some kind of economic recession, hopes and aspiration for the growth of the Internet was all mostly an illusion, money didn’t grow on trees, basic business structural factors did matter and the party was over. In July 2001 came the shattering news that, according to Gartner Dataquest computer sales had fallen for the first time in 15 years as the global economic slowdown persuaded corporate buyers to postpone or cancel investments in IT. The world market for computer products was already oversubscribed and this downturn only compounded the woes as the Technology giants were hit by growing competition. In the second quarter of 2001 profits at Dell, the world's top-ranking personal computer maker, slumped 28% to $433m compared with a year before. Similarly profits at Hewlett- Packard plummeted 89%, year on year, to $111m. Both companies emphasised the difficulties in gaining profits from stagnant computer markets, with Dell reporting "intense price competition". At the same time HP was attempting to shield itself from the global high-tech slump and strengthen its position in the market by trying to purchase Compaq, the number 2 in the market. It was argued by senior managers at HP that because the two companies had overlapping interests around the world, they would be able to gain economies of scale, merge and rationalise their operations, outsource some manufacturing and save, almost immediately, $2.5bn. Opponents argued the deal would weaken the HP brand and printer business, and lumber it with an under-performing PC product range at Compaq. The markets, however, were not impressed as both Hewlett-Packard and Compaq, although reporting annual revenues of $47bn and $40bn respectively had seen sales decline drastically during the industry downturn. They showed their concern about HP spending money at a time of gloom for the computer industry by forcing down the share price of both companies. Pearson Education © 2004
  • 6. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide This fall in HP's share price meant the value of its offer for Compaq was cut to $20.3bn, down from $25bn when the deal was first just a few days before. The merger, combining the second and third largest PC makers in the world would mean HP overtaking Dell Computers as the number one PC maker in terms of sales and create the world's biggest computer company, with combined revenues of $87bn. The new combined company would have annual earnings of $3.9bn, 145,000 employees and operations in more than 160 countries Another factor causing the shares prices to fall was the very real fear that the competition regulator, the Federal Trade Commission, might step in and block the arrangements on the grounds that it restricted competition and would create a quasi-monopoly position. This fear proved to be unfounded and the FTC quickly said that it would allow the transaction to take place. Although reporting that the merger would create a "global technology leader’, a spokesperson went on to dispense bad news by adding that, within 18 months of the merger, more than 15,000 jobs would have to be eliminated at all levels within both organisations including lower and middle management. 1,580 of these jobs, out of a workforce of 7,600, would be in the UK and further 6000 across Europe. Bad news followed in April 2002 when a disgruntled shareholder, Walter Hewlett, the son of one of the company’s founders, tried to delay the merger by arguing that firstly the proposed merger would not be beneficial for shareholders (they were mislead about the expected revenues) and secondly, that unfair practices had taken place. On the first point, there were concerns by many shareholders that HP, as well as being asked to pay over the odds for Compaq, would be distract from day-to-day operations at a time when computer makers worldwide were struggling to win new orders. On the second point he argued that the HP chief executive had attempted to blackmail one of HP’s major shareholders, Deutsche Bank, into backing the drive for the merger by committing its 24 million shares on the side of the merger. So he bought a court case to try to nullify the shareholder vote, which narrowly approved the merger, and have a judge declare it void. It seemed that Deutsche Bank, besides owning millions of HP shares, undertook paid consultants work for the tech giant and it was alleged that the bank was promised more work as well as a $1 million bonus for support. Deutsche Bank has said its asset managers had not considered the group's banking business when deciding which way to vote and a US judge quickly came down on the side of the HP/Compaq merger. The launch of the new combined company finally took place on 7 May 2002 nearly one year after the first approach By July conditions in the industry were still not any better and many firms across the whole of Silicon Valley took the unprecedented step of ask employees to take unpaid extra days off over the holiday to cut their bills and save money. Firms included Sun Microsystems, Verisign, Broadvision, Adobe Systems, Novell, Silicon Graphics and SGI as well as Hewlett-Packard who told their 74,000 staff that such extreme measures were needed to help in an efficiency drive. A spokesperson said that company closures, like lay-offs, were a cyclical business strategy in the valley saving costs, redundancies and the price of recruitment when times got better. Such action would have been unimaginable in the boom years of the late 90s when product demand went through the roof and workers toiled for 18 hours a day and slept under their desks to meet orders. By the end of the year the markets had started to pick-up and, although revenues were similar over the last quarter of 2002 compared with the combined Compaq and H-P takings a year ago, the company felt that it was reaping benefits from its controversial merger with PC maker Compaq and in front of its targets for product revenue, cost cutting and overall productivity offering improved benefits for both customers and shareholders. More specifically during this period the imaging and printing division, including H-P printers, publishing systems and printing supplies, reported record revenues of $5.6bn for the August to October period, up 12% year on year and they had launched 50 new imaging and printing products. On the downside the key personal systems arm, including PC-making operations, still remained in the red. The firm's services division reported operating profits up 9% on the quarter before, but still down 10% year-on-year. From (www.hp.com) (www.compaq.com) (www.dell.com) (www.ibm.com) (www. Fujitsu.com) HP (and Compaq) products Home and office Computing - desktops, notebooks, handhelds and pocket PCs, home networking, monitors, calculators, dvd writers Printers – multifunction & all-in-one, inkjet, laserjet, fax and copiers. Pearson Education © 2004
  • 7. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Digital imaging – digital cameras, scanners, dvd writers Audio and video – dvd writers, digital projectors Accessories and supplies – computer accessories, printer supplies. Business products Desktops & workstations – customised Mobile products – Compaq notebook PCs, Compaq Tablet PCs, Handheld and Pocket PCs, HP calculators Monitors and projectors – HP and Compaq monitors, digital projectors Printing & imaging printers Fax and copiers Scanners, digital imaging, and photography Supplies and accessories Servers & networking Wireless technology Storage – DVD, CD products, tape and automated backup, archival products, storage media, including network-attached storage (NAS), disks, disk arrays and storage area networks (SANs) Global Enterprise Solutions Working in close partnership with any sized organisation they say they have the expertise, experience, technology, services, and solutions to enable an adaptive IT infrastructure, able to respond quickly to the changing needs of business Government and education They offer a whole range of public sector solutions. These include, partnership arrangements, leasing and finance, special promotions, online buying advice and buying facilities and training Case Study Questions 1 Identify the internal and external auditing factors that Hewlett Packard would have needed to consider when looking at the possibility of a merger with Compaq. Attempt a SWOT on the information collected. 2 Discuss the merger in terms of product and market ‘fit’. Do you think that the coming together of HP and Compaq made sense at the time of the takeover? What might have been the downside with the relationship? 3 Identify and evaluate the strategic market options open to the organisation over the next five years. What strategy might you chose and why? 4 Put together an outline of a marketing plan for HP, again over the next five years. Identify the process and include as many factors that you think should be considered when looking at a multinational organisation. 5 Discuss both the prescriptive formal planning process and the emergent informal planning process with regard hp. 6 Discuss the B2B products and services offered by HP and identify the segments and needs of the target markets. Website address All UK Government web-sites – (www.open.gov.uk) BBC business website - (www.bbc.co.uk/worldservice/business) Business Advice Online (UK government) – www.businessadviceonline.gov Business online magazine – (www.business.com) Compaq – www.compaq.com Dell Computers – (www.dell.com) Federal Trade Commission – www.ftc.gov Fujitsu – (www.Fujitsu.com) Pearson Education © 2004
  • 8. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Guardian Business News - www.guardian.co.uk/worldnewsguide Hewlett Packard – (www.hp.com) Marketing resource base – (www.marketingshout.com) Mintel Marketing Research Company – www.mintel.co.uk PIMS Europe management consultants – www.pims-europe.com Q ci CRM consultants (www.Qci.co.uk) Ray Wright website – www.studentshout.com The Balanced Scorecard Institute (www.balancedscorecard.org) The Benchmarking Centre – www.benchmarking.co.uk The Outsourcing Centre – (www.outsourcing-center.com) Pearson Education © 2004
  • 9. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide The Auditing Process, The Mission Statement and The Planning Process You will see that I have used acronyms below to help learn and develop your skills in the planning process. Internal using the 8s and the 8ps acronyms and external using the PEST and SPICC acronyms’. I have include a brief statement on the sorts of information I feel should be in the mission statement. At the end I finish with a brief outline giving the headings that can be used in the actual planning process. The wider or macro-environment Political/legal 1 What legal developments are likely, nationally and internationally, that may affect marketing strategy and tactics? 2 Which governmental bodies (local, national and international) should be monitored? 3 What developments are likely to take place in areas such as product safety, product liability, labelling, packaging, advertising and pricing control, pollution control and employment legislation that might affect marketing planning? 4 What changes are likely in the levels of direct and indirect taxation? 5 Are levels of political risk likely to increase or decrease? 6 How are relations with other countries, regimes and trading blocs likely to develop, and what are their probable implications for marketing? 7 How volatile are trade-union practices likely to be in the short, medium and long term? 8 Are policies regarding nationalization or privatisation likely to change? Economic/demographic 1 What is likely to happen in the short, medium and long term to levels of inflation, unemployment, the availability of credit and savings? 2 What economic growth rates and income levels are forecast both for the organization's existing and potential markets? 3 What changes to the size, structure and regional distribution of population are likely to occur? Social/cultural 1 What changes to consumer lifestyles and values are taking place? 2 What attitudinal changes towards business and the products/services produced by the organization are occurring? 3 What attitudinal changes are taking place towards such areas as government, the media, and pollution? Technological/physical 1 What changes are taking place in the areas of product and process technology? 2 What generic substitutes might replace the organization's products? 3 How well placed is the organization to cope with and/or capitalize upon such changes? 4 What is likely to happen to the cost and availability of the natural resources and energy required by the organization? 5 What contingency plans exist to cope with shortages or sudden price rises? 6 Have any concerns been expressed about the organization's role in conservation and pollution? Pearson Education © 2004
