Business Marketing & Purchasing - Summary PDF

# Business Marketing and Purchasing - Summary ## Business Networks - A diagram shows a business network with the following nodes: - Seller (Marketing) - Buyer (Purchasing) - Relationship Management ## Key Principles of Business Marketing Management - Regard value as the customer's - Fo...

# Business Marketing and Purchasing - Summary ## Business Networks - A diagram shows a business network with the following nodes: - Seller (Marketing) - Buyer (Purchasing) - Relationship Management ## Key Principles of Business Marketing Management - Regard value as the customer's - Focus on business marketing processes - Emphasize doing business across borders of firms, avoiding isolation - Accentuate working relationships and business networks ## Business Market Processes - A diagram shows business market processes with the following nodes: - Market Sensing - Managing Market Offerings - Understanding Firms as Customers - Crafting Market Strategy - Understanding Value - Creating Value - Delivering Value - Gaining New Business - New Offering Realization - Business Channel Management - Sustaining Reseller Partnerships - Managing Customers ## 6 Areas - A diagram shows a 6-area model with arrows indicating exchange between Seller and Buyer. - Area 1: Seller - Area 2: Seller - Area 3: Buyer - Area 4: Buyer - Area 5: - Area 6: ## Area 1: Seller - Market: Public place where people meet to buy and sell goods. - Mechanism for meeting individual and organizational needs ## Business vs. Consumer Marketing | Dimension | Business Marketing | Consumer Marketing | |-----------------------|---------------------|----------------------| | **Demand** | Derived | Direct | | **Nature of Demand** | Greater volatility | Less volatility | | **Elasticity** | Less elastic | More elastic | | **Reverse Elasticity** | More common | Less common | | **Nature of Customers** | Greater heterogeneity | Less heterogeneity | | **Market** | Greater fragmentation | Less fragmentation | | **Complexity** | More complex | Less complex | | **Size** | Larger overall value | Smaller overall value | | **Numbers** | Few | Many | | **Buyers per Seller** | Few | Many | | **Buyers per Segment**| Few | Many | | **Relative size: buyers** | Similar | Seldom larger | | **Geographic concentration** | Clustered | Dispersed | ## Approaches to Business Marketing & Purchasing ### Marketing Mix Approach - 4 Ps: product, price, promotion, and place ### Assumptions - Sellers and customers operate separately - They have different goals - The market is active, and the customer is relatively passive (receiving and responding to offers) - The marketing process includes studying the buying behavior of business customers - Sellers try to influence behavior in their favor ### Critic - Incorrectly characterizes how business marketers actually work - Customers are often as active as suppliers, creating an interaction between the two ### Interaction & Network Approach ## *Value Co-creation* - A diagram shows "matching uncertainties and abilities" between Seller and Buyer. - Seller - Problem-solving ability - Transfer ability - Capacity Uncertainty - Application uncertainty - Transaction uncertainty - Buyer - Demand ability - Transferability - Need uncertainty - Market uncertainty - Transaction uncertainty ### Reducing Uncertainties Through Matching Abilities - Marketing is successful when companies and customers choose together to create value for each other. ### Interaction Process - A diagram shows "IMP Model" with a short-term and long-term column. - **Short-Term** - Exchange episodes - Product/service exchanges - Financial transactions - Social interactions - **Long-term** - Institutionalization and adaptations - **Atmosphere:** - Power dependence - Cooperation - Closeness - Expectations ### Subtle, Not Always Communicated ## Environment - Market structure: competitive, monopolistic - Dynamism: rate of change - Internationalization: cross-border trade and global influence - Position in the marketing channel: role within the supply chain - Social system: cultural, legal, and social norms ### Marketers are Chasing Predictability and Control - The environment is hard to manage and must be taken into consideration. ## IMP Group Interaction Model - Relationships in marketing are built through meaningful interactions. - This model helps to understand industrial marketing and purchasing. - A diagram shows the IMP Group Interaction Model (p. 77), with the following nodes: - Environment - Organization - Individual - Arrows indicate interactions between these nodes. ### Network Approach - Different people and actors in a network coexist. - A diagram shows an "Actor-Resource-Activity-Model" with the following nodes: - Actor - Resource - Activity - Network ### Changing or Willingly Them ### Types of Activities - Transformation acts - Transaction calls - Transaction chains - Activity cycles ## Substance of Business Relationships/Networks - A diagram shows the connection between resources and actors. - *Resource Ties*: Connections between actors within the network - *Activity Links*: Interactions and operations between actors that integral to align their activities - *Actor Bonds*: Connections between actors within the network ### Marketing Trends Need to Evolve to Address - Trends like digitalization and sustainability transition ## Area 2: Marketing Strategy ### Strategy to go Somewhere & Planning - Goals - Which resources are needed - Understanding of context ### Approaches of Strategy - Rational planning approach - Resource-based approach - Relationships & Networks view ### Relationship Spectrum - A diagram shows a relationship spectrum with three areas: - Transactional Exchanges - Value-Added Exchanges - Collaborative Exchanges - Arrows indicate the direction of focus between Buyer and Seller, from Buyer-passive, short-term focus to Buyer-active, long-term focus. ### Strategy Aim - Increase long-term shareholder value - Understand, analyze, and deliver customer value ### Transactional Relationships - Timely exchange of basic products - Each transaction is evaluated in isolation - Competitive prices ### Value-Adding Exchange - Between the two actors ### Selling Moves from Simple Selling to Customer Retention ## Selling Company as a "Problem Solver" - A diagram shows a customer's buying process. - *Buying Company*: - Problem - Value - *Selling Company*: - Solution - Offering ## Definitions of Value ### Customer Value - Trade-off between what is given (sacrifices) and what is received (benefits) - Customer's overall assessment of the trade-off ### Customer Lifetime Value - Profitability varies among customers. Loyalty is a driver of profitability. - Net present value of expected profits over the duration of the customer relationship. ### Relationship Value - Difference between benefits and sacrifices, including relationship-related aspects. - Creation of value for both - the key goal of all business relationships - Beyond the product value ### Responsible Strategy - Ethical and SD Considerations ## Sustainability - Sustainable development - Ethical principles - Green Corporate Social Responsibility - Companies integrate social and environmental concerns - Responsibility of enterprises for their impacts on society - Development that meets the needs of the present without compromising the ability of future generations to meet their own needs. ### Consuming Resources - At a rate so that they can be replaced ### Producing Pollution - At a rate that the environment can assimilate ## Ethical Approaches - **Managerial Egoism:** What is best for the company? - **Utilitarianism:** Evaluating the costs and benefits to all stakeholders (judgment based on consequences) - **Deontological Approach:** Follow codes of conduct (judgment based on rules) - **Virtue Ethics:** Learning and applying sound judgment based on integrity ## *Responsible Corporate Social Responsibility, Sustainability and Ethical Frameworks* ## Segmentation - Viewing a heterogeneous market as a number of smaller homogeneous markets in response to differing product preferences among important marketing segments. ### Macro Segmentation - Large-scale analysis ### Micro Segmentation - Fine level of analysis ### Benefits of Segmentation - Better understanding of the whole market place, including buying behavior. - Better selection of market segments that best fit a company's capabilities - Improved management of marketing activity. ## Segmentation Funnel - A diagram shows a segmentation funnel from MACRO to MICRO, with the following nodes: - Firmographics - Operating Variables - Purchasing Approach - Situational Factors - Personal Characteristics ### Firmographics - Segmentation by: - Industry sector - Organization size - Location - Company technology - Product and brand-use status - Customer capabilities - Customer strategy (store, defend, analyze, react, prospect, etc.) ### Organizational Purchasing Approach - Purchasing function organization - Power structures - Buyer-seller relationships - General purchasing policies - Purchasing