Buyers will look at inventory maintenance, on-time delivery and repairs when choosing suppliers.
Making Business-to-business Transactions Work
With stringent product specifications in business-to-business transactions, exporters are often pressured to provide better credit terms in order to differentiate themselves from competitors. But if you’re not a multinational with abundant cash, you’ll need to provide a bundle of services that will keep you in the race.
Exporters are finding that the ability to provide perfectly executed services, such as delivery and information exchange on order progress and dispatch, can be a catalyst for securing contracts. This could be especially important when in direct competition with businesses that are able to offer better lines of credit for example. If buyers remain inflexible, then factoring — selling your invoices to a third party — can provide the cash flow you need to make the deal.
Different organisations will have various ways in which they procure products and services, but the process in business-to-business transactions will typically be rational and won’t take place very often. Buyers in organisational markets — as businesses that sell to other businesses are sometimes called — fall into four groups.
Businesses that purchase products to use in their operation or components to use in manufacturing are known as producer markets. These businesses are found in all industries, from forestry to communications and utilities, and they buy all sorts of products, from steel to spices. Businesses in producer markets are also often grouped together geographically. The automotive industry in the USA, for example, is located in a heavily industrialised zone stretching from Michigan to Kentucky.
Intermediaries like wholesalers or retailers make up reseller markets. Wholesalers typically sell products to retailers as well as businesses from all the other markets that find it easier dealing with only one supplier. When buying products, wholesalers and retailers are often particularly concerned with the ease of placing orders and short delivery times. They tend to think about competing products carefully before adding new lines and suppliers to this market need to be mindful of this.
There are often obstacles for exporters wishing to sell to governments. Legislation like the Buy American Act in the United States, for example, forces the government to give preference to US-made products. This is typical of governments around the world. Government procurement departments generally issue requests for tenders, which are formal invitations to bid for the supply of products or services. An official fee may be required and the process of selection in many countries may be determined by law to ensure that it’s fair and free from bribery and nepotism.
Organisations that have non-business goals, such as charities, hospitals, libraries or schools, make up institutional markets. Institutions buy large volumes of products and the range of purchases can be large. A library, for example, buys books and periodicals, but they also have fuel and water bills and they have cleaning, marketing and communication, and technology costs. Institutions like universities often publish purchasing policy guides, which outline procedures for vendor approval, how product specifications are agreed, and how freight is handled.
What’s common among buyers from all these markets is that they make purchasing decisions in a rational, orderly way and quality, delivery, service and price are the four main criteria. Negotiations also tend to take longer as several people or departments, including quality control and finance, can get involved in purchasing. To be a competitor, you need to find ways to differentiate yourself from the pack in all criteria.
Quality is often measured by the level of conformity to specification so that different products can be more easily evaluated. This can extend to the buyer or a third-party inspecting your business premises in a process called an audit. Sometimes buyers will even request to inspect the premises of your suppliers. They will typically examine your business processes, products and certifications. Any certification you have that your competitors lack can get you closer to securing a deal. Having packaging, for example, that has been certified by UPS as being fit for purpose, can improve your overall audit score.
Services such as inventory maintenance, on-time delivery and repairs are some of the main criteria that organisational market buyers will look at when selecting suppliers. UPS is able to help with all of these. Outsourcing inventory management will ensure sell-buy dates are perfectly managed, deliveries can be timed and, in certain countries, products can be collected, repaired and returned.
Exporters are increasingly looking at relationship marketing to improve their performance in business-to-business situations. They look for efficiencies that lead to competitive advantage in every aspect of the relationship, which includes product excellence, information provision, financial terms, and social skills.
Better business processes often lead to efficiencies that will allow you to offer products that are more keenly priced. It’s important to get pricing right as it’s often more difficult to change prices once locked into a contract with an organisation. Negotiations around pricing might only take place at set intervals and it’s therefore important to ensure that exchange rates don’t make your deal unprofitable.