Exam Jan 2017 Flashcards
There is a new purchasing manager in a medium-sized firm named Measure Inc. The firm manufactures and sells complex measurement systems that are used in the marine sector and in particular for measuring levels in tanks. The purchasing strategy of this firm regarding the parts of the measurement systems has been messy and unclear. This the new purchasing manager wants to change.
There is a need for a clear ’purchasing orientation’. In the course we have talked about three different purchasing orientations.
a) Describe the main ideas of these three orientations. (6 points)
b) Which purchasing orientation(s) would you recommend for Measure Inc. regarding the parts of the measurement systems, including standard components and advanced sub-systems? Discuss and motivate. (4 points)
• Buying orientation o Obtaining the best deal - price in focus o Maximizing power over suppliers o Avoiding risk o Arm’s-length relationships o Target pricing and global sourcing
• Procurement orientation o More strategic than BO
o Buyers become managers for external resources
o Improving quality
o Reducing TCO
o Cooperation with suppliers
• Supply management orientation o Operations are linked with other firms
o Focus on end-user
o Sourcing strategy, what to make or buy
o Supply network
o Develop high collaborative relationships
In the course we have distinguished between in principal two different distribution strategies to reach out to end users – sales through direct distribution and sales through indirect distribution.
Discuss under which circumstances (i) direct distribution and (ii) indirect distribution is most suitable.
Direct sales
– Large and well defined customers – Customers require direct sales – Negotiation on top level is required – Feedback from customers is important – Producer needs to be part of the
implementation of the product – Customised solutions – Complex products that require
extensive product knowledge
• Indirect sales – Fragmented customer structure with many small customers – Need of assortment
– Fast deliveries are required
Market sensing is the process of generating knowledge about the market that can be used to inform and guide decision making. This ability, to sense the market, is argued to be one of the most critical ones for market driven firms in business markets.
a) In the course we have worked with marketing plans in the Marketing Project assignment. Explain the main content areas of a marketing plan and exemplify these areas from your own group assignment. (6 points)
b) To develop a marketing plan, knowledge about the market is needed. This we have talked about in the course both in terms of ‘external analysis’ and ‘market sensing’. Discuss which areas that are important to have knowledge about. (4 points)
Market’ sensing’ is’ a’ market’ driven’ process’ of’ learning’ about’ present’ and’
prospective’ customers’ and’ competitors,’ as’ well’ as’ about’ other’ actors’ that’
affect’ them’ and’ the’ business,’ such’ as’ resellers’ and’ regulatory’ agencies.’
The process of generating knowledge about the market to formylate, test, revise and refine their market views. to guide and informe decision making
2. Market Sensing Defining the Market Monitoring Competition Assessing Curotomer Value Gaining Customer Feedback
- Marketing research
Need of specific information at a certain occasion:
Market and economic analysis
Product research
Pricing research
Advertising research
Sales research
Designing the market research project
Secondary data, e.g. library, government reports, SCB.
Primary data, e.g. survey, observation and experimenta
Textile Inc. is a sub-supplier to the car industry and this firm sells different types of textiles used in various applications, for example, in seats.
Textile Inc. is currently developing a new technology to be able to sell “intelligent textiles”. Textiles containing this technology can have new characteristics regarding measurement of exact heat flows and other functions such as that the textile repels dirt and liquids. Market studies have shown that customers value these characteristics and that the competitors’ do not yet have this type of technology. Textile Inc. hopes to be able to sell their offerings both to new and existing customers.
a) Understanding customer needs regarding these new intelligent characteristics has led to close collaboration with one customer in technological development. Discuss key characteristics of a collaborative relationship between two firms, such as Textile Inc. and the customer. (5 points)
b) Differentiation is always crucial in business markets. Discuss alternative offerings built of this technology and/or new type of intelligent textiles and how these offerings can form the base for differentiation for Textile Inc. (8 points)
a) Understanding customer needs regarding these new intelligent characteristics has led to close collaboration with one customer in technological development. Discuss key characteristics of a collaborative relationship between two firms, such as Textile Inc. and the customer. (5 points)
Book chapter 10 (B10, pp. 421-427) emphasizing
• Open communication, Bridging,; Creating multi-disciplinary and level interfirm-teams, and promote communication. Have more than one channel of communication
• Trust and commitment, Believe that another company will perform actions that will result in positive outcomes for the firm. Demonstrate dependability. “Captures the perceived continuity or growth in the relationships between two firms”.
