Business marketing defined Industrial marketing consists of all the activities involved in marketing of products and services to organizations that uses products and services in u • Production of consumer or industrial goods • To facilitate the operation of their enterprises
Business Marketing Industrial Marketing is the marketing of the products and services to business organisations. u Business organisation include manufacturing companies, government undertakings, privatre sector, educational institution etc u
u Business marketing is the practice of individuals, or organizations, including commercial businesses, governments and institutions, facilitating the sale of their products or services to other companies or organizations that in turn resell them, use them as components in products or services they offer, or use them to support their operations. business marketing is also called business-to-business marketing, or B 2 B marketing.
THE SUPPLY CHAIN
Industrial versus consumer marketing management Less number of customers but large customers u Geographically concentrated market u Channels of distribution are shorter u Highly organized and well informed buyers u Promotional Characteristics (Business mktg is focused on personal selling) u Price Characteristics: Business mktg, price is fixed as per competitive bidding and negotiated prices. u
Characteristics of Business Maketing u Business may be defined as an enterprise engaged in the production and distribution of goods for sale in the market or rendering service at a price. The chief characteristics of the business are:
u u Creation of utilities: Business denotes creation of utility and service for satisfaction of human wants. Business helps in the creation, distribution and production of utilities. Recurring activities: Business activities are recurring in nature. Recurring purchase and sales are regarded as identifying marks of the business.
u Transfer of title: The goods produced or purchased by the business are made with the intention of sale or transfer of title from the seller to the buyer. Because of this reason goods acquired for the sake of personal consumption are excluded from business.
u u Mutual benefit: Business activities are not one sided affairs because both the parties are benefited. The buyer gets the benefit of having the goods and the seller gets the benefit of having money. Expectation of earning: Business provides a way of living to the businessman because he intends to earn profit.
Types of industrial customers Commercial enterprises Industrial suppliers Government agencies Institutions Hospitals, schools etc Lubricants Coal paper users OEMs Original equipment mfrs Steel Cement Raw materials Airplanes Typewriters guns Products Consumables
u Commercial enterprise: it includes private sector, profit-seeking organisation consisting of : Industrial distributors or dealers
Classification of industrial products u Material and parts • Raw materials • Components u Capital items • Installations(Heavy equipments) • Accessory equipment (Light equipment) Supplies and services u Supplies items includes paints, soaps, oil and grease u
These items are generally standardized & are marketed to a wide cross-section of industrial users. u Services: It includes services like building maintenance services, auditing services, legal services, marketing research services u
Market Segmentation and B 2 B Marketing qcompany size q. Behaviour or Needs q. Certainly large companies may be of key or strategic value to a business but some want a low cost offer stripped bare of all services while others are demanding in every way
u Size Segmentation Examples u Targeting companies who see $500 million/year in revenue. u Only targeting the largest companies in your region based on number of employees. u Segmenting By Vertical A hanger warehouse may only target companies in the retail industry, a graphic software firm may only target design departments or design houses u Segmenting by Geography u u u Segmenting by Behavior segmenting targets prospect groups based on their buying behavior. How are your customers using your product, how often are they using it, and what is the challenge your prospects face? Those questions, coupled with the propensity of your prospect to actually pull the ‘buy’ trigger, is the cornerstone of behavioral segmenting.
u Eg: selling enterprise software, you’ll probably have at least 4 sets of campaigns / messages aimed at different groups within the company: - business function: the department who’ll be using your software the most, focus on use cases, user benefits, features - IT: how it’s technically superior, integration options, reliability, security… - Finance: return on investment, compliance, legal requirements, financial credibility - Executive: strategic, case studies, overviews, hospitality
Chapter 2 Nature of Demand in Industrial Markets u Purchasing orientation & Practice of business customers u Environmental analysis in industrial/business u
Channel Characteristics u Inventory or stock control is very much important factor in the business organizations' therefore the distribution channels are needed more direct from the manufacturer to the customer in industrial marketing. u There a few channel alternatives, which are feasible in the industrial market than the consumer market
Distribution Channel
Nature of Demand in Industrial Markets The demand for industrial products and services does not exist by itself. It is derived from the ultimate demand for consumer goods and services. u Industrial demand is therefore, called derived demand. u
Derived Demand: – Industrial Customer buys goods and services for use in producing other goods and services. u Ultimately whatever is finally produced will be sold to the consumers. Hence the demand for Industrial goods and services is derived from consumer goods and services. u
Joint Demand; – Joint demand occurs when one industrial product is useful if other product also exists. u For eg: a computer cannot be operated without the monitor. u
Cross Elasticity of Demand: – u Elasticity is simply the change in demand from a change in price. Demand is “inelastic” if the % change in quantity demand is less than the % change in price. u
u u Complementary Goods • Complementary goods are those that are often used together, such as motor vehicles and gasoline or DVDs and DVD players. Complementary Illustration When the price of one good declines (or increases) and the demand for a related good increases (or decreases), then the two goods are considered complementary. For example, if the price of computers increases and the demand for software declines, computers and software can be considered complementary.
