This report analyses the business-to-business marketing in comparison to business-to-consumer marketing

University Degree Business and Administrative studies

E Marketing MRKT 20027

Introduction

This report is about the marketing concepts prevalent nowadays and shows the growth of a new type of marketing with the rapidly increasing use of internet and new softwares. The online business-to-business marketing has enhanced the markets for suppliers and brought about new relationship in businesses. The report is giving in-depth study of the online business-to-business marketing detailing the components and the latest developments to understand the concept in a systematic manner.

This report analyses the business-to-business marketing in comparison to business-to-consumer marketing and then builds up business-to-business marketing in stages in the enroute to success section. The supply variants and relation section discusses the supply chain aspect of this marketing. Supply is the base for the marketing concept. Customer differential and practices cover the information and systems helping in customer’s preferences. The structure and sustainment section opens up the basic structure and body of online marketing concept with models operating at this period of time and future prospects. The report will help in understanding the basic principles along with new applications in the field of marketing and how businesses along the globe are responding to this new entire setup to increase their competitiveness, efficiency and the very purpose of existence.

Business-to-Business: Meaning and Comparison

Business to business marketing relates to procurement, as business requires office supplies, raw materials and manufacturing equipments. The persons who authorize the purchase are different from person who utilise these items. So the internet based procurement is much different from regular business and different factors affect the business-to-business activities. Business to business is also different from business to consumer marketing where the two parties involve are a business and a consumer. It includes shopping for apparel, automobiles, services (travel, airline tickets) .

During early days of e-commerce, the focus was on business to consumer marketing and many business models were developed. There was heavy publicity as internet had grown considerably and the consumer could browse, order and make a payment. Advertisement appears on the sites such as yahoo! similar to those on TV, radio and newspapers. Books, clothing, furniture, CD’s can be ordered and software, music is downloaded. The after sales service is through email and frequently asked questions (FAQ). So the interaction between a business and a consumer consisted of the following (Chaudhary & Kuilboer, 2002, pp. 12-15)

Promotion: Advertisement on the internet had increased from $3.3 billion in 1999 to $33 billion in 2004(estimated). The techniques used are banners, buttons and superstitials.

Ordering: Consumers could easily access the various internet sites to order products electronically such as cosmetics even cars.

Delivery: Digital products like software, music are delivered over the Internet saving time and money.

After Sales Service: A good customer service system adds to value of product and companies use customer relationship management software and other tools to develop a relationship with customers. Electronic support is a good complement to telephone based support.

The business-to-consumer e-commerce has also seen traditional business such as Wal Mart stores, The Gap and Staples entering the electronic channels. These types of businesses will be more successful than the pure e-commerce companies like Amazon.com as the companies have physical stores and returns and the customer service is available at these physical stores (Bidgoli 2002, pp. 50).

Business to business e-commerce has seen phenomenal growth as business realize that internet can help to reduce costs across the suppliers drastically. The supplier’s relationship has been reshaped by integrating production and shipping plans. The numbers of suppliers have increased due to new foreign trade rules and the suppliers may be local or foreign. This has led businesses to force suppliers to reduce prices.

Business to business transaction cycle has the following activities:

Gathering of market intelligence: Companies buy complex products and needs specifications of products and services so information is required to make selection.

Prepurchasing: This consists of steps before an order like request for proposal, quotation and negotiating contracts.

Purchasing: This consists of placing the order and the purchase orders are dispensed.

Shipping and receipt of goods: Buyers are informed of shipment schedules and receipt of goods are obtained.

Paying: The vendors are paid according to the contract and payment instructions are issued to the banks (Chaudhary & Kuilboer 2002, pp. 25-26).

In the 1980’s Electronic data interchange (EDI) has played an important role in these activities and two different businesses exchange data between computers. Newer forms of Electronic data interchange are emerging as it is an important module, which links buyers and sellers electronically. The reliance of all businesses for supplies, utilities and services have enhanced the popularity of business-to-business e-commerce. Car companies like General motors, Ford, Daimler Chrysler have formed an auto exchange called covisint () for procurement and supply chain management. This has led to savings of millions of dollars by increasing speed and eliminating manual activities of handling paperwork. Suppliers can access online to know the inventory and replenish products in a timely manner (Bidgoli 2002, pp. 51).

Business-to-business transactions have now moved from Electronic data interchange transactions to internet based purchasing and electronic markets. There were more than 1200 ventures announced in formation of business-to-business markets and by

the end of year 2000, 400 of these markets were functioning at some level. The computing and electronic sectors followed by motor vehicle, petrochemicals and paper are largely affected by business-to-business. It is estimated by Active Media Research that by end of 2004 online business-to-business purchases will be around 40% (Greenstein & Vasarhelyi 2002, pp. 68).

