Business Marketing Management: B2B

Business Marketing Management: B2B - ««1 MICHAEL D. HUTT Arizona State University THOMAS W. SPEH Miami University THOMSON * S O U T H - W E S T E R N A u s t r a l i a B r a z i l C a n a d a M e x i c o S i n g a p o r e S p a i n U n i t e d K i n g d o m U n i t e d S t a t e s

Preface PrtEiE Chapter 1 A Business Marketing Perspective Business Marketing Business Marketing Management Business Market Customers Business Markets versus Consumer-Goods Markets B2B TOP PERFORMERS: Career Path for B2B CEOs: For Many, It Began in Marketing! INSIDE BUSINESS MARKETING: Google: B2C or B2B? Designing Customer Solutions Marketing's Cross-Functional Relationships Characteristics of Business Markets Business and Consumer Marketing: A Contrast Smucker: A Consumer and Business Marketer Distinguishing Characteristics A Relationship Emphasis The Supply Chain Supply Chain Management Managing Relationships in the Supply Chain INSIDE BUSINESS MARKETING: Career Profile: Delivering Service Solutions to IBM Customers Commercial Enterprises as Consumers Classifying Goods for the Business Market Entering Goods B2B TOP PERFORMERS: Jim Ryan, Group President, W.W. Grainger, Inc. Foundation Goods Facilitating Goods Business Marketing Strategy Illustration: Manufactured Materials and Parts Illustration: Installations Illustration: Supplies A Look Ahead Summary 3 4 5 6 7 8 9 10 10 12 13 14 15 15 16 17 17 18 19 20 20 22 22 23 24 24 24 25 25 27

, ' Discussion Questions 27 Internet Exercises 29 Case: Wireless E-mail: A Challenger to BlackBerry? 30 Chapter 2 The Business Market: Perspectives on the Organizational Buyer 31 Commercial Enterprises: Unique Characteristics 32 Distribution by Sjze 33 Geographical Concentration 33 Classifying Commercial Enterprises, 34 The Purchasing Organization 35 Goals of the Purchasing Function 36 INSIDE BUSINESS MARKETING: The Supply Chain for McNuggets 37 Strategic Procurement 37 INSIDE BUSINESS MARKETING: Harley-Davidson's World-Class Purchasing Organization ' 41 E-Procurement 42 Everyone Is Getting Wired 42 Enhancing the Buyer's Capabilities 42 Delivering Measurable Results 43 Buying Direct and Indirect Goods 43 Reverse Auctions 45 ETHICAL BUSINESS MARKETING: Gift Giving: "Buy Me These Boots and You'll Get My Business" 46 How Organizational Buyers Evaluate Potential Suppliers 46 Governments: Unique Characteristics 46 E-Government 47 Influences on Government Buying 47 Understanding Government Contracts 47 Telling Vendors How to Sell: Useful Publications 48 Purchasing Organizations and Procedures: Government 48 Federal Buying 50 A Different Strategy Required 51 The Institutional Market: Unique Characteristics 52 Institutional Buyers: Purchasing Procedures 52 Dealing with Diversity: A Market-Centered Organization 55 Summary 55

Discussion Questions 56 Internet Exercises 57 Case: Managing Supplier Relationships: Does Detroit Need a New Driver? 58 MANAGING RELATIONSHIPS IN BUSINESS MARKETII Chapter 3 Organizational Buying Behavior 61 The Organizational Buying Process 63 The Search Process 64 New Task 65 Straight Rebuy 66 Modified Rebuy 67 Forces Shaping Organizational Buying Behavior 69 Environmental Forces 69 INSIDE BUSINESS MARKETING: Pressuring Suppliers to Outsource 71 Organizational Forces 71 Strategic Priorities in Purchasing 72 Organizational Positioning of Purchasing 73 INSIDE BUSINESS MARKETING: Go Digital to Target Buying Influential 75 Group Forces 75 INSIDE BUSINESS MARKETING: Innovate and Win with BMW 78 Individual Forces 80 B2B TOP PERFORMERS: Delivering Customer Solutions 82 The Organizational Buying Process: Major Elements 83 Summary 85 Discussion Questions 85 Internet Exercise 86 Case: Dell, Inc. 88 Chapter 4 Customer Relationship Management Strategies for Business Markets 89 Relationship Marketing 90 Types of Relationships 91 Value-Adding Exchanges 92 Nature of Relationships 92 Strategic Choices 92

