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UNIT I
Derived demand
It is the convention in marketing to treat demand by consumers as direct and demand from
businesses as derived. In essence, consumers want certain goods to satisfy their needs.
Businesses require certain goods in order to produce products that satisfy customer needs.
Therefore a businesss demand is derived from consumer demand.
To a business marketer it is the perspective of the industry supplier that is generally most
relevant, along with the implications of the industry structure for sales and marketing strategy.
While economists are generally most concerned about the monopoly power that businesses have
over their customers, business marketers are usually more interested in the monopsony power
that businesses have with respect to their suppliers because of the concentration of buying power.
However, since those firms that control large shares of the customer market are also the largest
customers for suppliers to the industry, we can use the concentration ratio as a proxy for the
concentration of buying power.
INDusTRIAL DIsTRIBuToRs
Also known as industrial wholcsalers, these organizations act as middlemen providing the
economic utilities of form, time, place, and possession to the manuf aacuurers or the products
they distribute and segments or customers of those manufacturers that lhey serve. The creation of
assortments of products from many manufacturers to closely match the needs or customer
segments is a major added value of middlemen. Busincss marketers often elect to use middlemen
to reach customers whose purchase volumes do not justiry direct sales cfforts. Chapter 14
contains a complete discussion or marketing channcls, including appropriate products for this
type of representation and the vaFue provided by these middlemen. For now, note that these
intermediaries take ownership of goods from manufacturers and provide their customers timely
access to lhese goods.
The addition of value added resellers (VARs) to the marketplace has broadened traditional
intermediary concepts More than distributors or wholesalers, vARs provide an offering with
unique enhancements to manufacturers' products. Typically, a vAR provides systems to its
customers (computer software and hardware integration, communications systems, etc.) tailored
to a particular customer's needs. The vAR draws on goods and services from many
manufacturers o create these custom systems, often developing unique expertise in the
integration of many different products. The combined offering may include portions or products
and services trom different organizations that, without the vAR, would normally be competitors.
Thus, the VAR's integration of offerings from many sources is, in effect, the creation or a value
network at the user level. Later in this chapter we look at value networks. coalitions to satisry
specific segment needs, as a rapidly developing competitive form.
OEMs purchase goods ro incorporate them into goods they produce and sell to their customers.
Business-bo-business marketers spend the major part of their resources approaching, learning
about. developing, and satisfying these customers. OEMs are usually the largest-volume users of
goods and services, particularly in oligopolistic markets.
For example. General Motors (GM) purchases tines from Goodyear; Hewlett-Packard (HP)
purchases computer processors from Intel. GM and HP use tires and computer processors.
respectively, as an original part of the products they offer to their customers. Note that Goodyear
and Intel, both OEM suppliers in this scenario, offer their products to customers in the
replacement market through distributors as well. while the total offer is significantly different
(tires through distribution are aimed at local dealers with lower volumes and greater geographic
diversity than vehicle manufacturers), the core products, tires and computer processors, remain
unchanged.
Manufacturers that purchase goods and services for consumption, either as supplies, capital
goods, or materials for incorporation into their products such that the identity of the purchased
product is lost are known as users or end users. when providing tires to GM, Goodyear is an
OEM in the preceding example. when purchasing steel for fabrication into steel tire belts.
Goodyear is an end user. Goodyear has specified the properties of and type of steel as part of its
tire design process. The steel supplier views Goodyear as its end user because the steel, produced
to the Goodyear specification. becomes an integral part of the tires and loses its separate identity.
Business marketers find that this traditional relationship is changing as end users attempt to
differentiate their products by communicatin the quality or their raw materials or components
obtained from their suppliers. Recognizing this trend, suppliers have begun to brand their produ
ucss and communicate the value of their brands downstream to the end users' customers.4
Successfully branding business-to-business products allows the supplier or brand owner the
opportunity to capture some or the margin that the end user obtains by charging higher prices to
its own customers. This also places responsibility for the performance of the product with the
supplier as well as the specifier.
