Contemporary Role of the B2B Model - Term Paper Example

Abstract The concept of Business to Business relationship is comparatively a new one. Traditional roles of this model were largely restricted to one to one relationship where suppliers and buyers were in relationship mainly for bargain. Buyer or Supplier pressure dictated the terms and the rest was secondary. Such isolation of business came to end due t the complexities of global business that required new competitive edge and collaborations became the cornerstone of relations and a whole supply chain became an unbroken link for this purpose. A debate arose that there was a distinction between buyers working for organizations and in their individual capacity and that their perceptions differed due to their natural environments. This paper has discussed this at length and has concluded that although their motives and status differed, both have the same psycho profiles and their buying behavior is largely based on the same principles; trust, satisfaction and relationships. The case of Microsoft was used to explain the B2B concept and its use in the global context encompassing the above principles and their application in the service domain. 1.0 Introduction Trade has normally been considered as deals between manufacturers and traders with the end customer; the consumer. However production based activity led to greater business opportunity for trades between business enterprises. Business to Business [B2B] far outweighs the quantum and value that is generated between Business to Consumer [B2C]. B2B is the creation of the value chain that finally ends with the consumer. The traditional B2B was done through one to one relationship between the supplier and buyer through normal procurement channels based on either physical communications or contacts that were developed over the years through a human network of acquaintances, experiences and trust. The mode of communication was spread over verbal, mailed and faxes. In the internet era this is now done more through e-mails and B2B portals that facilitate direct online transactions. The underlying principles of networking, trust and procurement behaviours have largely remained intact; although more emphasis is now on a broader global outlook, hence less reliant on old networks and creating new ones across the globe. In many quarters it is believed that this B2B exchange has undergone a dramatic change due to the greater awareness and beliefs and has created different attitudes that lay the foundation of modern buyer behavior. Some also go to the extent of saying that individual buyers and institutional and group buyers have different attitudes and this is reflected in B2B transactions. However nothing can be further from the truth and this is a false divide that can be gauged from the buyer behaviour patterns later in the paper. 2.0 Microsoft in the B2B context The company was operating in the traditional environment since inception and its sales effort was directed to both the individual and corporate customer. It realised that with the corporate customer leaning more towards integration of their ever expanding business models, there was a need to evolve a method where it needed to offer a well rounded service on a global scale. The answer lay in taking the market to the net and expand it virtually for a larger reach. Microsoft has strengthened its position in the B2B market partly via continued enhancements to the B2B capabilities of its flagship integration middleware product, BizTalk Server 2006 R2. Although this is one end of the business which lends itself to data flow and integration at different levels, Microsoft used it for itself too for its procurements and cementing relations with its collaborative partners. Within its business model was delivery of software through distributors and channel partners and this required service offerings at different levels and still being able to achieve the same level of service offered directly or through partners. This evolved the pattern of Service on Demand through the Web-based Microsoft Certified Solutions Provider portal (citation:Emigh, Jacoueline., 2006) that gave an exponential rise to expansion in business. This became an industry benchmark and although Microsoft was overtaken by others like IBM and SAP in this field, they still remain the prime movers and pace setters as most companies still use the Microsoft Platforms in their data gathering and dissemination needs. Microsoft has therefore been able to demonstrate the effectiveness and usefulness of the B2B platform in multiple domains through their products although they may not be the forerunners in the B2B usage themselves. B2B has become a dominant force in the global markets and the worth of the business-to-business (B2B) e-procurement market is expected to reach USD8bn by 2005, according to a new study by AMR Research (AMR 2001). 3.0 Literature Review and Analysis 3.1 Psycho Profiling the Consumer Let us begin with the psycho profile of a normal consumer who purchases for need or fulfilment of a desire. Whereas it was earlier possible to convince a customer of positive outcomes due to lack of knowledge, inability to evaluate, monopolistic conditions, novelty of a product and non-availability of corroboratory information; the current consumer is much more sophisticated, aware, knowledgeable and indeed cynical. The marketing men have also made extensive studies of the customer in every segment in order to overcome the resistance and reluctance factor and to play upon the irresistibility and fascination factor of the product or service on offer. People, despite their higher knowledge still give weight to the anecdotal evidence and uncontrolled observations and are swayed by other peoples opinions. Right from early age children are forcefully taught to obey instructions of elders, teachers and more experienced individuals and groups. The traits of honesty, belief and trust on the systems are so well grounded that in most cases an average person accepts most things on face value. It is only when they have suffered that this belief is first shaken and then shattered and cynicism starts taking roots. The cognitive dissonance theory (Festinger 1957) recognizes that when experiences contradict existing attitudes, feelings, or knowledge; mental distress is produced and this results in disbelief and produces cynicism. 