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Business marketing

  1. 1. Business Marketing
  2. 2. Nature of Business Marketing
  3. 3. What is Business Marketing? Business marketing also referred to as “Industrial marketing” or “B2B marketing” or “Organizational marketing”. Business marketing is the marketing of products & services to business organizations. Business organizations include: Manufacturing companies Govt. undertakings Private sector organizations Educational institutions Business organizations buy products & services to satisfy many objectives like production of other goods & services, making profits, reducing costs, & so on. Hospitals Distributors / Dealers ISB&M Consumer marketing is the marketing of products & services to individuals, families, & households. The consumers buy products & services for their own consumption. Business Marketing
  4. 4. B2B Marketing vs. Consumer Marketing Areas Industrial Markets Consumer Markets 1. Market characteristics • Geographically concentrated • Relatively fewer buyers • Geographically distributed • Mass markets 2. Product characteristics • Technical complexity • Customized • Standardized 3. Service characteristics • Service, timely delivery & availability is very important • Service, timely delivery & availability is somewhat important 4. Buying behavior • Involvement of various functional areas in both buyer & supplier firms • Purchase decisions are mainly made on rational/performance basis •Technical expertise • Stable interpersonal relationship between buyers & sellers • Involvement of family members ISB&M • Purchase decisions are mostly made on physiological / social / psychological needs • Less technical expertise • Non-personal relationship Business Marketing
  5. 5. B2B Marketing vs. Consumer Marketing Areas Industrial Markets Consumer Markets 5. Channel characteristics • More direct • Fewer intermediaries • Indirect • Multiple layers of intermediaries 6. Promotional characteristics • Emphasis on personal selling • Emphasis on advertising 7. Price characteristics • Competitive bidding & negotiated prices • List prices for standard products • List prices or maximum retail price (MRP) ISB&M Business Marketing
  6. 6. Industrial Demand Demand for new homes Derived Demand The demand for industrial products & services does not exist by itself. It is derived from the ultimate demand for consumer goods & services. Demand for furniture Demand for wood Industrial customers buy goods & services for use in producing other goods & services. Joint Demand Joint demand occurs when one industrial product is useful if other product also exists. Demand for pen Demand for ink Cross-Elasticity Demand Demand is „elastic‟ if the %age change in quantity demanded is more than the %age change in price. Cross elasticity of demand is the responsiveness of the sales of one product to a price change in another product. Price of Tea Back ISB&M Business Marketing
  7. 7. ISB&M Commercial enterprise Govt. customers Institutional customers Cooperative societies Business / Industrial customers Industrial Market & Environment Industrial distributors / dealers Original equipment manufacturers Users Intermediaries / middlemen, reselling to OEMs, users, Govt. firms For Exide (battery manufacturer), Telco, is an OEM For HMT, TVS-Suzuki is the ‘user’ Public sector units BHEL, ONGC, IOL Govt. undertakings Indian Railways, Defence units, State Elec. Boards Public institutions Govt. hospitals, prisons Private institutions Schools, colleges Manufacturing units Maharashtra Sugar Cooperative Society Non-manufacturing units Cooperative banks, housing cooperative societies Business Marketing
  8. 8. ISB&M Materials & parts Raw materials Manufactured materials Component parts Capital items Subassemblies Light equipment or accessories Installations or heavy equipment Plant & building Suppliers & services Industrial products & services Industrial Market & Environment Supplies Services Basic products like iron ore, crude oil, fish, fruits, vegetables Acids, fuel oil, steel, chemicals Semi-finished parts like bearings, tyres, small motors, batteries Semi-finished goods like exhaust pipe in motorcycle Hand tools, dies, computer terminals Furnaces, machines, turbines Offices, plants, warehouses, parking lots, real estate property Operating & maintenance suppliers like fuels, packaging materials, lubricants, paints, elec. items Legal, auditing, advertising, courier, marketing research agency Business Marketing
  9. 9. Marketing Implications for Different Customer & Product Types Materials & Parts products, for large OEMs or users, selling is done directly from a seller organization to a buyer organization. For smaller volume OEMs & users, standard raw materials or components are sold through industrial dealers or distributors as it is cost effective. If the components are custom-made, considerable interaction takes place between technical & commercial persons from both buyer & seller organizations. Selling is direct. Industrial salesman remain in close touch with various departments like purchase, finance, R&D, marketing, production & quality of buyer organizations as they influence the buying or payment releasing decisions. Personal contacts, product leaflets/brochures help as industrial marketer in communicating product & other information. For standard products, the factors which influence buying decisions are: Product quality & performance Delivery dependability Customer service Price ISB&M Payment terms Customer rapport Business Marketing
  10. 10. Marketing Strategy for Capital Items, Supplies & Services Capital Items (heavy machinery, office buildings, construction of factories etc.) Direct selling with extensive interactions, involving top executives from both sides. Negotiations take considerable time on key factors such as price, ROI, credit facilities, delivery period, installation time etc. Personal selling is the primary promotional method used. Suppliers Direct selling is used for large-volume buying firms. Distributors or dealers are used to market to diverse markets consisting of small & medium size companies. The purchase or materials department generally make buying decisions based on dependable delivery, price, & location convenience. Advt. in magazines, trade journals, local newspapers, & yellow pages are used to create awareness of the company & its products to potential users & distributers/dealers. Services (consulting, advising etc.) Buying firms contact the selling firms who have their reputation by way of word-of mouth. Continuation of service depends upon the quality, price, & timeliness of service. ISB&M Business Marketing