xviii Contents B2B TOP PERFORMERS: Understanding the Customer's Business the Key to Success 93 Managing Buyer-Seller Relationships 93 Transactional Exchange 94 Collaborative Exchange 94 Switching Costs 94 Strategy Guidelines ~" 95 Measuring Customer Profitability 96 Activity-Based Costing 96 Unlocking Customer Profitability 96 The Profitable Few 97 Managing High- and Low-Cost-to-Serve Customers 98 Managing Unprofitable Customers 100 Firing Customers 100 Customer Relationship Management 101 Acquiring the Right Customers 101 INSIDE BUSINESS MARKETING: Diversify a Customer Portfolio Too! ' 103 Crafting the Right Value Proposition 104 Instituting the Best Processes 106 Motivating Employees 107 Learning to Retain Customers 107 Gaining a Customer Relationship Advantage 108 INSIDE BUSINESS MARKETING: Do Interpersonal Relationships Matter to Corporate Buyers? 109 Customer-Relating Capability 109 Gaining a Position of Advantage 111 Achieving Performance Rewards 111 Summary 112 Discussion Questions 112 Internet Exercise 113 Case: Siebel Systems 114 Chapter 5 Segmenting the Business Market 117 Business Market Segmentation Requirements and Benefits 118 Requirements 119

Evaluating the Competitive Environment 119 Evaluating the Technological Environment 120 INSIDE BUSINESS MARKETING: How to See What's Next 121 Benefits 122 Bases for Segmenting Business Markets 122 Macrolevel Bases 123 Illustration: Macrosegmentation 125 Microlevel Bases 126 B2B TOP PERFORMERS: Steering Customers to the Right Channel 128 Illustration: Microsegmentation 132 A Model for Segmenting the Organizational Market 132 Choosing Market Segments 132 Isolating Market Segment Profitability 134 Implementing a Segmentation Strategy 135 Summary 135 Discussion Questions 136 Internet Exercises 137 Case: Small Businesses Represent Huge Opportunity 138 Chapter 6 Organizational Demand Analysis 139 Organizational Demand Analysis 140 Using the Internet for Business Marketing Research 141 The Role of Market Potential in Planning and Control 144 The Role of the Sales Forecast 146 Applying Market Potential and the Sales Forecast 146 INSIDE BUSINESS MARKETING: Accurate Forecasts Drive Effective Collaboration between Boeing and Alcoa 147 Determining Market and Sales Potentials 148 Statistical Series Methods 148 Market Research 151 B2B TOP PERFORMERS: Go Deep into the Customer's Organization 152 The Essential Dimensions of Sales Forecasting 153 The Role of Forecasting 153 E-Forecasting 154 Forecasting Methods 154 Qualitative Techniques 154 Quantitative Techniques 157

Combining Several Forecasting Techniques 161 Summary 161 Discussion Questions 162 Internet Exercises 162 Case: IBM Global Services 163 j Chapter 7 Business Marketing Planning: Strategic Perspectives 167 Marketing's Strategic Role 168 The Hierarchy of Strategies 168 Strategy Formulation and the Hierarchy 171 INSIDE BUSINESS MARKETING: From Bullet-Point Plans to Strategic Stories at 3M 173 Marketing's Cross-Functional Relationships 173 Cross-Functional Connections 174 B2B TOP PERFORMERS: High-Performing Cross-Functional Managers 175 Functionally Integrated Planning: The Marketing Strategy Center 175 The Components of a Business Model 178 Customer Interface 178 Core Strategy 179 Strategic Resources 180 The Value Network 181 Profit Potential 181 The Balanced Scorecard 181 Financial Perspective 182 Customer Perspective 183 Internal Business Process Perspective 184 Strategy Map 186 Summary 188 Discussion Questions 189 Internet Exercises 190 Case: Microsoft Targets Small and Mid-Sized Businesses 191

