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A Study of Influence of Brand in a B2B Industry

Segment (The automobile-tyre market) in India

Conference Paper September 2016

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Veena Bansal
Indian Institute of Technology Kanpur
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A Study of Influence of Brand in a B2B Industry Segment (The automobile-tyre market) in
India

Authors:

Somnath Bhattacharya
Ph.d Scholar, Department of IME, IIT Kanpur
Address of Correspondence: Department of IME, IIT Kanpur, Kanpur-208016
Mobile No: 7754915793
Email Id: sbhatt@iitk.ac.in

Dr. Veena Bansal

Associate Professor, Department of IME, IIT Kanpur
Address of Correspondence: Department of IME, IIT Kanpur, Kanpur-208016
Mobile No: 7379385338
Email Id: veena@iitk.ac.in

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Abstract:
In this exploratory work, we study whether brand name of a tyre company influences the
purchase decision of automobile companies. Purchase process is a four phase process where in
the phase I, requirements are identified and documented; in phase II, a list of potential companies
is prepared based on some gross parameters; in phase III, interaction with vendors takes place
and in phase IV, the final selection is made based on technical specifications and financials. We
explore influence of brand in phases II and IV of the purchase process and on price premium. In
this paper, we intend to verify if brand name plays a significant role in purchase decision of a
B2B tyre industry segment. We have used AHP. Our results show that brand name is one of the
factors used in phase II of the purchase process and may fetch a price premium. Our study
reveals that brand name has very little influence in the final selection process. Further research
has to be carried out to identify the extent of the influence, determinants of the brand equity in
automobile industry.

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1. Introduction
When an organization purchases a product from another business or organization, it is termed as
B2B transaction. Once, an organization decides to buy a product, it has to select a vendor.
Purchasing decisions at B2B level are high risk due to several reasons such as selected product
may not perform as expected or the vendor may fail to keep its commitment regarding delivery
schedule. The purchasing committee tries to reduce the risk by following the purchase procedure
of the organization if there is one. In large organizations, the company generally lays down a
procedure and it is a four phases procedure. In the phase I, requirements are identified and
documented. In phase II, a set of factors is applied at a gross level to identify a set of potential
vendors. In phase III, vendor interaction takes place. In phase IV, a vendor is finally selected.
We are trying to explore the influence of brand name in phases II and IV in a B2B purchase
decision. Although there are several empirical evidences in favour of the positive influence of
brand in a consumer market, it is not so well measured in B2B markets, especially in India. We
have focused on automobile companies that purchase tyres using B2B transactions.
There are around 40 tyres manufacturing companies who have about 60 manufacturing plants in
India. Estimated industry turnover in 2014-25 stands at INR 50,000 crore. Tyres are categorized
based on types of vehicles they are used in. The major categories include the bus and truck
segment, light commercial vehicles segment, passenger automobiles segment and farm tractor
segment. The top 11 companies have a market share of 90%. These major tyre manufacturing
companies like MRF, spend about 1% of their revenue on advertising for building their brand
[MRF].
There are around 48 automobile manufacturers in India (including two wheelers) [SIAM] and the
tyre companies compete to become the preferred supplier for the automobile manufacturers.
In this paper, we will explore the influence of brand name on the initial choice set created for
supplier short listing for supplier and when they make final supplier selection. We will also see if
brand name influences the premium tyre companies charge. This study is focussed on the tyre-
automobile market (where the tyre companies are the supplier and the automobile companies are
the buyer) for our study.