3.2 Buyer Behaviour – Consumer and Purchaser Buyers whether individual consumers or procuring for business are largely the same. An individual buyer’s purchase decision is influenced by his internal needs or desires and the external environment he lives in. The buyer on behalf of larger organization may be an individual or even a group of people making purchase decisions. Since there are individuals who finally make decisions their judgment, whether individually or in groups, they too are influenced by the environment they work in. Kohli (1989) proposed that influence is a function of personal resources or power. Every person has a demographic background that largely consists of his personal resources comprising mainly of ethics and education. His decision is influence by these. The status hierarchy determines the level of power but that can be moderated by the influence of the size, similarity and cohesiveness of the group he works in and the risk, time and pressure of the situation. These factors when combined influence behaviour in purchase decisions. These are decisions that can actually reduce the cost of purchase as well ensure quality and time bound deliveries. This adds value to the organizational purchases. Sheth (1973) maintains that the psychological world of the decision makers affects purchasing behaviour. This will include the special knowledge the purchaser has acquired, the training he has received, the skills he has developed and the seller networking he commands. This expertise together with the stake he has in the decision finally leads to efficiency in placing Purchase Orders. With higher level of these factors the purchaser is able to make best possible purchase decisions which result in cost effectiveness for the company. Cost is not solely determined by price alone, and is a result of deliberation and consideration of quality, delivery schedules and quality of service. All of them are critical characteristics (Robinson, P. et al) and a purchase decision that has taken all these factors into consideration will result in the best cost of purchase and this will in turn affect the selling price of the manufactured or finished product and add to the profitability of the organization. This behaviour is very identical to decision making by an individual. As purchasing moved to higher levels, as in the case of organisations, new complexities are introduced in the system and this becomes a pivotal function for ultimate profitability of the manufactured product. David Farmer proposed four laws for the importance of Purchasing: Purchasing increases in perceived importance in direct relationship with the reduction in the length of the company’s product life cycle Purchasing is perceived as being important when the business concerned interfaces significantly with volatile markets Purchasing is perceived as being important when the business interfaces with demanding customers Purchasing is important whenever the organization concerned spends a significant proportion of its income on purchasing goods and services to allow it to do business. (Farmer, D. 1997). 3.3 Trust In a B2B environment mutually advantageous partner relationship is built on trust, sharing and transparency (Lamming 1993; Womack and Jones 1996). Trust is a vast and multi-dimensional concept. It begins with the belief that at the individual level trust is considered to be related to trust at the firm level (Zaheer et al., 1998; Jefferies & Reed, 2000). When we talk about what we can trust, it has been universally accepted that partners can trust in each other’s capabilities and benevolent intentions (Mayer et al., 1995). The why of the trust has been identified as calculation-based, knowledge-based, and emotion-based trust (Williamson, 1993; Lewicki & Bunker, 1995; Shapiro, 1987; Ring & Van de Ven, 1992). Trust can also be seen as playing multiple causal roles, as outcome, antecedent, and mediator (Rousseau et al., 1998). When two partners have collaborated in the past the out come is trust. With a history of collaborations between them the antecedent role of trust will come into play. In a new collaboration trust plays the role of mediator for concluding contract. It has been observed that Trust is a critical ingredient for inter-firm cooperation (Wicks et al., 1998; Vangen & Huxham, 2003). Trust between partners generates constructive attitudes and behaviors, and decidedly helps to augment the effectiveness of the relationships (Morgan&Hunt, 1994; Mayer et al., 1995; Ghoshal & Moran, 1996; Zaheer et al., 1998). Trust is important for negating uncertainties. 