Intro I.M.

8/3/2019 Intro I.M.

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An Introduction toBusiness/ IndustrialMarketing

Vinod Puri

98206 94960

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Business Markets

Local to international Bought by

Businesses Government bodies

Institutions

For consumption

For use

For resale

Markets for products and services

Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

8/3/2019 Intro I.M.


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. Business marketing

The process of matching and combining thecapabilities of the supplier with the desired

outcomes of the customer to create value for the“customer’s customer.”

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A Market Driven Firm

Market sensing capability …companies

ability to sense change and to anticipate

customer responses.

Customer linking …the ability to develop

and manage close customer

relationships.

Has:

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Marketing’s Cross FunctionalRelationship

Business marketing planning must

be coordinated and synchronized

with corresponding planning efforts.

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Keys to Cross FunctionalWorking Relationships

Communications

Perspective taking

Responsive

behavior

Compatibility

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The Marketing Mix:

The “4 P’s” of Marketing

Product Price

Promotion

Place

The

Marketing

Mix

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Marketing Mix: Product

+ Core Product

+ Financing Terms+ Delivery Options

= “Total Offering”

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 unit’s needs and maximizesthe value creation capabilities of

the marketer.

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Marketing Mix: Promotion

Consumer marketing•Emphasis is

frequently on

advertising .

•Communication withcustomers is often a

monologue.•Relationship is often

brief .

Business-to-business marketing

•Emphasis is frequently on

personal selling .

•Communication withcustomers should be a

dialogue.•Relationship is often long-

lasting .

Business-to-business marketing requires a different

emphasis on different parts of the promotional mix

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Marketing Mix: Place

Place is about getting the product to the customer in

order to maximize economic utility.

Economic

Utility

Form Utility (having the product in the rightsize package, quantity, etc.)

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 )

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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 themeasure of value

exchanged and is

determined by the

market (not by

costs).

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Differences between the twomarkets Industrial Consumer

Structure Fewer Buyers

Clustering

Large number.

Mass Markets

Products Complex, needcustomisation

Standardised for massmarkets

Buyer Behaviour Functional, Rational, Needof Relationships

Psychological motives,family involvement

Decisions Distinct, observable Mental, not observable

Channels Shorter, more direct Indirect, multiple

Pricing Bidding, Negotiations List prices anddiscounts

Promotions Personal selling critical Advertisng and BTL

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Business MarketCharacteristics

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.

8/3/2019 Intro I.M.


Consumer Demand andDerived Demand

Business demand isderived 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

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The Bullwhip Effect

1. Suppliers forecasttheir production on

existing order rates.

2. But, if consumer demand drops, the

order rate also drops.

3. Supply chain members are then likely to over-compensate the difference between the old and new

forecasts, because…

A. Inventory levels can decline to fit new order rate,

B. Customers change orders frequently,

C. Minimum order quantities may exist, and/or

D. Trade promotions may influence buying patterns

(discontinuities of B2B demand add to the bullwhip effect)

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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.

3. Suppliers of raw materials,

equipment, and supplies are

pressured to expand capacityand eventually do so.

The industry capacity increases in a discontinuous manner.

4. Industry

capacity increases

in largeincrements.

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Business-to-business demand tendsto be inelastic

Price elasticity :•It is the change in the quantity

demanded relative to the change in

price.•When the price changes by X% anddemand 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).

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Value Chain

The Value Chain•The chain of activities that creates something

of value for targeted customers.

The value chain

contains both

direct and

support

activities.

Direct activities contribute directly

to the offering.

Direct activities contribute directly

to the offering.

Support activities

makes it possible to

perform the direct

activities.

Support activities

makes it possible to

perform the direct

activities.

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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).”

The Supply Chain

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Longer term and closer relationships.

Closer interactions among multiple

functions. Supplier proximity considerations.

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Marketing ContiuumTransactional Relationship

To make a sale To create and retain a customer

Sale is the measure of success Sale is the beginning, for a long termprofit .

Business is defined by product andfacilities. Brand and the consequent

image is critical

Business is defined by relationships,value is added through technology;

knowledge information and socialties

Price is determined by competitiveforces.

Price is determined by co operationand negotiations.

Quality guided by technicalities Functional and a sum of multiple

interactionsValue by product and price. by present & future problem solving

capabilities

Stress on next sale. Satisfy customer by superior value.

Satisfaction measured by surveys. Can be measured directly

Internal interface not significant. Critical to delver satisfaction

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Types of Relationships

The buyer seller relationships are positioned on acontinuum with transactional exchange and

collaborative exchange serving as the end points.