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 2. Literature Review
Since we are studying the influence of branding in a B2B purchase decision, let us begin with the
definition of brand (AMA):
A name, term, design, symbol, or any other feature that identifies one seller's good or
service as distinct from those of other sellers. The legal term for brand is trademark. A
brand may identify one item, a family of items, or all items of that seller. If used for the
firm as a whole, the preferred term is trade name.
A product is generally represented as a pyramid where the physical attributes of the product form
the base, the layers above include the tangible benefits, emotional benefits and brand personality
characteristics (Mudambi and Doyle, 1997).
Companies try to strengthen their brands to create a distinct and more favourable identity as
compared to their competitors. A strong brand has been defined in terms of four dimensions:
awareness, associations, perceived quality and brand loyalty (Aaker et al, 1992).
Benefits of a strong brand are well researched in B2C transactions. It was believed that B2B
transactions are based primarily on functional qualities and factors like brand have no role to
play a belief that has been challenged lately. The importance and contribution of branding in the
industrial buying scenarios have been established by past studies. It has also been shown that
managers are ready to pay a price premium of 4-6% to suppliers whose products performance is
better in the electricity domain (Woodside and Vyas, 1987). However no significant study was
found to measure whether a brand commands a price premium in the tyre market or not.
The buying process for an organization is complex and has been widely studied. Consequently,
several buying processes have been suggested in the literature (Robinson 1967, Ghingold and
Wilson 1998, Webster 1965). One of the suggested buying processes involves the following
steps (Ghingold and Wilson, 1998).
1. Recognition of problem, need or purchase intention
2. Determination of product characteristics and quantity needed
3. Precise description of product characteristics and quantity needed
4. Search for eligible potential vendors
5. Vendor interaction and analysis of proposal
6. Evaluation of proposals and selection of a supplier

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As we can see, every buying process starts with identification of a problem or a need. Once the
need is determined, product characteristics and quantity are determined and documented. This
document serves as a reference documents for the buyer and suppliers. First three steps form the
phase I of the purchasing process. In step four, the purchasing team creates a list of eligible
vendors using various sources of information and by applying some criteria to select eligible
potential vendors. This step is conducted without asking the vendors for any information and
hence gross level parameters are applied. This is phase II of the purchasing process. Step five of
the process above involves interaction with the vendors where they get a chance to answer
queries of the buyer. This is phase III of the purchasing process. In phase IV (step 6 of the
process above), proposals submitted are evaluated using technical specifications and financials to
select a supplier. In this study, we are concerned with effect of brand in the phases II, III and IV
of the purchasing process.
Industrial buying has been classified into broadly three types, namely the straight rebuy,
modified rebuy, and new buy situation (Robinson et al 1967). In our present study we will focus
on the new buy situation where an organization will start with phase I. We are not studying the
other two buying situations (straight rebuy and modified rebuy) as a relationship between the
buyer and supplier may exist and it may not be isolate the influence of brand on the supplier
selection.
Let us take an example for a new tyre purchase decision. An automobile company comes up with
a design of a new automobile/variant and needs to purchase specific tyres for the new
automobile/variant, technical specifications are determined and documented. Quantity is
determined using demand forecasting and included in the document. The next step is to identify
suitable vendors. The vendors then give their proposals and the proposals are evaluated. The
outcome of the entire exercise is that a vendor gets identified to supply the required tyres at
specified prices in specified quantity and schedule.
In industrial buying, the decisions are not taken by individuals but by a complex unit known as
DMU (Decision making Unit) or the buying centre. The buying centre can be visualized as a
collection of five roles: users, influencers, deciders, buyers and gatekeepers (Webster and Wind,
1972). Size and composition of the DMU varies according to the product and organizational
characteristics. DMU takes several factors into account whilst making decisions in each phase.
Perspective of the members may differ depending on their role in DMU.

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Most of the times for a new purchase, someone who is considered an expert in the field will be
asked to suggest a few products/vendors; he will act as an influencer as well as a gatekeeper. If
he does not suggest a product/vendor, it will most likely not be a part of the initial evaluation set.
We hypothesize that a strong brand name may influence the DMU in favour of a known brand.
We hypothesize that a strong brand name will ensure selection of brand in the choice set in phase
II.
The next step is vendor interaction followed by analysis of proposals. If a product with a strong
brand exists, buyer may be willing to pay a price premium. The evaluation of proposal and
vendor selection will also be influenced by a strong brand name. For example the lowest bid may
not be chosen if it came from an inexperienced vendor.

3. Research Questions
We are interested in understanding the influence of brand in phases II and IV of a purchase
process (Leek & Christodoulides, 2011). We want to find out if brand is used as one of the
parameters when a list of eligible vendors is created in phase II and when final decision is made
in phase IV. We also want to check if brand name fetches a price premium for the tyre
companies (Low & Blois, 2002; Michell et al., 2001; Ohnemus, 2009; Wise & Zednickova,
2009).
Based on the discussion above, we propose the following hypotheses:
H1: A strong brand name positively influences inclusion of a tyre company in the list
of eligible vendors by automobile companies.
H2: A strong brand positively influences a buyer to pay a price premium.
H3: A strong brand will positively influence the final selection of the vendor.

