Marketing strategy in a make or buy situation

Abstract

The intent of this article has been to impress the importance of understanding of cost elements in marketing in the “make-or-buy” situation. As has been stated, this “make-or-buy” situation is different from what is normally involved in marketing in that the prospective customer is at the same time a potential competitor. While there are many factors that influence the decision to make rather than to buy, the heart of the decision would appear to be the difference between the cost of the customer firm to manufacture the required product inhouse and the prices of supplying firms. This being the case, it is important that the industrial marketing manager and the industrial salesperson be able to determine the prospect customer's actual costs. To do this, they must understand what costs are involved and how they are computed. Actual marketing strategy involved will depend upon the difference between the prospect firm's cost of producing in-house and the cost of buying from outside suppliers. Three major “states” of these differences may occur, each of which leads to a different marketing strategy. If the prospect's cost to make is less than the cost to buy, the marketing strategy will focus on non-cost appeals. If the cost to make is approximately the same as the cost to buy, the marketing strategy will focus on opportunity costs for the prospect. If the cost to make is more than the cost to buy, the marketing strategy will stress the economic advantages along with the assurance that quality, certainty of delivery, service, and technical assistance will be provided. Whatever marketing strategy is finally adopted, its basis must lie in the cost to make/cost to buy relationship. The marketing manager in the industrial market and his field salesperson not understanding this relationship will find marketing in the “make-or-buy” situation a very difficult undertaking.