Executive Summary
Industrial marketing is the practice where commercial entities facilitate the trade of their goods and services to other businesses that use them as production components or to support their functions.Industrial marketing is fairly different from consumer marketing in that its channel of distribution is relatively shorter and the contacts tend to be more personal.
Industrial marketing can be enhanced when both parties work together to come up with a strategy that will satisfy all of them. These interactions increase the parties’ willingness to manage and share risks and reward that result from the transactions. The long-term and short-term partnership between companies and their clients is what is known as industrial seller-buyer relationship. The methodological approach to this study follows a company case analysis.
The host company is Emirates Metals Company. The study describes and analyses the company-client relationship in accordance to the existing models. The case study explores Emirates Metal’s situation in relation to its clients and how its relationship with this client is developed and handled. The case study also provides an insight and relevant illustrations of the marketing problems facing this company.
The primary data sources in the case study comprised of questionnaires, interviews, texts and documents. Informal adaptations can improve the long standing relationship between the company and its clients. In addition, institutionalization of company-client relationship should not be confined to the relationship alone but to all other aspects of the company’s operation and transactions with other clients.
Introduction
Definition of B2B Marketing
Business marketing is the practice where commercial entities or organizations (private or public) facilitate the trade of their goods and services to other businesses or organizations that use them as production components or to support their functions. Business to business marketing is also known as industrial marketing or B2B marketing (Dwyer and John 4).
Industrial marketing in most cases is a derived demand, i.e., demand in industrial markets in most cases exists because of demand in other markets. For instance, demand for nuclear technology in a country can be as a result of high electricity demand from the populace (Dwyer and John 5).
Even though on the surface the distinction between B2B marketing and consumer marketing appear to be obvious, there are additional understated distinction between the two with considerable implications. According to Dwyer and John the channel of distribution for B2B marketing is generally shorter and more direct (6). Business transactions or negations in B2B marketing tend to be more personal as compared to consumer marketing which targets a large number of people at once.
Most B2B marketers usually commit only a small portion of their budget to promotional activities. The most preferred promotional tools in B2B marketing are direct mail efforts and business journals. Even though promotional activities are limited in B2B marketing, they often help companies to establish successful sales call (Anderson and James 28).
However how different B2B marketing and consumer marketing are, they share common basic marketing principles. Within the two marketing environment, the marketers must always equate the strength of their products and services in accordance to the needs of the target market. They must also position and align the prices of their products and services with the market. Lastly, they must communicate and sell their products and services in a fashion that exhibits value to the target market (Dwyer and John 7).
Business to business sales characteristically entails many decision makers given the structural complexity of many organizations. B2b marketing is very unique and this affects its marketing mix. B2B exceptionality includes the complexity of the products and services, multiplicity of demand, and distinctive nature of sales which involves fewer customers buying large volumes of products and services. Since B2B sale involves a number of significant intricacies, it goes beyond the conventional 4Ps (Anderson and James 35).
The growth of B2B marketing in the world is being prompted by three fundamental revolutions. The first revolution is technological advancement which has led to the development of new products and services. Business strategies and technology are highly correlated. The second revolution is on the entrepreneurship. Over the recent past, a number of companies have undergone restructuring in order to stay competitive in the local and global market.
Adaptableness, flexibility, assertiveness and innovativeness are very significance in maintaining competitive edge. B2B marketing is taking entrepreneurship to another level by discovering new market segment, unexploited needs and uses of the current products and services, and developing new marketing strategies (Dwyer and John 13).
The third revolution involves the overall changes that are taking place in the market itself. Companies have begun to look past the traditional models and concepts. They are backing off from mass marketing and obsession with transactions. They are adapting their marketing strategies to individual accounts (Dwyer and John 14). The new literatures on B2B marketing are challenging the traditional approach on industrial marketing and purchasing.
The traditional approaches emphasized on narrow analysis of single isolated transaction. However, the new studies focus on the significance of the relationship between buyers and sellers in the B2B market. These relationships are usually close, durable and may involve intricate pattern of interactions between businesses or companies.