4. Research methodology
We have used AHP (Analytic Hierarchy Process) framework for finding out relative importance
of decision making factors and then finding out how these factors come together in making the
decision at phase II and phase IV. If brand turns out to be one of the factors in phase II of
decision process, H1 would be supported. If we also find out that brand also plays a role in phase
IV, H3 would be supported. For H2 to be supported, we need to first find out if there is a price

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premium that sellers can charge and buyers pay. Once we establish the existence of price
premium, we need to then find out if brand is one of the enabling factors.
4.1 Exploring H1 AHP is an established framework to convert a subjective decision into an
objective decision (Saaty, 1980). In the decision hierarchy, at level one, we have the focus that is
to select a vendor for B2B or bulk purchase of tyres by an automobile manufacturer. At level
two, we have factors that influence the decision. The factors such as product quality, service
quality and price have been identified in literature that influence B2B purchasing decision and
have been put in rational evaluation parameters. Factors such as differentiation, promise and
trust/credibility and have been put under emotional evaluation parameters. Another study has
identified brand and relationship as two distinct factors.
The four factors that were selected from the literature are: price (offered) (Low & Blois, 2002;
Michell et al., 2001; Ohnemus, 2009; Wise & Zednickova, 2009), relationship (history) (Leek &
Christodoulides, 2011), brand (name) (Kuhn et al, 2008) and technology (used for producing
tyres) (Bendixen et al., 2004). We have ignored the remaining parameters primarily to save
ourselves from the curse of dimensionality. We have also not expanded parameters into their
constituents and decided to rely on the understanding of respondents as most of them hold
managerial positions.
At level three, we have shown four tyre vendors to choose from for bulk purchase. AHP
hierarchy is shown in Figure 1. A pairwise comparison matrix as shown in Table 1 is filled up by
participants during the decision making process. The four factors associated with decision
process are compared pairwise. The decision makers answer questions like given our present
requirements, what is the relative importance of a factor in pair-wise comparison in deciding the
vendor to buy from. This information is used to find out relative importance of factors in the
decision process. Then, the decision makers are required to compare vendor pair on each
criterion. A decision maker is answering questions like Is vendor_1 has stronger brand than
Vendor_2? or Do we have better relationship with Vendor_1 than Vendor_2?. We will get
four matrices, one for each price, relationship, brand and technology. One such matrix is shown
in Table 2. After obtaining data for these four matrices along with level one matrix, the final
priority vector is calculated. The final priority vector reveals the most suitable vendor for making
B2B tyre purchase.

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We use a scale of 1 to 7 in this paper that was originally proposed. However, in most cases, a
scale of 1 to 3 or 1 to 5 would be sufficient and allow people to be more consistent.
The first part of the survey asked respondents to do a pair-wise comparison for all pairs of
factors using AHP framework. We then asked respondents to do a pair-wise comparison for 4
tyre companies using all four parameters. The total number of respondents was 28. Average age
of the respondents is around 29 years. Average work experience in automobile/tyre industry
turns out to be little over 6.25 years. Around 53% respondents held management level positions
and 47% people worked in engineering positions. 47% respondents were from automobile
industry and the rest were from tyre industry.
The research reported in this paper is exploratory in nature. We performed a cross sectional study
as we were not interested in observing any time related change. Surveys were conducted by
sending questionnaires to people working in the automobile as well as tyre industry over
Internet. Respondents from tyre industry were included in the survey as they have sufficient
knowledge about the decision making process, especially people at the management level. The
respondents were chosen by a combination of convenience sampling and judgmental sampling
(people working in automobile/tyre industry who could be contacted). The respondents were
informed of our research objectives right in the beginning.

Level1 Select a tyre manufacturer for bulk purchase of tyres

Level2 Relationship Brand Price Technology

Level3 Vendor_1 Vendor_2 Vendor_3 Vendor_4

Figure 1: Decision Hierarchy for Selecting a Bulk Tyre Supplier

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 Technology Price Brand Relationship

Technology 1

Price 2 1

Brand 4 2 1

Relationship 6 4 2 1

Table 1: Pairwise comparison matrix for criteria in selecting the vendor for B2B tyre purchase
filled with sample values.

Vendor_1 Vendor_2 Vendor_3 Vendor_4

Vendor_1

Vendor_2

Vendor_3

Vendor_4

Table 2: Pairwise comparison matrix for vendors based on a selected factor for B2B tyre
purchase.

