An Introduction to Business/ Industrial Marketing

Vinod Puri 98206 94960

Business Markets
Markets for products and services

Local to international

Bought by Businesses Government bodies Institutions For consumption For use For resale

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Copyright 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Business Markets and Business Marketing

Business markets

All organizations that purchase goods and services to use in the creation of their own goods and services. The process of matching and combining the capabilities of the supplier with the desired outcomes of the customer to create value for the

Business marketing

customers customer.

A Market Driven Firm

Has:

Market sensing capabilitycompanies ability to sense change and to anticipate customer responses. Customer linkingthe ability to develop and manage close customer relationships.

Marketings Cross Functional Relationship

Business marketing planning must be coordinated and synchronized with corresponding planning efforts.

Keys to Cross Functional Working Relationships

Communications Perspective taking Responsive behavior Compatibility

The Marketing Mix: The 4 Ps of Marketing

Place

Product

The Marketing Mix

Price

Promotion

Marketing Mix: Product

The total offering is created by a partnership between the buying organization and the marketing organization. The process creates an augmented product that is specific to the buying units needs and maximizes the value creation capabilities of the marketer.

+ Core Product + Financing Terms + Delivery Options = Total Offering

Marketing Mix: Promotion

Business-to-business marketing requires a different emphasis on different parts of the promotional mix Consumer marketing Emphasis is frequently on advertising. Communication with customers is often a monologue. Relationship is often brief. Business-to-business marketing Emphasis is frequently on personal selling. Communication with customers should be a dialogue. Relationship is often longlasting.

Marketing Mix: Place

Place is about getting the product to the customer in order to maximize economic utility. Form Utility (having the product in the right size package, quantity, etc.) Economic Utility Time Utility (having product available at useful times) Place Utility (getting the product to the customer where & when it is expected) Possession Utility (making it easy to transfer ownership to the buyer)

Marketing Mix: Price

Price is the mutually agreed-upon amount that satisfies both sides in an exchange. often varies from fixed price, with more special discounts and allowances (in comparison to consumer markets). may involve things other than a one-time price payment (such as commissions).

Price is the measure of value exchanged and is determined by the market (not by costs).

Differences between the two Industrial Consumer markets

Structure Products Buyer Behaviour Decisions Channels Pricing Promotions
Fewer Buyers Clustering Complex, need customisation Large number. Mass Markets Standardised for mass markets

Functional, Rational, Need Psychological motives, of Relationships family involvement Distinct, observable Shorter, more direct Bidding, Negotiations Personal selling critical Mental, not observable Indirect, multiple List prices and discounts Advertisng and BTL

Business Market Characteristics

Derived demand Fluctuating demand Stimulating demand Price sensitivity/demand elasticity Global Market perspective

Developed by Cool Pictures and MultiMedia Presentations

Copyright 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Consumer Demand and Derived Demand

Business demand is derived from consumer demand.

Trees are demanded to make wood pulp because wood pulp is demanded to make paper because paper is demanded to produce books because the consumer demands books! Because of this, business-to-business demand tends to be Inelastic (short-run) Volatile (leveraged) Discontinuous

The Bullwhip Effect

1. Suppliers forecast their production on existing order rates. 2. But, if consumer demand drops, the order rate also drops.

3. Supply chain members are then likely to overcompensate the difference between the old and new forecasts, because A. B. C. D. Inventory levels can decline to fit new order rate, Customers change orders frequently, Minimum order quantities may exist, and/or Trade promotions may influence buying patterns

(discontinuities of B2B demand add to the bullwhip effect)

B2B demand is discontinuous it moves in large increments.

1. Consumers increase their demand for a product. 2. To produce more, a consumer goods manufacturer consumes more raw materials, equipment, and supplies. 4. Industry capacity increases in large increments.

3. Suppliers of raw materials, equipment, and supplies are pressured to expand capacity and eventually do so.

The industry capacity increases in a discontinuous manner.

Business-to-business demand tends to be inelastic

Price elasticity: It is the change in the quantity demanded relative to the change in price. When the price changes by X% and demand changes by less than X%, demand is described as inelastic.

Demand tends to be inelastic for those components that are differentiated from competitors. Manufacturers often choose to absorb price increases rather than alienate customers (the manufacturer may choose to later eliminate the component by design).

Value Chain
The Value Chain The chain of activities that creates something of value for targeted customers. Direct activities Direct activities contribute directly contribute directly to the offering. to the offering. Support activities Support activities makes it possible to makes it possible to perform the direct perform the direct activities. activities.

The value chain contains both direct and support activities.

The Supply Chain

Michael Porter and Victor Millar observed that to gain competitive advantage over its rivals, a company must either perform these activities at a lower cost or perform them in a way that leads to differentiation and a premium (more value).

Longer term and closer relationships. Closer interactions among multiple functions. Supplier proximity considerations.

Marketing Contiuum
Transactional
To make a sale Sale is the measure of success

Relationship
To create and retain a customer Sale is the beginning, for a long term profit .

Business is defined by product and Business is defined by relationships, facilities. Brand and the consequent value is added through technology; image is critical knowledge information and social ties Price is determined by competitive forces. Quality guided by technicalities Value by product and price. Stress on next sale. Satisfaction measured by surveys. Internal interface not significant. Price is determined by co operation and negotiations. Functional and a sum of multiple interactions by present & future problem solving capabilities Satisfy customer by superior value. Can be measured directly Critical to delver satisfaction

Types of Relationships

The buyer seller relationships are positioned on a continuum with transactional exchange and collaborative exchange serving as the end points.
The Relationship Spectrum

Buyers and sellers craft different types of relationships in response to: a) market conditions and b) characteristics of the purchase situation.