criteria ### Situational Factors in Segmentation - Driven, largely by time and scale-dependent variation. - Includes urgency of customer need and scale of need. ### Personal Characteristics of Buyers - Over and above organizational structures, policies, and processes. - Buyer motivation - Buyer risk management behavior - Relationship style - Similarity of world view to supplier ### Criteria to Useful Segmentation - Measurable/distinctive: Stand out from the market - Accessible/reachable: Big enough - Sustainable/profitable: Big enough - Actionable: Fulfill their needs ### Segmentation Challenges in B2B Markets - Customers are less homogeneous - Interaction among actors - Complex offerings - Variety of different channels - Changes in market structure ## Segmentation - Provides marketers with a basis to achieve efficient and effective solutions to customer problems. - Establishes degrees of homogeneity in otherwise heterogeneous market places. - Enables marketers to decide what parts of the market to target with its solutions. - Allows for solving customer problems more effectively and profitably than competitors ## Targeting ### Targeting: Target segment selection - A diagram shows a step-wise selection process (adapted from Freytag & Clarke, 2001): - Step 1: Identified segment - Step 2: Relative attractiveness - Step 3: Acceptable resource demands - Step 4: Acceptable management demands - Step 5: Acceptable organizational demands - If all areas are acceptable: proceed to target - If not: select again ## Targeting Strategy - Undifferentiated targeting: Same offer to all segments - Differentiated targeting: Selection includes choosing a variety of different segments ## Positioning - A company occupies a position in the mind of the buying company. - Establish a position relative to others. - Brands play a role here. ## Area 2: Marketing Program ### How to Create Value to Customers? 1. **Product Offering** - A diagram shows the elements of a business-to-business offering: - *Physical Attributes*: Value is mainly in physical attributes - *Service Giving*: Value is mainly in services - *Advice*: Value is mainly in advice - *Adapted/Augmented Offering*: Value is mainly in services and advice ### Aspects of Offerings - Physical attributes of an offering. - Raw materials have less ancillary elements. - Developed economies generate wealth from intangibles services, which are increasingly information-intensive. - Advice-giving is another element of the design of offerings. ## *Maximum Value Threshold* ### Adaption to Individual Customer Needs - Time horizon is extended. - Differentiation is accomplished through "value add-ons". ### Hybrid Offerings - Combine physical goods with augmented service elements. ### Differentiation - Differentiate own products from competitors. - Differentiation to customers. ## Product Offering & Relationship Exchange ### a. Drinks Industry - A diagram shows the elements of a pure transactional exchange between Producer and Consumer: - *Ingredients & Raw Materials*: E.g. natural & artificial flavors; carbon dioxide, fruit, sugar and water - *Packaging*: E.g. Automated process controls; machinery for integrated processing, filling & packing - *Controls & Equipment*: E.g. - A diagram shows the elements of a pure collaborative exchange between Producer and Consumer: - *Ingredients and Raw Materials*: E.g. - *Packaging*: E.g. - *Controls and Equipment*: E.g ### b. Flaring Out on Relationship Spectrum: Ingredients Suppliers - A diagram shows a relationship spectrum, from pure transaction exchange to pure collaborative exchange focused on ingredients and suppliers. ## Product-Service System - A diagram shows a product-service system, with the following nodes: - *Value mainly in (physical) product content*: Physical product - *Value mainly in service content*: Pure service - Arrows indicate the direction of focus from a pure physical product to a pure service. ### Product-Oriented - Product advice, installation, maintenance, disposal ### Use-Oriented - Product lease, sharing ### Result-Oriented - Activity management, functional performance 2. **Pricing** - Price has a direct and substantial effect on profitability. - It can be more powerful than increasing market share and sales volume. ### 3 Cs of Pricing - Cost - Price - Customers ## Cost-Plus Pricing - Knowledge of known costs plus a percentage. - Challenges: Unknown costs before volume is known. ## Competitive-Based Pricing - Set price in relation to competitors' prices. - Suppliers with the largest market share usually provide price leadership. ## Customer-Based Pricing - You need to understand price elasticity of demand - **Elastic:** Buy more if the price goes up because you think it's better quality. - **Inelastic:** Price elasticity measures how sensitive customers are to price changes. - **Strong end-use focus is needed.