According to Jupiter, business-to-business online trade will rise to 6.3 trillion by 2005. Business-to-business reduces time inventory and prices and helps business to share accurate and relevant information and build better communications between businesses.

Differences between business-to-consumer and business-to-business marketing

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Differences between business-to-consumer and business-to-business marketing

Business to consumers activities are more of an extension of sales and it is more controlled which presents a simple model while business-to-business conducts business differently and is increasingly becoming complex of emerging markets on the internet.

The consumer responsibilities in business-to-consumers are well defined as the consumer is an entity and the business provides to the needs of consumer. The business responsibilities in business-to-business become complex as authority levels, account codes and tax requirements must be maintained.

A business-to-business has a higher level of trust as information is shared between two businesses of their supply chains while they are operating separately and a close working relationship is developed for the benefit of both the parties. In a business-to-consumer there is a straightforward buy and sale transaction and element of trust has no place.

Another difference is the payment methods in business-to-business and business-to-consumer. In business-to-consumer payments are done by credit card and now day by BPAY while in business-to-business payments are done regularly and are triggered by some event.

Business-to-business has a level of tolerance, ±5% variation is tolerated in purchasing while it is not there in business-to-consumer. The volume of business is quite large than business-to-consumer but the margins per unit are low. The business-to-business market is 6 to 20 times larger in total dollar terms to business-to-consumer (Higgins 2001, pp. 6-7).

Enroute to Success

As discussed earlier, the internet and EDI play an important role in improving the efficiency and effectiveness of the entire supply management process. Moreover the increased visibility across end-to-end supply chains can lead to significant pressures on the management. The company management must realise how much information is to be shared and to be effective business-to-business e-commerce requires transparency, so both the good and bad of business needs to be looked. Another factor is to look at the increased processing cost of dealing with hundreds of suppliers and how much to trust these on delivery schedules. So the company needs to look carefully before leaping, look beyond business-to-business to leverage web investment and align all business-to-business efforts with business strategy (Brewton & Kingseed 2001).

Business-to-business has transformed the shape of the economy and many think this technology has improved operating margins through supply chain efficiency but there are many bottlenecks like physical connectivity of trucks, warehouses or plants. C-Store distribution supplying groceries, cosmetics, biscuits etc to 7-Eleven stores in Australia is always facing short or wrong deliveries. A well-conceived business-to-business project cannot afford to ignore this, as the return on investment is also a major issue. The best way would be to allow reality checking and correcting all the way as business-to-business is revolutionizing supply but not overnight

(O’Marsh 2001).

Supply Variants and Relations

Business-to-business e-commerce has dwarfed business-to-consumer e-commerce and the economic advantage in particular is supply chain settings or supply chain management. Earlier supply chain systems were developed from the view of a single original equipment manufacturer. The OEM use to set standards for quality, price and information flows like EDI and suppliers served only one OEM but were at mercy of OEM for their existence. Now in business-to-business e-commerce suppliers have more than one OEM and companies have realized that there just in time (JIT) and quick response manufacturing (QRM) models are recognizing this difficulty and developing close ties with few suppliers. A lesser number of suppliers mean a fruitful relationship and encouragement to OEM’s to treat suppliers to be open. This would naturally be resented by some supplier but in future would get the suppliers a permanent site in the chain. Suppliers would rethink and change the employees reward structure to be based on lead-time reduction. Suppliers will have to invest in supply chain oriented software and these information costs are always a problem and nuisance in terms of understanding. A new form of outsourcing has come up and is called application service providers (ASP’s) which provide access to software on fixed or usage cost basis. Application service provider companies also provide outsourcing in areas of procurement, billing, insurance, accounting and SAP is one of the biggest providers. This combination of Application service provider and business-to-business have led to many benefits to suppliers and OEM’s. Suppliers can establish I.T cost by using an application service provider and have a stable pricing and demographic differences are also sorted out. Supplier own manufacturing requirement planning (MRP) can be provided to OEM’s and would negate the exposing side effect of quick response manufacturing (QRM). The supply chain management in e-commerce becomes more of collaboration and more efforts are being put into technologies to better it. (Conway 2000).

Business-to-business e-commerce has set up a relationship of partnering between manufactures and their suppliers and is referred as partner relationship management

(PRM). The manufacturer has lots of dealers which cater for number of consumers and PRM systems acts as channels where customers can view online the products and order. The distributors are given profit incentives to take part in PRM implementation. The suppliers need to provide increased service levels, product data to be retained as partners. Such PRM systems are used primarily to boost sales of complementary items to the main product like in the example of Kawasaki motorcycles which wanted to grow sales of accessories like jackets, hard goods. Kawasaki is responsible for inventory control, stocking and its dealers do not have all the accessories. A customer uses a accessory catalogue to view and identify the past number and the dealer signs in to the business-to-business site and gets with his version of the catalogue which has wholesale pricing availability details. The Kawasaki network is powered by software from Click Commerce, a PRM vendor from Chicago and Click Commerce views PRM as a subset of CRM. Some companies are combining a CRM application for first tier partners and a PRM system for downstream partners. Though CRM and PRM target two different user, they still share same functions and goals to reduce administrative tasks, automate transactions and lead to service level improvements to get closer to their customers by getting closer to their key suppliers. (Dilger 2001).