Chapter 8 Business Marketing Strategies for Global Markets 192 Capturing Global Advantage in Rapidly Developing Economies 193 Mapping Sources of Global Advantage 194 The Cost Advantage 194 The Market Access Advantage 197 The Capabilities Advantage 198 The Outsourcing Decision 199 International Market-Entry Options 200 Exporting 200 Contracting 201 Strategic Alliances 202 ETHICAL BUSINESS MARKETING: The Bribery Dilemma in Global Markets 203 Joint Ventures 203 Choosing a Mode of Entry 204 Multidomestic versus Global Strategies 205 International Strategy and the Value Chain 205 B2B TOP PERFORMERS: General Electric Aircraft Engines: Global Strategy Means Help Your Customers 207 Source of Advantage: Multidomestic versus Global 208 Types of International Strategy 208 A General Framework for Global Strategy 210 Build on a Unique Competitive Position 210 Emphasize a Consistent Positioning Strategy 210 Establish a Clear Home Base for Each Distinct Business 211 Leverage Product-Line Home Bases at Different Locations 212 Disperse Activities to Extend Home Base Advantages 212 Coordinate and Integrate Dispersed Activities 213 Summary 213 Discussion Questions 214 Internet Exercise 214 Case: Schwinn: Could the Story Have Been Different? 215 Chapter 9 Managing Products for Business Markets 216 Core Competencies: The Roots of Industrial Products 217 Identifying Core Competencies 218

Sustaining the Lead 218 From Core Products to End Products 220 Exploiting Selected Core Competencies 220 Product Quality 221 Meaning of Quality 222 Meaning of Customer Value 222 Product Support Strategy: The Service Connection 224 Product Policy 224 Types of Product^Lines Defined 224 Defining the Product Market 225 B2B TOP PERFORMERS: BASF: Using Services to Build a Strong Brand 227 Planning Industrial Product Strategy 227 Product Positioning 227 The Process 227 Isolating Strategy Opportunities 228 Product Positioning Illustrated 229 Building a Strong Brand 229 Strong Brands Promise and Deliver 230 Building Brand Equity 230 Does Brand Building Pay Off? 232 The Technology Adoption Life Cycle 232 Types of Technology Customers 233 // INSIDE BUSINESS MARKETING: The Gorilla Advantage in High-Tech Markets 234 Strategies for the Technology Adoption Life Cycle 235 The Bowling Alley 235 The Tornado 236 Main Street 237 Summary 237 Discussion Questions 238 Internet Exercise 239 Case: NCR Self-Checkout Systems 240 Chapter 10 Managing Innovation and New Industrial Product Development 241 The Management of Innovation 242 Induced Strategic Behavior 243 Autonomous Strategic Behavior 243

Product Championing and the Informal Network 244 Bringing Silicon Valley Inside 245 Managing Technology 247 Classifying Development Projects 247 A Product-Family Focus 248 The Disruptive Innovation Model 249 Innovation Winners in High-Technology Markets 251 INSIDE BUSINESS MARKETING: Patching: The New Corporate Strategy in Dynamic Markets 253 The New-Product-Development Process 254 What Drives a Firm's New Product Performance? 254 Anticipating Competitive Reactions 256 Sources of New Product Ideas 256 B2B TOP PERFORMERS: Best Practices for Successful Innovation: Create a Supportive Culture 257 Quality Function Deployment 259 Determinants of New Product Performance and Timeliness 260 The Determinants of Success 260 Determinants of Product Success for Japanese Companies 261 Fast-Paced Product Development 262 Summary 263 Discussion Questions 264 Internet Exercise 264 Case: Motorola's Disruptive Initiative: The Ultra-Cheap Cell Phone 265 Chapter 11 Managing Services for Business Markets 266 From Products to Solutions 267 A Solution-Centered Perspective 267 Benefits of Solution Marketing 269 INSIDE BUSINESS MARKETING: To Sell Jet Engines, Teach Your Customer How to Sell Aircraft 270 Business Service Marketing: Special Challenges 270 Services Are Different 271 Tangible or Intangible? J Simultaneous Production and Consumption 272 Service Variability 273 Service Perishability 273 271

