Pages From Chapter 3 an Overview of Industrial Marketing and Supply Relationships-08dfe9f19021fa95443036d720349e25

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52

An Overview ofIndustrialMarketing andSupplyRelationships

C H A P T E R

03

Chapter 1Introduction toRelationshipMarketing

Chapter 2Defining

RelationshipMarketing

Chapter 3An Overview of Industrial

Marketing and SupplyRelationships

Chapter 4Services Marketing andRelational Perspectives

Chapter 6Mobilizing

Information inRelationships

Chapter 8Customer-generated

Media, Social Networksand Relationship

Development

Chapter 5Interpersonal

Relationships andTrust

Chapter 7New Media

Technology: MediatingRelationshipDevelopment

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Introduction

Industrial marketing is about marketing transactions between organizations, as identified byGummesson in the previous chapter, where customers are not necessarily the end users of

products and services – that is, marketing is “business-to-business”, or b2b. Examples of this maybe the supplier of component parts to a car manufacturer or a contract cleaning service to anoffice. This type of transaction differs from consumer marketing in very specific ways, includingthe make-up and size of customers, and the complexity and nature of purchasing processes.

An Overview of Industrial Marketing and Supply Relationships 53

After studying this chapter you should beable to:

1 define industrial marketing and discussthe drivers for change in industrialmarketing and supply relationships

2 compare different models of industrialbuyer behaviour

3 understand how to manage differenttypes of industrial marketing relationship

4 assess how supply relationships areevolving

5 consider the value-added throughrelationships between buyers andsuppliers

LEARNING OBJECTIVES

Introduction 53

An Overview of Industrial Marketing 54

Developments in Industrial Markets 56

Industrial Buyer Behaviour 58

Relational Development Cycles 64

Supply Relationships 67

Mini-case: Boeing’s Dreamliner 68

Adding Value Through Relationships 70

Chapter Summary 72

Further Reading 72

End of Chapter Case and Key Questions 73

References 75

Chapter Contents

INSIGHT: b2b marketing is business-to-business marketing, where marketing transactions take placebetween organizations.

Ensuring stable relationships between suppliers and their customers is important to both parties.Consider, for example, the importance, and indeed, critical nature of the supplier of completed air-plane wings to an aircraft manufacturer. Clearly, without wings, the airplane cannot fly; moreover, itwould not be easy for an airplane manufacturer to find a new supplier of wings, which are complexstructures, if their relationship with the supplier breaks down irretrievably. Thus, consequences ofrelationship continuity relate to long-term financial stability for both the supplier and the customer.

This chapter is, therefore, an important contribution to our understanding of RM from the perspective of industrial suppliers and their customers. The chapter first sets out to describe the nature of industrial markets, then the changes that have influenced their development.Thereafter, models of buyer behaviour and industrial relationship management are presented anddiscussed. Finally, two specific forms of industrial relationship are examined: outsourced and co-destiny relationships.




An Overview of Industrial Marketing

Industrial marketing is about transactions between suppliers and customers, (as referred to inChapter 2), who collaborate within a supply chain. Transactions typically comprise goods and

services which are used by buyers in their production of some product for another customer orend user. The goods and services fall into a number of discrete product classes (based on Jobber,2004):

■ Materials used in the manufacture of products, such as steel used in the manufactureof cars, or clay used in the manufacture of bricks

■ Components, such as semi-conductors (microchips) used in the manufacture ofrobotics, computers and other electronic goods

■ Plant and equipment used in the operation of manufacturing plants, for example, con-veyor belts, production lines and forklift trucks

■ Products and services used in the repair and operation of production equipment, forexample, lubricants used to oil the production line or catering services used to feed thefactory workers. These are commonly referred to as maintenance, repair and operationitems (MROs).

Although each product class may be important to the buyer, it is evident that some products maybe more critical than others. This may depend upon the reliability needed from the product beingsupplied, the value of the purchase and the availability of alternative sources of supply. Arguably,these may be effectively managed by contracts with penalty clauses, which do not necessarilyinvolve close relationships between suppliers and customers. Williamson (1985), based on the workof Coase (1937), describes an economic theory of an organization. He identified the need for trans-action-cost economies as being a key reason why organizations may seek relationships with others.Transaction costs are those that arise from the search for information, the negotiation and decision-making around contracts and the enforcement and policing of contracts. The value of having thecontract revolves around the frequency of the transactions between the buyer and the supplier, andthe nature and criticality of the supplies to the buyer. Such considerations are the basis of the make-versus-buy decision made by organizations – where a product or service is important, it is probablybetter to produce it “in-house”, rather than “outsource” it from a supplier. This is discussed later inthis chapter. Suffice to say that, where a contracted supply is important to the buyer, it may be ben-eficial to work closely with the supplier in order to minimize the risks of being exploited.

Another perspective on the buyer (or customer) considers them as “production units” (Gaddeand Hakansson, 2001), where emphasis is placed on “inputs” (raw materials, components andother constituents to the production process). However, an alternative view is that the customeris a “capital-earning unit”, which places much greater emphasis on different types of inputs, suchas knowledge and financial efficiency, and where relationships are close because of the need toexchange information and work together to achieve financial goals. Relationships are, therefore,key to the modus operandi.

Where the production perspective is emphasized, the product classes present specific prob-lems, or risks, for customers: some require considerable technical competence, some highadministration, while others may be time sensitive in supply and production. These may be cat-egorized according to their impact on profitability, as illustrated in Figure 3.1 below.

Others have categorized risk in different ways, such as by the level and type of organizationalmember involvement in the integration of the supply into the customer’s production processes(Drummond and Ensor, 2003):

Part 1 Perspectives and Dimensions of Relationship Marketing54



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Pages From Chapter 3 an Overview of Industrial Marketing and Supply Relationships-08dfe9f19021fa95443036d720349e25