The Spectrum of Buyer-Seller Relationships

CLASSIFICATION OF CUSTOMERS & MARKETS

Types of Organizational Customers

Commercial Commercial Enterprises Enterprises Industrial Distributors Value-Added Resellers Original Equipment Manufacturers Government Government Units Units Nonprofit and Nonprofit and Not-for-Profit Not-for-Profit Organizations Organizations

Temples, Churches local, state, and central hospitals, government units colleges, nursing homes, etc.

Users or End Users

Commercial Commercial Enterprises Enterprises Industrial Distributors Value-Added Resellers Original Equipment Manufacturers Users or End Users

Industrial Distributors

Creates assortments of products from many manufacturers Particularly useful for reaching customers too small to justify direct sales efforts

Value-Added Resellers

Commercial Commercial Enterprises Enterprises Industrial Distributors Value-Added Resellers Original Equipment Manufacturers Users or End Users

Provides unique offering enhancements tailored to a customers needs by combining products/services from other manufacturers. Creates a value network at the user level.

Commercial Commercial Enterprises Enterprises Industrial Distributors Value-Added Resellers Original Equipment Manufacturers Users or End Users

Original Equipment Manufacturers (OEMs)

Purchase products and incorporate those products into their products. Usually the largest-volume users of goods and services. Ex: Intel is an OEM supplier to many computer manufacturers, Ceat was an OEM supplier to Maruti for many years.

Users or End Users (E/U)

A manufacturer that purchases goods or services for consumption/ incorporation into their products in such a way that the identity of the purchased product is lost. When J.K. purchases steel for fabrication into steel belts for tyres, J.K. is the steel manufacturers E/U.

Commercial Commercial Enterprises Enterprises Industrial Distributors Value-Added Resellers Original Equipment Manufacturers Users or End Users

Producer Types
Capital Goods Manufacturers
Capital goods involve large purchases with considerable risk for the customer. Capital Goods Manufacturers Involves the development of specifications to ensure that organizational needs are met. Adherence to specifications reduces opportunities for differentiation. Customers expect an offering that includes installation, equipment, and accessories.

Producer Types
Accessory Equipment Suppliers
Accessory equipment is equipment that works with some other offering. Accessory Equipment Suppliers Accessories can be added to a bundled offering by a channel intermediary. Accessory equipment is usually produced by an independent supplier. The key to providing value is to be compatible with industry standards for the primary offering.

The Macro environment Demographic influences Environment value creation.

Competitive Environment Technological Environment

Economic Environment Socio cultural Environment

Natural Environment

An Adaptation of the Value An Adaptation of the Chain

Value Chain

The Produ ct Life Cycle

The Technology Adoption Life Cycle

PLC and TALC

Product Life Cycle (PLC)

Technology Adoption Life Cycle (TALC)

Introduction Growth Maturity Decline

Technophiles Visionaries (aim for quantum leaps) Pragmatists (want proven solutions) Conservatives Laggards

TALC and How Technology Markets Evolve

Chasm

A break in the sales growth curve for a new technology. A chasm occurs between visionaries and pragmatists. The chaos that occurs during a period of rapid growth. A dominant supplier usually emerges from a tornado.

Tornado

Using the Technology Adoption Life Cycle

The vendor of an innovation passes through technophiles and visionaries before establishing a foothold among pragmatists. Crossing the chasm (called the market development gap) between visionaries and pragmatists is related to a change in the entire marketing mix.

There are changes in type of customer and what the customers perceives as being of value.

Using the Technology Adoption Life Cycle

Tornado

Corresponds to the late introduction/early growth stage of the PLC The market wants to support the market leader it reduces uncertainty for pragmatists. The market leader has the chance to become the gorilla the gorilla can do what it wants as long as it stays close to what pragmatists desire.

The Perspective of the Buyer

Purchasing Function Goals

To address the needs of business customers of all types. May have to juggle a number of different objectives that clash.

The Goals of Purchasing

Total Cost Considerations of a

Product or Service
Factors that drive total cost. Acquiring and managing costs. Quality, reliability over the life cycle. The value a firm/ customers.

Segmenting Purchase Categories

1st Point, each firm has a unique portfolio. 2nd Point, more attention on purchases having the greatest impact on revenue generation or the greatest risk to performance.

Segmenting the Buy

Procurement Complexity Considerations

Technical complexity. Scope of supply chain coordination required. Degree to which life cycle costs are relevant.

Purchasing Managers & Performance

The Weighted Point Plan

The buying organization weights each performance factor. Organization assigns relative importance to performance factors. Is more objective and flexible than the categorical method.

Government Contracts

Compliance- may require government contractors to maintain affirmative actions. Set-aside- a percentage of the contract is set aside for small businesses. May have a price preference for public sector.

Two Types of Contracts

1.

Fixed-price contracts

A price is agreed to before contract is awarded and payment is made at conclusion of work. Provides for the greatest profit potential. Poses greater risks. Reimbursement for allowable costs may be allowed and sometimes a number of dollars above costs as profit is allowed.

1.

Cost-reimbursement contracts

Government Procurement
1.

2.

Defence-said to be the largest enterprise in the world (DOD). Non defence-procurement is likely to be guided by world wide variety of agencies.

Two Procurement Strategies

1.

2.

Formal Advertisingthe government solicits bids from suppliers, and usually the lowest bidder is awarded the contract. Negotiated Contractused to purchase products or services that are not differentiated on price alone, competition is common.