Business-to-Business Marketing & Supply Chain Management

Marketing is a broader activity than just selling, it is concerned with the development and maintenance of mutually satisfying exchange relationships, it is both a business activity and philosophy (Baker, et al., 1998). With modern globalisation coming out of the late 1970’s (Robinson, 2007), to keep pace with increased competition and rapid technology changes, organisations had to develop more meaningful methods of engagement with customers and began developing relationships beyond their traditional realms, which had largely been based on transactional exchanges.

Increasingly, there is the development of long-term partnerships and relationships rather than merely transactions (Chang, et al., 2010) (Hunt, et al., 2006). This paper will set out and explore the issues surrounding business to business (B2B) relationships. In so doing it is important to acknowledge that trust and commitment is at the core of relationship marketing (Theron, et al., 2008) and further discussion will be had to look at impact that communication and relationship management processes have on trust and mutuality, which ultimately impacts loyalty or sustained business relationships. I will illustrate the topics contextually using VOLKSWAGEN Group AG (VW), a manufacturer and distributor of automotive products.

The supply chain is the business system represented by a network of inter-organisational relationships. “Good relationships between companies are of crucial importance. They represent the effective teamwork that allows partners and alliances to create value for customers and shareholders that could not possibly be created by individual firms.” (Gibbs & Humphries, 2009, p. 1). Within the supply chain, all activities or exchanges associated with the flow or information or raw materials from source though to the end user (Koster & Delfmann, 2005), B2B relationships exist. A key desired outcome of improved inter organisational relationships would be a reduction in timing within the the supply chain as well as increased efficiencies.

Research has suggested that organisations move from a transactional to relationship based interaction. Whilst traditional transactional marketing tended to ignore building relationships and viewed the organisation in a snapshot moment trying to get the best deal on the immediate transaction in isolation of its macro needs or goals (Kotler, 2000). Transactional marketing simply assumed it would normally be able to retain its customer and instead focused on acquiring new customers.

In inter-organisational marketing, relationship marketing (RM) was conceived as an approach (Berry, 2002) (Gummesson, 1997) (Anderson & Narus, 1990). These relationships have been shown to be diverse and can also incorporate relationships between individuals and agencies (Möller & Halinen, 2000). RM thus shifts the emphasis from products and brand to the systems and processes required to maintain and develop repeat business.

For a relationship to be mutual, would imply that the exchange offers value to all the participants. In business conversation the term Win-Win is frequently heard and often used to characterise the desired outcome in engagements between organisations. Is it however a sales term with hollow implementation? Or can it really be used to foster longer term profitable relationships? (Anderson & Narus, 1990)’s findings were that if actors in a relationship were adapted to be mutual and not acted out in self interest, efficiency would improve and would produce superior outcomes for all the participants to the relationship.

There is significant importance of mutuality within B2B relationships as these relations between business partners cannot exist in isolation (Holm, et al., 1999). By working with and cooperating with each other, businesses can work in partnership or co-produce in creating mutual value (Walter, et al., 2001).The organisation needs to be able to scale and adapt itself to each customer’s needs. In so doing it should be able to identify and recognise what makes customers different from one another, then discover and respond according to the different needs, tastes and goals (Peppers & Rogers, 2004). (Peppers & Rogers, 2004) have found that customers have complex needs that need to be met and may not be met by simply supplying them with product but rather that they need solutions to the business goals they are trying to attain. For example, an entrepreneur, that value may be advice, information or investment. For the other party, returns can range from improved financial gains to sustainability.

Mutuality, implicitly means that the organisation does not seek to be opportunistic but rather act in a partnership like manner (Gibbs & Humphries, 2009). A business relationship as described in this paper denotes a long term exchange between two business entities. Whilst win-win is referred to in discussion on business relationships, mutuality would indicate that the relationship is truly based on reward for both parties to the relationship and transaction (Cox, 2004).