  11. 11. Purchasing Orientations of Industrial Customers Business buyers choose one of the three purchasing orientations Buying Orientation - Firms has narrow & short-term focus. Lowest price They follow the practice of Lowest Price where they select the lowest price supplier. Quality & availability are the “qualifying factors” for a supplier. Negotiation style – “I win-you lose”. Gain power Buyer firm gain power over suppliers by applying tactics like Commoditization – all suppliers provide similar technical services, product quality & product features. Price is the only thing to be negotiated. Multisourcing – the buyer firm asks quotations from various suppliers, & after negotiations, places order with many suppliers, who compete to get more share of buying firms purchase. ISB&M Business Marketing
  12. 12. Purchasing Orientations of Industrial Customers Risk Buyers avoid risk from buying from new suppliers. The tactics used for avoiding risks are • Follow the standard purchasing procedure of the company. • Depend on suppliers who have proved their performance earlier. Procurement Orientation – Purchasing firm has a strategic (i.e. long term) focus & is proactive. The buyers seek both quality improvement & cost reduction. Practices adopted by the company to fulfill the above objectives are: Collaborative relationship with major suppliers This results in quality improvements & cost reduction. The buyer & supplier have inter-firm teams who implement JIT delivery scheduling & quality assurance to attain zero defects level. Integrative negotiation – resources can be expanded to benefit both buyer & supplier. Working closely with other functional areas Buyers are involved in describing specifications of products & services ensuring quality & timely availability. ISB&M Business Marketing
  13. 13. Purchasing Orientations of Industrial Customers Supply chain management (SCM) Orientation – Focus is on how to improve the value chain from raw-materials to end users. Purchasing philosophy Deliver value to end users Using market research, the supply managers would understand the requirements of end-users. Outsource non-core activities The firm would outsource those systems or sub-systems that have become non competitive, are non-strategic, involve mature technology, & have qualified suppliers. Support collaborative relationships with major suppliers Partnering relationship requires cooperation, communication, trust, & commitment between buyers & suppliers. The objective is to lower total cost and/or increase value in order to achieve mutual benefit. ISB&M Business Marketing
  14. 14. Purchasing Orientations of Industrial Customers SCM Orientation Procurement Orientation Buying Orientation Raw Material Suppliers Component & Subassembly Suppliers Intermediaries (dealers) Final Assembly Manufacturer Consumers / End users Back ISB&M Business Marketing
  15. 15. Purchasing Practices of Industrial Customers Purchasing in Commercial Enterprise Depends on nature of business, size of the enterprise, volume, variety, & technical complexity of the products purchased. In large/medium organizations, purchase decision involves persons from departments like production, materials, quality, finance, engineering, & also senior management executives. Various techniques, such as material planning, supplier rating system, EOQ etc. are used by the buyer organization. Take use of in-house technical expertise when required. Major tasks in purchasing process are: Identifying potential suppliers Negotiating & selecting suppliers Ensuring right quality & quantity of material at right time A long-term business relationship with the suppliers Many commercial organizations have separated purchasing (material or purchase function) from manufacturing to form a distinct functional area, on the same level as marketing, finance, R&D etc. ISB&M Business Marketing
  16. 16. Purchasing Practices of Industrial Customers Purchasing in Govt. Units Get the name of the company & the products registered with the govt. units. Registration involves the submission of duly filled standard forms, product leaflets, & company details certified by a chartered accountant. Some govt. units depute their inspectors to inspect the company‟s manufacturing facilities before approving their registration. For standard products & services, tender notices are advertised in national newspapers, based on which suppliers procure tender fees. In closed & limited tender, tender inquiry is to only few (limited) suppliers who are registered with govt. unit for certain category of non-standard products. Based on the lowest price or the lowest landed cost, the orders are released on the lowest bidder. If the tender value is large, maximum order is placed on the lowest bidder (L1) & the balance order is distributed to more than two bidders (L2, L3, L4, .. etc) if they match the lowest bid. ISB&M Business Marketing
  17. 17. Purchasing Practices of Industrial Customers Institutional Purchasing & Purchasing in Cooperative Societies Institutional buyers are either the government or the private organizations. For govt. organizations, it normally follows the govt. purchase procedure. An industrial marketer should study the purchasing practices of each institutional buyer so as be effective in marketing the company‟s goods or services. Purchasing in Reseller’s Market Reseller market (replacement market) consists of industrial dealers/distributors whose main goals are profits & sales volume. Dealers / distributors select suppliers not only on product quality but also on the policies of the supplier‟s product. Supplier related policies which affect competiveness of traders are Sharing local advt. cost by the supplier Providing product leaflets or display materials Competitive prices & trade discounts Flexible payment terms with credit facility etc. Both reseller & supplier has to work harmoniously to beat the competition. ISB&M Business Marketing