- Coordination mechanisms, By coordination we mean the customer firm’s and supplier firm’s synchronization of activities, resources, and capabilities to accomplish a collective set of task. There are two views of coordination; Mechanistic when the relationships are governed by rules and rigid hierarchical control; on the other hand, Organic coordination is fostered by extensive information exchange and is flexible, cooperative and innovative in nature.
- Routines for resolving conflicts: Transforming pathological conflicts that serves to destroy, injure, or poison a relationship into functional conflict. These productive discussions clear the air by ameliorating harmful tensions or ill will and result in policy changes and procedures that add value or reduce costs within the partnership.
Comendium Page 45
• Complexity of the relationships in terms of multifaceted contacts between the companies
• Long term of the relationships which often stretches over decades
• The scope of the adaptation of individual relationships required, from both organizational and technological points of view
• Low degree of formalization, indicating that the firms do their best to safeguard themselves against unpleasant surprises through reciprocal trust rather than through formal agreements
• Power dependence balance in the relationship
• The simultaneous presence of conflict and cooperation’s, with one conclusion being that effective relationships must contain elements of both
Textile Inc. is a sub-supplier to the car industry and this firm sells different types of textiles used in various applications, for example, in seats.
Textile Inc. is currently developing a new technology to be able to sell “intelligent textiles”. Textiles containing this technology can have new characteristics regarding measurement of exact heat flows and other functions such as that the textile repels dirt and liquids. Market studies have shown that customers value these characteristics and that the competitors’ do not yet have this type of technology. Textile Inc. hopes to be able to sell their offerings both to new and existing customers.
b) Differentiation is always crucial in business markets. Discuss alternative offerings built of this technology and/or new type of intelligent textiles and how these offerings can form the base for differentiation for Textile Inc. (8 points)
Managing market offering: is the prices of putting products, services, programs, and systems together in ways that create the greatest value for targeted market segments and customer firms,
Product Offering
Core Product: Is simply the fundamental, functional performance a generic product provides that solves a customer’s basic problem.
Minimally augmented product The least amount or number of services, programs or systems that customers consider absolutely essential for doing business with any supplier. Payment terms, delivery, and customer service for problems with the core product
The augmented product: Those services, programs , and systems a supplier offers to meet a broader set of customer requirements and preferences, or to exceed the customer’s expectations in ways that add value or reduce cost for the customer,
Market Offerings
Use of market offeting emphasizes that what a supliers bings to the market is a package composed of a core product or service and a set of augmenting services, programs, and systems. In a number of instances the augmenting services, rograms, and systmes provide the predominant part of the superior value over competitors
Mass customization. Elicitation (a mechanism for interacting with the customer and obtaining specific information); process flexibility (production technology that fabricates the product according to the information)
AUGMENTING SERVICES PROGRAMS AND SYSTEMS
Textile Inc. is a sub-supplier to the car industry and this firm sells different types of textiles used in various applications, for example, in seats.
Textile Inc. is currently developing a new technology to be able to sell “intelligent textiles”. Textiles containing this technology can have new characteristics regarding measurement of exact heat flows and other functions such as that the textile repels dirt and liquids. Market studies have shown that customers value these characteristics and that the competitors’ do not yet have this type of technology. Textile Inc. hopes to be able to sell their offerings both to new and existing customers.
c) Based on the differentiation, Textile Inc. aims at prospecting for new customer relationships. Discuss marketing communication activities in relation to different buyer phases with the aim of gaining new customers for Textile Inc. (7 points)
Buyer Phases and Seller Task
Awareness---------> Create Knowledge Media advertising Event Marketing Publicity Brochures
Prefer———-> Influence Attitude
Trade Shows
Demostrnation Centers
Videos
Buying Decision——–> Sell
Strategic Accoung Programs
For example, in order to make the customers aware of the innovative textile, Textile Inc. could for example use advertisement in industry magazines, Public Relations (PR) in the 7 textile sector would be a good alternative to raise awareness and participate in trade fairs special for sub suppliers to or the car industry.