To build a successful relationship, the seller needs to understand what challenges they can solve for the buyer to help them achieve their goals. And in so doing understand what the implications are for the business and for them personally. Peter Blau's social exchange theory proposed that ongoing interactions are shaped by the reciprocity of economic reward between the participants (Emerson, 1976). In relationship building that seeks mutuality, alignment of objectives, shared understanding of vision and expectations between the actors is needed. If both parties in a relationship see the ongoing value of maintaining a relationship of exchange to reap shared gains, that would presume mutuality (Svensson, 2001).

Porters 4P’s have a direct correlation in relationship marketing. To be of a mutual orientation, new products are designed or customised collaboratively between sellers and buyer, and there is more negotiation in price as the product is often bespoke for the customer. RM tends not to have middlemen, and so favours the choice that customers have in terms and delivery - place. To support better outcomes, RM focuses on individual dialogue with customers – promotion. (Kotler, 2000)

VW’s ambition is to become the worlds leading automotive company (VOLKSWAGEN, 2012). To achieve that, VW needs to leverage scale within its own supply chain as part of its vision: Strategy 2018 (VOLKSWAGEN, 2012). Any by leveraging scale ensuring that the synergy effects that exist, both between models in one series and across all series and brands, can be optimised and increased. VW has been selling its technology and manufacturing capability to associated brand companies (VOLKSWAGEN, 2015). Companies such as Porsche purchase diesel engines and drivetrains for use in their own product lines. As a low volume producer of sports cars, Porsche is able to save money and time in R&D and production costs of a diesel product line by procuring components and manufacturing ability from VW, benefiting from VW’s scale of R&D and mass production of the engines. VW too is able to amortise its own fixed costs over a larger production volume increasing its return on assets, by assembling on its lines the Porsches diesel products simultaneously lowering risk in starting new product lines for Porsche who do not have to fit out a totally new production line for a niche product (Tomek, 2011).

Mutuality within the supply chain can be illustrated when MARS introduced mutuality as a core value within it’s supply chain for cocoa procurement. As one of its value statements, MARS has mutuality as a core value where they see business needs to be a shared benefit (MARS, 2015.b). As part of its stakeholder engagement, MARS had come under pressure to introduce ethical procurement of its cocoa (Hawksley, 2011). MARS had to ensure mutuality in its relationships with its farmers in Western Africa (Fearn, 2014). It set about creating a program of sustainability through the World Food Program by way of investing in technology and training for farmers (MARS, 2015.a). Investing in the farmers would achieve mutual benefits – the farmers would be able to deliver crop higher yield per square meter at a lower cost per kilogram produced, and hence higher incomes for the farmers and increased supply of raw materials for MARS. Importantly for both sides to the transaction is that the relationship would be more sustainable into the future years, ensuring ongoing rewards to both, hence mutuality (Schindler, et al., 2015).

Mutuality can also be seen within many examples of franchise businesses. Within the context of franchise contracting, the master franchise owner needs to work at developing a relationship where their actions are driving value into their franchisee base. There is therefore a dependency on performance by both parties to achieve results (Stephenson & House, 1971)(Altinay & Brookes, 2012). This would be through activities such as promotion of the brand, identity, quality and consistency of delivering finished product in the case of durable or raw materials in the case of hospitality industries. At the same time a franchisee needs to ensure the correct implementation of the brand, adherence to operational standards and its identity and the correct selling and quality of the products to consumers (Davies, et al., 2011)(Eser, 2012).