The new literatures also challenge the traditional view of B2B marketing as a manipulation of marketing mix variables to realize a response from a widespread, and by inference inactive market. They emphasize on the importance of examining the interaction between buyers and sellers where either of the parties may be taking more active role in the business deal (Anderson and James 37).
The purpose of the study
This study aims at exploring the development of industrial buyer- seller relationship among the companies in the Gulf Region. The main aim of the study is achieved through a case study analysis of a company within the gulf region.
The case study is narrowed down to a specific company’s situation in relation to its clients and how its relationship with the client is developed and handled. The case study will also provide an insight and relevant illustrations of the marketing problems facing the company under study.
Defining Industrial seller-client Relationships
Most literatures have conceived that companies use either long-term relationship marketing or short-term transactional approaches to industrial buyer-seller relationship. However, only a few of these literatures have managed to define this relationship very well (Bolton 45). Hakansson defines industrial buyer-seller relationship as a vibrant process in which sellers /suppliers intermingle with their potential, existing, or former clients.
He stresses that these relationships are in form of partnerships in which representatives of both parties work together to come up with a strategy that will satisfy all the parties. These interactions increase the parties’ willingness to manage and share risks and reward that result from the transactions. In addition, the contacts can be formal or informal (Hakansson 6).
The models for industrial buyer-seller relation process are drawn from diverse fields. For instance, the model suggested by Dwyer and John is based on the contemporary contract law. On the other hand, the psychologists’ exchange theory is based on the marketing literatures and other behavioral science disciplines related to marketing.
There are three most common approaches for analyzing development of buyer-seller relationships namely: joining theory, stages theory, and states theory. The stages theory is further classified into life-cycle models and growth stage-models (Bolton 47).
Joining theory is based on the position a new company takes when entering a business to business network. This determines the success of the relationship and the network of which the relationship exists will function. It also influences the direction in which the relationship and entire network in which the relationship is part of will process.
Companies within a network can change their position and walk out of the network and, as a result end the relationship they share with an industrial buyer or seller. The original position, nevertheless, determines how new entrants may change their position inside the network and therefore, develop relationships. However, this theory has not yet been tasted (Bolton 49).
Stages theory argues that industrial buyer-seller relationships’ development, growth, or process takes place in a chronological manner for long period of time. This model is further classified into life-cycle models and growth stage models. These two models are classified based on the five-stage classification for industrial buyer-seller relationships namely: pre-relationship stage, attraction stage, formation stage, expansion stage, and ending stage.
Pre-relationship stage is where the buyers and sellers are not yet in contact but are aware of the existence of each other. Attraction stage is where either of the parties contacts each other to start discussions on impending partnership, sales or purchase. Formation stage is where the operation of the relationship occurs. In the expansion stage, the customs developed during the formation stage are standardized. The ending stage is where the industrial buyer-seller relationship lapses (Bolton 50).
Case study
Introduction
This section covers the theoretical and methodological approach used in the study and the exploration of the host company-Emirates Steel. The methodological approach to this study is company case analysis. In this case study, we describe and analyze the company-client relationship in accordance to the models presented above. The case study demonstrates how the models are developed and applied in a real life situation.
However, this case study will be narrowed down to a particular company’s situation in relation to its clients and how its relationship with this client is developed and handled. The case study also provides an insight and relevant illustrations of the marketing problems facing the company under study. The company chosen deals with sensitive technological products and therefore, we are obliged to withhold the name of the product and clients in accordance with the company’s policy.
The primary data sources in the case study comprised of questionnaires, interviews, texts, and documents. The use of in-depth, questionnaire and examples was considered by the researcher to be the best means of capturing both perspectives, allowing each contributor a safe, confidential and ample space in which to express their views and opinions. In addition, in-depth interviews would provide a depth and breadth of understanding, satisfying the primary research objectives.
However, this method is not without challenges for the researcher: the lack of structure requires a skilful approach by the researcher in order to elicit the required information in an unbiased fashion; in-depth interviews can be time consuming and costly; the interpretation and analysis of respondent contribution can be difficult and time consuming; and non-verbal communication, such as body language must also be interpreted.