  • 10. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide SPICC immediate or micro-environment Suppliers 1 What changes are taking place in the supplier network and what affect will this have upon balances of power? 2 What new sources of supply are emerging? 3 What are the objectives and strategies of the major suppliers? 4 What changes are taking place in suppliers' patterns of selling? 5 How many suppliers? 6 Quality, costs, timings of suppliers? 7 Relationships wanted with suppliers? 8 How effective are the efforts of the organization's advertising and public relations agencies? 9 What trends in agency practice are emerging? 10 Value chain relationships? Publics (stakeholders, media, local community, the city, politicians, pressure groups, interest groups?) 1 Who are the publics? 2 What is their potential for influence/ disruption? Intermediaries/Distributors and dealers 1 What changes are taking place in the structure of the distribution network? 2 What are the efficiency levels and growth potentials of each channel? 3 Which channels are currently under-exploited? 4 What is the cost and availability outlook for warehousing and transportation facilities? Customers and Markets 1 Who are the customers 2 Market segments 3 What is happening to the size, growth rate and geographical distribution of the organization's markets? 4 Which major market segments exist? How are they likely to grow and which offer the greatest opportunities? 5 Are new market segments emerging? 6 Are new or different market priorities emerging? 7 What scope exists for further market development? 8 What changes in usage patterns can be identified or are likely? 9 Are terms and conditions of sale changing? Competitors 1 What changes are likely to take place in the structure, bases, and intensity of competition? 2 Who are the major competitors currently and in what ways might they change? Are there any likely new entrants to the market? If so, what capabilities and objectives will they have and what are the probable implications for competition? 3 What are the major strengths and weaknesses of each competitor? 4 What are the objectives, strategies and levels of profitability of each competitor? 5 What trends can be identified in the patterns of future competition and substitutes for the organization's product/service? 6 What patterns of product and market development can be identified among competitors? 7 Are any major changes likely to take place in patterns of market share? Does any competitor appear likely to pursue an aggressive share gaining strategy? If so, how well equipped to do this would they be, what are the implications for the bases of competition, and what is the probability Pearson Education © 2004
  • 11. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide of success? 8 What is the extent of the diversification among each competitor? What international links does each have? 9 What are the patterns of ownership among competitors and what level of resources can each call upon? 10 What barriers to entry and exit exist currently? In what ways might these change? 11 Porter's 5 forces? Internal audit: the eight s', the strategy audit, the business mission 1 Is there one? 2 How clearly stated and realistic is the mission statement? 3 To what extent is it consistent and compatible with the corporate and marketing objectives? 4 Do the corporate and marketing objectives provide dear guidelines for marketing planning and control? 5 Are these objectives consistent with the organization's posjtion, capabiljties and opportunities? 6 Are the objectives for each business unit clearly stated, realistic and consistent with the overall marketing objectives? Marketing strategy 1 How clearly stated and appropriate is the marketing strategy? 2 Is the strategy convincing? Has it been properly communicated? 3 Does the strategy take full account of the state of the economy, the stage reached on the product life cycle, and competitors' strategies? 4 Is the basis for market segmentation appropriate? 5 To what extent is there scope for developing and improving upon methods of segmentation? 6 How accurate are the profiles of each segment? 7 How well developed is the positioning strategy for each segment? Does scope exist for repositioning in order to strengthen the competitive stance? 8 Are the available resources sufficient and suitably allocated to the various elements of the marketing mix? 9 Is there scope for reallocating resources to achieve a greater decree of cost-effectiveness? 10 Are there sufficient controls built in to the strategy? 11 Is the marketing function led by a person with sufficient authority and responsibility over those areas of the organization's activities that affect customer satisfaction? 12 Are the marketing activities optimally structured along functional, product, end-user and geographical lines? 13 What need and scope exists for changing current patterns of authority and responsibility. The marketing systems/processes audit Information systems 1 Is the MIS providing sufficiently accurate and timely information about market developments? 2 Is this information presented in the most appropriate format? 3 Is sufficient market research of the right sort being conducted and are the results being fully and properly utilized? 4 What scope exists for improving upon methods of market and sales forecasting? 5 Is the information generated by the MIS communicated to the appropriate network of staff? Planning systems 1 How efficient and well conceived are the planning systems? 2 What scope and plans exist for its further development? Pearson Education © 2004
  • 12. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Control systems 1 Do the control procedures provide the strategist with a sufficiently clear and accurate picture of absolute and relative performance? 2 Is the performance of individual products, markets, and distribution channels monitored sufficiently regularly? 3 How frequently are marketing costs examined and validated? 4 Is behaviour modified in the light of feedback from the control systems? New product/innovation/design systems 1 How well organized is the procedure for collecting, generating and evaluating new product ideas? 2 Is sufficient research and analysis conducted before proceeding with new product ideas? 3 Are the levels of product and market testing adequate? 4 Is the rate of new product development and product modification sufficient to achieve marketing objectives? 5 Is the new product success rate satisfactory? Is it better or worse than those of the major competitors? Communication systems 1 Are the staff kept informed of events? 2 What systems are used? 3 Are the lines of communication and the working relationships between marketing and other areas of the business effective? 4 What scope exists for improving and developing these relationships? Customer systems 1 Are there any customer complaints systems? 2 Are there any customer tracking/ service systems? Structures 1 What type of organisational structures exist? 2 Are the structures bureaucratic/ matrix/ spoke systems? 3 Are they tall or flat structures? 4 Do depts talk to one another? Skills 1 Are their needed skills? 2 Can the staff be trained in the needed skills? 3 What needs exist for training, motivation, supervision, evaluation, and control? Shared values 1 Is there a 'blame culture' or a 'supportive culture'. 2 Are people allowed to fail? 3 Is there a culture of innovation? 4 Are people happy? 5 Is the culture customer centered? Style 1 What is corporate/marketing image? 2 What is the reputation? Pearson Education © 2004
  • 13. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide 3 Conservative/liberal/old fashioned? modern? etc. Staffing 1 Are the staffing levels adequate for the needs of marketing? 2 Are the satffing levels adequate for needed customer service? Sustainable competitive advantage The methods for developing a sustainable competitive advantage can be divided into three main groups: 1 Organisational advantage Economies of scope/scale Flexibility Competitive stance Size Speed of response Past performance Financial strengths Patterns of ownership Reputation 2 Departmental and functional advantages Marketing Customer base Customer knowledge New product skills Pricing Communication and advertising Distribution Sales force Service support Reputation Research and development Product technology Patents Production Technology Process efficiency Economies of scale Experience Product quality Manufacturing Flexibility Personnel Good management-worker relations Workforce flexibility 3 Advantages based on relationships with external bodies Customer loyalty Channel control Preferential political and legislative treatment Government assistance Beneficial tariff and non-tariff trade barriers Pearson Education © 2004
  • 14. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Cartels Intra-organizational relationships Access to preferential and flexible financial resources The marketing functions audit 8's Products 1 What are the product/brand line objectives? what are the USPs? 2 How appropriate are these objectives? 3 How regularly are the objectives reassessed? 4 Is the current mix of products achieving the objectives? 5 Where are the products on the PLC? 6 Which products/brands should be deleted? 7 What product modifications should be made? 8 What products should be added to the line? 9 How well managed is the product line? 10 What are the product lines' particular strengths and weaknesses? 11 How does the product line compare with those of the organization's competitors? 12 To what extent is the product line differentiated from those of the competitors? 13 What are the fixed and variable costs? 14 How important is the packaging? 15 What element of the product is servicing? Price 1 What pricing objectives, strategies and procedures exist? 2 How appropriate are the pricing objectives? 3 How consistent is pricing throughout the product range? 4 Is full advantage taken of the profit opportunities when pricing product options? 5 Is the pricing stance proactive or reactive? 6 Is sufficient attention paid to competitive criteria when setting prices? 7 What knowledge exists of competitors' objectives, costs and price levels? 8 Are competitors' prices regularly monitored and reviewed? 9 Are the organization's prices in line with customers' and distributors' perceptions of product value? 10 Is sufficient use made of price promotion? 11 At what level within the organization are pricing decisions made? 12 Are pricing decisions fully integrated with other marketing decisions? 13 How responsive to sudden market changes are prices? Place/ Channel of and Physical Distribution 1 What distribution objectives and strategies are pursued? 2 Are the levels of market coverage appropriate? 3 What need and scope exists for improvements in service levels? 4 How effectively are distributors and dealers operating? 5 What knowledge exists of competitors' distribution structures and costs? 6 Is there scope or need for changes to be msoe to the distribution channels being used currently? 7 Where does the balance of power lie within the channel? In what ways is this changing and what are the implications? 8 How well motivated is the distribution channel? 9 How important to the channel are the organization's products? 10 Do distributors have adequate product knowledge? What training needs exist? 11 What scope exists for greater short- and long4erm motivation of dealers? 12 What levels of dealer/distributor loyalty exist? Are these adequate? What scope exists for strengthening this loyalty? Pearson Education © 2004