Although VW products are purchased by consumers, VW’s business is one of B2B relationships with other organisations that build, own and operate the physical dealerships that consumers buy from – the distribution channel. VW needs its partners to value the relationship as strategic as they have other investment choices in other brands they could also make. VW needs to constantly be driving value over the top to assist the dealer to close sales with consumer using activities like consumer marketing communication as well as investing in the dealerships employee’s sales skills, product and technical training (VOLKSWAGEN, 2016). Training dealer employees, as an example, builds mutuality in the relationship as through the action a superior level of service to consumers is delivered to consumers which helps attract them to buy from the VW dealership as opposed to competing brands. The sales directly benefit the dealership and VW, demonstrating VW’s value as a partner by creating a pull demand through their distribution channels. Similarly, the dealership uses the outcomes of trainings to run the physical environment of the dealership to VW’s standards which benefits VW by being able to execute a consistent brand promise to consumers although it does not operate the actual point of sale. Dealerships’ employee retention is improved by the investment in their skills. The mutuality of relationships between individual franchisees also exists, even if they may not even be known to each other. Satisfied or dissatisfied consumers would have a direct impact to the business results of other franchisees, such as competing VW dealers. “Comprehensive exploitation of market opportunities depends heavily upon the dedicated and unconditional compliance of all entrepreneurial partners” (Davies, et al., 2011, p. 322). VW to enhance its positioning with its partners also offers value added service such as financial services, insurance activities, and fleet management, to be a full service enabler to its ecosystem of distributors (VOLKSWAGEN, 2015).

The central premise is that relationships are built upon the value each party places in the exchange between them as participants to a transaction. For the parties to maintain a mutual relationship rather than one of self gain over the interest of the other party, it would imply that both parties would need to share a genuine commitment of sharing and also concern for the other party. For mutuality to exist, the foundation of the relationship needs to be built on trust between these parties (Bove & Johnson, 2000). “A relationship is mutual, interactive, and iterative in nature, developing its own richer and richer context over time.” (Peppers & Rogers, 2004, p. 66)

Mutuality needs to be demonstrated in the relationship and a fundamental pillar to build the relationship is trust. The results of the study by (Lee & Trim, 2006) has explained why marketing strategists and planners need to develop business relationships that are based on mutuality and trust, to ensure sustained success in the relationship. Marketing managers  operating in a global context should develop these long term relationships whilst being sensitised or taking into account the inter organisational and national value, as successful relationships depended on trust and mutuality.

“Trust in a downstream dyadic business relationship may be affected by the trust in upstream dyadic business relationships in a marketing channel” (Svensson, 2001, p. 433). In their study examining business ethics, (Castaldo, et al., 2010) found that trust plays a crucial role in developing meaningful business relationships.

Within an inter-organisational relationship there are many different levels of trust that need to be established (Davies, et al., 2011). At the outset of a relationship there needs to be initial trust between both organisations as a whole. This may start off simply as alignment on mission or values. As the relationship expands, its needs to be reinforced at multiple layers. Some examples are trust in: the consistency of quality, accuracy of billings, integrity of confidentially disclosed information, security around electronic storage and communications. “cooperation leads to trust which, in turn, leads to a great willingness to cooperate in the future, which then generates greater trust” (Arnett & Badrinarayanan, 2005, p. 54)

Ultimately it is underpinned by trust in individuals, as it’s the individuals that act for the organisation, as described in Agency Theory (Eisenhardt, 1989). Issues may arise in the relationship where the actors may have asymmetric information where one party has more information than the other and the parties may not be able to quantify if the other is acting in their own interests or the interest of mutuality (Hill & Jones, 1992). “The element of trust is an indispensable component of a healthy, growing relationship between a company and its customer” (Peppers & Rogers, 2004, p. 71)

Trust between organisations is crucial to foster future mutuality, a breakdown of trust and its consequences can be demonstrated by the VW Dieselgate crisis in 2015 (United States Environmental Protection Agency, 2015). Whilst the EPA found that VW had deceived their stakeholders about vehicle emissions, to try save costs. VW had also deceived its B2B customers by supplying the same type of engines to its customers, such as Porsche, without informing them of the incorrect emissions (United States Environmental Protection Agency, 2015). As a consequence, Porsche has to face potential statutory fines, implement a recall to fix affected vehicles, potentially face litigation from consumers or groups of consumers as well as halt all sales of the affected models (REUTERS, 2016). Whilst those are mainly economic penalties, the further reaching implications on Porsche would in turn be its own global loss of brand trust and integrity towards consumers, business partners and other key stakeholders. Volkswagens actions in its exchange with Porsche has broken the trust and has directly contributed to losses in profits and enterprise value of Porsche (Tovey, 2015).