3.4 Building B2B Relationships Satisfaction is the outcome of customer relationships. This has been explained as antecedents of customer satisfaction, customer loyalty, customer profitability, and a host of other concepts and variables. Customer satisfaction however remains the main concept and concern and has been the foundation of all marketing efforts (Drucker 1954; Levitt 1960; Ames 1970; Gronroos 1989). Measurement of customer satisfaction has always been the main focus of several studies (Myers 1991; Parasuraman et al 1988, 1994; Oliver 1996) as this helps the company to assess and develop marketing strategies that will ensure this satisfaction and create customer loyalty. This has led to the concept of customer retention especially in the context of B2B relationships. This can be achieved only when all the parties of a B2B can be convinced that it is their collaboration that can bring about the above objective. The concept of B2B has been very aptly explained by Lambert, Emmelhainz, and Gardner (1999, p. 166) who have referred to such close cooperative relationships as "a tailored business relationship based on mutual trust, openness, shared risk, and shared rewards that yields a competitive advantage, resulting in business performance greater than would be achieved by the firms individually." 3.5 Customer Retention Customer Retention (CR) has been defined as the continuation of the business relationship created between a supplier and a customer (Gerpott et al, 2001). The value of retention of both customers and suppliers is therefore paramount. Marketing strategies are now paying more attention to building on this relationship. From a short-term goal of a single transaction, the focus has shifted to building a long-term relationship. A new term of having a Customer Life-Cycle Value was coined by Grönroos, (1982) and was alternatively described as Time Life Value by Jackson, (1994) and Hwang et al, (2004). Customers should be evaluated by their potential spending power rather than maximizing on one single transaction entered into with them (Andersen, 2001). When value is determined in this manner it will encourage companies to give (CR) a prominent place in their marketing plans. It will give an entirely new perception to the marketing strategy as this becomes an important factor in the measurement of the potential and will be considered as a critical concern for management. This Life-Cycle has become the cornerstone of marketing strategy. 4.0 Critique The above literature review bring to the fore the fact that the buying decision on the individual level or the procurement decision on business level is largely governed by same principles although the emphasis shifts from desire on the part of the individual to more value based decision in case of business procurement. Apart from this one objective change in attitude the other similarities are striking. Trust, relationship and satisfaction largely remain as the underlined factors that influence decisions to buy. Business has therefore remained focussed on these issues even when it has gone global and has built collaborative partnerships using the same process in its own procurement pattern just like and individual customer would do when buying in the global market. An outstanding example of one such company would that be of Microsoft. This large service oriented industry has used the traditional method of procurement in its earlier days and has led the movement into B2B segment since it is the prime mover of the B2B concept. Being in the business of evolving software solutions this came easily to them. It is evident that these relationships promote improved associations that bring about suppliers awareness of the real needs of the buyer. It can even extend to supplier involvement in design and product developments. Trust is displayed through excellent communications and the buyer’s benign attitude in enhancing the supplier’s capabilities. Such a partnership is built on mutuality of benefits that is shared by both partners. This in turn results in increasing the competitive advantage of the firm and in reducing uncertainty in procurements. 5.0 Conclusions B2B is a form of integration platform that is used to combine and centralise enterprise data, application, process integration and interoperability requirements with external business partners. It works on the same principles as traditional business but has become useful and necessary in present global environment. The methods have evolved due to the emergence of e-commerce as a transactional process that crosses boundaries, time lines and geographies seamlessly. The principles of business be they the competitive advantage, customer satisfaction or trust are not compromised; indeed they remain the foundation of sound business as before. The false belief that this has brought a different perception to buying or procurement is also belied in the sense that the buyer behaviour of the individual or the corporate purchaser remains the same. The behavior has become more knowledge based but the basis human instincts have not undergone much change as the basic behavioural patterns are still intact. B2B should largely be seen and understood as the evolution of the same purchasing principles that have been developed on collaborative principle of mutual benefit. This has become highly accentuated in the context of service oriented organisations. Companies like Microsoft have understood that their eventual customer base is likely to increase when they offer service on demand and t the convenience of the customer location. They have therefore devised channel partners and distributors closer to the eventual customer and have developed it riding on the B2B relationship methods that ensure quickest possible and cost effective deliveries. This done through highly collaborative as well as participative partnerships with relationships created through the B2B platforms. 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