  18. 18. Environmental Analysis in Business Marketing Air & water pollution, solid waste disposal, conserving natural resources Environment Ecological & Physical Water, power, skilled manpower, low-cost labor, transportation Company location, R&D facilities, production facilities, HR, Financial resources, marketing effectiveness, reputation or image of the company Internal Strength & weaknesses analysis External Micro Affect a particular firm Opportunity & threat analysis Macro Affects all firms ISB&M • Customers & competitors • Suppliers • • • • • Economic Technological Govt. & political, & legal Cultural & social Public-press, institutional investors, shareholders, banks, public interest groups Business Marketing
  19. 19. Strategies for Managing Industrial Environment Effective use of marketing mix such as 4Ps are not adequate for the survival & success in such a dynamic environment. The first step is the continuous gathering & monitoring of information on the relevant external environment. This is done by: Collecting information on customers & competitors through marketing & field sales persons. Analyzing trade & govt. publications. Carrying out marketing research & economic forecasting. These activities help the company to: Understand changes in customer needs. Monitor competitor‟s actions & strategies. Identify technological innovations. Consider the changes talking place in govt., political, & legal factors. Identify changes in demand of major customers & the total market. Consider the changes in any other relevant environmental factors. ISB&M Business Marketing
  20. 20. Strategies for Managing Industrial Environment The strategies to respond proactively & creatively for managing external environment Independent Strategies: These are the independent efforts of an industrial firm by using its own resources (or strengths). Pricing strategy based on competitors pricing. Product superiority through product development. Carry env. protection measure & creates awareness through corporate image advt. If the product is not performing well, a firm might decide to demarket in that geographic region. Cooperative Strategies: An industrial firm cooperates with other firms, industries, or groups in the environment. Industry associations like Confederation of Indian Industries (CII) & Federation of Indian Chamber of Commerce & Industries (FICCI) protect the Indian industries from unfair political or legal regulations of the govt. ISB&M Business Marketing
  21. 21. Strategies for Managing Industrial Environment Strategic Planning: An industrial firm carries out strategic planning by identifying longterm product/markets, based on forecasts of external env., analysis of its strengths & weaknesses, & its long-term objectives & goals. Backward integration – A company seeks ownership or control of its supply system. Eg., Set up new manufacturing plant for the product which earlier was procured from other supplier. Forward integration – A company seeks ownership or increased control on its distribution system. Eg., open own branches with warehousing facilities, in place of agents, in order to improve customer service. Horizontal integration – A company seeks ownership or control of some of its competitors. Eg., Reduce the competition by acquiring the management control of some competing firm. Back ISB&M Business Marketing
  22. 22. Organizational Buying & Buying Behavior
  23. 23. Purchasing Objectives The purchase / materials management objective is defined as buying the right items in the right quantity, at the right price, for delivery at the right time & place. Delivery / availability – Purchased goods are delivered when & where it is needed. Product quality – Consistent quality as per the specifications & product use. Lowest price – Lowest price consistent with availability & quality of the product. Services – Services accompanying the purchase of goods like: Prompt & accurate information from suppliers Technical assistance Spare-parts availability Repairs & maintenance capability Training (if required) Supplier relationship – Develop a good long-term supplier/vendor relationship & to develop new sources of supply. Buying members are influenced by both purchasing objectives of the firm & personal objectives like higher status, job security, salary increments, promotions, & social considerations (friendship, mutually beneficial relationships etc.) ISB&M Business Marketing
  24. 24. Purchasing Activities The industrial purchasing/buying activities consists of various phases/stages of buying decision making process called ‘Buyphases’. Phases in Buying Decision Process Recognition of a problem or need. Determination of the application or characteristics & quantity of needed product. Development of specifications or description of needed product. Early Supplier Involvement (ESI) Program: Involving purchasing persons as active members of cross-functional development teams. Search for & qualification of potential suppliers. Obtaining & analyzing supplier potential. Evaluation of proposals & selection of suppliers. Selection of an order routine. – Placements of orders, quantity, frequency, levels of inventory needed, follow-up of actual delivery to ensure delivery is as per schedule, payment. Performance feedback & post-purchase evaluation. ISB&M Business Marketing
  25. 25. Supplier Evaluation System Attribute (Factors) Weight (Importance) Supplier performance Supplier Rating Quality 30 0.8 30 X 0.8 = 24 Delivery 25 0.4 25 X 0.4 = 10 Price 15 0.6 15 X 0.6 = 9 Service 20 0.6 20 X 0.6 = 12 Flexibility 10 0.2 10 X 0.2 = 2 Total 100 57 The supplier(s) who gets the highest total score receives the business or the order form from the buying organization. ISB&M Business Marketing