** ## Value-Based Pricing - Same product offering, but different value to different customers. - It is priced differently. ### Price Management & Value Explanations ### Pricing Strategies - **Penetrating Pricing Strategy**: - Low initial price - Overall profit earned by selling a large number of units at a lower profit per unit. - Used when: - High price elasticity of demand - Strong threat of imminent competition - Opportunity to reduce costs as volume expands. - **Skimming pricing strategy**: - High initial price - Overall profits earned by selling fewer units at a higher profit per unit. - For distinctly new products - Early profits possible: Recovers high research and development costs more quickly. - A diagram shows a matrix of "Perceived benefits of competing suppliers' offerings," with: - Low, medium, and high benefits - Low, medium, and high prices - The following roles: - Chancer - Thriver - Market Ruler - Bungler - Also-Ran - No-Hopper 3. **Distribution/Place** ### Task of Distribution - Bridge the gap between production and consumption. - Place Gap - Time Gap - Quantity Gap - Assessment Gap ### Different Types of Channels (Routes) - A diagram shows: - Producer - Consumer - *Indirect Sales: Through one or many intermediaries; Direct sales: through one or many intermediaries; Direct sales: through one or many intermediaries* - *Distribution*: Direct sales ## Different Types of Intermediaries - Dealers & Resellers - Resellers (S. wholesalers) - Distributors - Warehouse: TPL (third-party logistic providers) (not taking ownership of products). - Forwarders: Logistic firms; TPL (transport products but don't take title) - Wholesalers - Retailers - Franchise: Agree to sell product in a very specific way (Starbucks, McDonalds). - Authorized: Authorized by the company to sell company product (different levels (gold, silver) - Agent: Don't take title to product, but take commission - Take percentage of each product sold - Help to sell into the market ## 3 Types of Actors (Textbook) - Distributors - Franchisees: Obtaining rights from a principal company to conduct business in a specific name. - Agents: Avoids personal selling costs for the principle (producer outsources selling work). ### Indirect Sales - Fragmented & widely dispersed customers - Standardized & commoditized products - Assortment required ### Direct Sales - Large, well-defined group of customers. - Direct dealing required - Complex offerings; customers need to be involved - The process includes extensive negotiations with management. ### Large Amount of Emphasis on Product Useful Features - Quick response to market conditions ### By Customers: - Lower value transactions ## 4) Market and Relationship Communication - Advertising, Trade Shows, Personal Selling ### Buying & Selling Process & The Communication Mix - A diagram shows the communication mix, with "relative communication effectiveness" on the y-axis and task on the x-axis: - **New customer/prospect buying phase**: - Lead generation - Need recognition - Developing product specifications - Search and qualification of suppliers - Evaluation - Selling - Supplier selection - Order fulfillment - Purchase feedback - *Key Seller Communications Objectives and Tasks:* - Generate awareness - Feature comprehension - Lead generation - Performance comprehension - Comprehension of message - Negotiation of terms/offer - Customization - Reassurance - Account service - **Relative communication effectiveness**: - Low - High ### Communication Mix - *Low*: Prospecting, opening relationship, qualifying prospect, presenting sales message, closing sale - *High*: Advertising, trade shows, and personal selling ### Where to Put Money - Which communication channel has the best outcome? - Which communication channel has which effect (the lines on the right?). ### 80/20 Rule - 20% are responsible for 80% of income. ### Customers Are Different - Not Same Amount of Effort for All - Energy investment in different individuals! - Relationship -> Portfolio management ## Personal Selling Roles - Selling/communication, persuasion, and negotiation - Service - Technical assistance - Some administrative service tasks - Intelligence: Collecting and interpreting information