Relationship Brand Price Technology

.51 .28 .14 .07

Table 3: Obtained priority vector or weights for the factors for selecting the vendor for B2B tyre
purchase.

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One of the problems associated with AHP is that of consistency. A respondent may say that
factor1 is more important than factor2, factor2 is more important than factor3 and factor3 is more
important than factor1 leading to consistency issues. Consistency ratio of .01 or below is
acceptable. The consistency index for factors turns out to be .0053 and the consistency ratio
comes out to be .0059 (taking RI=.9 for four elements) which is acceptable. The priority vector
for four factors turns out to be <Relationship, Brand, Price, Technology> = <.51, .28, .14, .07>
as shown in Table 3. According to respondents, brand is second most important factor.
Participants were asked to pair-wise compare four tyre vendors on the basis of each of the
factors. We provided names of the vendors in the survey but we have used Vendor_1, Vendor_2
etc. in this paper. Based on the responses, scores for all four vendors on all factors are shown in
Table 4. The final ranking of the vendors is obtained by multiplying the weights associated with
each factor with the score obtained by a vendor on each factor and summing them up. The final
scores are shown in Table 5.

Relationship Brand Price Technology

Vendor_1 .81 .09 .19 .09

Vendor_2 .24 .68 .77 .68

Vendor_3 .12 .18 .11 .18

Vendor_4 .47 .36 .49 .36

Table 4: Scores obtained by vendors for the factors for B2B tyre purchase.

Based on AHP calculations, the following priority matrix is created. (The above matrices were
also checked for consistency using software and consistency ratio of less than .01 was obtained.)

Vendor_1 Vendor_2 Vendor_3 Vendor_4

.47 .46 .14 .43

Table 5: Overall scores obtained by vendors for B2B tyre purchase.

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From the scores shown in Table 5, Vendor_1, Vendor_2 and Vendor_4 should be a part of the
initial choice set and Vendor_3 should be dropped during phase II. Based on the results, H2 is
supported. One should bear in mind that AHP does not identify the magnitude of influence. The
weights are to be viewed as ranks rather than absolute weights. It makes no sense to say that
relationship is two times more important than brand. For example, brand name has a weight of
.28 and relationship has weight of .51 indicating that relationship has more influence than brand
name.
4.2 Exploring H2: There are two parts to H2: Is there a price premium and if there is, what are
the factors that influence the price premium. We collected no data on the manufacturing cost and
selling price of the tyres. Instead, we relied on the opinion of the respondents that indicated
existence of price premium. We identified three factors that may fetch price premium to a tyre
vendor. The factors identified are supply shortage in market, brand and relationship. Supply
shortage refers to higher demand than supply for the product and is somewhat temporary in
nature. We used AHP to get relative influence of these factors. The consistency index and ratio
are .005 and .0008 (taking RI=.58 for three elements), both of which are acceptable. The weights
associated with these factors are: <Shortage, Brand, Relationship> = <.57, .29, .14> clearly
indicating that brand is an important factor in fetching a price premium.
4.3 Exploring H3: This hypothesis was not supported at all. We were told that once there is an
initial choice set in place, final decision is made based on technical specification (technical part
of the proposal) and cost (financial part of the proposal). Since brand is already considered while
making the choice set, it no longer influences the final decision from within the choice set.

5. Conclusion
The study has shown that brand name plays an important role in B2B purchase decision initially
and may fetch a price premium. However, brand name does not play any major role in the final
decision. A bigger set of respondents from the automobile industry could have given us better
insight. While preparing the questionnaire we took suggestions from the experts who also later
on acted as respondent. The responses, thus, could be biased. Also we may have missed some
decision factors due to discussion with a small set of people.

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During the initial discussion, we also came to know that brand name in tyre industry is not a
totally B2B concept. Automobile companies consider the synergy between brand image of
automobiles they are producing and the brand image of the tyre company. Also tyre companies
sometimes produce brands for a specific kind of tyres, i.e. a brand for SUV, a brand for
motorcycle and so on. When we talked to respondents informally, the general belief was that
relationship has an inverse relationship with premium. If a tyre company is involved in doing
business with an automobile company, the automobile company expects it will reduce its
premium in exchange for large orders. However, this study has not explored this aspect. Further
studies could be carried out to identify the degree of influence of brand, what are the major
determinants of brand equity in tyre industry etc.

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