The Relationship Spectrum

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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

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CLASSIFICATION OF

CUSTOMERS &

MARKETS

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Types of OrganizationalCustomers

Government

UnitsGovernment

Units

Nonprofit and

Not-for-Profit

Organizations

Nonprofit and

Not-for-Profit

Organizations

Commercial

EnterprisesCommercial

Enterprises

IndustrialDistributors

Value-AddedResellers

OriginalEquipmentManufacturers

Users or End Users

local,

state, and central

government units

Temples, Churche

hospitals,

colleges,

nursing homes,

etc.

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Industrial Distributors

Creates assortments of products from manymanufacturers

Particularly useful for reaching customers too smallto justify direct sales efforts

Commercial

EnterprisesCommercialEnterprises



Original

EquipmentManufacturers

Users or End Users

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Value-Added Resellers

Provides unique offering

enhancements tailored to a

customer’s needs by

combining products/servicesfrom other manufacturers.

Creates a value network at

the user level.

Commercial


Enterprises




Users or End Users

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Original Equipment

Manufacturers (OEMs) Purchase products

and incorporate those products

into their products.

Usually the largest-volumeusers of goods and services.

Ex: Intel is an OEM supplier to

many computer

manufacturers, Ceat was an

OEM supplier to Maruti for

many years.

Commercial

EnterprisesCommercialEnterprises



Original

EquipmentManufacturers

Users or End Users

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Users or End Users (E/U) A manufacturer that

purchases goods or servicesfor 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

manufacturer’s E/U.

Commercial


Enterprises

Industrial Distributors



Users or End Users

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Producer TypesCapital Goods Manufacturers

Adherence to specifications reduces

opportunities for differentiation.

Involves the development of

specifications to ensure that

organizational needs are met.

Capital goods involve large purchases

with considerable risk for the customer.

Customers expect an offering that

includes installation, equipment, and

accessories.

CapitalGoods

Manufacturers

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Producer TypesAccessory Equipment Suppliers

Accessory equipment is usually

produced by an independent supplier.

Accessories can be added to a

bundled offering by a channelintermediary.

Accessory equipment is equipment that

works with some other offering.

The key to providing value is to be

compatible with industry standards for

the primary offering.

AccessoryEquipment

Suppliers

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The Macro environment

influences

valuecreation.

Demographic

Environment

Economic

Environment

Socio cultural

Environment

Natural

Environment

Technological

Environment

Competitive

Environment

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An Adaptation of the ValueChain

An Adaptation

of the

Value Chain

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TheProductLife

Cycle

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The Technology Adoption LifeCycle

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PLC and TALC

Product Life Cycle(PLC) Introduction

Growth

Maturity

Decline

Technology AdoptionLife Cycle (TALC) Technophiles

Visionaries (aim for

“quantum leaps”) Pragmatists (want

proven solutions)

Conservatives

Laggards

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TALC and How Technology MarketsEvolve

Chasm A break in the sales growth curve for a new

technology.

A chasm occurs between visionaries and

pragmatists.

Tornado The chaos that occurs during a period of rapid

growth. A dominant supplier usually emerges from a

tornado.

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Using the Technology Adoption LifeCycle

The vendor of an innovation passes through

technophiles and visionaries before establishing a

foothold among pragmatists.

Crossing the chasm (called the “market developmentgap”) 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.

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Using the Technology AdoptionLife 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.

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The

Perspectiveof the

Buyer

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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

T t l C t C id ti f

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Total Cost Considerations of aProduct or Service

Factors that drive total cost.

Acquiring and managing costs.

Quality, reliability over the life cycle.

The value a firm/ customers.

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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

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P t C l it

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Procurement ComplexityConsiderations Technical complexity.

Scope of supply chain coordination

required.

Degree to which life cycle costs are

relevant.

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Purchasing Managers &Performance

The buying organization weights each

performance factor.

Organization assigns relative importance

to performance factors.

Is more objective and flexible than the

categorical method.

The Weighted –Point Plan

Government Contracts

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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.

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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.1. Cost-reimbursement contracts

• Reimbursement for allowable costs may be allowed andsometimes a number of dollars above costs as profit isallowed.

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Government Procurement

1. Defence-said to be the largest enterprise in

the world (DOD).

2. Non defence-procurement is likely to be

guided by world wide variety of agencies.

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Two Procurement Strategies

1. Formal Advertising—the government solicitsbids from suppliers, and usually the lowest

bidder is awarded the contract.

2. Negotiated Contract—used to purchaseproducts or services that are not differentiated

on price alone, competition is common.

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