about the clients - Problem-solving: Problem identification, elaboration of solutions. ## Tradeshows - Selling Task: - Identification of Prospects - Gaining Access to Key Decision-Makers - Disseminating Facts - Winning Orders - Content (PR): - Competence-based communication - Used to signal company expertise to stakeholders. - Increasing content ## Advertising - Increase awareness - Inform/educate contributors to positive brand associations - Social media - Used to strengthen associations - Driving engagement - Related content - Blogs - Grand motion - Digital platforms ## Direct Marketing - Includes interaction between individual customers and the vendors. - For partner acquisition, retention, and development (EcWeb) - Key Features: - Absence of face-to-face contact. Use of social media, mail, telemarketing. - Use of on-and-offline media for direct one-to-one communication and transactions. - Monitor and measure communication and transaction behavior ## Personal Selling - **Value & Purpose:** - Face-to-face contact with customers - Permits direct interaction between buyers and sellers - Allows for identification of specific customer needs and tailoring to suit those needs. ## Activities - Types of selling - Sales responsibilities ## Selling Process - Sales force management ## Culture & Relationship Communication - A diagram shows the characteristics of "Low Context" and "High Context" communication: - *Low Context:* - The topic is handled straightforwardly - Information is explicitly transferred - Communication is direct - The focus is on the task - Less skilled at decoding unspoken messages - Less skilled at understanding body language - *High Context:* - The information lies in the context, need not be verbalized. - Information is implicitly transferred. - Communication is less direct. - Emphasis is on personal relations. - More sensitive to non-verbals - More sensitive to the feeling of others. - *Low Context Examples:* U.S., Dutch, German, Scandinavian, English, Hungarian - *High Context Examples:* South European, Latin American, African, Arab, East Asian ### Work Out How to Express Disagreement - Recognize what emotional expressiveness signifies. ### Learn How Other Cultures Build Trust - Ask genuine questions. - Be selective of what is expressed in writing. ## 5) Abilities and Uncertainties of the Sellers - A diagram shows the matching uncertainties and abilities between Seller and Buyer. - *Seller*: - Problem-solving ability - Transfer ability - Capacity uncertainty - Application uncertainty - Transaction uncertainty - *Buyer:* - Demand ability - Transfer ability - Need uncertainty - Market uncertainty - Transaction uncertainty ## Area 3: Buyer - **To understand the customer**: - **What and why does the customer purchase?** - **What creates value for the customer?** - **To understand the needs of the customer.** ## Methods to Understand Buyers - Market research in business markets - B2B marketing organizations are more successful if they make more use of formal market research ## Analysis - A diagram shows the elements of business analysis: - *The Customer*: - Corporate strategy - Skills - Financial resources - Product Life Cycle - *The Market*: - Distribution structure - *The Industry*: - Environmental climate ### Analysis of the Conditions for Realizing the Business Concept ## B2B Market Research - Similar to research in consumer markets - Need to understand direct customers. - Be aware of developments for the downstream in the chain of derived demand - Derived demand - Accelerator effect - Concentration ratio. ## Sampling Methods - **Probability Sampling** - Simple random sampling - Stratified random sampling - Systematic sampling - Cluster/multistage sampling - **Non-probability Sampling** - Convenience sampling - Snowball sampling - Quota sampling - Focus groups ## Value of Market Information - Accuracy: The most important are: - Technical matter: Is information accurate? (Genauigkeit, Richtigkeit) - Timeliness (Aktualität, Verständlichkeit) - Relevance: Managerial matter; right information at the right time - Uniqueness ## Direct Interaction with Customers ## Area 4: Buying Behavior - Purchasing philosophy/orientation: - Competition versus relationship - A diagram shows the price and total cost relationship between three different companies: - 1 - 2 - 3 - Price - Total costs - Indirect costs - Arrow indicates that the price can be reduced by playing 1, 2, and 3 against each other. - A diagram shows the price and total cost relationship between three different