  • 15. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide People/Sales force 1 What are the marketing/sales force's short- and long-term objectives? 2 Is the sales force large enough to achieve the objectives it is set? 3 Is the organization and structure of the marketing/sales force suited to the demands of the market? 4 Does the sales force give emphasis to volume or to profitability? 5 Is the sales force made fully aware of the profit associated with different parts of the product line? 6 Is the sales force kept fully informed of marketing objectives, marketing programmes, and market developments? 7 Is there sufficient marketing people/sales force training? 8 Is the sales force properly motivated? Is full use made of incentives? 9 Are the sales targets realistic? 10 Is the sales and profit performance measured and the results fed back to sales staff? 11 Is the turnover of sales staff too high? If so, what might be done to reduce it? 12 How does the sales force compare with that of competitors? 13 How is the sales force perceived by customers? 14 Is full use made of the sales force as a means of monitoring market developments? Promotion 1 What are the promotional objectives? Are they appropriate given the overall marketing objectives? 2 How is the budget set? Is sufficient attention paid to the expenditure levels and patterns of competitors? 3 What controls over advertising expenditure exist? 4 How effective is the creative appeal? 5 What advertising research is conducted? 6 How well chosen are the media? 7 How regularly is the performance of the advertising agency reviewed? 8 How important is the account to the agency? 9 Are sales promotions used regularly? Are they effective? 10 How effective is the publicity programme? 11 Is effective use made of sponsorship? 12 Who is responsible for publicity? 13 What measures of effectiveness are used for advertising, sales promotion and public relations? 14 How do the advertising and promotional campaigns compare with those of the competitors? 15 Is the Internet being used? 16 How well chosen are the media? 17 How regularly is the performance of the advertising agency reviewed? 18 How important is the account to the agency? 19 Are sales promotions used regularly? Are they effective? 20 How effective is the publicity programme? 21 Is effective use made of sponsorship? 22 Who is responsible for publicity? 23 What measures of effectiveness are used for advertising, sales promotion and public relations? 24 How do the advertising and promotional campaigns compare with those of the competitors? Processes See under systems Profitability analyses 1 What is the profitability of each of the organization's products, markets, territories and distribution channels? 2 Should the company enter or withdraw from any market segment? Pearson Education © 2004
  • 16. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide 3 Is there a need for expansion or contraction within any market? 4 How do the organization's levels of profitability compare with those of its principal competitors? 5 Use financial ratios - information to follow? Cost-effectiveness analysis 1 Are there any areas of marketing which appear to be incurring unrealistic costs? 2 What scope exists for cost reduction? 3 Are costs monitored sufficiently, regularly and rigorously? 4 What scope exists for modifying approaches to budgeting and control to ensure better resource allocation? 5 Does any one person have direct responsibility for measuring cost effectiveness? Physical evidence 1 In service industry customer identify good service by physical evidence. 2 Is the image atractive, friendly, warm, inviting? 3 Is it professional looking? The Mission Statement The mission statement should address the followings issues – • What business are we in? • How are we going to offer the customer exceptional value/ • What shareholder value will we offer/ • How will we treat our employees/ • We will operate in an ethical way and have a concern for the environment. To be of use a mission statement must be meaningful to all otherwise it becomes nothing other than a ‘wish’ statement looked on with cynicism by most. The Planning Process Marketing audit - Internal and external and the SWOT Mission statement Corporate objectives: (SMART) ROI, ROCE (Corporate strategies for production, finance, HR, admin etc. as well as marketing.) • Quantitative and qualitative forecasting • Gap analysis Marketing objectives (SMART) sales/profits over 3/5 years e.g. £3 m over 3yrs • Assumptions • Constraints • Critical success factors Marketing strategies (Ansoff’s matrix) Reasons for strategic choice Strategy 1 - market penetration Marketing mix strategic positioning Product - make it better than the competition Price - premium pricing Place - indirect; concentrated distribution Promotion - advertising; personal selling Other resource implications Finance, staff, production etc. etc. Target market Size and customer profile Competition Major players and market share in this market Pearson Education © 2004
  • 17. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Strategic monitoring and control mechanisms e.g. weekly senior management meetings Strategic marketing objective e.g. £1m over 3 yrs (this strategy only) Strategy 2 - New product development Use all the same headings identified under strategy 1 Marketing tactics - take one strategy e.g. strategy 1 and detail the plan rolling it out over the first 6 months adding on a new month as the old month is completed. It should include a detailed: Product Plan Price and finance Place (Distribution) Promotion Plus: Allocation of responsibilities Budgets Performance indicators Monitoring and control mechanisms Timings (following a Gantt chart type formula; an example can be seen on StudentShout.com – marketing research category – creativity section). Marketing Tactics Strategy 1 Tactical objective. e.g. £500,000 over the first 6 months. Allocation of responsibilities Detailed budgets Marketing research Detailed customer profile Detailed product plan Detailed price plan Detailed distribution plan Detailed promotion plan Clear week by week performance indicators across all areas Monitoring/control mechanisms - to see that what needs to happen does happen Contingency plans in case the plan deviates Feedback and evaluation. Pearson Education © 2004
  • 18. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Supplementary Information Strategic planning options available for the B2B organisation Generic strategic approaches In the preceding chapter we identified a range of strategy choices available to a B2B organisation when looking toward planning for success into the future. Using Ansoff matrix we identified four basic options, to sell more products in existing markets, new products in existing markets, existing products in new markets and new products in new markets. Although helpful in attempting to understand the fundamental strategic process in reality the strategic options open to the B2B organisation and the strategic marketing planning group are more varied, complex and subtle. A large supplier will often be running many different strategies in more than one market and here we can discuss some of these strategic approaches and try to identify when and how they might be used. 1 B2B Strategies for existing markets If we look at B2B products and services that the organisations already markets to existing segments we can identify market situations other than the option to increase sales. Before we discuss other options the problems associated with attempting to gain more market penetration can be explored. An organisation should always look towards its existing markets for development and sales growth before looking elsewhere. To sell more products and/or services the market would need to be growing, extra sales would have to come from the competition or more business obtained from existing buyer organisations. To do this might mean re-examining the marketing approach. A marketing assessment of products and markets can help determine opportunities in growth areas that may not have been considered. Profiling the best customers and look for patterns and similarities can give an indication of the ideal customer type. We can look at these strategic option in turn. The market growing If the market is still growing then, depending on the rate and the level of growth, more sales might be had but there still might be problems because of the amount and the strength of the competition. The major player in the market will always have an advantage because of such things as economies of scale, access to distribution channels, market information and buyer contacts and loyalty. Unless they are complacent the competition will also be after these extra sales in the growing market. Product differentiation will be important under these circumstances gaining more market share by added value of some kind. B2B markets can grow (or decline) very quickly if particular supplier products are suddenly needed in large amounts, for example resources needed at times of war and contingency plans should be developed if there is the possibility of this happening. Take sales and customers from the competition This is always an option and of course the competition, unless severely weakened, will not stand still and allow sales and customers to taken be away without a fight. In B2B markets however it might only take the conversion of one buying organisation such as Exxon to improve sales by large amounts. Through acquisition, mergers and partnerships more market share could be obtained and these option where discussed in detail in earlier chapter. Arguably, however, this type of activity would be more corporate than marketing strategy. More business from existing buyers There will often be the opportunity of getting more sales from existing buyers. This might be by selling more of the same (through the use of added incentives) or by encouraging the sales force to sell across Pearson Education © 2004
  • 19. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide the whole supplier product portfolio. The same point made above will apply here in that many B2B organisations are extremely large and so offer the supplier opportunities to sell across many departments and divisions around both in the home market and around the world. Other strategic options in existing markets There are other strategic options that could be used in existing markets. • Consolidation • Divestment • Liquidation Consolidation Circumstances might arise where a company might want to consolidate, develop customer relationship management programmes and strengthen its hold onto its existing market and customers. This might be for the following reasons. • The market has reached maturity and is no longer growing. • The market might be growing but the supplier has limited resources and wishes to take breath and protect its current market position against competitive predators. • The acquisition of one large customer (Nestle) would cause the smaller supplier to develop a single strategy for this buyer alone. Divestment In some cases a particular strategy, perhaps a product line no longer seen as a core part of the product portfolio or a division offering services no longer making money are sold off or divested perhaps to another organisation or as a management buyout. It is important to know that the divestment will not then come back to the market in a directly competitive manner. Product divestment Oil giant BP Amoco is to sell off 5,000 petrol stations to fund a brand shift from its UK roots.. Most of the cuts will be made from the company's portfolio of Amoco stations in the US, with 50 UK sites set to be put on the market. Cash from the sales will be used to fund a company re-branding which is seeing the BP's 70-year-old shield insignia dropped in favour of a sun logo. The sell off, called adjusting the product portfolio by the CEO, was being implemented as part of the company's evolution in response to a shifting market. Liquidation The other option in existing markets is to shutdown, to liquidate an operation if it can be shown that the strategy is not contributing to overall productivity and profitability in any way. Evan if not losing money this might be the best approach because of the opportunity costs involved with time and effort in keeping a non-core activity going. 2 B2B strategies for new products in existing markets We have discussed in detail the importance of creativity, innovations, design and new product development in B2B markets earlier. Many if not most business buyers must have the latest processes, products and services if they are to compete in an ever more competitive market environment. This pressure for the latest innovation will flow backward and forward along the supply/value chain so that competition is not between company but between one value chain and another value chain. It pushes towards closer cooperation and partnerships so that research and development costs and knowledge on what is wanted is shared between supplier and buyer. If Shell cannot have the very latest in oil seeking and collection technology then BP will gain a march. Similarly if a manufacturer of chemicals ingredients is unable to offer the latest in services to food, cosmetic, pharmaceutical, water and industrial customers competitive advantage could be lost and the buyers will probably go elsewhere. Customers will increasingly look for vehicles with Pearson Education © 2004