Thereafter when meeting a potential customer in the trade fair, in order to have the customers to prefer textile over other alternatives,
Textile Inc. may have brought seats with the different textiles in order to demonstrate the functionality and let the customer to test the textiles/seats.
Finally, after the trade fairs meetings, direct personal selling might be a good option, the sales force need to follow up and demonstrate and make adaptations of the textiles in order to have the textile fit into the customers operations.
a) Value based pricing
The key point with value based pricing is that the price is set based on the value that the customer perceives from the offering, the price is set based on what the customer is willing to pay. This is in contrast to traditional pricing methods, which typically take starting point in the own costs as a base for setting the price. One consequence of value based pricing is that you as a firm need to have profound knowledge of how the customer assesses value. This process of understanding and calculating value may be difficult, costly, etc. Another consequence could be that the firm need to manage types of value assessment methods in order to calculate value. Another consequence from value based pricing could be that customers will pay different prices for more or less the same offerings, and this needs to be handled. When managed appropriately the benefits and profit margins with value based pricing are huge. The students have given innovative examples to exemplify value based pricing.
b) Network position
A company’s network position has been treated in the ”Interaction and network approach” lecture and is defined in the Compendium, page 36. It is defined as: A company’s network position is defined by the characteristics of the company’s relationships and the benefits and obligations that arise from them. The company’s relationships are central for the meaning and consequences, consequences may include reasoning about for example by working closer with some suppliers a company may change its network position. Another fruitful starting point for consequences regards, depending on which focal point that is chosen in a network, new insights may appear on how to change position. Several students have used the Toyota example from the compendium to discuss network position
Compendium Page 36
A network position is identified by the characteristics of the company’s relatioships and the benefits and obligatios that arise from them
EXAMPLE TOYOTA
System suppliers have a complex direct relationship with Toyota through which cthey are obliged to supply a major part of the vehicle
They also have relationships with companies in the second tier and third tiers of the network
Toyota expects them to use these relationships to provide it to access to the skills and resources of other suppliers without it having to manage the relationship by itself
FROM THE 2nd AND 3rd NETWORK POSITION PERSPECTIVE
In turn second and third suppliers expect the system supplier to provide them with the access to a major customer.
The system supplier provides them with the benefit of being able to strongly influence the operations, revenues and prices of their suppliers. Also, because of their access of a wider network and their integration and development skills, they are much more important to Toyota than a second tier supplier of single commodity; with which they have no direct contact.
ASSESSMENT OF NETWORK POSIITON
An assessment of network position is an important basis for the business marketer to achieve change in that position
For example asulier to Toyota may choose to invest in a wider range of relationships with its suppliers to strengthen and increase and increase the scale of its relationships with Toyota
Alternatively, it may try to develop a relationship with another major customer, perhaps in another country.
A second or third tier supplier, may decide to invest in the technological resources to design its own dedicated offerings so that it can build direct relationships with other major customers.
Similarly, Toyota could seek to change its position by establishing relations of second tier suppliers, to increase flexibility and reduce dependence on a few systems suppliers.
All these changes would involve building relationships, all involve the acquisition of resources, technologies and all will affect the company’s current relationships and position
c) Resource ties vs. actor bonds
These are two dimensions of a business relationship, also treated in the ”Interaction and network approach” lecture. Resources ties refer to how resources are tied between two firms in a business relationship, these adaptations could be physical in character, for example in term of a PIPELINE CONNECTING TWO firms. Resource ties could also be knowledge-based and for example be knowledge about how to produce certain components for a customer. Actor bonds refer to the bonds between individuals involved in a business relationship and these BONDS ARE IMPORTANT TO BUILD TRUST AND COMMITMENT. Explaining these concepts in a clear way have awarded 2 points for each concepts. If the concepts also are compared or contrasted, seen as consequences from these two concepts, one additional point has been awarded. Comparisons of the two could mention that resource ties take longer time to develop, while actor bonds could be created rather quickly. At the same time, BUSINESS RELATIONS RELYING IN ACTOR BONDS CAND END VERY SYDDENLY, and some have made good connections to the example of Marks and Spencer and their supplier.