companies: - 1 - 2 - 3 - Price - Total costs - Indirect costs - Arrow indicates that indirect costs can be reduced by developing the relationship with 1 and 3. ### Create Value by Competition or Relationship ## Definition - The philosophy that guides managers making purchasing-related decisions. - Describes domain & span of influence. - Varies: - Between customers - Within a single organization - Matched with a specific product category. ## Three Purchasing Orientations - A diagram shows the "Supply Management Orientation" with an arrow pointing to the "Procurement Orientation" and an arrow pointing to the "Buying Orientation". - *Raw Material Resources*: - Component and subassembly manufacturing - Products - Waste and returns of product and packaging - *Physical Flows*: - Inventory tracking - Information flows - Demand - Wholesale distributors - Final assembly - *Customer segment*: - Customer Segment A - Customer Segment B ## *Buying Orientation* - Focus on reducing price. - Purchasers are awarded based on price reductions. - Obtaining the best deal. - Aiming for an arm's-length relationship. - Maximizing power over suppliers. - Avoiding risks. - Traditional view. ## *Procurement* - More strategic than buying orientation. - Buyers become managers of external resources. - Improving quality. - Reducing total costs of ownership - Cooperating with suppliers. ## *Supply Management* - Realization: Operations are interlinked with other firms. - Focus on end-use. - Sourcing strategy: - From push to pull - Building a supply network. - Maintaining and developing high collaborative relationships with suppliers and sub-suppliers. - Integrations and coordination internally with different functions & externally. ## Traditional Role vs. New Role - A diagram shows the proportion of time spent on different buying functions, comparing a traditional role with a new role. ### Traditional Role - Administration - Quality problems - Expediting information and parts delivery - Market testing via competitive quotes - Price negotiation ### New Role - Cost reduction and cost planning activities - Supplier measurement and improvement activities - Supplier strategies - Component development strategies - Administration - Price negotiation ### **Additional Activities:** Functions & Externally ## Segmenting Purchase Categories - **Kraljic's Matrix:** - A diagram shows Kraljic's Matrix with the following nodes: - *Business impact*: - High - Low - *Supply risk/Market Complexity*: - High - Low - Arrows indicate the relative importance of different purchasing categories. ### Kraljic's Matrix - **Business Impact**: How critical is the category? - **Supply Risk/Market Complexity**: How hard is it to create competition? ### Kraljic's Matrix - **High Business Impact & High Supply Risk/Market complexity**: Strategic Products - **High Business Impact & Low Supply Risk/Market complexity**: Bottleneck Products - **Low Business Impact & High Supply Risk/Market complexity**: Leverage Products - **Low Business Impact & Low Supply Risk/Market complexity**: Non-Critical Products - Organizations buy a whole range of products and services. - They vary in importance. - Need tools to categorize them. ## Purchase Process ### Purchase Decision Process (Between Companies) - A diagram shows a process, with the following steps: - Step 1: Problem/need recognition. - Step 2: Determining product specification. - Step 3: Product and supplier search. - Step 4: Performance evaluation and feedback. It can be influenced by quality, price, availability. - Step 5 : Specification of order routine (one-time purchase or orders in batches at different times). - Step 6: Proposals, evaluation, and supplier selection. - Step 7: Request for information (RFI/RFQ) (optional). ## Problems with Supply are Solved... ...with existing supplier relationships. - Investments made: Try to stick to it. - Costs for searching and evaluating new alternatives: Business-as-usual is preferred in most cases. - Outside existing relationships: - Customer is facing new problems/opportunities - External factors result in new competencies - Dissatisfaction with existing suppliers and/or supplies ends the relationship. ## Three Types of Situations - A table shows different buying situations, with associated marketer action: - **Situation**: - *New Task* (strategic, judgmental) - *Modified Rebuy* (complex, simple) - *Straight Rebuy* (routine, casual) - **Marketer Action**: - Out-supplier: Not bashing; opportunity to become a supplier; more effort to get a right of