TRw brands several or its product lines, principally because it does so much activity in the
automotivc parts aftcrmarket. TRw brands include KlheyIlayes braking products, TRw steeri in?
and suspension systems, Au:ospecialry brake and clutch components. Power Stop Extreme
Performance rotors, and 9-1-1 Extreme Perfonmance heavy duty brake pads.3 Using the same
branding across the oEM and aftermarket lines of business actually increases the value that TRw
provides to both oEM and aftermarket (end user) customens. OEM customers gain assura anc?
that their products will be supported and can be easily maintained by service and repair
technicians. Further, the inclusion of TRw's premium brands in the manufacturer's cars can be
communicated to consumers to assure them lhat the cars are well built, using high-quality comp
onnenss. value is provided to aftermarket customersrepair technicians and consumersby
offering to them the same brands of parts that were originally installed on the car. nhis assures
end users that the replacement parts meet original equipment specifications and will work just as
well as the original pans.
Government units
Purchases by more than 85,000 local. state, and federal government units makc up about one-third or
the U.S. gross national product (GNP). Govemnment is the largest consuming group in the United States.
Widely dispersed with large numbers of players, govemnment markets are influe nccdd by specifying
agencies, legislators, and evaluators, as well as. hopefully, the eventual users. Govermment purchasing
can also be the subject of significant public scrutiny.
Vhat business marketers have come to appreciate as value in the private sector can take on a completely
different meaning in the public sector. Complicated procurement laws and regulations often have social
goals and policies as the driving force. Preference to certain types or suppliens. socially motivated general
contract provis sions, and the potential impact of quotas and other regulations that seemingly have
nothing to do with the product can be frustrating to business marketers. In these situations. the buyer's
view of value will be quite different from a buyer in the private sector.
For instance, the federal govemnm ment. most state governments. and many municipalities have
requirements that a certain percenta age of contracts be awarded ro small businesses, minority-owned
businesses, or businesses owned by women. In many foreign countries, suppliers to government agencies
are often required to be domestic (to that country) suppliers or have a domestic company as a partner. The
sxcial goals and policies or govemnment purchasing can impact the entire supply chain of an offering. In
theory, this is little different from the private sector. provided the marketer is fxcused on customer needs
rather than the product. It is necessary to examine what value is expected by the govermment customer
and who or what the influencing factors will be.
The specialii.ed role that govemnment activities play in our society (national defense, disaster relief,
education, social and political agenda, etc.) leads to nonstandard products. This complexity and the lack
of standardi,ation are often the result of significant negotiation by a diverse group or stakeholders. while
competitive bidding is often required to avoid demons stratig? any favoritism or undo influence,
negotiated contracts are also possible, particularly
Institutional customers such as hospitals. churches, colleges, nursing homes, and so on are part of
this customer category. At first glance. it may appear that the major part of the marketing mi
used to appeal to this customer base is price. As with any customer group. however, the best
value recognized in the exchange is importarn. Many of these organizations are also subject to
significant public scrutiny. As a result, their buying habits may become similar to those of
government units, particularly ir there is a strong social agenda associated with the organization.
The goods they produce may also serve to classify business-to-business organizations. As
previously stated, these classifications may provide initial bases that a marketing manager can
use for segmenting markets.
Depending on the goods or materials position in its life cycle and the product degree or
uniqueness or distinction from competition, producers or materials may find markets more
sensitive to price.
Raw materials suppliers. particularly those that have significant contpctition fmom generic types,
will seek added value positions unrelated to the core product. A supplier or sugar to a large
bakery may find that the texture or granule size of its product or how well it dissolves may be a
distinctive advantage. Raw materials (such as steel, plastics, and glass) are usually supplied by a
few very large producers who sell their products directly to large end users. rdying on industrial
distributors to serve smaller customers. Often. raw materials lose their Identity when combined
into a customer's product. As an examplc. consider a metal fabricator whose customers are
computer nanufacturers. The fabric aaoor purchases sheets of steel from its steel supplier of
choice. The fabricator forms the steel into a computer cabinet, as defined by its customers
specification. The customer knows the sheet steel purchased by the fabricator as a sturdy cabinet
for a computer housing, not as a branded material supplied by a particular steel company. The
commodity nature of the steel has been replaced by the added value, created by the fabricator, of
the form and function of the cabinet.
Components and manufactured materials (e.g.. upholstery fabric for fumniture, touchpads for
notebook computers) usually retain lheir identity ewen when fully incorporated into the
customer's product. These goods have a continuous identity and arc more easily differentiated
from their direct competition. Producers or these goods have added value to the materials and
components they have punchased to create value for lheir customers. Component parts such as
the small motors used in computer disk drives are incorporated by disk drive manufacturers in
essentially the same fomm as provided by the motor manufacturer, The component producers
core product contribution is still recognizable after its inclusion in lhe customers offering. In this
instance, the small motor manufacturer is an OEM supplier to the disk drive manufacturer that
incorporates the motors into the disk drives it sells to its customers.