The relationship substance framework is a conceptual model for understanding business-to-business (B2B) relationships, developed and championed by the Industrial Marketing and Purchasing Group (IMP Group) and adopted particularly in Scandinavian studies of industrial practice. The IMP Group have proposed that all business relationships are made up of three layers - actor bonds, resource ties and activity links.
These may be defined as follows:
Actor bonds: factors which connect actors - ‘the buyer’, ‘the seller’ - and influence how they perceive each other and form their identities in relation to each other;
Resource ties: connections between the various resource elements (technological, material, knowledge resources and other intangibles) of two companies, which result from how the B2B relationship has developed and themselves become a resource for each company arising from their investment in their commercial relationship;
Activity links: technical, administrative, commercial and other activities which operate within one company and may be connected in various ways to the activities of another company as a relationship develops
7 Different Members of the Buying Centre of an Organisation
The team member roles were discussed in the Buying behavior and purchasing lecture and treated in the book (B3, p. 118-119). The meaning of the team member roles (or buying center as it is sometimes called) is that there are different individuals involved in a purchasing decision going beyond the purchasing department: initiator, user, gatekeeper, influencer, decider and buyer. The consequence of realizing the buyer team is that it is not only the purchasing department or the purchaser that makes the decision. As a seller it is important to understand these different roles that individuals have in relation to a purchase in order to be able to sell to this company. Another consequence might be that the roles may change over time, the same individual may take on new roles.
- initiator,
- user
- gatekeeper
- influencer
- decider and buyer
Roles are responsibilities of buying team members. The job title the manager who performs these roles will likely vary from on organization to the next. Let’s examine a simple buying team task- hiring a service vendor to repair a piece of equipment. The initiator is the person within the firm who realizes the acquisition of a product or service can solve or avoid a problem. For example a production worker watches a piece of equipment erratically produce defective parts and concludes that it needs to be repaired. The worker-initiator alerts the show manager to the problem. The manager then, contacts purchasing, The gate keeper controls the flow of information in and out of a firm and provides vendor personnel with access to key personnel. Thus, the purchasing manager forwards a list of certified vendors to the shop manager for consideration
But on an average a buying center of an organisation has the following seven members or a group of members who play these roles:
- Initiators:
Usually the need for a product/item and in turn a supplier arises from the users. But there can be occasions then the top management, maintenance or the engineering department or any such recognise or feel the need. These people who “initiate” or start the buying process are called initiators. - Users:
Under this category come users of various products. If they are technically sound like the R&D, engineering who can also communicate well. They play a vital role in the buying process. They also act as initiators. - Buyers:
They are people who have formal authority to select the supplier and arrange the purchase terms. They play a very important role in selecting vendors and negotiating and sometimes help to shape the product specifications.
The major roles or responsibilities of buyers are obtaining proposals or quotes, evaluating them and selecting the supplier, negotiating the terms and conditions, issuing of purchase orders, follow up and keeping track of deliveries. Many of these processes are automated now with the use of computers to save time and money. - Influencers:
Technical personnel, experts and consultants and qualified engineers play the role of influencers by drawing specifications of products. They are, simply put, people in the organisation who influence the buying decision. It can also be the top management when the cost involved is high and benefits long term. Influencers provide information for strategically evaluating alternatives. - Deciders:
Among the members, the marketing person must be aware of the deciders in the organisation and try to reach them and maintain contacts with them. The organisational formal structure might be deceptive and the decision might not even be taken in the purchasing department.
Generally, for routine purchases, the purchase executive may be the decider. But for high value and technically complex products, senior executives are the deciders. People who decide on product requirements/specifications and the suppliers are deciders. - Approvers:
People who authorise the proposed actions of deciders or buyers are approvers. They could also be personnel from top management or finance department or the users. - Gate Keepers:
A gatekeeper is like a filter of information. He is the one the marketer has to pass through before he reaches the decision makers.
Understanding the role of the gatekeeper is critical in the development of industrial marketing strategies and the salesperson’s approach. They allow only that information favourable to their opinion to flow to the decision makers.
By being closest to the action, purchasing managers or those persons involved in a buying centre may act as gatekeepers. They are the people whom our industrial marketer would first get in touch with. Hence, it so happens that information is usually routed through them.
They have the power to prevent the sellers or information from reaching members of the buying centre. They could be at any level and even be the receptionists and telephone operators.