u u u Substitute Goods Substitutes are goods that are used in place of each other. Examples include CDs and digital music files, such as MP 3 s or ice cream and frozen yogurt. Substitute Illustration If a price increase for one good leads to an increase in demand for a related good, then the two goods are considered substitutes. An increase in beef prices, for example, followed by higher demand for chicken or pork, indicates that chicken or pork represent substitutes for beef.
Purchasing orientation & Practice of business customers u u PURCHASING ORIENTATION purchasing department occupied a low position in the management hierarchy, in spite of often managing more than half the company’s costs. Recent competitive pressures have led many companies to upgrade their purchasing department and elevate administrators to vice presidential rank. Today’s purchasing departments are staffed with MBAs who aspire to be CEOs-like Thomas Stallkamp, Chrysler’s former executive vice president of procurement and supply, who cut costs and streamlined the automaker’s manufacturing processes.
u u u Procurement Orientation: Here buyers simultaneously seek quality improvements and cost reduction. Buyers develop collaborative relationships with major suppliers and seek savings through better management of acquisition, conversion, and disposal costs. They encourage early supplier involvement in materials handling, inventory levels, just-in-time management, and even product design. They negotiate long-term contracts with major suppliers to ensure the timely flow of material. They work closely with their manufacturing group on materials requirement planning (MRP) to make supplies arrive on time.
: Types of Purchasing Processes Four product related purchasing processes are distinguished, u 1. Routine product: These products have low value and cost to the customer and involve little risk (e. g. office supplies). Customers will seek the lowest price and emphasize routine ordering. Suppliers will offer to standardize and consolidate orders. u 2. Leverage products: These products have high value and cost to the customer but involve little risk of supply (e. g. engine pistons) because many companies make them. The supplier knows that the customer will compare market offerings and costs, and it needs to show that its offering minimizes the customer’s total cost.
u u u 3. Strategic products: These products have high value and cost to the customer and also involve high risk (e. g. mainframe computers). The customer will want a well-known and trusted supplier and be willing to pay more than the average price. The supplier should seek strategic alliances that take the form of early supplier involvement, co-development programs, and coinvestment. 4. Bottleneck products: These products have low value and cost to the customer but they involve some risk (e. g. spare parts). The customer will want a supplier who can guarantee a steady supply of reliable products. The supplier should propose standard parts and offer a tracking system, delivery on demand, and a help desk.
u u u Buying Orientation: The purchaser focus is short term and tactical. Buyers are rewarded in their ability to obtain the lowest price from suppliers for the given level of quality and availability. Buyers use two tactics namely commoditization, where they imply that the product is a commodity and care only about price; and multi-sourcing where they use several sources and make them compete for share of the company purchases.
Environmental analysis in industrial/business
u u Economic What economic trends might have an impact on business activity? (Interest rates, inflation, unemployment levels, energy availability, disposable income, etc) Technological To what extent are existing technologies maturing? What technological developments or trends are affecting or could affect our industry? Government What changes in regulation are possible? What will their impact be on our industry? What tax or other incentives are being developed that might affect strategy development? Are there political or government stability risks? Socio cultural What are the current or emerging trends in lifestyle, fashions, and other components of culture? What are there implications? What demographic trends will affect the market size of the industry? (growth rate, income, population shifts) Do these trends represent an opportunity or a threat?