Capital goodsthose goods used to produce outputare usually purchased with input from
many parts of the organization. These are big ticket" purchases, such as machinery specifically
designed for an automated assembly line or real estate for a new building, with considerable risk
involved for the customer. The process is lengthy and usually includes the development or a
rather sophisticated specification to ensure that the needs of the organization are met and that the
organization gets what it has been promised. when customers invest in a capital item, they must
place a tremendous amount of trust in the supplierand write a good specification.
Customers of capital goods expect an offering that includes installation, equipment, accessories,
employee training, and often, financing. Often, trials or evaluation installations are required. As a
substitute, suppliers may provide testimonials or successful installation and application for other
customers, provided confidentiality concerns of both the current and previous customers can be
accommodated. If a company is providing accessory equipment-or providing an accessory
service. such as cleaning uniforms or moving trade show equipment the key to providing value
is to be compatible with the industry standards for the primary offering. For instance, keyboard
manufacturers for computers must conform to standards for data input and connection to the
computer. Makers or add-on gadgets for personal digital assistants (PDAs). such as the Palm
Pilot, must conform to the physical connection requirements of the devices and to the PalmOs
software operating system. To ensure high financial perfonnance, thc accessory equipment
supplier must pick the right standard. Once a suandard has been set, ihe surviving accessory
suppliers need to focus on driving their costs down and, if possible, branding. Good branding
strategy and execution earn a price premium (see chapter 13), but this, too, is linited by the
relative value and price or the primary offering.
III ) B2B markets that are operating simultaneously in a Two Wheeler market
As already explained in the class room, you can use the running notes
UNIT II
Many consumer purchases (i.e., buying decisions) arc spur-of-the-moment decisions, often
associated with the availability of funds to make the purchase. while consumers seldom conduct
a conscious value evaluation, the act or making the purchase indicates that they have decided that
the value they are about to receive is greater than the value they are giving up (i.e., their costs). Ir
this were not the case, the exchange would not take place. nhe value assigned by the customer is
influenced by many factors beyond the serviceability of the core product or service. nhe nature or
the buyer decision process in a business-lu-business environment is no unlike the consumer
process, though the steps are often thought to be more visible and theoretically more quantifiable
Let us further compare the processes. .
Organizational Buying
How do organizations buy compared to how we, as consumers, buy" in the retail marker? The
initial response from an inexperienced observer might be that organizations purchase whatever is
cheapest, that is, that organizations must make the most rational, lowest-cost. most-profitable
decision. while the ultimate profitability or the buying organization (or minimized cost for the
nonprofit organization) plays a major role, price is only a part of the delivered value.
Organizational purchases involve inputs from many or the professional specialities in the
organization. The organization relies on decision makers and influencers at many levels and from
different disciplines to contribute their expertise to satisfy a diverse set of needs. The inputs from these
stakeholders aim to ensure that the best possible buying decisions arc made for the organization.
Individual stakeholders may contribute their expertise to influence the decision process without full
knowledge or appreciation for the requirements of other stakeholders. Seldom is any one individual
entirely responsible for an organizational purchase decision. This decision process requires
communication among stakeholders within the buying organization. It is necessary for the supplying
organization to
2. The organizational buyer is motivated by both rational and quantitative criteria dominant in
organizational decisions; the decision makers are people, subject to many of the same emotional
criteria used in personal purchases
Buying Situations:
Modified Rebuy:
Here the buyer is seeking to modify product specifications, prices, and so on. The purchaser is
interested in negotiation, and several participants may take part in the buying decision.
New Task:
A company faces a new task when it considers buying a product for the first time. The number of
participants and the amount of information sought tend to increase with the cost and risks
associated with the transaction. This situation represents the best opportunity for the marketer.
1. Problem recognition: The process begins when someone in the organization recognizes a
problem or need that can be met by acquiring a good or service. Problem recognition can occur
as a result of internal or external stimuli. External stimuli can be a presentation by a salesperson,
an ad, or information picked up at a trade show.
2. General need description: Having recognized that a need exists, the buyers must add further
refinement to its description. Working with engineers, users, purchasing agents, and others, the
buyer identifies and prioritizes important product characteristics.
