B5 - Chain integration and sustainability

Customer vs. consumer

Basis for comparison	Customer	Consumer
Definition	The purchaser of goods or services is known as the customer	The end user of goods or services is known as a consumer
Resell	A customer can be a business entity, who can purchase it for the purpose of resale	Consumers not
Purpose	Resale or consumption (consumption = raw material → new good)	Own consumption
Person	Individual or organization	Individual, family or group of people

B2B vs. B2C marketing

Business to Business vs. Business to customer

• Narrower customer base in B2B: fewer customers, but larger order values

  • You cannot sell to as many businesses as you could to customers → however, business buys more than customer

• B2B demand is inelastic (the demand doesn’t depend on price much)

  • Customers are more sensitive to price change.

• More influencers and specialized members in B2B

• Personal contact with customers is more important in B2B

  • Businesses have to be in good contact with other businesses that they are selling to compared to customers.

Goals of chain integration

• Delivery consistency

• Food safety

• Quality

• Sustainability

• Process innovation

• Product innovation

• These goals eventually feed into the product attributes that constitute the benefits for the consumer

• Some goals prevent dissatisfaction, others contribute to satisfaction, depending on how they contribute to the value of a product.

Hygiene factor

A basic expectation or requirement that customers or consumer have regarding a product.

Delivery consistency (goals)

• Hygiene (dissatisfaction) factor

• Right quantities in the right qualities at the right moment

  • Otherwise, they risk that a company switch suppliers

• Ensure demands are met.

• If delivery is not consistent, it may break relationships between businesses, as businesses may find suppliers elsewhere.

Food safety

• Hygiene (dissatisfaction) factor

  • This is something that is expected by the consumer

  • Basic characteristic (bare minimum)

• Prevent the spread of diseases

• Tracking and tracing systems

Quality (goals)

• Satisfier

• Offer higher quality (taste, size, etc.) than competitors

• Products designed to live up to or exceed customer expectations

Sustainability (goal)

• Satisfier for involved customers/consumers, could be a hygiene factor for others

• Production is less harmful to our planet

• Ensure environmental sustainability, biodiversity and animal welfare.

Process innovation (goal)

• Satisfier - because it is aimed at reducing costs

• Cost reduction and increased efficiency

• Enables price promotions and price reductions without losing profits

Why is the lowest price in process innovation not always good?

• With the lowest price, you cannot guarantee quality and sustainability

• Which is a hygiene factor for some.

Product innovation

• “Satisfier”, because it increases value

• Development of new and better quality products

• Developing products with multiple parties in the chain helps to share risks

• Enables food brands to stay ahead of supermarket brands.

Customer satsifaction (end goal)

• Gets delivered on time with consistent quality

• Is safe to eat and can be traced back to its roots

• Is more delicious than other fries

• Has less impact on the environment

• Becomes cheaper and more accessible

• Becomes super happy fry.

Perceived quality and perceived sacrifice

Horizontal vs vertical integration?

• Horizontal = expanding market

  • Merging with competitors

  • e.g. Volkwagen acquiring Porsche

  • Because both are car manufacturers

• Vertical = controlling supply chain

  • Integrating other members of the supply chain

  • E.g. integrating with customers as a business.

Horizontal integration (advantages vs. disadvantages)

Integration of competitors at the same level of the value chain

e.g. Facebook buying Instagram

advantages:

• economies of scale (when production gets larger, the unit cost per product gets lower)

• Larger market power over distributors and suppliers

• product diversification

• expand their market or enter new markets

disadvantage:

• integration complexity (different norms, different strategy, different company culture)

• the attention of the trade commissions (trade commissions watches out so that you as a company does not get too big)

Vertical integration

Integration of different stages of the supply chain - from raw materials to distribution

e.g. Netflix producing their own movies.

advantages:

• Reduces dependency on suppliers

• quality assurance

• supply chain stability

• creates barriers for competitors

disadvantages:

• limits the ability to switch suppliers

• operational complexity

• risk concentration

Relationship Continuum

Marketing threats to sustainability

• Marketing is used by companies for the wrong purposes

• Consumers are easy victims

• The cheaper option wins

• The power of the supermarket

• Institutions are too weak

• What if you don’t belong to a target market?