u u u Future What are significant trends and future events? What are the key areas of uncertainty as to trends or events that have the potential to impact strategy? Internal Analysis Understanding a business in depth is the goal of internal analysis. This analysis is based resources and capabilities of the firm. Resources A good starting point to identify company resources is to look at tangible, intangible and human resources. Tangible resources are the easiest to identify and evaluate: financial resources and physical assets are identifies and valued in the firm’s financial statements. Intangible resources are largely invisible, but over time become more important to the firm than tangible assets because they can be a main source for a competitive advantage. Such intangible recourses include reputational assets (brands, image, etc. ) and technological assets (proprietary technology and know-how). Human resources or human capital are the productive services human beings offer the firm in terms of their skills, knowledge, reasoning, and decision-making abilities.
Organizational Buying
Characteristics of organisational procurement Multiple influencers u Technical sophistication u Value analysis u Well established procedures u Longer term and closer relationships. u Closer interactions among multiple functions. u Supplier proximity considerations. u
Buying situations New task u Modified rebuy u Straight rebuy u organisational buying
Buying phases Recognition of a problem u Solution determination u Determining the needed item u Search for and qualification of potential sources u Acquisition and analysis of proposals u
The Buy grid Framework for Organizational Buying Situations
Buying center § § § The decision making unit Group of individuals who come together to make a particular purchase decision Power base
Buying center roles u Primary roles • Decision makers • Influencers u Secondary roles • Users • Buyers • Gatekeepers
Objectives in organisational buying u Task oriented • Price • Services • Quality • Assurance of supply • Reciprocity u Non task objectives
How purchasing activities influence buying behavior… u Material requirement planning (MRP) • • • u Just-in-time purchasing (JIT) • • u u Demand management Production management Material management Only one supplier Long term relationships Frequent supplies Precise quantity at precise time Centralized purchasing Buyer technology • On-line DSS, on-line order processing etc
Factors influence the size of the buying Centre Characteristics of the firm u Purchasing situation u Perceived importance of the product u
Psychological factors influencing decision making Difference in role orientation u Difference in information exposure u Perceived risk u
Conflict resolution strategies competing collaborating Own concern compromising accommodating avoiding Others concern
Sources of power in conflict resolution u Reward power • Ability to influence by granting monetary benefits u Coercive power • Ability to impose punishment u Legitimate power • Formal authority u Personality power • Ability to influence with personal charm u Expertise power • Information or knowledge power
Evaluation of supplier performance The categorical method u Weighted point method u Cost ratio method u
Weighted point method Factor Weight Actual performance Score Quality 40 90% acceptable 40*0. 9=36 Delivery 30 90% on schedule 30*0. 9=27 Price 20 125% of lowest bidder 100/125=0. 8 20*0. 8=16 After sales 10 60% on time 10*0. 6=6 Total score 85
Cost ratio method
Strategic Management in Business marketing
Mc. Kinseys 7 S model structure strategy systems Shared values skills style staff
Strategic Management Process
Opportunity matrix 10 Potential H attractiveness L 0 L Probability of success H 10
Threat matrix 10 Potential H severity L 0 L Probability of occurrence H 10
Boston consulting group model H Market growth rate Question Star mark L Cash cow Dogs H L Market Share
Business growth strategies Intensive growth u Integrative strategies u Diversification strategies u
Intensive Growth strategies Current market New markets Market penetration strategy Market development strategy Current products Product development strategy Diversification strategy New products
Integrative growth strategies Forward Integration u Backward integration u Horizontal integration u
Diversification growth strategies Concentric diversification u Horizontal diversification u Conglomerate diversification u
Assessing market opportunities Marketing research
Marketing research system u Marketing research is the systematic design, collection, analysis and reporting of data and findings relevant to a specific marketing situation facing the company
Suppliers of marketing research Students and professors u Internet u Syndicated research firms u Specialty marketing research firms u
Marketing research process u u Define the problem and research objectives Develop the research plan • • • u u u Data sources Research approaches Research instruments Sampling plan Contact methods Collect the information Analyse the information Present Findings
