Prepared: Professor

angeline B. Reyes, MAE

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Lesson Objectives
1. 2. 3. 4. 5. 6. 7. 8. Describe the effectiveness of price coordinating business transactions to create value. Explain how value is determined in exchange. Identify conditions that impair the performance of pure markets to coordinate business exchange. Summarize the range of buyer and seller motivations to develop and maintain an exchange relationship. Describe a relationship development process for parties able to gradually deepen their interdependence. Identify three complimentary mechanisms for coordinating business transactions. Describe the network of participants in the value chain. Illustrate the marketing efforts one firm might take with each member of the network.
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Chapter Two The Character of Business Marketing

McGraw-Hill/Irwin

Copyright 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Supply chain
Proactively planning and coordinating the flow of products, services and information among connected firms focusing on creating and delivering value to end users. Involves information sharing, joint planning and coordination to improve business performance by eliminating waste, innovating, improving quality and providing flexibility.
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Relationship Management
Buyer interest in maintaining a high performance relationship often has its counterpart on the supply side; Supplier may be attracted by the promise of recurring purchases due to their volume and relative certainty; Supplier has some concerns also: set-up, administrative costs, long run pay-offs and vulnerability.
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 Does it make sense to assign a team to prepare a bid? How much managerial attention will this customer require? Will the company need to dedicate personnel or production systems to this account? Can the company work with the other firms people? How much training is involved? What is the long-run promise of this particular account?

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Transactional Exchange Or Spot Exchange

Money traded for easily measured
Ex. General Mills buying wheat and other grains on commodities markets, a restaurant buyer at a cash-and-carry produce market, etc.

Communication content is quite narrow Identity is hardly relevant Trading terms are simple and clear; Performance is practically immediate.
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Joint Interest in a Relationship

Strategic partnership results when both parties have keen interests in maintaining an ongoing exchange. > rests on the significance of the resources and long-run consequences of the efforts.

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Key Managerial Implications of Relationship

Buyer participation in the vendors production setup and quality control processes eliminates the costly process of coping with defective inputs (rework, reorder and scrap) Reducing the number of suppliers reduces number of competitive bidders thereby dampens the power of marketplace to affect prices.
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 OEM buyers worked with suppliers of component parts and materials to eliminate costly inventories and frequent handling costs by establishing JIT. Just-in-time (JIT Relationship) requires supplier to produce and deliver to the OEM the necessary quantities at the necessary time with the objective that products produced by the supplier conform to performance specification every time.
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BUSINESS TO BUSINESS: WHAT DETERMINES A SUCCESSFUL RELATIONSHIP? MOTIVATION THE SELLERS MOTIVATION TO RELATE THE BUYERS MOTIVATION TO RELATE IF THEY ARENT EQUALLY MOTIVATED IT WONT BE AN EQUAL RELATIONSHIP

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BUSINESS TO BUSINESS: THE TYPES OF RELATIONSHIPS

SELLERS MOTIVATION TO RELATE

BUYERS MOTIVATION

HIGH

TO RELATE

BUYERS ADVANTAGE
LOW

STRATEGIC PARTNERSHIPS
HIGH

TRANSACTIONAL SELLERS RELATIONSHIPS ADVANTAGE

LOW

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GOING FOR HIGH PERFORMANCE RELATIONSHIPS

SELLERS Want to: Sell Large Volumes Sell similar amounts over time Manage their selling and support expenses DEVELOP A COMMON GROUND BUYERS Want: Reliable delivery without interruptions Reliable products with low rejection and defect rates Efficient lead times
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REQUIREMENTS FOR HIGH PERFORMANCE RELATIONSHIPS

BEYOND THE FINANCIAL CONSIDERATIONS:
INTEGRITY FAIRNESS LOYALTY FLEXIBILITY INPUT INTO YOUR PARTNERS STRATEGY PARTNERS INPUT INTO YOUR STRATEGY COMPLIANCE WITH PROCEDURES AND AGREEMENT HONOR COMMITMENTS STAND BEHIND YOUR PRODUCTS
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TWO CHOICES FOR STAYING IN A BUSINESS RELATIONSHIP

YOU WANT TO
The rewards are financial, strategic or psychological

YOU HAVE TO
The cost to exit is too high or there are no alternatives

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SUGGESTIONS FOR MAKING B2B RELATIONSHIPS LAST

Make on-site visits to your partner Trade personnel and offices Manage total dependence with an alternate supplier Make the pledge of continuous service Develop a relational contract Provide ownership by bringing functions or technology within boundaries of partners firm

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Sellers motivation to relate

High

Buyers Market Low

Sellermaintained relation

Joint relationship maintenance High

Buyer-maintained relation Discrete exchange (spot contracts) Sellers market

Buyers motivation to relate

No exchange

Low

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