  26. 26. Supplier Evaluation - Balanced Scorecards Technique The Balanced Scorecard (BSC) Framework Financial To succeed financially, Company should focus on financial objectives that will satisfy shareholders. Customer Which customer value company should focus on to achieve its mission? Mission & Strategy Internal-Business-Process To satisfy shareholders & customers, what business process company must excel at? Learning & Growth How can company improve & change to achieve its mission? The BSC is a new technique or framework that can be used to evaluate supplier performance in information age companies. It translates a company‟s mission & strategy into a set of performance measurements. ISB&M Business Marketing
  27. 27. Internal-Business-Process Design & Develop Product/Services Make/Buy Products/Services Innovation Processes Market Products/Services Operations Processes Identify Customer Needs & Market Company executives should identify the key internal processes in which the company must excel in order to – • deliver superior customer value Satisfy Customer Needs • satisfy shareholders with excellent financial performance ISB&M Business Marketing
  28. 28. Buying Situations Three types of buying situations also called ‘buyclasses’. New purchase (or New Task) – In this situation the company is buying the item for the first time. Risk is more Decision takes longer time More people are involved in decision making Change in supplier (or Modified Rebuy) – This situation occurs when the company is not satisfied with the performance of the existing supplier, or there is a need for cost reduction or quality improvement. Repeat Purchase (or Straight Rebuy) – This situation occurs when the buying organization requires certain products or services continuously & when such products/services has been purchased in the past. ISB&M Business Marketing
  29. 29. Buying Centre or Decision making Unit (DMU) The buying center is a useful tool which answers the question – Who are involved in buying decision in an industrial organization? Buying Center Roles Initiators – This category includes individuals who first recognize a problem or a need, which could be resolved by purchase of a product or service. Often users play this role. Buyers – Their major responsibility includes Obtaining quotations Supplier evaluation & selection Negotiation Processing purchase orders Expediting deliveries Implementing purchasing policies of the organization They are usually purchase officers. Users – Individuals who use the product or service that is to be purchased. They may be floor workers, R&D engineers etc. ISB&M Business Marketing
  30. 30. Buying Centre or Decision making Unit (DMU) contd.. Influencers – People who can influence the buying decision like technical people (QC engineers, design engineers etc.) Deciders – People (Senior executives / purchase executives) who make the actual buying decisions. Gatekeepers – People who control/filter the flow of information regarding products/services to the members of buying center. Key members of Buying Centre Top Management Persons (MD, President, VP, GM etc.) Generally involved in • Purchase policy decisions like diversification into a new product/project • Approval of purchase or materials department annual budgets & objectives • Deciding the guidelines for purchase decisions Technical Persons (Design Engr., Prod. Mgr., Maintenance Mgr., QC Mgr., R&D Mgr., Industrial Engr. etc.) Generally involved in product specification, technical evaluation, negotiation with suppliers, performance feedback of product supplied etc. ISB&M Business Marketing
  31. 31. Buying Centre or Decision making Unit (DMU) contd.. Key members of Buying Centre Buyer/Purchasers or Purchase Dept. (Sr. Exe., Managers, Purchase Officers or assistants) Generally involved in • Coordinate with Top Management, Technical persons, Finance persons within the org. as well as with suppliers. • Maintain good relationship with Suppliers & Decision making members. Accounts/Finance Persons (or Dept.) The contribution of finance/accounts are seen while finalizing commercial terms such as mode of payment, financial approval of capital purchases, issuing payments to suppliers etc. Marketing Function Ensure the product is marketable (packaging). ISB&M Business Marketing
  32. 32. Models of Organizational Buying Behavior - The Webster and Wing Model Environmental Variables • Physical • Technological • Economic • Political & legal • Labor unions • Cultural • Customer demands • Competitive practices & pressures • Supplier information Individual Variables • Personal Goals • Education • Experience • Expertise • Values • Job Position • Lifestyle • Income Organizational Buying Decisions • Choice of suppliers • Delay decision & search for more information • Do not buy Organizational Variables • Objectives/goals • Organization structure • Purchasing policies & procedures • Evaluating & reward systems • Degree of decentralization in purchasing ISB&M Buying Centre Variables • Authority • Size • Key influencers • Interpersonal relationship • Communication Business Marketing
  33. 33. Models of Organizational Buying Behavior - The Sheth Model Component (1) Component (2) Component (3) Differences among individual buyers caused by factors: • Background of individuals • Their information sources • Active search • Perceptual distortion • Satisfaction with past purchases Variables that determine if the buying decision is autonomous or joint: Methods used for conflict resolution in joint-decision making process • Problem solving • Persuasion/influence • Politicking ISB&M (A) Product specific factors • Time pressure • Perceived risk • Type of purchase (B) Company specific factors – • Company size • Company orientation • Degree of centralization Situational Factors Supplier or Brand choice Situational Factors • Economic condition • Labor disputes • Mergers & acquisition Business Marketing
  34. 34. Buyer-Seller Relationship
  35. 35. Buyer-Seller Relationship Development of mutually satisfying, profitable, long-term relationships with customers is a major business asset of an industrial marketer. Buyer’s perception of sales rep Is the industrial buyer rational or irrational Dimensions of BuyerSeller Relationship Role played by industrial buyer Role played by industrial sales rep ISB&M Business Marketing