Table 4.1 lists several sources of information for many industrial customers. Armed with
extensive product knowledge, this individual is capable of addressing virtually all the product-
related concerns of a typical customer. To a lesser extent, trade advertising provides valuable
information to smaller or isolated customers. Noteworthy is the extensive use of direct marketing
techniques (for example, toll-free numbers and information cards) in cor.junction with many
trade ads. Finally, public relations play a significant role through the placement of stories in
various trade journals.
3. Product specification: Technical specifications come next. This is usually the responsibility
of the engineering department. Engineers design several alternatives, depending on the priority
list established earlier.
4. Supplier search: The buyer now tries to identify the most appropriate vendor. The buyer can
examine trade directories, perform a computer search, or phone other companies for
recommendations. Marketers can participate in this stage by contacting possible opinion leaders
and soliciting support or by contacting the buyer directly. Personal selling plays a major role at
this stage.
5. Proposal solicitation: Qualified suppliers are next invited to submit proposals. Some
suppliers send only a catalog or a sales representative. Proposal development is a complex task
that requires extensive research and skilled writing and presentation. In extreme cases, such
proposals are comparable to complete marketing strategies found in the consumer sector.
6. Supplier selection: At this stage, the various proposals are screened and a choice is made. A
significant part of this selection is evaluating the vendor. One study indicated that purchasing
managers felt that the vendor was often more important than the proposal. Purchasing managers
listed the three most important characteristics of the vendor as delivery capability, consistent
quality, and fair price. Another study found that the relative importance of different attributes
varies with the type of buying situations.
For example, for routine-order products, delivery, reliability, price, and supplier reputation are
highly important. These factors can serve as appeals in sales presentations and in trade ads.
7. Order-routine specification: The buyer now writes the final order with the chosen supplier,
listing the technical specifications, the quantity needed, the warranty, and so on.
8. Performance review: In this final stage, the buyer reviews the supplier's performance.
This may be a very simple or a very complex process.
What do customers value. 1) Some demand low price 2) Some demand customer service 3)
Some demand quick delivery 4) The question is: Can the seller deliver it profitably? 5) Many
sellers try to meet all their customers needs, and may do so, but fail to do it profitably.
Value Proposition
difference
Best practice suppliers base their value proposition on their target markets
needs by
1) Flaring out strategy (Fig 4.5b) states that the seller can either
unbundle (point A), that is, reduce the service associated with a lower
price (transactional in nature), or 2) Augment by adding more services
to the core offerings (point D) which adds cost to the services. This is
collaborative in nature.
Creating Customized Products
The seller starts with a core service (naked solutions) and adds customized
services to it (custom wrapped) that create more value.
The sales force plays a key role in establishing and growing a customer
from a transactional account to a collaborative partnership.
They can do this by aligning and deploying technical and service support
units to match with their customers units.
#4 - Motivating Employees
Dedicated employees are the key to a successful customer relationship
strategy.
The best approach is to: 1) Hire good people. 2) Invest in them to increase
their value to the company and its customers. 3) Develop challenging
careers and align incentives to performance measures.
#5 - Retaining Customers
Identify and cultivate customers that offer the most growth potential by: 1)
Estimating current percent share of wallet. 2) Pursuing opportunities to
increase share. 3) Projecting and enhancing customer profitability
UNIT III
Segmentation Bases.
In the earliest published consideration of industrial segmentation bases, Frederick lists five factors that
should be taken into account: industry, geographic location, channels of distribution, product use and
company buying habits. Many different variables have been used to classify segments, this means that
there is agreement that there are different levels of segmentation. This involves moving from the use of
more general or easily observable criteria at initial levels through to more specific and less observables
measures in the later stages. The larger-scale analysis is often referred to as macro-segmentation while the
finer-level analysis is micro-segmentation.
Shapiro and Bonoma captured this movement from macro- to micro-segmentation in the figure below.
Moving from firmographics down to personal characteristics.
1. Firmographics; are the macro-factors of a firm, divided into several subsections:
- Industry; knowing an industry that may have use for your technology enables you to very quickly
distinguish interesting companies from less interesting ones. The use of SIC codes helps a lot in this.
- Customer location; it is possible to segment on where prospects (future) might be. Customer
concentration in one location seems favourable, but this really depends upon the nature of the industry.