Trust has to be on a mutual basis because trust serves as the foundation for building solid relationships, whether personal or professional. Trust and mutuality are however not simply deserved in a relationship, but need to be earned over a period of time. As already discussed both are key to developing a long term successful relationship between organisations. But how is that achieved? Communication is key, both in how the organisation communicates externally, but how its agents (employees) communicate with stakeholders, including customers. “Marketing communications can create intense, active loyalty relationships and affect brand equity” (Keller, 2009, p. 151)

Whilst organisations may have developed great products or deliver good services through a competent sales and management team, success hinges on persuading its customers to select that company’s products or services rather than buying from someone else. The style and method of communication underpins this awareness by customers. Marketing is characterised by the set of human activities and interactions that set up and facilitate exchanges (Kotler, 2000).

Transactional relationships tend to be linear and as a one to many broadcast with no feedback whereas RM is a many to many web of personal relationships between the actors within both sellers and buyers. The strength of the relationship even determines outcomes to RFP or tender based business (Dixon & Adamson, 2011.a).

To maintain a competitive edge in a supply chain relationship, the quickest path communications are the foundation to building successful outputs (Ferrin, et al., 2001). There are two primary forms of communication: one-way and two-way communication as explained in stakeholder engagement (Aakhus & Bzdak, 2015) (Freeman, 1984). One-way communication in business is when the business sends out a message to its customers or stakeholders and two-way is where it engages in a dialogue with its customers and stakeholders. As already presented in the paper, to build a relationship on trust and mutuality depends on the organisations ability to listen to their customer, assimilating the information from listening and formulating their responding to the customers needs or business goals.

How an organisation is able to implement strategic and technological innovations into their supply chain will directly impact their performance in their interactions (buying and selling) between other organisations (Glenn Richey Jr, et al., 2010).

To improve competitiveness using supply chain management, a new form of RM must be implemented harnessing internet technology and electronic commerce moving beyond the concept of one buyer and one seller (Borders, et al., 2001), enhancing timing and reducing costing within the supply chain. But in implementing electronic communications and planning systems, organisations should take due care to ensure the data and its integrity is protected.

The integrity of electronic platforms directly affect trust in the organisation. In 2014, SONY’s electronic systems were compromised (The Telegraph, 2014). Confidential information was leaked, and there were many disclosures that brought SONY into disrepute (Rushe, 2015). Trust was eroded and strategic partners, concerned about being associated with SONY have been driven away, casting doubt the ability for SONY to quickly restore its profitability and reputation (Kang, et al., 2014).

The employees of the organisations are the conduit for communications, and it should be remembered that their personal agendas and goals may not be aligned with the organisational ones, so systems of communication and process are needed to support RM should be used.

(Shanmugasundaram, 2010) described how too often Customer Relationship Marketing (CRM) is confused for a software package or technology. CRM is rather a set of business processes and policies to aid in the acquisition, retention and service of the organisations customers. “RM-based strategies often require firms to adopt inter-organisational information systems (e.g. electronic data interchange (EDI) systems) and to create organisational processes that are conducive to knowledge use and sharing.” (Hunt, et al., 2006). Technology is simply a framework that allows quicker collaboration within the organisation in the pursuit of better relationships with its trading partners. In modern organisations the environment is often difficult to engage in as there are so many more transactions and the needs and goals of customers so much more varied. For a relationship to be mutually successful it is important for both sides of the relationship to fully understand how best to intertwine themselves. Customer relationships also move through life cycles, so it is imperative to track the evolution and adjust the intensity of interactions based on the life cycle stages (Fill & Fill, 2005).  CRM has become a tool to track and manage relationships through change and over time.

As organisations have become more sophisticated in their buying and procurement activities, selling activities have evolved from a one to one engagement to that of team selling (Dixon & Adamson, 2011.a) (Miller & Heiman, 1986). Popular within global organisations are structured engagement frameworks (Miller & Heiman, 1986), processes that guide interactions with customers to flesh out insights that the seller can use to assist the customer in realising their organisational goals (MHI Global, 2015). Becoming a repeatable engagement tool to ensure that the selling organisation is consistently responsive to the needs and goals of the buying organisation by developing and gathering insights, ensuring delivery within customers’ expectations.