  36. 36. Buyer-Seller Interaction – A Conceptual Framework Compatible Style Incompatible Style Compatible Content Incompatible Content Interaction Oriented Task Oriented Selforiented Styles of interaction ISB&M Business Marketing
  37. 37. Relationship Marketing Relationship marketing is a task of creating strong customer bond or loyalty. Transaction marketing is Add financial benefits transaction oriented buyer-seller interaction, which focuses on Add structural ties to financial & social benefits closing a sale with a customer. Approaches for developing customer bond This is achieved by single sales person. Add social benefits For large customer, companies are moving towards team selling & relationship marketing. ISB&M Business Marketing
  38. 38. Methods used to influence Industrial Customers Sales Presentation Get information about the buying centre members, needs of potential customer firms. A sales presentation must be tailor made to fit the needs & expectation of the potential customer. A sales presentation should first present the positive points about his products, services & company, & keep difficult or negative points at the en. Project the products/services as differentiator. Negotiation with Industrial Customers Negotiation is a process that tries to maximize the benefits to both buyer & seller, & takes long-term view of their relationship. Purpose | Information | Customer Trust | Styles of negotiation | Time factor Styles of negotiation I win, you lose | Both of us win | You win, I lose | Both of us lose ISB&M Business Marketing
  39. 39. Methods used to influence Industrial Customers contd.. Reciprocity It is a practice of buying from one’s own customers & also using purchasing power to sell to one’s supplier. When products are homogenous or products have little differentiation & price competition are less, reciprocal dealings are likely to occur. Caution must be exercised to keep it to minimum level. Dealing with Customer’s Customer One of the complexities in Industrial marketing is the need to deal with a customer’s customer & become the customer’s competitor. ISB&M Business Marketing
  40. 40. Customer Service In B2B, customer service is sometimes more important than the physical product. Customer service supplements the sales of physical product & creates a total value for a customer. The nature of customer service varies with the type of the product & the stage of PLC. ISB&M Business Marketing
  41. 41. Types of Relationship Transactional Exchanges or Relationships • It include one-time-only exchanges with economy & necessity as the main motivation factors. • Customers prefer a transactional relationship, when (a) many suppliers are available, (b) the supply market is stable, (c) the purchase decision is not complex, & (d) the purchase is considered as less important to meet firm’s objective. Value-added Exchanges • The focus is on complete understanding of the present & future needs of the customer, & meeting those needs better than competitors, so as to obtain a maximum share of the customer’s business. Collaborative / Partnering Exchanges • The focus is between a customer firm & a supplier firm, & it is the process of building strong social, economic, service, & technical ties over a period of time. • The purpose of partnering is to lower the total cost or increase value, in order to achieve mutual benefits. ISB&M Business Marketing
  42. 42. Marketing Strategies Concentrated Marketing - is a market segmentation and market coverage strategy whereby a product is developed and marketed for a very well-defined, specific segment of the consumer population. The marketing plan is highly specialized one catering to the needs of that specific consumer segment. Concentrated marketing is particularly effective for small companies with limited resources because it enables the company to achieve a strong market position in the specific market segment it serves without mass production, mass distribution, or mass advertising. Differentiated Marketing - also called multisegment marketing. It is a market coverage strategy whereby a company attempts to appeal to two or more clearly defined market segments with a specific product and unique marketing strategy tailored to each separate segment. Undifferentiated Marketing - market coverage strategy whereby a company ignores differences within a market and attempts to appeal to the whole market with a single basic product line and marketing strategy. Undifferentiated marketing relies on mass distribution and mass advertising, aiming to give the product a superior image in the minds of consumers. It is cost effective because there is only one product line to be produced, inventoried, distributed, and advertised. Also the absence of segmented market research lowers the costs of consumer research and product management. ISB&M Business Marketing
  43. 43. Marketing Strategies 4 criteria - mostly used in Business Marketing: Technological Contributions Dependence Purchasing Orientations Sales Potential (or Business Potential) Information for each customer is obtained by the sales person Customer are categorized into A, B, & C based on high, medium, & low business potential • Type A – Collaborative relationship • Type B – Value-added • Type C – Transaction relationship ISB&M Business Marketing
  44. 44. B2B Marketing through E-commerce
  45. 45. What is E-commerce? E-commerce is defined as a modern business methodology that addresses the needs of organizations & consumers to cut costs, improve the quality of goods & services, & increase the speed of service. It is also defined as the process of using digital technology for transmitting information between organizations. Important parts of E-commerce Internet World Wide Web (WWW) Intranet Extranet ISB&M Business Marketing