- Customer size; the size of customer companies may be a sensible basis for distinguishing one from
another. The basis for measuring size differs, depending upon what is being purchased. You have high
volume for low-priced products customers, but also low volume for high-priced products.
2. Operating variables; this involves more precise descriptions of what customer companies can do.
However, they are still relatively easily observed. Again, this is sub-divided:
- Company technology; in selecting possible customers, there is an element of technological readiness
involved.
- Product and brand-use status; it is only sensible that companies would use the behaviour of customers
with respect to products or brands to aid their segmentation.
- Customer capabilities; exchange involves matching the abilities and uncertainties of buyers and sellers.
Given this, a supplier might want to establish what customers are capable of doing.
- Customer strategic type; using Miles and Snows four-part typology prospector (innovative), defender
(efficient), analyser (efficient and adaptive) and reactor (no consistent strategy) predicts buying
behaviour better than firmographics. However, the determination of the strategic type of a company is
difficult, it relies for measurement on either self-indication, observation, or content analysis of companys
marketing plans.
3. Purchasing approach; how buying companies are organized may constitute valuable intelligence to a
marketer, as it may enable them to produce an offering that is most valuable to a target segment that is
defined in terms of its purchasing approach. Again, sub-divisions:
- Purchasing function organization; each firm differs in how they organize themselves for procurement. A
big issue for the marketer is whether procurement is handled centrally or whether responsibility is
delegated to each division.
- Power structures; the relative influence of different departments within the firm may have an
impact upon the nature of the buying process or the criteria that are applied.
- Buyer-seller relationship; Jackson distinguished between customers on basis of their tendency to behave
transactionally (always-a-share customers) or relationally (lost-for-good customers).
- General purchasing policies; marketers can use knowledge of policies to determine whether they want or
would be able to meet the policy needs of a buyer.
- Purchasing criteria; knowing the specific criteria would enable segmentation to be undertaken more
precisely. However, buying companies do not express completely the criteria and their relative
importance.
4. Situational factors; situations arise where companies are instead guided temporarily by the prevailing
factors in the business environment. So, rather than defining all companies requiring a product as
equivalent and thus putting them in the same segment, it may often be possible to define a segment in
terms of the prevailing need.
5. Personal characteristics of buyers; ultimately, buying companies are only human. For a company to
segment on basis of personal characteristics it must have some degree of contact with the buying
company.
Successful Segmentation.
The greater the number of segmentation steps undertaken, and thus the number of differentiating criteria
that are applied, the smaller and more fragmented are the segments produced. When the fragmentation
begins to reach a point where further separation does not really lead to meaningful differences, the
process should be stopped. There are a series of tests that business marketers can use to establish the
quality of the segmentation process and the usefulness of the segments that are proposed;
- Measurable / Distinctive; criteria for segmentation must be clearly measurable.
- Accessible; for a segment to be targeted successfully it needs to be accessible. Reach includes the
physical ease of getting offerings to the customers.
- Substantial / Profitable; the segment needs to be big enough to justify the costs of serving a small
segment.
- Actionable; a company should be able to actually bring offerings that will meet the needs of the
segment.
Another factor, thought of by Gross et al, is compatibility between buyer and seller. However, this is not a
measure of quality, it is a characteristic of the purchasing approach of customers.
Targeting.
Targeting involves making choices about those segments that should be pursued, and devising the most
appropriate strategies for pursuing them. A company will need to consider its possible
competitive position in relation to each segment in order to determine whether it merits the companys
attention. A step-wise segment selection process.
In observing how companies target market segments, it is often argued that there are three strategic
approaches:
- Undifferentiated; companies that engage in this form make essentially the same offer to all segments. It
has advantages in terms of operating efficiency and economies of scale. However, companies risk over-
generalization.
- Differentiated; this involves choosing a variety of different segments and providing offerings that are
focused on meeting the needs of those targets more specifically.
- Niche targeting; this concentrates the customer focus to one or a small number of segments. A more
concentrated approach is more likely to be necessary for smaller companies that lack the resources to
meet the needs of a larger number of segments.
Business-to-Business Positioning.
When it comes to each individual segment there is a need to consider the position that the marketer
occupies in the mind of the buying company. The reasons for this are two-fold: (1) the offering from a
marketer occupies a space in the mind of the buyer, and (2) the relative position becomes the basis by
which the supplier is compared to others as well as the ideal.