The internet centered business model have proved to be effective medium of conducting business in many industry sectors. A study of Covisint e-marketplace has illustrated that relationship marketing (RM) have popularised and network can help to minimised the cost of infrastructure, maximised accessibility for every partner and facilitate knowledge and exchange of products and service to all partners. Companies do not compete nowadays but networks compete and there is competitive collaborations rather than adversarial relationships to get advantage. Such relationship marketing brings focus on technical innovations into marketing foresight. Covisint the e-hub of automotive industry has shown information transforms the way people think and they function. It has brought forward the concept of ‘thinking like a customer’ (Kandampully 2003).

Companies have researched and adopted their e-business models from a vertical

structure to a horizontal one by e-mail, web based online surveys. Qualitative research has gathered market realities giving market intelligence and has been more convenient, appropriate, quicker and cost effective. Onlinking with client databases aggregate and research can identify and provide the ‘missing link’ (Noyce 2002).

Customer Differential and Practices

A company’s complete picture is provided by information regarding pending sales and orders, inventory levels and customer history. This information is scattered across in different internal organizations like marketing, customer support, sales, accounting and operations. The customer relationship management (CRM) software gathers this information and provides a complete picture of performance of the company. Implementing customer relationship management shows that company is committed to customers, the greater the commitment, the greater is the lifetime value of customers. Customer relationship management program provides more than the complete picture if it is integrated to back-office systems as well as external business system of sales and marketing (Crafton 2002).

The e-business is emerging as a mainstream business and to gain a competitive advantage, many business organizations have turned to customer relationship management (CRM) to gain better knowledge to the customers needs. Studies conducted on Taiwanese financial service companies have revealed that customer relationship management practises have lead to increase in market orientation and customer service. Greater investments in IT and absorptive capacity can allow organizations to use customer relationship management. Customer relationship management plays a major role in making relationship in business-to-business e-business (Chen & Ching 2004).

Customer relationship management (CRM) and business-to-business (B2B) are essential to the success of modern business. Although they are different modules, they share many similarities. Their integration will benefit all related parties in business process like sales, marketing and customer service. Business-to-business enables a business to interact with another business electronically and customer relationship management is software designed to gain greater insight in customers need. As both business-to-business and customer relationship management are online operations and with the broadening of hub services, these two provide one to one marketing for a organization to customize its goods and services offer. The companies, which want the benefits of such integration, needs to follow two strategies where customer relationship management is embedded under business-to-business or business-to-business and customer relationship management are separated as two modules. Both the strategies get success for the business by satisfying the needs of all the stakeholders, customers, employees and suppliers. However the customer relationship management and business-to-business are still in infancy and will be a continuous trend in the coming future and companies need to do a flexibility analysis to consider customer relationship management – business-to-business model (Zeng, Wen & Yen 2003).

A meaningful customer relationship is developed by many companies and brands and through analysis and interviews it is possible to draw a number of themes where customers in business-to-consumer and business-to-business companies have identified firms and brands which contribute to efficient; functional relationship. The factors are convenience, access, timeliness, product quality, value for money, technical performance, accuracy, consistency and these cause customers to go back to deal with a firm (Barnes 2003).

It creates brand loyalty in business-to-business relationships and has negated the view between e-satisfaction and loyalty. Rather loyalty is mediated by brand attitudes as post consumption effect is more closely related to the attitude. A trust among a service provider is an important aspect to brand attitude and satisfaction and the study has clearly outlined these points (Taylor & Hunter 2003).

Business-to-business organizations have recognised this aspect and since they know who their customers are and can easily link brands to business performance and are using technology to adjust its brand and business strategy. Sophisticated business-to-business customers place emphasis on rational factors than brand and best way to establish the brand would be to select the right combination of attributes in the customer experience in the prepurchase stage. A balanced performance based scorecard can enable the marketer to compare his brand to the competitor. Business-to-business brands need to be managed diligently to link brand influence on business outcomes and returns (Munoz & Kumar 2004).

Structure and Sustainment

As seen over last few years, business-to-business is emerging and as a result three major business-to-business e-commerce models are determined by seller, buyer or intermediary (third party). The following market places have been created

Seller controlled marketplace.
Buyer controlled marketplace.
Third party controlled marketplace.

Seller controlled marketplace: It is most popular type of business-to-business model and is used by markets such as chemicals, electronics and auto components that is Covisiant.

Buyer controlled marketplace: It is for large operations with big buying power such as Boeing or General Electric.