Emirates Metals
This is a case study of a medium sized company producing unfinished and semi-finished products that are used by other companies for production. The company supplies product/production technology to its clients. Emirates metal is a gulf company based in Abu Dhabi, United Arab Emirates. Emirates Metal sells its product globally and their client includes companies in the aerospace business, all-purpose engineering, chemical and petrochemical industry, and electrical/electronic industry.
The success of the company is attributed to its strategy of being a ‘complete range merchant’. Emirates metal has always emphasized on flexibility in production at the cost of output rates. The pursuit of this goal has seen the company produce over 1000 different products at the moment (Corporate Information Sheet1).
Although the company has monopolized the Middle East market, the company experiences stiff competition from a number of European and American companies that sell their products in the gulf region. In the past two decades the company has witnessed cyclical fluctuations in the sale of its semi-finished products. Nevertheless, despite of the global financial crisis it has managed a pre-tax return on assets of 13 percent (Corporate Information Sheet1).
The company’s sales operations are divided into three: sales manager-UAE responsible for 60 percent of the total sales; sales manager-Middle East responsible for 20 percent of the total sales and; sales Manager-Far East responsible for the remaining 20 percent. The marketing managers are in charge of all the marketing operations, engineering applications, media hype, and marketing research (Corporate Information Sheet2).
Emirates metal experienced numerous challenges in the distribution of its products during the first stages of its production. For instance, in the Far East, the company had to combine agents and distributors in the early 80s. The company offered engineering applications but had no commercial participation in sales. As a result, the company had no power on pricing in the market and this fronted artificial pricing structure and reduction in the market share.
The situation did not improve even with the appointment of more distributors. In addition, mergers amongst the Middle East companies dealing with the same products increased competition in the market. The addition of more distributors did very little to motivate the existing ones or to enhance the company’s overall penetration in the Middle East market (Corporate Information Sheet3).
In the late 80s Emirates Metal detached some of its products and most important customers from its distributors in the gulf region. These products and customers were now being controlled from headquarter in Abu Dhabi. The overall situation faced by the company in its markets was as follows: The company had many customers (actual and potential) that it had no knowledge of. It also experienced stiff competition particularly on prices, for large customers who frequently bought commodity products.
The company’s strategy at the time was to handle large customers from its main sales offices. Sales offices in some countries acted as ‘post office’ for customized products, which were being handled from the main office. Small customers and volume of products were handled by the distributors (Corporate Information Sheet1).
Industrial seller-buyer relationship in UAE
UAE demonstrates another aspect of the budding market structure facing Emirates Metal. The company was among the first companies in the country to develop specific metal products for high duty applications. In addition, the entire marketing approaches for these products are based on close relationship with the clients especially in the development of new products that are customized for particular applications. The cost of developing these products are not charged on individual clients but are included in the final prices negotiated on delivery of the product (Corporate Information Sheet 4).
The company’s main competitors in UAE, for instance, Ras Al Khaimah and Fujairah, produce more wider range of products than Emirates Metal and employ more flexible marketing approach to fill their capacity for different sorts of products. However, these competitors lacked the technical capacity that the company has. The company’s problem over price competition got worse by other three additional factors.
These factors include existence of employees who had more technical ability than sales. In addition, the company had more contact wit the designers than individual clients. This means that Emirates Metal’s work development with the clients was relatively ignored during the final stages of product negotiation (Corporate Information Sheet 4).
Lastly, the products that were being manufactured by the company were increasingly being used in more regular applications, demanding modest or negative work development. Flexibility in distribution and price competition was more significant than the technical skills that the company had.
Nonetheless, the company’s main customers in UAE are mainly in for products with technical specifications. Initially, the company could not meet these specifications despite of the price level charged. The relationships with these customers have lasted several decades without any major product failure and sales are now running into millions of dollars (Corporate Information Sheet 4).
The customers have pinned their loyalty on the company’s reputation and product quality. The strong customer loyalty nearly made the company to believe that they are ‘totally sold’ and that the cost of shifting to another supplier would make them reluctant. In other words, the UAE customers rely on the company’s strengths, for instance, its technical ability and close relationship with the clients.