The population and age, income groups can be analyzed by region but we have limited our
research since we our targeted customers are retailers only. Analysis can be done at the deeper
level by calculating the number of outlets in the region and their growth.
Key steps in estimating the market potential is defining target market and segmentation,
geographic market, selling price and annual consumption (Wolfe, 2006). Therefore we Market
potential analysis has been done based on the check list by Wolfe (Ibid).
Source: Tucker 2007
US Market is by far the most prominent buying region of Jeans and this is our main market for
Volume based buyers. However for the premium jeans market we would target European region.
Surveys. This is a "bottom up" approach where each individual contributes a piece of
what will become the final forecast. For example, we might poll or sample our customer base to
estimate demand for a coming period. Alternatively, we might gather estimates from our sales
force as to how much each salesperson expects to sell in the next time period.
Customer Surveys are sometimes conducted over the telephone or on street corners, at
shopping malls, and so forth. The new product is displayed or described, and potential
customers are asked whether they would be interested in purchasing the item. While this
approach can help to isolate attractive or unattractive product features, experience has shown
that "intent to purchase" as measured in this way is difficult to translate into a meaningful
demand forecast. This falls short of being a true demand experiment.
Consumer Panels are also used in the early phases of product development. Here a
small group of potential customers are brought together in a room where they can use the
product and discuss it among themselves. Panel members are often paid a nominal amount for
their participation. Like surveys, these procedures are more useful for analyzing product
attributes than for estimating demand, and they do not constitute true demand experiments
because no purchases take place.
Test Marketing is often employed after new product development but prior to a full-scale
national launch of a new brand or product. The idea is to choose a relatively small, reasonably
isolated, yet somehow demographically "typical" market area. In the United States, this is often a
medium sized city such as Cincinnati or Buffalo.
Scanner Panel Data procedures have recently been developed that permit demand experimentation on
existing brands and products. In these procedures, a large set of household customers agrees to participate
in an ongoing study of their grocery buying habits. Panel members agree to submit information about the
number of individuals in the household, their ages, household income, and so forth.
The basic premise is that if we can find relationships between the explanatory variables
(population, income, and so forth) and sales for the existing stores, then these relationships will
hold in the new city as well. Thus, by collecting data on the explanatory variables in the target
city and applying these relationships, sales in the new store can be estimated. In some sense the
posture here is that the explanatory variables "cause" the sales. Mathematical and statistical
procedures are used to develop and test these explanatory relationships and to generate
forecasts from them. Causal methods include the following:
Econometric models, such as discrete choice models and multiple regression. More
elaborate systems involving sets of simultaneous regression equations can also be attempted.
These advanced models are beyond the scope of this book and are not generally applicable to
the task of forecasting demand in a system.
Input-output models estimate the flow of goods between markets and industries. These
models ensure the integrity of the flows into and out of the modeled markets and industries.
Life cycle models look at the various stages in a product's "life" as it is launched,
matures, and phases out. These techniques examine the nature of the consumers who buy the
product at various stages ("early adopters," "mainstream buyers," "laggards," etc.) to help
determine product life cycle trends in the demand pattern.
Simulation models are used to model the flows of components into manufacturing
plants based on MRP schedules and the flow of finished goods throughout distribution networks
to meet customer demand. There is little theory to building such simulation models.
Organizing for innovation: Trott (2005) stated that innovation is invariably a team game and companies
typically need to create an environment where creative heads can work. An innovative company likewise
requires some characteristics in order to enable this operating of creative heads like e.g. ability to adapt,
willingness to invest, become aware of threats & opportunities and so on.
One step in this direction could for example be organizing the company more organically than
mechanistic.
Profits
Survival
Sales volume
Sales revenue
Market share
Image creation
Competitive parity or advantage
Barriers to entry
Perceived fairness
Price positioning
Price positioning strategy takers account of three elements: the price itself, the customer benefits from the
service or product, and competitor positioning. Following figure illustrates an approach to price
positioning strategy recommended by Shipley and Jobber (2001):
Market ruler: This position is difficult to achieve, because offering high perceived value usually
involves additional costs. This makes it difficult to offer a relative low price while also achieving a
reasonable profit margin. The market ruler makes sense on the long. Thus, if the strategy involves
becoming the established brand. This means more focus on market share than profit in the short
term.
The thriver (medium price/high ben.) is usually more sustainable than thriver (low price/med.
Ben.).