colors. - In-supplier: Track search and communication behavior; secure purchase and specification information; tailor solutions to specific supply needs; anticipate, monitor changing needs; offer consultation in specifying supply needs. - Out Supplier: Develop customer insight; create communications messages to present value-adding supply alternatives; deliver messages to match customer search behavior; try to move to straight rebuy; reduce perceived benefits of supply switch. - In-supplier: Examine total cost of ownership; Target users, designers, engineers; find what's wrong/missing; sell to become a supplier; reinforce relationship; regular communication; automated ordering. ## Roles in Buying Teams - DMU - DMU: Decision-Making Unit - Personal - Functional - Organizational ## Organizational Functions vs. Purchase Roles - A diagram shows the overlap between different organizational functions and purchasing roles: - *Organizational Functions*: - Purchasing - Operations - Engineering - Finance - R&D - Marketing - *Purchase Roles*: - User - Influencer - Decider - Buyer - Initiator - Gatekeeper ## Purchase Roles - **Initiators/Users**: Request items and trigger purchase processes. - **Influencers**: Influence decisions. They may be part of the DMU. Affect final decisions related to needs, products, and vendors - **Deciders**: Make final purchase decisions. - **Buyers**: Make purchases, administer decisions. - **Gatekeepers**: Control information input into buying groups. Can affect decisions. ## Knowledge About DMUs in the Buying Process - Value to marketers - Putting everything in a nice package. - Effective marketing depends on: - Identifying: Key DMU members' concerns (needs) - Crafting solutions to satisfy individual DMU members' needs. Minimize perceived risks. - Early involvement: Reach and influence DMU participants before key decisions are made that will determine vendor choice. ## Area 5: Interaction Between Buyers & Sellers - Important feature of business-to-business markets!!! - Content of interaction & business relationships ## Interaction Approach ## IMP Group Interaction Model - A diagram shows the IMP Group Interaction Model (p.77), with the following nodes: - Environment - Organization - Individual - Arrows indicate interactions between these nodes. ### Activity Links - Connections between the activities that the parties in a network undertake. - May be a source of network advantage. ### Actor Bonds - Connections between people & organizations in a network context; strong bonds make for strong connections. ### Resource Ties - Connections in relationships that emerge as a consequence of the parties creating and/or sharing resources that are deemed to add value to the relationship. ## Key Relationship Variables - A table shows the key relationship variables, with associated level of emphasis, major theoretical source, theory types, and typical reference sources: - **Principal Variable:** - Risk and its management - Distribution of transaction costs - Dependence; power and its exercise; switching costs - Social embeddedness; trust and commitment - Interaction processes - **Level of Emphasis:** - Individual transactions; Agent - Transactions or individual transactions - Relationship - Individual exchanges and relationship - **Major Theoretical Source :** - Principal-agent - Transaction cost economics - Resource dependence - Social exchange - Interaction - **Theory Types:** - Political-economic - Economic - Political - Social - Social/interactional - **Typical Reference Sources:** - Eisenhardt, 1989 - Williamson, 1975, 1979 - Pfeffer and Salancik, 1978 - Granovetter, 1985 - IMP Group (Ford, 1990, 1997, 2002; Håkansson, 1982) ## Beyond the Relationship - Business Networks ### Multi-Tier Supply Chain Management ## Supply Chain - Network between a company and its suppliers to produce and distribute a specific product or service to the end customers. ## Dyadic Relationships - Direct interaction between two parties in the supply chain (buyer & seller) - A diagram shows a dyadic relationship between Supplier and Buyer. ### Simplicity - Clear lines of communication and responsibility. ### Lack of Visibility into Upstream Suppliers ## Triadic Relationships - Includes three parties in a supply chain: buyer, first-tier suppliers, second-tier suppliers. - A diagram shows a triadic relationship, with the following nodes: - Suppliers - Supplier - Buyer ### Greater Control Over Upstream Suppliers - Improved visibility and risk management - Enhanced sustainability: Diffusion through