  46. 46. Marketing Strategy for Electronic Market Place Major Components of Marketing Strategy Segmenting & Targeting Product Differentiation & Positioning Identifying the target customers’ wants in terms of major benefits Selecting one or more benefits or niche for differentiation based on company’s strengths or distinctive competencies Communicating the company’s positioning to the target market Marketing-mix Strategies, i.e., Product, Price, Promotion & Distribution Strategies Web-design Domain name Distribution channel ISB&M Business Marketing
  47. 47. Logistics
  48. 48. Distribution Channels Manufacturer Mfg’s Rep / Agents Mfg’s Sales force / Branches Distributor / Dealer Valueadded Resellers Distributor / Dealer Direct Marketing Telemarketing Direct Mail Brokers Commission Merchants Online Marketing Industrial Customers ISB&M Business Marketing
  49. 49. Channel Design Framework Channel Objective Channel tasks Channel Constraints External environment Competition Company Product Characteristics Customer Channel Alternatives Evaluation of Alternative Selection of Channel Economic factors Control factors Adaptive factors ISB&M The type of intermediaries • VARs • Industrial distributors / dealers • Manufacturer’s agents • Brokers • Commission merchants No. of intermediaries / channels • Selective distribution • Intensive distribution • Exclusive distribution Terms & responsibility of channel members Business Marketing
  50. 50. Logistics Management – Business Logistics System Physical supply Industrial manufacturer Raw materials Components Material Storage Supplies Manufacturing Finished goods storage Physical distribution Tasks Transportation Warehousing Inventory control Packaging Material handling Order processing Communication Factory & warehouse locations Customer service Industrial customers Industrial distributors / dealers Total Distribution Cost = Freight + Warehouse Cost + Inventory Cost + Cost of Lost Sales due to Delayed Delivery ISB&M Business Marketing
  51. 51. Marketing Research & Intelligence
  52. 52. Marketing Research & Marketing Intelligence Marketing research is defined as the objective & systematic process of obtaining, analyzing, & reporting of data (or information) for decision making in marketing. It undertakes periodic projects to collect & analyze data with specific objectives. Marketing Intelligence is an ongoing activity to provide continuous information for decision making. Difference between survey method Areas of survey methods Industrial Research Consumers Research Sample size Small sample due to small universe (or population) & concentration of buyers Large sample due to large dispersed population Respondent cooperation & accessibility More difficult due to time constraints; accessibility is limited to working hours Less difficult to obtain data; accessibility is easier Defining respondent More difficult as buying decisions are made by several members of the buying committee Simple, as individuals or household users are the buyers ISB&M Business Marketing
  53. 53. Scope of Industrial Marketing Research Development of Market potential Market Share Analysis Sales Analysis Forecasting Competitor Analysis Benchmarking New Product Acceptance & Potential Business Trend Studies Sales Quota Determination ISB&M Business Marketing
  54. 54. Marketing Research Process Identify the problem / opportunity & define research objective Develop research design (or plan) Information type Sources of data Research methods Sampling plan Method of contacts Data collection method ISB&M Collect the data (or information) Primary data Process & analyze the data Present the research findings (or report) Observational | Exploratory | Survey | Experimental Secondary data Business Marketing
  55. 55. Industrial marketing Intelligence Marketing research studies Secondary data sources Marketing Intelligence System Decision Support System Marketing Strategy Development Market response Internal Information System ISB&M Business Marketing
  56. 56. Components of DSS Action Marketing Manager Question Answer Decision models Statistics Display Database Environment ISB&M Business Marketing
  57. 57. Strategic Planning, Implementing & Controlling
  58. 58. Market-Oriented Organizations Market-oriented organizations stay close to the customers & ahead of the competitors. Shared Values They understand the basic principle that the purpose of a business is to attract & satisfy customers at a profit. An effective strategic planning includes market-oriented strategies in which marketing function has an important role. Stakeholders Organization Strategy Factors Affecting the Market Orientation ISB&M Business Marketing
  59. 59. Marketing in Strategic Planning Strategy hierarchy (Type of management) ISB&M Organization structure Business Marketing
  60. 60. Role of Marketing in an Organization Organizational Level Role of Marketing Formal Name Corporate Provide information on competition & customer, & advocate customer orientation for developing long-term corporate strategy Corporate marketing Business Unit / SBU Provide competition & customer analysis for developing long-term business strategy, including competitive advantage Strategic marketing Develop segmenting, targeting, & positioning strategies Take product-line decisions Functional Evolve & implement marketing-mix strategy in short-term to achieve business unit objective Marketing management Coordinate marketing activities Allocate resources ISB&M Business Marketing
  61. 61. Developing Corporate Strategies Strategic planning gap is filled by: Current products New products Intensive growth Integrative growth Diversification growth Current markets Concentric diversification: consists of searching for new products that have technological / marketing synergies with firm’s existing products. Horizontal diversification: consists of adding new products technologically unrelated to the existing products. New markets Conglomerate diversification: consists of seeking new productmarkets that are unrelated to existing products. ISB&M Business Marketing
  62. 62. Strategic Planning Process at BU Level Define the business unit’s mission Scanning the ext. env. (Opportunity & threats) Analysis of the int. env. (Strength & weaknesses) Developing objectives & goals Formulating strategies for achieving the goals Preparing programme or action-plan from the strategies Implementing the strategies & action-plan Monitoring results & taking corrective actions (i.e., control) ISB&M Business Marketing