Third party controlled marketplace: It is a marketplace where fees are charged by a third party matching buyers and sellers. Eg. Cattle offering worldwide (Beef and dairy).

Marketplaces that favour the sellers are forward aggregators and operate downstream in a supply chain and this structure is like traditional supply chain structure. Marketplaces that favour the buyers are reverse aggregators where they attract a small

number of buyers. Neutral marketplaces are equally attractive to buyers and sellers but face the issue of attracting both the buyers and sellers. The business-to-business marketplaces can create value by expanding everyone’s market realm, generating lower price for buyers and cut the cost of buyers operations (Lu & Antony 2003).

It would be beneficial to examine leading B2B business models as they arte gateways for market participants for buyers and sellers. These accommodate unique and innovative market places such as auction markets and industry lead trade consortiums. The market places can be segmented into four different ways:

Contextual models: B2B e-markets that are designed for a specific type of market demand and either focus vertically within a industry or horizontally along a business function or process.

Pricing models: E-market places utilise two kinds of pricing models for the market: fixed or dynamic. Fixed pricing or the catalogue model is where prices are offered in a catalogue format. Examples of catalogue e-market places are Chemdex, plastic net.com and SciQuest.com. Dynamic pricing involves a model where prices are determined by the market place. These models are executed in three types of markets, traditional auction, reverse auction and bid/ask exchanges. The traditional auction model involves buyers choosing the most attractive bid among various sellers. As the buyers demand the goods or service the bid price is moved up and is used frequently in ‘one of the kind products’. This usually involves capital equipment, perishable goods and example of auction model are iMark.com that sells capital equipment and Adauctiom.com which auctions ageing advertising inventory. The reverse auction model involves sellers choosing the most attractive bid among various buyers. The bid price moves down as more buyers demand the service. The reversed auction is used where companies require many products. Examples of reverse auction models are job sites created by General Electric, General Motors and Boeing. These sites are powered by software provided by companies like Ariba, Commerce one, Oracle and SAP. The exchange model involves pure market pricing where bid/ask price can fluctuate up and down. It is used when dealing with commodities and examples are e-Steel in steel, Paper Exchange in paper.

Architecture Models: The architecture of the e-marketplace is designed to ensure that it operates and serves efficiently both buyers and sellers. Combining pricing models with different design and execution models can create new e-marketplace and examples are Cisco, Dell, Chemdex, Free markets.

Ownership Models: Established businesses have large supply chains and own their own private e-market places. Approximately 93% of the B2B e-commerce is currently transacted on these marketplaces. The other two types of ownership model are third party e-marketplaces and consortia led e-marketplace. Consortia led e-marketplace model is covisint and third party models are usually operated by another B2B company which is not a trading partner eg. Ventro, a medical supply e-marketplace. The software companies Ariba, Commerce one and i2 are powering the major B2B e-marketplaces (University of Texas 2004).

The future of B2B e-commerce is quite bright as positive forces are fuelling growth of B2B marketplaces and electronic exchanges. Most of the fortune 1000 companies are using e-commerce and future growth rests on small and mid-sized businesses. The compelling factor to join a B2B marketplace is the ability to sell products and services through a highly efficient and cost effective channel. Most businesses want new income opportunities and ability to interact with new customers beyond normal trade is quite attractive and is causing more participation. Standards are setting in and SET (Secure electronic Transaction) standards provide a common set of standards as well a metalanguage like CXML or Commerce Extensible Mark Language is functioning to process electronic transactions. These tools are helping to standardize methodology and helping to improve and streamline e-commerce (Boeth 2003).

Conclusion

Online business-to-business marketing or e-commerce has emerged as a major player in the marketing arena. The importance of B2B is considerable as majority of businesses are nowadays large and have established supply chains and the principles of B2B e-commerce encompass supply chain management. Companies have now thorough knowledge of other company’s offer with schedules to cater for its needs and requirements and are developing relationships with their suppliers to treat them as their own divisions. More collaboration has come into the system and B2B marketplaces are quite open in operation. The companies have got a new dimension for customer relations and at times think like one with the help of customer relation management program which has become an integral part of B2B. An aspect of partnering has also come up and B2B marketplaces utilise partner relationship management to serve the customer better and efficiently.

Research has been carried out by independent bodies to evaluate the scope, benefits of B2B e-hubs and found these marketplaces provide customer service beyond expectations by being quicker, convenient and cost effective. Companies joining e-marketplaces have found models appropriate for their usage and have greatly benefited in terms of cost, efficiency and linkages across e-hubs to decimate ant ill thinking for low business output. The companies are greatly benefiting from B2B especially suppliers and manufactures who were at times loggerheads to sell their products and it would be wrong to say B2B e-commerce is in infancy stage rather it is youthful and of dynamic nature and time is no limit and bar to its existence.

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Vandana Singh