  • 20. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide environmental attributes, and so car manufacturers such as Ford and Nissan will have to work closely with supply chain members in developing many new products that use less fuel, produce fewer emissions and use more renewable, recycled and recyclable materials. The imperative for continuous invention will vary across industries according to change and demand. The challenge for managers is to be able to inculcate a motivating and encouraging culture of inventiveness across all employees and divisions around the world so that the search to innovate and update and is carried on by all. It must not be forgotten that the launch of a new product or service in the market is a challenge even with well-planned strategies. Extensive market measurements must be obtained on which a company can base the development of goals, market strategy, market plan, and implementation plan to ensure that a product is introduced with optimum sales and profits. This should include such things as buyer and organisation demographics, DMU attitude measurements, market share trends, market concentration, market saturation, replacement rates, pricing measurements, price performance measurements, and market growth measurements. Establishing the most advantageous market positioning requires in-depth knowledge of the buyer and the company, its product, the market as a whole and the process by which customers learn about, identify and classify products and companies. New product in existing markets Iconic computer firm Microsoft has reported far higher than expected profits, helping to restore investor confidence in the battered technology sector. Analysts credited Microsoft's profits surge to the introduction in August this year of a subscription-based scheme for updating software. The scheme sees Microsoft customers pay an annual subscription, which also entitles them to upgrade to the latest version of software as soon as it becomes available. Previously, customers paid a one-off licence fee, and were then offered discounts on upgrades. The Japanscan Food Industry Bulletin magazine identified 3,900 new processed food and drink industry products that came to the market in Japan last year (2002) that is over 300 a month (www.japanscan.com) 3 B2B existing products in new markets As markets open around the world there must be an almost obsessive search for new markets in which to market and sell existing products and services and use existing technical or business capabilities. Countries and companies around the world will be at different stages of the industrial, market and product life cycle so that the decline in one market might be compensated by the growth of demand in another. New market exploration requires market research to identify, qualify and quantify markets and evaluate competition and channels so that an effective entry strategy can be developed and executed. It might be possible to take the characteristics of existing customers and identified those characteristics that would apply to new markets. Extensive secondary research might then be undertaken to identify other industries that shared these characteristics throughout the entire spectrum of the commercial market and new markets found in this way. As cigarette smoking declines in the West so cigarette markets open in the East. As the market for vehicles matures in Europe so there is the hope to increase demand in South East Asia. Partnerships and strategic alliances will often help in the process and the benefits are discussed under market entry strategies. Existing products new markets – generating ideas. Find new uses of natural gas. The client wanted to find new uses that would consume gas, identify barriers to known uses of natural gas, and explore approaches for eliminating these barriers. In a three- day workshop, experts and client participants generated more than 1000 ideas in four key technology areas: surface science, new engineered materials, artificial intelligence, and human-environment engineering. They then reduced these ideas to approximately 50 research concepts and ranked the concepts according to their technical feasibility, eventually selecting the 12 most promising concepts for further exploration 4 New product in new markets This last alternative is extremely difficult to achieve, is the most dangerous and is generally avoided by Pearson Education © 2004
  • 21. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide all but brand new companies who must do exactly that. It is difficult enough to bring new products to markets that are known but to undertake this task in new, unknown markets as well is doubly dangerous. A supplier forward integrating and buying into manufacturing is a classic example how this might happen. On the plus side sales can then be guaranteed but on the minus side failure can come about because of lack of experience and expertise in other markets. Another example of how dangerous this strategy is can be shown by the many companies that crashed out of the Internet market, in some cases with the loss of hundreds of millions of pounds, because of not knowing the product and the market. New products in new markets In 2002 nearly one in five start-ups backed with venture capital at the peak of the Internet boom went out of business before first-stage investors could sell their shares, costing them billions of dollars. B2B strategies classified according to market positioning 1 First to market 2 Follow-the-leader 3 Me-too 4 Niche marketers 1 First to market ‘First to market’, or a market leader strategy can be seen as a proactive, sometime aggressive approach to strategy adoption. These types of organisations adopt a policy of trying always to be first to the market with new features and new products and services. In this way they hope to gain, or hold onto market share before others have time to bring out competing offerings (Intel or Sony). PIMS market research (www.pims-europe.com) has shown that it is extremely difficult to wrest market share from the dominant market leader once the company has become established. There might be problems, however, with the costs of having to build market share and difficulties associated with non-market tested new product usage. 3M – first to market across many markets In the 1950s, 3M introduced the Thermo-Fax™ copying process, Scotchgard™ Fabric Protector, videotape, Scotch-Brite™ Cleaning Pads and several new electro-mechanical products. In the 1960s dry-silver microfilm was introduced, photographic products, carbonless papers, overhead projection systems and a rapidly growing health care business of medical and dental products. Markets further expanded in the 1970s and 1980s into pharmaceuticals, radiology, energy control, the office market ... and globally to most every country in the world. The 1990s set new sales records of over $15 billion annually, and about 30% of sales coming from products created within the past four years. 3M's growth has come through a desire to participate in many markets where the company can be first in and make a significant contribution from core technologies, rather than be dominant in just a few markets. (from (www.3ms.com) 2 Follow-the-leader Other companies adopt a strategy of waiting to let other organisations (usually the more powerful) open up and build the market. As market challengers they hope that sales can be built on the back of others and market costs will be kept to a minimum. This can be achieved by overcoming unforeseen problems encountered by the first-to-market company. The new entering company, however, will need to offer buyers a product or service that is different in some important way if they expect an organisation to switch suppliers 3 Me-to-strategies Companies that follow this strategy unashamedly follow and copy the products and services already offered by others in the market and offer at a cheaper price. They are able to do this by usually Pearson Education © 2004
  • 22. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide lowering the quality in some way or another. In the 1980 Bush Electronics, a well know UK manufacturer of TV and radio went out of business and the corporate brand name was sold on for a few million pounds. The company now has me-too-products manufactured around the world were ever the costs are the cheapest and TVs, radio, videos etc appear inn retail outlets under the Bush brand name. 4 Niche and differentiated marketing strategies. Many smaller B2B organisations adopt a niche market approach offering a specialised and differentiated product or service to a small part of the market. In B2B this might happen by a supplier segmenting by company size and serving only small or medium sized companies or by serving only one or two large companies. This may also come about through partnership arrangements such as strategic alliances and outsourcing. Other strategic approaches Other strategic approaches to all or some of the markets identified above are identified below. Adaptive market strategies There might be the need to have different strategies for different markets and/or different countries. One strategy may work well in one market but the same strategy may have to be altered in another because of such things as cultural or political differences, lack of adequate distribution channels and products and services being at dissimilar stages on the product life cycle. We will look in more detail at this when marketing internationally is discusses later in the chapter. Proactive or reactive strategies A company can be strategically proactive or reactive, aggressive or defensive, a leader or a follower in many B2B market situations and we can outline some of these here. Using an analogy or war as a method of describing strategic approaches a few examples are given here. Perhaps the reader can identify known situation that fit the following strategies. Strategic Defence – using the analogy of warfare strategic defence is a company taking some form of defensive action against the attack of a competitor on its markets. This might be by aggressive pricing or offering more value over a short period and returning to the status quo once the threat has diminished. Strategic Attack – this would consist of a product attack in a competitor’s main market; head-on attack would be against its products in major markets whilst a flanking attack would be against products in a smaller, less important market. Flanker Brand – this might be a brand introduced into a market segment by a company which already has an established place in order to protect against competition and to try to increase overall market share. Flanking Attack - a competitive marketing strategy in which one company attacks another in a weak spot, commonly by concentrating on a small geographic region or a market segment in which the rival is under-performing Flanking Defence - a competitive marketing strategy in which the market leader attempts to identify and strengthen its own weak points, commonly geographic areas or market segments in which it is under-performing, before a smaller rival can mount an attack against it. Strategic wear-out It is important that managers are aware when a particular strategy is reaching the end of its lifecycle, known as strategic ware-out. In this way plans can be made to phase one strategy in and another strategy out. In some cases change can be anticipated, planned and preparations made sometimes years before (perhaps with the model of a car) as the change happens gradually over time. In other cases the strategic wear-out can happen quickly and the supplier must have flexible systems and structures able to adjust very rapidly. Pearson Education © 2004