The chancer position becomes viable where the thriver and market positions are already occupied, but
both positions are vulnerable. At last, it is clear that the no-hoper and bungler offer poor customer value
and are unlikely to be sustainable. Usually these positions arise in periods of shortage of supply. The also-
ran is very vulnerable to attack, since rivals can attack on its price or customer benefits alone, or on both
simultaneously.
Bid pricing
Types of bidding process: four basic auction mechanisms
English Most familiar auction an ascending-price auction in which the last remaining bidder receives
the good and pays the amount of their bid.
Dutch Starts with a high public price and the price falls until the first participant finds the price low
enough to submit a bid. The first bidder is the winner and receives the good at the price prevailing when
the clock was stopped
First-price sealed-bid Unlike the previous two salad-bid auction are not in real time, each bidder
submits a bid and the bids are opened at a stipulated time. With this variant the bidder pays the price he
bided for
Second-price sealed bid The same is the previous, only here the highest bidder pays the
second highest bid
Internet auctions
The internet auction is an important and fast-growing mechanism for facilitating B2B transactions. Major
companies started to investigate the use of internet auctions in the mid 1990s. General Electric was a
pioneer in developing its own in-house auction site, subsequently many other large firms have developed
their own in-house auction site.
Internet auctions can be conveniently categorized into the English or the Dutch/reverse auction.
In an English auction, the seller starts the bidding at a reserve price and the buyer offers higher and higher
prices until no one is willing to offer any higher. Highest bid wins the auction.
A Dutch auction is a descending price-auction. The original meaning of a Dutch auction arose where a
seller offered a good for sale at a very high, with that price gradually declining until a willing buyer could
be found and a bargain struck. In the case of B2B commerce, buyers post a RFQ and sellers respond to
the RFQ. A particular problem that can arise with reverse auctions is the winners curse.
Reverse auctions often take place in conditions of uncertainty, where the buyer nor the seller can be sure
of the true costs of fulfilling the contract. If price is used as the most important measure, the winning
seller will be the one who made the lowest estimate of costs, it is entirely possible that the seller
underestimated the costs and therefore stands to make a loss on the contract the winners curse.
The costs involved in buying and selling are lower, geographical proximity is no longer an issue and the
time of the auction can be more flexible. You have two different endings of an auction: soft close and hard
close. With soft close the bidding goes on as long as there is a substantial amount of continuing bids. With
a hard close, the bidding ends at a stipulated time, so companies may use sniping tactics (bidding in the
last minute to win).
UNIT V
I) B2B Marketing Channels
Direct Channels
Direct is when the manufacturer performs all the marketing functions.
In direct distribution system the marketer reaches the target consumer directly without the use of
any intermediary.
The distribution chain is small and no other party can take ownership of the product being
distributed.
The direct distribution system can be further sub-divided on the basis of the methods of
communication that takes place during sale between marketer and consumer.
Indirect Channels
Indirect is when some type of intermediary sells or handles the product.
In indirect distribution system the marketer includes intermediaries or other members in his
distribution chain.
These resellers make sure the product reaches the end user, while performing their duties they
take complete ownership of the product.
However the reseller may sell products on a consignment basis wherein the reseller pays for the
product only when the product is sold.
The resellers may be expected to take up a few responsibilities to help boost the sales of the
product.
1) Distributors-Classification
General-Line Distributors
Stock extensive variety of low tech (commodity) products
Specialists
Focus on one or few related lines geared around high tech or industries demanding
complex customer requirements
Combination House
Operates in two markets: industrial and consumer
For example,
When IBM first introduced its PS/2 personal computers, it re-evaluated its dealers and allowed only the
best ones to carry the new models .
Each IBM dealer had to submit a business plan, send a sales and service employee to IBM training
classes and meet new sales quotas.
Only about two-thirds of IBMs 2,200 dealers qualified to carry the PS/2 models.
Relationship Marketing
Selling Center
initiate and maintain relationships with industrial customers
Objectives
Buying Center
participate in the purchasing decision and share goals and risks of that
decision.
Objectives
Relationship quality
Two dimensions
Managing the Sales Force
What is Sales Management?
Role of strategy and forecasts
Organizing the Effort
Depends on:
Types
Geographical organization
Advantages
Disadvantages
Product organization
Advantages
Disadvantages
Market-centered organization
Advantages
Disadvantages
iv) Distribution
Segmentation