Nonownership 274 Service Quality 274 Dimensions of Service Quality 274 Customer Satisfaction and Loyalty 275 Service Recovery 276 Zero Defections 276 Return on Quality 277 Marketing Mix for Business Service Firms 277 Segmentation 278 Service Packages 278 Pricing Business Services 281 B2B TOP PERFORMERS: Growing the Service Business at Siemens Building Technologies 282 Services Promotion 284 Services Distribution 284 Developing New Services 285 Scenarios for Success and Failure 285 Summary 288 Discussion Questions 289 Internet Exercise 289 Case: SafePlace Corporation 290 ' Chapter 12 Managing Business Marketing Channels 291 The Business Marketing Channel 292 Direct Channels 293 / INSIDE BUSINESS MARKETING: IBM Uses the Internet to Collaborate with Channel Partners and Build Customer Loyalty 294 Indirect Channels 294 Integrated Multichannel Models 295 Participants in the Business Marketing Channel 297 Distributors 297 Manufacturers' Representatives 300 B2B TOP PERFORMERS: Why Intel Uses Reps 301 Channel Design 302 Stage 1: Channel Objectives 302 Stage 2: Channel Design Constraints 304 Stage 3: Pervasive Channel Tasks 305

xxv Stage 4: Channel Alternatives 305 Stage 5: Channel Selection 307 Channel Administration 308 Selection of Channel Members 308 Motivating Channel Members 309 Summary 311 Discussion Questions 311 Internet Exercise 312 Case: Direct Marketing Campaigns at IBM 313 Chapter 13 E-Commerce Strategies for Business Markets 314 Defining E-Commerce 316 Key Elements Supporting E-Commerce 317 The Internet and World Wide Web 317 Intranets and Extranets 319 The Strategic Role of E-Commerce 319 E-Commerce as a Strategic Component 320 INSIDE BUSINESS MARKETING: UPS Delivers the Goods Using Sophisticated E-Commerce Technology 321 What the Internet Can Do 322 The Internet: Strategy Still Matters 322 Crafting an E-Commerce Strategy 324 Delineating E-Commerce Objectives 324 Specific Objectives of Internet Marketing Strategies 326 B2B TOP PERFORMERS: GE Healthcare: Using the Web to Create New Services 327 Internet Strategy Implementation 327 The Internet Product 328 INSIDE BUSINESS MARKETING: Top-Rated B2B Web Sites 329 Channel Considerations with Internet Marketing 330 The Internet as a Channel Alternative 331 The Effect of the Internet on Pricing Strategy 332 The Internet and Customer Communication 332 Summary 334 Discussion Questions 335 Internet Exercise 336 Case: Using the Internet at W. W. Grainger 337

xxvi Contents Chapter 14 Supply Chain Management 339 The Concept of Supply Chain Management 341 Partnerships: The Critical Ingredient 342 Supply Chain Management: A Tool for Competitive Advantage 344 Supply Chain Management Goals 344 Benefits to the Final Customer 346 The Financial Benefits Perspective 346 Information and Technology Drivers 347 Successfully Applying the Supply Chain Management Approach 348 Successful Supply Chain Practices 348 B2B TOP PERFORMERS: Making Supplier Relationships Work 349 Logistics as the Critical Element in Supply Chain Management 350 Distinguishing between Logistics and Supply Chain Management 350 Managing Flows 351 The Strategic Role of Logistics 351 Sales-Marketing-Logistics Integration 352 Just-in-Time Systems 352 Total-Cost Approach 354 Calculating Logistics Costs 354 Activity-Based Costing 354 Total Cost of Ownership 354 Business-to-Business Logistical Service 355 Logistics Service Impacts on the Customer 355 Determining the Level of Service 356 Logistics Impacts on Other Supply Chain Participants 357 Business-to-Business Logistical Management 357 Logistical Facilities 358 Transportation 358 Inventory Management 360 INSIDE BUSINESS MARKETING: The Profit Impact of Inventory Management 361 Third-Party Logistics 362 Summary 362 Discussion Questions 363 Internet Exercise 364 Case: Managing Logistics at Trans-Pro 365

xxvii Chapter 15 Pricing Strategy for Business Markets 366 The Meaning of Value in Business Markets 367 Benefits 368 Sacrifices 369 Value-Based Strategies 369 B2B TOP PERFORMERS: The Key to Value-Based Strategies- Understand the Customer's Economics 370 The Pricing Process in Business Markets 371 Price Objectives 371 Demand Determinants 372 Cost Determinants 375 Competition 377 Pricing across the Product Life Cycle 379 Pricing New Products 379 ETHICAL BUSINESS MARKETING: On Ethics and Pricing at Raytheon 380 Legal Considerations 381 Responding to Price Attacks by Competitors 381 Evaluating a Competitive Threat 382 Understanding the Rules of Competitive Strategy 384 Competitive Bidding 384 Closed Bidding 385 Open Bidding 385 Strategies for Competitive Bidding 386 Summary 386 Discussion Questions 387 Internet Exercise 388 Case: Meeting the Challenge of Reverse Auctions 389 Chapter 16 Business Marketing Communications: Advertising and Sales Promotion 390 The Role of Advertising 391 Integrated Communication Programs 391 Enhancing Sales Effectiveness 392 Increased Sales Efficiency 393 Creating Awareness 393