To meet these complex environments and evolving customer needs, increasingly organisations are turning not only to engagement processes, but implementing CRM planning and strategies to enhance their B2B engagements (Arnett & Badrinarayanan, 2005). CRM systems have the ability to drive insights into the customers needs and future goal orientation, providing the selling entity the unique ability to meet their customer’s expectations.

With ever increasing competition, customer satisfaction is key in retaining customers. VW has been rolling out a global CRM initiative to focus on having a standardised view of customer and contract data, multi channel communication integration and document management to support the implementation of acquisition campaigns for consumers to attract them to the brand and hence to dealerships (SAP AG, 2006). As VW’s strategic partners, the dealerships customer advisers can now rely on continuous process support enhancing their understanding of consumers needs aiding their ability to sell more product to consumers.  VW is able to manage data across many touchpoints, from instore data to online conversation consumers are having about the brand, driving these insights into their direct customers (Brymer, 2008). Whilst VW’s marketing department "owns" CRM, in reality CRM is cross-functional and so local customer care and workshop departments are key in the operational CRM, as they are intimately connected to the needs of the customer locally. Further analytics of their data is used to monitor service performance and gain further market insights. Virtual integration within the customer-supplier relationship, leads to building mutuality and results in a greater commitment to the relationship by both sides (Dimitratos & Jones, 2010).

Organisations that use knowledge sharing by leveraging information sets within their own existing databases, resource planning systems and customers insights into a program of customer relationship management tend to have business outcomes that are more profitable and the relationships are more sustainable as customers would receive mutual benefit into their supply chain (Dimitratos & Jones, 2010).

Successful RM implementation does rely on mutuality, but in order to maintain successful relationships founded in mutuality, trust is critical and is credited with boosting the potential for improvement in RM (Michalski, et al., 2014).

(Bove & Johnson, 2000) found that in order to have repeat business from a customer you would need to foster loyalty within the relationship, defining that loyalty is made up of attitudinal and behavioural components. The attitudinal dimension within customer loyalty measures the customers’ attitude towards the firm which is enhanced by their perception of the image and value projected by the firm, whereas the behavioural dimension is as a result of the customers attitude in response to the actual engagement by the agents of the company (Evanschitzky, et al., 2012).

To cultivate relationships, CRM can become a powerful tool whereby an organisation is able to to identify high-loyalty-potential customers and at the same time using CRM to fine tune its interactions, products and services to elicit further loyalty (Peppers & Rogers, 2004). In recent years, CRM has been responsible for the largest shift in recent years in marketing theory, as an intangible asset in the sales process (Garrido-Moreno & Padilla-Meléndez, 2011).

Sustainable business is better achieved through repeat business, and loyalty in the existing customer base is ever more important. “Customer loyalty has a powerful impact on firms' performance and is considered by many companies as an important source of competitive advantage” (Yin Lam, et al., 2004, p. 293). (Yin Lam, et al., 2004) found that not only was it cheaper to retain customers and develop relationships with them than the cost of acquiring new customers, but that continued satisfaction through loyalty in existing customers was more profitable over time.

Whilst RM puts its emphasis on retention and growth of current customers than on new customer acquisition, organisations need to operate with a mixture of both transactional and RM. Companies in consumer markets tend to bias towards transactional marketing, whereas the bias of organisations in markets with fewer customers is toward RM (Kotler, 2000).

“Relationship marketing aims to build long-term mutually satisfying relations with key parties—customers, suppliers, distributors—in order to earn and retain their long-term preference and business.”  (Kotler, 2000, p. 7). Organisations constantly need to focus on their relationships, especially in the current economic downturn affecting consumer markets as buyers increasingly will be under pressure to make decision based on price.

To build mutually beneficial relationships takes time to develop, but fostered with the right partner the reward is worthwhile. Relationships are as important as products and should be a deliberate part of every business plan.

[Grant Marais]

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