Characteristics of good marketing research Scientific method u Research creativity u Multiple method u Value and cost of information u
Market demand u Market demand for a product is the total volume that would be bought by the defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing programme
Demand measurement and forecasting Types of demand measurement Geographical Product level Time level
Segmentation, targeting and positioning in Industrial marketing
Segmentation, Targeting & Positioning u Levels of Market segmentation • Individual marketing • Segment marketing • Niche marketing • Mass marketing
Requirements for effective segmentation Measurable u Substantial u Accessible u Differentiable u Actionable u
Basis of segmentation in business marketing Macro segmentation u Micro segmentation u
Some Macro variables Industry u Plant characteristics u Location u Purchasing process u End use markets u
Some Micro variables u Organizational variables • • • u Purchase situation variables • • • u Purchasing situation / phase Product innovativeness Organizational capabilities Inventory practices Purchasing policies Structure of buying centre Individual variables
Market targeting u Process of market targeting • Evaluating the market segments • Selecting the market segments
Product planning
What is an industrial product… Basic properties u Enhanced properties u Augmented properties u
Product strategy involves continuous change u Product strategy issues revolves around • Changes needed in current products • Whether products should be added or dropped(product mix management)
Industrial product manager u u u u u Forecasting sales Product planning Pricing Product conceptualizations Initiating product changes Product re-engineering decisions Product mix management Production planning and capacity management Technical support to the selling team
Product life cycle – Course that a products sales and profits take over it’s life time – The PLC has four phases • • Introduction Growth Maturity Decline – The PLC concept can be applied to • Product class • Product form • Brand
Introduction stage u Characteristics • Low sales • High cost per customer • Negative profits • Innovators customers • Few competitors u Marketing objective • Create product awareness and trial
Introduction stage § Strategies § § § Product : Offer basic product Pricing : Cost plus pricing Distribution : Build selective distribution Advertising : Build awareness among early adopters and dealers Sales promotion : Heavy sales promotion to entice trial
Growth stage u Characteristics • Rapidly rising sales • Average cost per customer • Rising profits • Early adopters • Growing competitors u Marketing objective • Maximize market share
Growth stage u Strategies • Product : Product extensions, service, warranty • Price : Competitive pricing • Distribution : Intensive distribution • Advertising : Build awareness and interest in mass market • Sales promotion : Reduce
Maturity stage u Characteristics • • • u Peak sales Low cost per customer High profits Middle majority customers No of competitors begin to decline Marketing objective • Defend the market share while maximizing profits
Maturity stage u Strategies • Product : Features • Price : match or beat the competitors • Distribution : more intensified distribution • Advertising : Stress brand differences • Sales promotion : Increase to achieve brand switching
Decline stage u Characteristics • Declining growth rate • Low cost per customer • Declining profits • Laggards customers • Declining competitors u Marketing objective • Reduce expenditure and milk the brand
Decline stage u Strategies • Product : Phase out weak items • Price : Cut price • Distribution : Selective • Advertising : Reduce to minimal level
Product revitalization decisions u Identifying the causes for poor performance • Uncompetitive price • Production problems • Uneconomic batches • High cost of production • Wrong assessment of customer expectations • Low selling price
Product revitalization decisions u Corrective actions • Product modifications (cost reduction) • Increase the price • Product improvement • Decrease the price • Development of new market • Increased promotional expenditure • Revamping distribution channels
Product elimination decisions u Factors to be considered during product elimination decision • Full line policy • Corporate image • Sales of other products • Profitability of other products
Service marketing u Include all economic activities whose output is not a physical product , is generally consumed at the time it is produced and provides added value in forms that are essentially intangible
u Some service sectors … • Transportation • Communication • Retail trade • Finance, insurance and banking • Hotels and lodging • Government • Universities and educational institutions
Services are … Intangible u Inseparability u Heterogeneity u Perishability u