xxviii Contents Interactive Marketing Communications 393 What Business-to-Business Advertising Cannot Do 394 Managing Business-to-Business Advertising 394 Defining Advertising Objectives 395 Written Objectives 395 Determining Advertising Expenditures 396 Developing the Advertising Message 398 Selecting Advertising Media for Business Markets 399 B2B TOP PERFORMERS:"Search Engine Marketing at Google:. The Right Message, the Right Time 400 Direct Marketing Tools 402 Measuring Advertising Effectiveness 404 Measuring Impacts on the Purchase Decision 404 The Measurement Program 405 B2B TOP PERFORMERS: IBM Gold Service Customers 406 Managing Trade Show Strategy 406 Trade Shows: Strategy Benefits 406 Trade-Show Investment Returns 407 Planning Trade-Show Strategy 407 Trade-Show Objectives 408 Selecting the Shows 408 Managing the Trade-Show Exhibit 409 Evaluating Trade-Show Performance 409 Summary 410 Discussion Questions 411 Internet Exercise 411 Case: Johnson Controls, Inc. 412 Chapter 17 Business Marketing Communications: Managing the Personal Selling Function 413 Foundations of Personal Selling: An Organizational Customer Focus 415 Relationship Marketing 415 INSIDE BUSINESS MARKETING: Career Profile: Managing Relationships at IBM 416 Relationship Quality 417 Managing the Sales Force 418

xxix Organizing the Personal Selling Effort 418 Key Account Management 420 National Account Success 422 B2B TOP PERFORMERS: Using Customized Strategies to Outmaneuver Rivals 423 Isolating the Account Management Process 423 Account Management Success 424 Sales Administration 425 Recruitment and Selection of Salespersons 425 Training 426 Supervision and Motivation 427 Evaluation and Control 430 ETHICAL BUSINESS MARKETING: Ethics in Selling 431 Models for Industrial Sales Force Management 431 Deployment Analysis: A Strategic Approach 431 The Internet: Transforming the Selling Process 433 Summary 435 Discussion Questions 435 Internet Exercise 436 Case: Account Management at Yellow Roadway: Choosing Customers Wisely 437 Chapter 18 Controlling Business Marketing Strategies 441 A Strategy Map: Portrait of an Integrated Plan 442 Developing the Strategy: The Process 444 Maps: A Tool for Strategy Making 446 Marketing Strategy: Allocating Resources 447 Guiding Strategy Formulation 447 Managing Individual Customers for Profit 448 The Marketing Control Process 448 Control at Various Levels 448 Strategic Control 449 Annual Plan Control 450 Efficiency and Effectiveness Control 452

INSIDE BUSINESS MARKETING: Digital Cockpits to Track Corporate Financial Performance 453 Profitability Control 453 Feedforward Control 455 Implementation of Business Marketing Strategy 456 The Strategy-Implementation Fit 456 Implementation Skills 457 The Marketing Strategy Center: An Implementation Guide 457 B2B TOP PERFORMER'S: Cross-Functional Relationships: Effective Managers Deliver on Promises 459 Looking Back 460 Summary 461 Discussion Questions 461 Internet Exercise 462 Case: Sealed Air Corporation: Delivering Package Solutions 463 Cases 465 Case Planning Guide 465 S.C. Johnson's Professional Division 466 Westward Industries Ltd. (A) 468 Clariant Corporation Marketing 483 RJM Enterprises, Inc. Romancing the Vine 498 Pfizer, Inc. Animal Health Products A: Market Segmentation and Industry Changes 531 Circuit Board Corporation 543 Beta Pharmaceuticals: Pennsylvania Distribution System 556 Pivot International Pursuing Growth 562 Deere & Company Worldwide Logistics 583 Yield Management at American Airlines 588 Barro Stickney, Inc. 594 Advanced Elastomer Systems: Market Strategy for a New, Technical Product 600 Cyanide Destruct Systems Inc. 625 The Indicted CFO 638 Ethical Dilemmas in Business Marketing 641 Name Index 643 Subject Index 649