However, the company has experienced numerous problems when operating in markets where price competition is more significant, while technical competency matters very little. The nature of this relationship can be analyzed by exploring a market with high technology customers where the company sells its products. Examples of the markets with high technology customers are China and India (Corporate Information Sheet 5).
Industrial seller-buyer relationship in China
The study only focuses on the three aspects of the company’s relationship with the client. The name of the customer and the product remains anonymous according to the company’s policy. This customer is the company’s largest and is responsible for approximately a quarter of company’s business in China. The customer operates in the aerospace business on the limitation of the contemporary technology.
Emirates Metal’s relationship with this company is substantial based on development liaison on entirely new products. Emirates Metal’s major competitors for this customer come principally from Chinese suppliers. The competition is based mainly on the price and production spread in the Chinese industry. The same case is true for UAE companies with larger spare capacity than Emirates Metal’s.
This client has always depended on the company only for development work for its product. Although, the customer have often gave the impression of looking for other suppliers when development has taken place. The process of development for the new product is normally initiated either by the government development contract or through the client’s order.
In the latter case, Emirates Metal stands the cost of development. This client has detailed knowledge of the company’s procedures. The company client relationship is so close to an extent that they normally make an agreement on the manufacturing methods and production machinery to be used. This relationship is indicated by the fact that the client has endorsed the company’s quality and testing procedures.
The contact between the company and this client is both formal and informal. Every six months the technical policy liaison committee normally sits and is chaired by the company’s technical director and the client’s chief material manager. Within the same period, commercial meeting is normally held chaired by the company’s managing director, marketing directors and sales manager. The same meeting is also attended by the client’s purchasing director and senior purchasing staff.
Emirates Metal’s sales manager often visits the client’s purchasing staff to chat about delivery and order positions. In addition, employees from the company’s sales department have to contact the customer on a daily basis. Emirates Metal’s application engineer is permanently stationed at the client’s premise. The engineer is responsible for any hitch experienced from the equipments sold to the client. The company has also assigned two employees to determine market trends and to contact the client’s marketing staff and client’s consumers.
Industrial seller-buyer relationship in India
In this case, we also focus on an Indian company in the aerospace industry whose relationship with Emirates Metal’s is directly handled from UAE. The product supplied to the Indian client is similar to that of the customer in China. Even though this client only accounts for 10 percent of the India’s sale, the sales represents over 60 percent of the client’s product requirement. The most significant feature of the product sold to this client is that it complies with the client’s specification.
There is zero tolerance on specification, though price fluctuations can be permitted. However, there are constraints on the price fluctuations since there are several competing companies that have a spare capacity for this product. Correspondingly, ability to meet delivery promise is important but the speed of delivery is not that important.
The Indian client is not on the same level of technology as the client in China. This means that the company is not under any pressure to modify its product standards or production methods for this particular customer. Both the company and the client have not seen the need to modify the product to suit each others needs.
There are few incidents where the client had modified its production plan to meet the company’s requirement. The client had also asked the company to resolve some problems particularly when launching new materials.
The Indian client does not receive much attention as the client in China. This means the level of contact between the company and this client was fairly minimal. However, the contact between the company and this client is a little bit complex. The routine contacts are handled by the company’s area representative who is based in New Delhi. Other contacts are from application engineers, product management staff, mercantile staff, and the quality control and dispatch staff.
Application engineers tackle product dynamics and market research. Product development staff deals with new products and opportunities. Commercial staff is responsible for delivery arrangement and price negotiations. In total, the company has assigned approximately 15 individuals for this particular client. On the other hand, the client has assigned thirty members of staff to contact the company on regular basis. The contacts from the staff include purchasing manager, material laboratory manager, and design engineers.
Case Analysis
The case study demonstrates how the company copes up with different changes in its market. These changes influence the nature of the company’s relationship with it customers. Traditionally, Emirates Metal’s relationship with its clients has been pegged on its technical excellence for development work. Most of the Emirates Metal’s competitors, both locally and globally, can now match the company’s strength in this area.