The services marketing triangle Company (management) Internal marketing External Marketing Delivery Employees Customers
GAPS model of service quality u u u Gap 1 - Difference between customer expectation and perception Gap 2 – Not knowing what customers expect Gap 3 - Not selecting the right service designs standards Gap 4 - Not delivering the service standards Gap 5 - Not matching performance to promise
Strategic innovation and new product development
What is new product New to the world u New product lines u Product variants u Improvements in the existing products u Repositioning u
Where do new ideas come from § § Within the company Customers
New product development process § § § Idea generation Idea screening Idea evaluation and preliminary business analysis Product development and testing Formal business planning commercialization
Organisational aspects in new product development • • Product managers New product committees New product departments
Formulating channel strategy Channel participants
What is a marketing channel u A marketing channel is a set of interdependent organisations involved in the process of making a product or service available for use or consumption
Key members of marketing channels u Manufacturer • Producer of product or service being sold u Intermediaries • Means channel member other than manufacturer or end user (wholesaler, retailer) u End users
Why marketing channels Demand-side factors • Facilitating the search • Assortment Sorting u Accumulation u Bulk breaking u Supply side factors • Routinisation of transactions • Reduction in no. of contacts • Carry inventory • Demand creation • Extend credit to end users • service
Marketing flows u u u u Physical possession Ownership Promotion Negotiation Financing Risking Ordering Payment
“Service outputs” Value added services created by channel members along with the product purchased by consumers are called service outputs u Typical service outputs include bulk breaking, spatial convenience, waiting and delivery time, assortment etc. u
Choosing the right distributor u u What marketing functions to assign Product line • Fragmented channels • Specialized products u Size and type of the distributor • Large and reputed distributors • Small distributors u u Exclusive or multiple distribution How to divide selling function b/w company sales team and distributors • House accounts and distributor accounts u Distribution policies
Marketing logistics Physical distribution and customer care
Logistics u In the business area, Logistics refers to the interrelation and management of all the activities involved in making products and raw materials available for manufacturing and in providing finished products to the customers when, where and how they are desired
Various logistical cost centres are Transportation u Inventory management u Warehousing u Material handling u Order processing u
transportation • Mode and carrier selection Road u Rail u Air u Pipeline u waterways u • Carrier routing • Vehicle scheduling
Inventory management u Inventory carrying cost • Inventory acquisition cost • Inventory service cost such as insurance • Storage space costs • Inventory risk cost
warehousing • Private or public facilities • Site location Market centered u Production centered u Intermediate u
Marketing communication Advertising and sales promotion §Sales management §
Advertising in business marketing u In business marketing advertising is required for • Reaching the buying influencers • Creating awareness • Enhancing the sales call effectiveness • Increasing overall marketing efficiency • Supporting channel members
Industrial advertising media Business and trade publications u Directory advertising u Consumer media u Direct marketing u • Mailers • Telemarketing • Catalogues and datasheets
Sales promotion in business marketing Trade shows u Premiums u Specialty advertising u Incentives u Publicity in business marketing u
Advertising funds What can we afford u Objective and task u Percentage of sales u Experimentation u Match the competition u
Developing message strategy Identifying the audience needs u Keep the message to important specifics u Case histories u Testimonials u Comparison Ads u Straight exposition u
Developing media plan Media class u Media vehicle u Reach u Frequency u Continuity (Length of the campaign) u Scheduling u
Advertisement evaluation u Advertisement impact assessment • Aided recall • Un aided recall TOM u SIM u OIM u • Message recall • Content recall
Sales management u The analysis, planning, implementation and control of sales force activities. It includes setting and designing sales force strategy, recruiting, selecting, training, compensating, routing, supervising, and motivating the personal sales force
Sales management Selling u Sales management u Salesmanship u
Sales as a career Good remuneration u Shortest route to the top u Other privileges u
Selling process u The steps that the sales person follows when selling, which include prospecting and qualifying, preapproach, presentation, handling objections, closing and follow ups.