shared practices - Increased complexity in coordination. Power imbalances among parties ## Multi-tier Supply Chain - Global supply chains: Composed of various levels of suppliers & suppliers of suppliers ### Difficult for Buyers to Monitor the Supply Chain as a Whole - A diagram shows a multi-tier supply chain with three tiers: - Tier 1: Direct suppliers (e.g. component manufacturers delivering parts to an assembly line.) - Tier 2: Suppliers that provide goods or services to Tier 1 suppliers (e.g. raw material suppliers delivering to component manufacturers). - Tier 3 and Beyond: Suppliers further upstream in the supply chain (E.g. mining companies extracting minerals used in raw materials). ### *OEM Visibility Ends Here* ## Importance - Enable cost efficiencies through global sourcing. - Access to specialized materials & expertise. - Critical for industries like automotive, electronics, and pharmaceuticals. ## Challenges - Limited insight beyond tier 1 suppliers - Vulnerability to disruptions at any tier - Ensuring ethical labor practices and sustainability access across all tiers. - A diagram shows different supply chain models: - Open. Linear flows of information and products, lacking any direct link between the buyer and the supplier’s supplier. - Transitional. Reach out to one another, laying the groundwork for a more interconnected relationship that leans towards closed. - Closed. A direct connection, enabling ongoing communication, information sharing, and joint management of their relationship. ## ARA Model - Actors - At different levels - from individuals to groups of companies actors aim to increase their control of the network. - Control resources; some alone and others jointly. - Have a certain knowledge of resources. - Resources - Heterogeneous, human and physical, and mutually dependent. - Activities - Perform activities - Have a certain knowledge of activities. - Link resources to each other - Network - Include the transformation act, the transaction act, activity cycles, and transaction chains. - Change or exchange resources through the use of other resources ## Network Position - Analysis of network position to see how position could change. - Strongest relationships = strongest network positions - But: Maintain and enhance your own position as well. - Because: Of the costs of attempting to forge lots of relationships. ## Area 6: Development of New Offerings ## Technological Development in Networks - Collaboration with external actors, such as suppliers, customers, competitors, research institutes.  - Customer involvement in product development. ## Closed vs. Open Innovation - **Closed Innovation** - A diagram shows the process, with the following nodes: - Research projects: - *Development*: - Boundary of the firm - The market - **Open Innovation** - A diagram shows the process, with the following nodes: - Research projects: - Development: - Boundary of the firm - New Market - Current market ## New Offering Development Process ### Role of B2B Relationships - Value in B2B assets results from the relationships companies have with customers and others. - Innovation teams extend beyond the single firm to the supply network, customer base, or other agencies. ## More Open Concept Generation Today - The face of innovation is different than a few decades ago. - Transition from closed to open innovation: - Sharing ideas - Stage-gate models - Complexity of products issues as a source of external expertise. - Partner suppliers are an important source of innovation. - External cooperation can speed up the innovation. ## Partner Collaboration - Partners involved in product development. - Why, when, how, and who. ## IoT, Digitalization, & Supplier Relationships - Requires serious changes. - New processes for managing relationships - New ways to collaborate. - New solutions for innovation. ## *Impact on Product Development?* - A diagram shows the impact of digitalization and supplier relationship changes on product development, with the following nodes: - Product development - Cost management - New product implementation - Arrows indicate that digitalization and supplier relationship changes have an impact on all three nodes. ## *Potential new value creation*: - A diagram shows an innovation cycle, with the following nodes: - Product development - Value creation - Implementation - Business development and acquisition - Financial performance ## *Potential effects on customers:* - A diagram shows the potential effects of digitalization and supplier relationship changes on