The company’s products at the moment are used by a wider range of clients and products where they are regarded to be tailored for their applications. However, the increased availability of tailored products and the decrease in demand for technical development has caused price and delivery to become a fundamental factor in decision-making.
These changes have enhanced the significance of distributive intermediaries for the company since it depends more on the delivery ability instead of its problem solving ability. The company’s production capacity is strongly associated with its customary policies of development and the production of a wide range of diverse products within a given area of production.
Nonetheless, these skills no longer dictates the price premium as they used to, and the company is not able to achieve production efficiency of its rivals who have production facilities that operates at a superior capacity, though they are specialized in a small range of products. An extreme instances of informal adaptations pegged on trust and loyalty is exemplified by the company’ client in China.
The company designs and develops customized products for most of its clients. The cost of development is normally incurred by the company despite of the fact that there is no contractual obligation on the part of the client to purchase the subsequent product. Nonetheless, the company has always been able to recover these costs by including it on the final product price.
The company’s relationships with its client have a considerable impact on the organization as a whole. The expectation of the company and the role of the clients in the relationship have developed over a long period of time. In marketing, this is known as institutionalization. The most distinctive feature of institutionalization is the separation of the technical aspects of the company-client relationship from the commercial aspects (Anderson and James 75).
This means that the two parties can carry out a joint technical problem-solving operation separately from the subsequent business-related negotiation over production. This is specifically relevant in the company’s relationship with the UAE clients, where the company’s work development have had very little impact on the actual sales to clients.
The separation was overtly traded on by Emirates Metal’s competitors and the company was somehow susceptible to price war after the development phase. The institutionalized prototype from company’s long-standing relationship has left it with a marketing organization and philosophy that matches its technical development and service requirements (Corporate Information Sheet 13).
The company’s marketing director has faced a lot of difficulty in changing the company from its institutionalized operations. Originally, the organization was ideologically opposed to engaging in price wars with its rivals. Emirates Metal’s previous operations have been based on the belief that clients are prepared to pay a reasonable price for the company’s products and services.
Increased focus on delivery and price competition nearly resulted into some conflict with the company’s staff handling the traditional clients. Emirates Metal’s policy changes have focused more on the client in the early stages of the relationship and much more emphasis on the actual cost of work development carried out.
The company has had problems in managing its long standing development relationships in an attempt to achieve the best relationship with its clients. On one hand, this involves efforts to persuade its clients of its continuing devotion to their relationship. On the other hand striving to make their clients aware of and compete for the available company’s resources.
Conclusion
The case study demonstrates the level to which informal adaptations can improve the long standing relationship between the company and its clients. It also illustrates how institutionalization of company-client relationship should not be confined to the relationship alone but to all other aspects of the Emirates Metal’s operations and transactions with other clients.
In other words, institutionalization constitutes the experience that the company should extend to all other forms of relationships with its clients. The case study also demonstrates the importance to both clients and company of limitation on the contact and demeanor of a relationship. Lastly, it demonstrates the limitations placed on long standing relationships by the market dynamics and the need for the company to adjust its relationship management in accordance with these market dynamics.
Works Cited
Anderson, James and James Narus. Business Market Management: Understanding, Creating, and Delivering Value.2nd ed. Boston, MA: Pearson Education Inc, 2004. Print.
Bolton, Ruth. “A Dynamic Model of Customers’ Usage of Services: Usage as an Antecedent and Consequence of Satisfaction”, Marketing Science 17.1 (1998): 45-65. Print.
Corporate Information Sheet. Emirates Steel: The backbone of construction, Abu Dhabi: Emirates Steel Inc. Print.
Dwyer, Robert and John Tanner. Business Marketing: Connecting Strategy, Relationships, and Learning. 3rd ed. New York: McGraw-Hill/Irwin, 2006. Print.
Hakansson, Hakan. International Marketing and Purchasing of Industrial Goods: An Interaction Approach, Toronto: John Wiley and Sons, 1982. Print.