Prospecting methods u u u u u Inquiries from advertising Centers of influence Chain of leads Cold calls Directories and mailing lists Group meetings and parties Internal records Observation Service personnel Trade shows
Pre approach or planning sales call u u Planning reflects professionalism Planning develops goodwill Planning builds confidence in sales person Planning increases sales probability
Approaching u Types of approaches • Complimentary approach • Reference approach • Sample approach • Customer benefit approach
Preparing sales presentations u An effective sales presentation should • Attention • Interest • Desire • Conviction • action
Recruiting Attracting the potential employees and making them apply for the job u Sources of people u • Persons within the company • Competitors • Non competing companies • Educational institutions • Advertisements • Employment agencies
The recruitment process Conducting job analysis u Preparing job description u Preparing the set of job qualifications u • Personality traits • Qualification levels
Compensating sales personnel u Various compensation elements • Fixed element • Variable element (commission, bonus, etc. ) • Fringe elements (paid holiday, sickness etc. ) • Reimbursement element
Selection process u u u Initial screening interviews Application forms Tests • • u u Intelligence tests Knowledge tests Personality tests Drug tests In-depth interviews Reference checks
Sales training Initial sales training u Refresher training u
Designing the sales training programme u Training objectives • Initial sales training • Refresher training u Contents of the sales training programme • • • Company knowledge Product knowledge Sales techniques and selling process Interpersonal skills Market and industry knowledge
§ Methods of group training § Lectures § Group discussions § Role playing § Video conferencing § CDs § Methods of individual training § On job training § Personal conference § Correspondence courses § Interactive video discs
§ Implementing sales training programme § location § home office § Field office § Regional office § Central training facility § Non company site (hotel, resort etc. )
Types of compensation plans Straight salary plan u Straight commission plan u Combination of salary and incentive plan u Bonuses u Fringe benefits u
Sales meetings are important for communication and motivational purposes u Exchange of information and ideas u Occasions for management to stimulate the sales force to raise the performance standards u
Evaluating sales performance u Quantitative performance standards • Quotas • Selling expense ratios • Net profit ratio • Territorial market share • Sales coverage index • Calls frequency / calls per day • Average cost per call
Qualitative performance standards u Job factors • • • u Product knowledge Understanding customer needs Service Personal factors • • • Punctuality Attitude Cooperation Adaptability Reliability
CRM and CB
CRM and CB u There are three ways to increase the profitability • Acquire more customers • Optimize the value from existing customers • Retain the right customers longer u u Of these three choices above, acquiring new customers is the most expensive affair and retaining the existing customer is the most economical Before we understand CRM, we should know the concepts of “life time value of customer” and “consumer touch points”
CRM While organizations should continue looking for customers new customers, they should also know it is worth a significant investment to keep them. CRM is the way to it. u With CRM suppliers generate loyalty, this in turn translates in to additional business at increasingly higher margins. u
Evolution of CRM Mass marketing u Target marketing u CRM u
Types of CRM Win back or save u Prospecting u Loyalty u Cross selling / upselling u
u u CRM is a multifaceted strategy that helps companies understand, anticipate and manage customer needs. CRM comprises the acquisition and deployment of knowledge about customers to enable a company to sell more of their product or services more efficiently Major thrust of CRM involves segmenting the customers on their value and offering appropriate differentiated services for each of these levels CRM ensures that individual customer needs are profitably satisfied at the right time in the right channel with right offer
The CRM begins with u In-depth analysis of customer behavior and attributes to achieve the complete knowledge of the customers, their habits and desires, and their needs. u Then applying the knowledge to the formulation of marketing campaigns and strategies
The CRM cycle An assessment phase u A planning phase u An execution phase u
Benefits of CRM With CRM practice, both suppliers and customers win u Prevents overspending on low value customers and under spending on high value customers u Improves customer retention u Inoculates customers from competition u Improves marketing return on investment u
u u u Customers get the best offer to meet their needs at the right time Customers get more appropriate mix of marketing message balanced with information Offers are made based on understanding customer profitability Products are packed according customer purchase patterns Service channels are customized to customer needs Sales and point of contact staff have detailed information about customer value, needs and attitude
Implementation of CRM u Strategy • Channel, segmentation, pricing, branding and advertising Segmentation u Technology u Process u organization u
Pricing policies
Pricing u Factors that influence pricing strategy • Customer demand • Competition • Cost and profit relationships • Government regulations
Cost analysis Fixed cost and variable cost u Economies of scale u The learning curve u
Scale of economy uc Production rate
Learning curve 10, 000 units 20, 000 units unit cost 30, 000 units Production rate
Pricing strategies u New product introduction • Market skimming Product has a patent protection u Highly valuable innovation u Product has a short life span u Potential competitors are distant in time u Uncertainty regarding markets price sensitivity u • Market penetration Market is highly price sensitive u Strong competition exist u Company’s goal is high market share u
Pricing policies u Discount pricing • Trade discounts • Quantity discounts • Cash discounts u Geographical pricing
Major and national accounts Centralised purchasing Large customers small customers Major A/c Minor A/c Decentralised purchasing National A/c ?
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