  • 23. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Strategies across the industry, market and product life cycle It is commonly accepted that most industries, markets and products will have some kind of life expectation and so be eventually superseded by other goods and service benefit offerings. This might be because the industry has become outdated and been overtaken by my modern and technological superior ways of offering goods and services. Or it could be that the industry has moved to other areas of the world where more productive methods (usually lower labour costs) mean that lower costs are incurred and so lower prices can be charged. Heavy Industry shifting PLC More than 20 years ago Europe enjoyed high productivity in shipbuilding but from the 1980s the industry moved to Asia, where Japan held the lead until recently overtaken by Korea. Shipbuilding is a labour-intensive industry, and increased labour costs were considered a major factor in this shift from European to Asian dominance. One reason for the South East Asian shipbuilding success would have been the ready supply of a cheap, educated and skilled workforce. Even here uncompetitive and inefficient industries often were able to survive behind high tariff barriers and of private sector competition. However, as the world has opened up to privatisation and free trade many organisations now face greater competition due to deregulation and lower tariff barriers resulting in declining prices and profit margins. On top of this labour costs are now increasing in Korea and Japan, which helps explain the growing Chinese shipbuilding market. (Lexden press) Product life-cycle management - PLM For what ever the reason products and services will need to be managed as they move through their product life cycle from research and development, introduction and launch, reaching maturity and then into the decline phase that varies according to industry and product type. This S shaped curve is formed through the interplay of competition, sales, advertising and promotion, marketing plans, and the extent to which customer utility is satisfied. Market leadership requires the active management of products throughout their life cycles, from launch through to decline and finish. The marketing mix (or the 4 Ps) must be managed as a system and not managed and operated independently, so product life-cycle performance is optimised at both the strategic and tactical level. 1 Product launch Up to 95% of new products and services will have failed within one year after launch depending on the product and the industry. This will because of the management problems inherent in gaining customer recognition, obtaining channels of distribution and/or market coverage and a cost-effective level of sales. Failure rate tends to be higher in B2C markets that in B2B because of the following reasons • Because of the large number initial research and market testing is more difficult in B2C markets with the added danger of getting wrong. • The B2B buyer is much more likely to have discussed detailed benefits wanted and so the new product acceptance should be easier. Because of large numbers the end consumer will have only been asked vicariously. • Awareness, product recognition and sales can be gained more easily through personal contact in B2B markets but in B2C mass markets advertising and sales promotions must be is used. Both less certain media forms. 2 Market and product growth As, hopefully, product sales grow the competition will be attracted in hoping to take a share of the market. This will put pressure on prices forcing price dealing or cutting, especially if previously adopted a price skimming strategy, to meet those offered by the competition. The effect of competition could be less if marketing and sales managers have been able to build loyalty with customers from the outset. Again this should be easier to achieve in B2B than in B2C because of one-to-one relationships and an understanding of individual buyer benefits that are possible. Salespeople can also immediately offer other benefits to counter competitive offers and so bar entry. Many managers agonise over the marketing mix combination needed for launch - product, pricing, Pearson Education © 2004
  • 24. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide promotion, and distribution but will not revisit it with the same urgency as the market grows. There may be the need to perform some type of product modification to correct weak or omitted attributes in the product or in response to competitors better benefit offering. Channels may want modifying to accommodate, for example, a product's move from performance leader to mass market. Perhaps pricing needs to be changed and this should be managed proactively, as a result of an ongoing analysis of sales trends, rather than reactively in response to competitor moves. Promotional activities may also be disjointed, ill-timed, not the correct promotional mix and so not achieving the results expected. 3 Managing the product during the maturity stage Products and services reach the maturity stage when markets are no longer growing, competition is at its most intense, and an increase in value can only come about by putting up the price, persuading existing customers to purchase added-value or by stealing from a competitor. In B2C markets a product may be rejuvenated and prices increased by emotive measures such as a change in packaging, aesthetic changes, modification, new models and so on. This is not so easy in B2B where customers will want tangible reasons for paying more (especially if the market is overcrowded), buying more of the same model or for changing to another model. It is at this stage that the successful B2B manager will have built up a loyal buyer base with marketing mix and exit strategies that make it difficult and expensive for companies to switch suppliers. Excellent service and after care, innovative and better problems solving solutions and a close relationship based on customer knowledge, trust and value offerings are the ways that this might be achieved. Many of the products here are often seen as ‘cash cows’ as high profits can be made because of experience curve scale savings and less overall costs. This extra money can be used to finance the research and development into new products and thus keep the product conveyer-belt constantly moving. 4 Managing product decline There will come a time when the product or service will no longer be selling in the numbers required to maintain an acceptable contribution to overall revenue. In B2B markets this will be mainly because of rational reasons, perhaps new technology or a change in benefit requirements. Although these reasons will also apply in B2C markets it is just as likely to be because of emotional reasons such as a change in social trends, fashion or buying habits. Decisions about repositioning or method of decline and phasing out must now be considered. Most products replace other products and the timing and positioning of replacements must be carefully planned, this is especially true with regard to hi-tech products and products that take a long time from R&D to launch and growth. The various life-cycle states of existing portfolio offerings must be also be known. The potential for new products to cannibalise revenue form existing products must also be assessed. The best companies cannibalise themselves, but at the right time. Caution must be taken not to replace a product prematurely, or wait so long that a door is opened for competition to enter. Extending the product’s life Every product manager knows that a product is not necessarily finished when it reaches maturity and into decline. . Ongoing market sensing and customer-intimacy processes can provide the intelligence needed to define a profitable evolution. Products can be repositioned, product life cycles can be extended, and life-cycle profitability can be increased, through targeted, well-timed product enhancements and extensions. Products in decline in one market can also be sold, licensed or franchised into other markets around the world. The Beetle goes to Mexico The Volkswagen Beetle means something, and usually different things, to everyone who knows it. An icon of modernist design and a cultural curiosity, the Volkswagen, or “people’s car,” was originally conceived by Nazi engineers to answer the success of Ford’s Model-T. The last beetle, coming to the end of its product life cycle, was manufactured in Germany in 1978 and the last import into Europe from an oversees subsidiary was in 1985. When the United States stopped importing the Classic version of the car in 1977 however, Mexico kept right on making them for its domestic market and the car is still manufactured at the Puebla factory just outside of Mexico city and is the largest Pearson Education © 2004
  • 25. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide manufacturing plant in Mexico. Now thick with national symbolism, the VW Beetle is the everyday car for millions of Mexicans. It is used for every conceivable purpose from ambulance and police car to bus and taxi as well as for private use. No other make of car can get anywhere near its ubiquitous presence on the streets of this South American country and there is no sign that there market is reaching anywhere near saturation. Product Retirement The final phase of a product's life must be managed to avoid loss of profits and damaged relationships. For well-orchestrated product discontinuance, Marketing, Customer Service & Support, Sales, Supply- Chain Management, Manufacturing, and Engineering must each play a part in developing and executing an integrated plan. The potential for excess and obsolescence must be assessed and mitigated. Where appropriate, replacement products must be positioned. A communication plan must be developed to preserve relationships with customers and suppliers and avoid surprises. As with most things in life, how you end is as important as how you begin. Management styles and PLM It can be argued that different management knowledge and skills are required at different stages of the product life cycle. For example, creativity, innovation, enthusiasm at the introduction stage and growth stage, high boredom threshold and commitment and dogged day-to-day management tactical planning at the maturity stage and the ability to make tough decision at the product decline stage. If this is the case then all these difference approaches might demand alternative personality styles demanding different managers to manage products at the various stages in the product life cycle Software to assist PLM As with most business functions software programmes are now available to help managers and companies in improving their life-cycle management capabilities, from assessment through implementation. Processes for consistent product portfolio and market management can be installed that build metric models to allow ongoing monitoring of every life-cycle stage from introduction through to decline and repositioning or liquidation. Business strategies in B2B international markets Many small B2B organisations are contented just to market products and services in the home markets and, perhaps because of resource limitations will not consider selling into markets abroad. Other larger organisations in the public or not for profit sector might, because of the nature, mission and objectives of the organisation, have the need to sell or buy from abroad. Even some large commercial companies might not have considered this possibility because of tradition, existing customers and alliances or just through inertia and complacency. Changing environmental circumstances, happening at an ever-faster rate, are now forcing even the most reluctant organisation to look towards adopting some type of business strategy for marketing in countries other than there own. Many other companies have realised the need to market on an international and global level and have had strategies in place for many, many years. Factors that now make the process an imperative have been discussed throughout the book but it is worth outlining and emphasising a few here. Government and political pressure has lead to the breaking down of barriers and the opening up of free trade initiatives around the world making it easier and encouraging businesses to both export and import products and services leading to greater all- round value. Barrier free trading blocks (the EU, Nafta, Asean) are now in place and aid and assistance exists to help even the most fearful and tardy company, whatever the size, to seriously think about foreign opportunities. Advances in new technology have been truly amazing. The last twenty years seeing the introduction of information, communication and distribution capabilities that make the movement of goods and services around the world ever quicker and speedier. The nature of B2B international markets In whatever market a company operates the basic concepts of marketing, identifying and satisfying customers are the same. So whether the market is local, national or international matching the resources Pearson Education © 2004