  63. 63. Business Unit’s Mission The business mission statement should have the following components: What business the company is in, & What business it intends to be in? What methods would be uniquely followed (which are different from competitors) in pursuing business activities? What is the social standing of the organization as a business entity? What business the company is in? [Thermometer manufacturer] Customer groups/segments: Who are being satisfied? Which customer groups an SBU intends to satisfy? [Household/Hotels/Health care/ Factories] Customer needs or functions: What needs of customers are being satisfied? [Body temperature/Cooking temperature/Atmospheric temperature/ Process temperature] Technologies used: How customer needs are satisfied? [Mercury-base/Alcoholbase/Digital] ISB&M Business Marketing
  64. 64. SBU’s Objective & Goals Corporate mission Corporate objectives & goals SBU Mission SBU objectives & goals Company history SBU’s business strategy Current preferences Market environment Marketing strategy Company’s resources Company’s core competence ISB&M Business Marketing
  65. 65. Formulating Strategies at BU Level Porter’s Generic Strategies Framework Strategic Advantage Strategic Target Uniqueness perceived by the customer ISB&M Low-cost position Industry wide Particular segment only Business Marketing
  66. 66. Developing Industrial Marketing Plan Section Contents Situational analysis Market situation Includes data on market size, growth, projections, sales, market share , & profits for past 3/5 years. It also indicate target customer needs, buying behavior, buying stage, & buying situations. Competitive situation Consists of identifying, ranking, market share, objectives & strategies, strength & weaknesses, & reaction patterns of major competitors. Product situation Includes data on sales, unit price, profits for each major product item in the product line for past 3/5 years. Macro-env. situation Consists of identifying PEST factors & then forecasting the future trends & the impact on the product. SWOT analysis Includes identifying major strengths, weaknesses, opportunities, & threats faced by the product. Issues analysis Consists of determining major issues faced by the firm, based on situational & SWOT analysis. SWOT & issues analysis Objectives & goals ISB&M Determine sales, market share, & profit, considering the env. & issues analysis done earlier. Business Marketing
  67. 67. Developing Industrial Marketing Plan Section Contents Marketing strategy Selection of target market segments. Positioning strategy relative to competitors. Marketing-mix strategy. Customer service & marketing research strategy. Action plan Each marketing element is broken down to specific actions to answer: Who will take the specific action, by when, & at what cost? Marketing budget Building the revenue & expenditure budget. Revenue budget includes forecasted sales in units, average unit price, & sales revenue. Expenditure budget includes estimated marketing expenses on personal selling, promotion, distribution, etc. Implementation & control Building marketing org. to implement the marketing plan. Control includes periodic review of actual performance against goals & taking corrective actions. Contingency plans Some firms prepare contingency plans in case uncertain situation arise. ISB&M Business Marketing
  68. 68. Controlling Marketing Performance Setting Goals Performance Measurement Performance Analysis Taking Corrective Actions ISB&M Business Marketing
  69. 69. Types Marketing Controls Strategic Control (Marketing audit) Annual Plan Control Efficiency Control Profitability Control ISB&M • • • • The firm’s marketing opportunities & strategies Use of information technology Impact of changing environment Strategy implementation • Sales analysis • Market share analysis • Expense-to sales ratio • Profit/contribution analysis • Customer satisfaction monitoring • The control system provides information on the resources like money & manpower used in product, promotion, distribution, & pricing strategies & tactics • Purpose is to find if the company is making or loosing money • Companies measure the profitability of each product-line & productitem, each market segment, each branch, & each distribution channel Business Marketing
  70. 70. Product Strategy & New Product Development
  71. 71. What is an Industrial Product? The industrial product is defined not only as a physical entity, but also as a complex set of economic, technical, legal, & personal relationship between the buyer & the seller. From customer’s point of view, a product is a combination of basic, enhanced, & augmented properties. Basic properties are included in the generic product, with fundamental benefits sought by the customer. Generic products are made differentiable by adding tangible enhanced properties like product features, styling, & quality. Augmented properties include intangible benefits such as technical assistance, availability of spare parts, maintenance & repair services, warranties, training, timely delivery, & attractive commercial payment terms. ISB&M Business Marketing
  72. 72. Changes in Product Strategy Customer Needs Technology Factors determining change in product strategy PLC Govt. Policies / Law ISB&M Business Marketing
  73. 73. Industrial Product Life Cycle – General Model Industrial products typically follow the pattern of sales & profits. The behavior of PLC depends on three factors on which management has little or no control. Different marketing strategies are needed at different stages of PLC. Changing needs of customer Technological Changes Changing Competition Sales & Profits (Rupees) The PLC concept highlights the importance of long-term planning for a new product. +1 0 -1 Introduction Industry sales Industry profits Growth Maturity Decline Time ISB&M Business Marketing
  74. 74. Sales Industrial Product Life Cycle – High-tech Products Time NPD I&G M Decline NPD = New Product Development I&G = Introduction & Growth M = Maturity Period ISB&M Business Marketing