  • 26. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide of the organisation to the demands of the market to achieve these aims are going to be the same. But we know in practice that the process is going to be subtle and more complex and demanding depending on the country chosen for export and the particular market and business customers. If we look back at the chapter on the macro and micro environment (PEST and SPICC acronyms) the factors discussed here in detail will apply when marketing abroad but with the added problem of the different nature of the countries concerned, and the vast distances that might be involved. The buyers might also have different approaches to the types of products and services wanted as well as allegiances and alliances that will already have been formed. The competition will be less well known than competition in the home market, as will the political and cultural ways of doing business. Perhaps the most frightening thing for a company when first wanting to export is the fear of the unknown. This would seem to be less of a problem with the opening up of the world to quick and easy travel and the concomitant understanding of other peoples’ way of life that this brings about. Ease of international communication, brought about by information technology has also made the world a smaller and more comprehensible place. B2B and B2C international markets There will be some differences in the character of task to be undertaken in B2C markets compared with B2B because of marketing factors such as research, buyer behaviour, purchasing and competition examined throughout the book. In some respect it should be easier to sell into B2B foreign markets than in B2C markets for the following reasons. Buyers Self-evidently buyers in B2B markets will be organisations rather than consumers. In many cases the buying company will already be engaged in foreign trade and so be knowledgeable about procedures. Even if this is not the case English is now used as the international language in many international markets making the task that much easier. This will not be the same in consumer markets with its millions of disparate consumers. Information and help We know that buying contacts will be fewer in B2B than in B2C and so organisational behavioural information will be easier to come by. This will usually be easily made available by government, trade associations and commercial companies although the quality will vary depending on the sophistication of the country. There will also most probably be exporting help available from many quarters funded perhaps by governments anxious to encourage international trade and so help the balance of payment figures. Competition Although competition will exist in both B2C and B2B it should be more obvious in B2B markets although it will depend on the industry. Image how many companies must operate selling consumer products in somewhere like China with over 1.3 billion people. Of course the method used for market entry by the exporting company will in some way alleviate this problem and this will be looked at below. Foreign market entry There are many ways that an organisation might enter into marketing its goods and services abroad, some of them deliberate and some of them accidental. Many companies will not begin with international marketing in mind but only come by the process in an uncalculated manner. In fact some firms export their products without having any realisation of it happening. Foreign marketing unawareness It might be asked how companies might be unaware that they have goods that appear in markets abroad. Components part manufactures selling basics such as a nuts and bolts, paint, steel, paper, Pearson Education © 2004
  • 27. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide rubber etc. will often only deal with the immediate buyer and so be oblivious of end market use. These products could ultimately end up in anywhere in the world from China, Chile or the Czech Republic. Deliberate international marketing policies A B2B supplier also be introduced to the idea of marketing abroad by export houses, trading posts or agents selling their products in foreign lands and then decide that they might usefully undertake the exercise themselves adopting almost a creeping foreign market entry strategy. Some B2B organisations will consciously chose to export and sell products abroad. This might be on an ad-hoc tactical basis, perhaps to reduce high stock levels, or sell off old stock in foreign markets and so not cause conflict in the home market, or in response to a request for products from abroad. On the other hand a company may decide that market circumstances offered market opportunities that could not be ignored and so developed deliberate foreign market strategies. In many cases companies are almost forced to expand abroad to maintain an acceptable return on shareholders investment. As home markets mature and/or decline, as competition becomes more intense and as anti-competitive legislation increasingly restricts expansion in the home market the natural inclination is to look toward other growing markets elsewhere in the world B2B products and services can be marketed abroad by either direct or indirect methods and these are discussed below. • Home market maturing or declining • Anti-competitive legislation restricts growth at home • The need for better ROI • The attraction of economies of scale associated with large-scale operations • Markets abroad at different stages along the PLC • To prevent competitive moving into lucrative markets unhindered • To grow and build international alliances knowing that this will give competitive advantage Indirect marketing We have shown above that a company can export its products in either an unintentional or deliberate fashion and this will come about through some type of indirect marketing entry method. Indirect exporting avoids the need for the supplier to become to involved with the complexities involved with the exporting process. This can have a downside, however, as business customers may be loath to form long-term relationships with foreign suppliers that seem not to have a meaningful commitment to exporting and could thus pull out at any time. Such things as export documentation, intricate distribution problems, payment difficulties, damaged stock and return problems and so on can all be eliminated or minimised by using the following methods. • Piggy backing • Export house • International trading house • Importing agents • Foreign distributors • Contracting Piggy-backing ‘Piggy backing’ is a term sometimes used for the selling of a product on the backs of other companies. This might be a component part or, a finished product from one supplier sold as an integral part of another. This might be washing-machine pumps in washing machines, engines in lawnmowers or leather for car seats. In fact, because of the value of economies of scale many producers now specialise in a few areas, perhaps dishwasher soap dispensers or stainless steel interiors and then sold to many different domestic appliance manufacturers around the world. Finished products that are ‘piggy- backed’ will include - tyres and radios for cars, DVDs with Hi-fi equipment or monitors with computer systems. The piggybacked product maybe branded of non-branded depending on the buyer supplier negotiated terms. Badge engineering Pearson Education © 2004
  • 28. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Many manufacturers will sell finished products in the name of other companies. It can sometimes be cheaper for a producer, say in the UK, to buy finished products in Eastern Europe or the Far East have their corporate name put onto the product and then sold around the world as if the product came from the UK supplier. The product can be bought off-the-shelf in a finished state or it can be built according to the buyer’s specification. Badge engineering, as this practice is sometimes called, can result in the same product (sometimes with minor, cosmetic modifications) being sold at different prices, names and countries across the globe. It is not unusual for a B2B organisation to act as a manufacturer, but buy all it products in foreign markets where ever they are cheaper and distribute them under the one corporate brand name. With that said, it is important that we differentiate badge engineering from platform engineering, which is an entirely different concept. Platform engineering is what car manufacturers do to spread the cost of developing new vehicles across as many models as possible. The reason for this is simple. Creating a new car from the ground up costs a fortune, and the only way to make good on the investment of engineering, tooling, emission certification, and assembly is to make different vehicle components modular and portable from one vehicle to another. Platform engineering often results in the reverse of badge engineering; the customer can get more than what they paid for because the development costs are spread across multiple projects. Export houses, international trading house, importing agents, foreign distributors In many case companies will not come to international marketing in a deliberate and planned manner. It may be that a supplier discovers that company products are being made available in other countries and/or they may be approached by an organisation to buy products that will end up in another country. Export houses are outlets of some kind in the home country that purchases products to sell to individuals or organisations that will want to take them abroad or to fulfil orders they might have received from abroad. Usually used by small or medium sized companies. International trading houses reside in a foreign country and sell products bought in from abroad (usually from one country of origin). They might also then export products back to the home country. (WFTA – world federation of trading house association (www.wfta.org) Importing agents are similar to trading houses and will import products form around the world to sell in the country of residence. Foreign distributors will buy in products from abroad and, as the name indicates, distributes to particular target customers. This may be with or without the knowledge of the original product producers. Distributors are different to agents in that they buy the products, whilst an agent will not take title to the goods, and then market, and then sell and deliver in specific areas agreed in the negotiated contract. Contracting Contracting can often be the chosen option depending on the products and services on offer. The following contractual entry methods are the most popular by B2B exporters. Licensing A licensing agreement between one organisation and another allows the licensee (the user) to use the intellectual property of the licenser (the parent company) in return for an agreed payment of some kind over a designated period of time. Although used in home markets it is more likely to be used as a foreign market entry strategy by a B2B supplier wanting to enter markets abroad without having to get involved with major resource commitment and more intense entry strategies. Because the licensee will probably be a local organisation it is a method of foreign expansion that avoids government restriction on importing companies whilst taking advantage of local knowledge, existing customer bases and distribution systems. The licensed property might include patents, trademarks, corporate brand, technological, systems, process and knowledge in fact any type of intangible asset that has a value of some kind. Because of its nature, straightforward licensing is more used in B2B markets than in B2C markets. Problems can arise with licensing agreements as control may be difficult and the licensees can use the know-how to build similar products and services and so become a competitor when the Pearson Education © 2004
  • 29. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide agreement ends. Microsoft is an example of a company that licenses is operating systems to organisations around the world. Franchising Franchising is a form of licensing used in both B2C and B2B markets. Hertz, marks and Spencer, Macdonald amongst many others all use this method to enter markets around the world and in retail in the US over a third of all retail businesses operate in this way. Its is also heavily used in B2B markets and is a quick and relatively inexpensive way to expand a business around the globe. Crestcom Training (www.crestcom.com) now franchises its training courses for businesses as diverse as Shell, Dunlop, Pitney Bowes and Guinness in over 50 countries and in 20 languages around the world. Franchising agreements allow a company, the franchisee, the right to run a business owned by another company, the franchiser, in a detailed, clearly agreed manner. In return for an amount of money the franchisee can then use the franchiser’s corporate name, its production methods, its products and services, its marketing and management services and so on. Similar to licensing it’s a relatively inexpensive (the licensee provides the set-up costs) and quick methods to enter foreign markets again taking advantage of localised opportunities in the host country. Franchising can be used in both the manufacturing and service industries. B2B franchising agencies exist to help suppliers find suitable franchising partners in the countries identified for entry (www.british-franchise.org.uk) Management contracts and outsourcing It maybe that the importer wants to possess and build its own manufacturing or service business, perhaps because of government insistence, but lacks the management skills to be able to set up and run the whole operation. In this case it might be prepared to buy in these skills over a period of time until their own can be developed. This then opens up an export opportunity for a company to put together a package able to deliver the wanted management and resource services. This can be under some kind of negotiated management deal offering part or the whole business operating service. Although initially profitable management contracts or outsourcing deals such as these can leave the exporter out in the cold as expertise is gradually learnt and the process eventually taken over by the purchasing organisation. It can be that the whole operating system is taken over, owned and controlled immediately the necessary skills are obtained as part of the negotiated settlement (www.outsourcing- center.com) Outsourcing and contracting PricewaterhouseCoopers today announced it has been awarded the property contract for the management of Telstra's national property portfolio The five year contract includes the buying, selling and leasing of Telstra's 1.6million square metres of property including its commercial and network portfolio plus the facilities management of the commercial portfolio. Telstra's portfolio comprises 11,500 properties (900 commercial and 10,600 network) around Australia. (www.pwcglobal.com) Strategic alliances and joint ventures Strategic alliances and joint ventures where discussed in some detail in an earlier chapter and it is a major way that an organisation might enter a foreign market. Strategic alliances can be formed between national and global organisations as well as with both foreign governments and/or foreign companies on both a formal and informal level. The big problem is selecting the right organisation so as to add value to the market entry strategy. Managers and other employees will need to work well together and trust one another, systems and process will have to be compatible and relevant resource should be shared. Strategic alliances offer a number of benefits to both partners such as; access to markets, distribution networks, technology, economies of scale as well as resources and risk sharing. There are many problems, such as lack of trust, conflicting objectives and the reluctance to share valuable resources that make international strategic alliance problematic and unworkable in some cases and the majority disband or fail with a period of three or four years. Joint ventures are similar to strategic alliances but tend to be for one-off international projects. Pearson Education © 2004
  • 30. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Strategic alliance Philips, Europe's biggest electronics firm, yesterday struck what it described as a strategic alliance with computer group Dell in a deal which will generate $5bn (£3.5bn) in sales and which it hopes will raise its profile in the US. Under the terms of the five-year agreement Philips will supply Dell with a range of equipment, from monitors to storage devices, and will co-operate on technology planning, marketing and optical storage standards. Cooperative working agreements In some cases it may be appealing for organisations to work together informally rather than under a formal contract and this type of cooperative working agreement will stay in place as long as it is mutually beneficial. A group of airlines might agree to allow business travellers to use the same ticket on all airlines, or separate businesses might agree to share the same shipping or airline transport to gain optimum usage and economies of scale. They might even agree to share the same customer base if this can add value for the buyer in offering complementary products. International marketing and value chain relationships We have discussed at length the growth and importance of supply and value chain relationships and this takes on particular significance when marketing in international markets. Cooperation and control can be difficult enough when marketing in home markets but how much more difficult when in international markets. The supply chain itself could possible be spread from one corner of the globe to the other with upstream suppliers perhaps being in the European Unions and downstream buyers being in Asia. Communications, product development, pricing, inventory holding, distribution and marketing must all working effectively and efficiently together across international boundaries. The exponential growth in IT capabilities has eased many problems associated with long distance and relationships between disparate organisations but the challenge to get the most beneficial products and services to the end customer in the most competitive manner still exist. Direct international market entry Having thoroughly researched identified country segments, identified market opportunities and decided to export directly the company must decide decided which strategic methods to use. This decision will depend on many conditions, both in the external and internal environment and some of these are listed below. • Availability of reliable information • Country and market audit results • Demand analysis in identified markets • Segmentation, market and buyer organisation analysis • Mission, corporate and marketing objectives • Internal resources, assets, investment, skills and sources of competitive advantage • Existing marketing mix compatibility with chosen market • Speed and timings of entry required • Cost/benefit uncertainty analysis on favoured market entry strategies • Risk/ benefit analysis on favoured entry strategies • Revenue returns and payback periods on the use of different strategies • Level, activity of competitors • Power of the buyers and the suppliers in the various markets • Opportunities for strategic alliances • Opportunities influencing the different strategic choices • The state of the political/legal climate Adaptive or unified marketing strategy Concomitant with the choosing of the market entry strategy decision will need to be made about the products and services that are to offered in the identified markets and, again in-depth research should have identified the benefits that might be demanded. Because of the gains that might be had by Pearson Education © 2004
  • 31. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide economies of scale many exporting organisations would like to market the same products in foreign markets as they sell in the home market using a unified marketing strategy. Marketing practitioners will realise that this is not always possible and an adaptive strategy, making changes to the marketing mix to satisfy local needs, may have to be used. The choice will depend on factors discussed above such as the sort of products and services produced, the competition and market orientation, the type of buying organisation, as well as other factors in the marketing macro and microenvironment. The product strategy chosen for each separate market will impact on the choice of entry method and, vice versa, the entry method will affect the product strategy to be chosen. Because of the nature of B2B buyers, sophisticated, cosmopolitan few in number, the need for adaptive product and service strategies will probably be less critical than in B2C markets. Direct market entry strategies Strategic options open to the organisation for possible market entry strategies are many but choice will be curtailed by many of the criteria identified above. For example governments may want to protect or build home-industries and so insist that entry can only take place by a joint venture with a foreign market company. They may also insist that native managers be used so that technical skills can be developed for their own future use. Similarly cultural differences and local knowledge maybe so important in a particular industry that there is no choice but to work with an indigenous company. Alternatively the costs involved, perhaps in building on a green-field site or an acquisition or merger maybe so huge that this option will be closed to only but the very rich. Taking this all into account the following market entry options for B2B organisation will be seen as possibilities. Agents Perhaps the easiest way to export if through the use of agents. An agent, unlike an intermediary, will be employed by the exporter on a salary or, as is more likely, on a commission basis, be given a sales area and then paid on the sales produced and buyers contacted. The agent will be assigned an area in the foreign market and might work exclusively for the exporter or work for a range of exporters. This latter alternative might mean that the exporter’s products are not given exclusive presentation having to compete with other products in the agent’s catalogue. The supplier might have a warehouse in situ or transport products as when sold. Direct sales force Having a direct sales-force will probably indicate a higher level of involvement and commitment as a sales force can begin to be quite expensive. This will, of course, depend on the set up and number of salespeople involved. The sales force might be small in number and travel from country to country or it might be foreign based with a marketing and sales office and a distribution centre. The advantage is here is having knowledgeable and committed company employees’ actual going out and talking to buyers, crucial if the product/service is complex and/or expensive. The full advantages and disadvantages in using a sales force were discussed in detail in an earlier chapter. Acquisitions and mergers A B2B supplier can always purchase a company in the country it wants to enter and, although the marketing department would be involved, it has to be seen as a corporate rather than a marketing strategy. This strategy would only be possible under the following circumstances • There is enough money for the purchase – money can be borrowed if the project is attractive enough. • Legal permission from the target country is granted for the sale to take place. • A suitable company can be found. • Shareholders agree to sell shares or, in the case of a public company, governments agree for the sale to take place. • Senior management should agree although a hostile take over (against the wishes of the board) can be successful but it can be a very messy process as both sides battle out, often with advertisements in the press. On the other it could merge with a company in the foreign country and gain entry in this way. Even Pearson Education © 2004
  • 32. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide mergers, however, have their difficulties. Again shareholders need to agree, staff need to be happy and senior management positions acceptable to both sides. All mergers concern power levels and one company will inevitably in a stronger position than another and so be able to dictate or dominate terms. There can be problems associated with acquisitions and mergers. Cultural differences between employees from both companies may be impossible to reconcile leading to de-motivation and a fall in productivity. Customers and/or supplies maybe unhappy with the new arrangements and this discontent may open up opportunities for the competition to step in. It may be difficult and time consuming to harmonise resources causing valuable time to be lost in market on market maintenance and development. Green field site It may be that a supplier wanting to have a physical presence in a particular country is unable to find anywhere that it particularly suitable and so will look at other options. Opportunities may exist for a supplier to purchase a green field site and build a factory or office building from scratch. This option is easier in some countries than in others. In developing countries (Poland, Czech Republic, Romania) suppliers wanting to build the business from the ground can be welcomed in with offers of easy planning permission and incentives such as tax breaks and subsidies. In more developed countries site identification and planning permission can be difficult to come thus causing sites that are available to be very expensive. Factors to consider with this option will include the following: • The high costs that maybe involved • The selection of the right site in the desired location • Achieving planning permission • The time it could take from conception through to operations • The time, and costs, of building the market and customer base from scratch. • Availability of skilled employees Shifting production 2002 - Toolmaker Black & Decker is cutting 550 jobs at its Spennymoor plant in County Durham, UK The company, which makes professional and consumer power tools at the plant, blames the cuts on low cost imports from the Far East. It will move some production to a new factory in the Czech Republic where wage costs are lower (www.bdk.com) Ultimately the organisations wishing to open up international markets will have to look at the opportunities, threats and risks operating in the international environment, weigh all the advantages and disadvantages of the different strategies available, consider its own resources and finally make a decision. As with many strategic decisions the cost and resource implication of any choice will be high and far-reaching and the wrong decision made could have ramifications that would be able to drag the company down. Global companies There is almost a natural imperative for a company to grow as way of surviving in a competitive market where to stand still can lead to loss of market strength and competitive advantage. We only have to look at the business press to find news about companies expanding and moving into areas around the world where changes have opened up mind boggling market opportunities. The collapse of the Russian Empire, the gradual adoption of a free market economy in China and the push for open world markets by the WTO all offer almost unlimited potential both in B2C and B2B markets Most of the largest companies in the world engaged in international business to business marketing have some kind of global structure in place as a way of marketing products and services around the world. This would have come about through one or more of the examples identified above, strategic alliances, acquisitions, mergers, green-field site and so on. In most cases there would have been deliberate strategies planned so as to give the organisation a presence in selected important markets wherever it was felt that opportunities for sales existed. In some cases, however, the process would have been less strategically planned and expansion decisions (perhaps a foreign company purchased) taken more as seeming opportunities arise. Not all companies get it right and there are also news stories of companies losing money on foreign ventures and so having to dispose of divisions in other parts of the world. Pearson Education © 2004
  • 33. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Problems with globalisation Global companies have many advantages over the local opposition. Their size gives them greater economies of scale in manufacturing choices, supplier sourcing from where ever value is greatest, comprehensive market coverage, as well as access to enormous amounts of R&D, creativity, innovation and new technology. They are able to move production wherever in the world labour and other resources are the cheapest and allocate costs and declare profits in the country that has the lowest tax impositions. They also have the ability to influence governments and politicians in seeking some kind of business advantage whether this be in gaining subsidies for the building of a new factory, tax breaks for operating in one area rather than another or a guaranteed exclusive access to customers and markets. There are difficulties, however, associated with size and continual growth compounded when this growth is across the world. Many global companies are perceived as being highly bureaucratic, unwieldy in operations and strategically slow in being able to adapt to changing situations and markets. This is a perennial problem with any small company as it grows bigger, the entrepreneurial thrust, that perhaps drove the company becomes lost as size imposes the need for intricate systems, processes and control mechanisms. The ideal type of market driven company would be on that has all the power associated with the global company with all the qualities, quick reaction times, immediate communication, access by all to information, enthusiasm and motivation and closeness to the customer and market associated with an entrepreneurial company. There is no one way of organising the global organisation for optimum effectiveness, as many factors will influence the process. There are, however, major strategic areas such as, culture, employee satisfaction, systems, structures etc. that have to continually visited and revisited to see that all corporate divisions function in a customer driven and profitably manner. Below we examine some of the issues that will confront the global company looking for the ideal market approach. Centralised and decentralised international strategies Many of the very largest companies will have the choice on whether to adopt a centralised or decentralised global corporate and marketing strategy. A centralised strategy would put the headquarters of the organisation at the centre of all strategic planning and operations allowing little strategic decision making to take place in company division in foreign lands. A decentralised system, on the other hand put the power to make many strategic decisions at the local level giving individual divisional companies power to almost run the company as a separate entity. There is no one right or wrong way and whichever method is chosen will depend on company history and culture as well as markets factors discussed throughout this book. In many case the method chosen will a combination of the above with some important core strategies, perhaps those concerning finance, company culture an brand values keep at the centre whilst others, perhaps product portfolio selection, market communications and distribution methods give out to the divisions. Some companies find the one method works for them whilst others find that different methods work for them. The global financial company Canadian Manulife Financial, Toronto (turnover $147 billion) has operations in the US, Canada, Hong Kong, Japan, China, Indonesia, Philippines, Vietnam, Singapore & Taiwan and operates a combination of both centralised and decentralised strategies. (www.manulife.com) International and global marketing structures As with the home market there are many structures that might be used by companies that market goods and services at international or global level. Department/ division for international sales The first sign that an organisation was taking the process seriously is the setting up of a department for international sales. This might be within the existing sales department or as adjunct with its own marketing and sales manager and separate staff. This department or division if sales grew, would then be responsible for all operation in foreign markets and might even have a physical administration/sales/ distribution presence in each country of operation. Eventual, depending on where the markets where, the international division might move most of its operations abroad putting the divisional headquarters Pearson Education © 2004
  • 34. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide in a central position within the international sales area. Brand/product lines If the company is big enough, a variation of this structure might be based around brand/product line. Each product manager/department/division is given responsible for a separate category to market and sell in designated countries. In this way skills are built up and then benefits demanded by individual buying organisations clearly identified. Again the operation might move abroad in the same way outlined above. Global organisations might well have separate companies for a multitude of product lines with each company operating to a lesser or greater extent as a separate entity (see fig 10. Below) The problem here might be one of duplication with one product category manager counter-crossing other product category managers. Customers and buying organisations If the potential and existing customer base consists of very huge and important customers such as Nestle, Toyota, BP, Nokia, Sony, Johnson and Johnson, Micros soft, General Electric etc. then the buying organisation or the many different companies they might own around the world might become the method of segmentation. Because a supplier sells in one company is no guarantee that they will sell in another although examples of high quality high value products and a good service given will be valuable in opening Country or global region Individual countries could offer the best way of segmenting markets. B2B marketing and sales manager would become responsible for one country again working from the home country or setting up divisions in each individual country. Setting up individual divisions in each country then allows the supplier to develop adaptive strategies and respond to the particular differences and needs for each country. Problems associated with this where discussed above. Global Matrix We discussed earlier the pros and cons in having a decentralised or centralised global marketing structure. How much power should remain at the centre and how much given out to the peripherals and son. Ultimately the structures and systems chosen must be the most effective in the market taking into account global and local customer and market issues as well company concerns associated with such things as economies of scale and corporate knowledge and experience. A global matrix structure attempts to solve the problem by having a local country business marketing manager and a global business-marketing manager. Working together the local manager can press for local concerns whilst the global manager can put the case for global issues. Unless responsibilities are clearly delineated, not easy at this strategic level, difficulties can arise through a clash of opinions and differences over approaches and priorities. In reality the amount of power given at the local level and the management structure adopted will vary from company to company and will change as circumstances and management fashion changes. Businesses will stick with the management approach that seems to work and changes when a downturn in business seems to indicate otherwise. The definition of international marketing and global marketing In simple terms the company that controls all strategies and operates from the home market with sales people, departments or divisions abroad can be said to be involved in international marketing. Organisations that have separate company’s abroad with a board of directors with a high level of power and separate control can be said to be involved in global marketing. The level and diffusion of power between HQ and its various parts will vary from company to company according to corporate history, philosophy and strategic working practices. These are just a few of the 100s of companies owned by pharmaceutical company Johnson and Johnson around the world (www.jnj.com): • McNeil Consumer Healthcare, Canada, www.mcneilcanada.com • Cilag AG (Switzerland) www.cilag.ch Pearson Education © 2004
  • 35. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide • Janssen Animal Health (Belgium) www.janssenanimalhealth.be • Woelm Pharma G.m.b.H. (Germany) www.woelm.com • RoC S.A. (France) www.roc.com • Xian-Janssen Pharmaceutical Ltd. (China) www.xian-janssen.com.cn • (Many of the above have subsidiary companies) As well as companies trading under the Johnson and Johnson name in India, UK, Brazil, Argentina, Czech Republic, Slovakia, Korea, Japan Pearson Education © 2004