  75. 75. Locating Industrial Products in their LifeCycle Develop a trend analysis for the past 3-5 years based on information for a product on quality, value of sales, profit %, market share, no. of competitors & prices. Analyze competitors’ market share, product performance, new product introduction, diversification or expansion plans. Estimate & project sales & profits of the product over the next 3-5 years. From the above analysis, fix the product’s position on its life-cycle curve. ISB&M Business Marketing
  76. 76. Developing Product Strategies for Existing Products Evaluate the performance of all existing products or product lines by using product evaluation matrix. By using perceptual mapping technique, examine the relative strengths & weaknesses of the company’s products in comparison to competitors’ products. Based on the above analysis, decide the product strategies for the existing products. ISB&M Business Marketing
  77. 77. Product Evaluation Matrix Company Sales Profitability Below Industry Mkt Target Sales Share Decline Target Stable Above Target Below Target Target Growth Above Target Dominant Growth Average Dominant Average Marginal Dominant Decline Average Target Above Target P Marginal Stable Below Target S1 Product ‘P’ (Last 3 years) Market Share = 40% Company Share = 30% Industry Sales = 25% Profitability = as / target S Product ‘S’ (Last 3 years) Market Share = 12% Company Share = 15% Industry Sales = 16% Profitability = below target Marginal Market Share less than 10% = Marginal Market Share between 10% to 30% = Average Market Share greater than 30% = Dominant ISB&M Business Marketing
  78. 78. Perceptual Mapping Technique High Quality B* This technique is used to study the strengths & weaknesses of a firm’s product in comparison to that of its competitors. A1* A* Old Position Strong Service Weak Service C* New Position Deciding Product Strategies Maintain the product & its marketing strategy. Modify the product & change the marketing strategy. Eliminate the product or product line. Low Quality ISB&M Add new products or product lines. Business Marketing
  79. 79. Product Elimination Dropping the product or product line is the most controversial decision as many stakeholders are threatened by this decision. Factors to be considered: Will the customer relationships be affected? Will the profitability be affected due to change in overhead allocation? What will be the reaction of the employees? Will the sales of other products get affected? Is there a new product to replace the eliminated product? Will the company’s image be affected? What will be the possible competitive reactions? ISB&M Business Marketing
  80. 80. New Product Development Classification of New Products: Products that are innovative & new to the world. Products that are new to the company, but not new to the world. Revisions or improvements to the existing products in the existing markets. Additions to the existing product lines with additional markets. Repositioning existing products to new market segments. Products with substantial cost reductions without reduction in performance. ISB&M Business Marketing
  81. 81. New-Product Development Process Is the new product in line with the long-term objectives & strategies? Do we have adequate resources? Is it useful to the customers? What is the future growth, market size, & competition? A detailed version of the product idea that is stated in a meaningful customers’ terms. The purpose is to develop an estimated projection of the sales, costs, & profitability of the new product for 5-7 years. Design Process Engr. Final product Tooling Mfg Testing Alfa & Beta testing Introduction at trade shows Testing at distributors/dealers showroom Test marketing ISB&M Business Marketing
  82. 82. High-Tech Marketing High-Tech includes a wide range of industries such as telecommunications, computers, software, biotech, & consumer electronics. Two major characteristics that distinguish hi-tech marketing are: Product Technology High Technological Uncertainties High Market Uncertainties Other characteristics that distinguish hi-tech marketing are: Technology High Competitive Volatility Management Technology Process Technology Short life or High-tech products High Development Cost ISB&M Business Marketing
  83. 83. High Technological Uncertainties Will the product function as promised? Will the promised delivery be met? Will the supplier give high quality service? Will there be a risk of obsolescence? Will there be any side effects of the new Product/Service? ISB&M Business Marketing
  84. 84. High Market Uncertainties Which are the customer needs that new technology can meet? How will needs change in future? Will the market accept technical standards? How fast will the innovation spread? What is the size of the potential market? ISB&M Business Marketing
  85. 85. Technological Uncertainty Classification of Marketing Situations Low-tech marketing includes known technology applications to meet clear & well known market needs. E.g., Pump sets High Hi-fashion marketing consists of known & slow changing technology applications to meet difficult to predict consumer needs. E.g., Motion pictures, fashion clothes. Hi-tech marketing consists of difficult to predict both technology applications & market. E.g., Biotechnology products. Low Low High Market Uncertainty ISB&M Better mousetrap marketing includes a new technology to meet well-established market. E.g., Water purifying system. Business Marketing
  86. 86. Technology Adoption Life Cycle Early majority (34%) Early adaptors (14%) Late majority (34%) Laggards (16%) Innovators (3%) Time of Adoption of Innovation ISB&M Business Marketing
  87. 87. Unique nature of High-tech Marketing Strategy Target a Niche market Plan Whole Product Properties Develop Partnerships Distribution Strategy Communication Strategy Unique Positioning Strategy Pricing Strategy ISB&M Business Marketing
  88. 88. Business Communication
  89. 89. Steps to Develop Effective Communication Determine the communication objectives Identifying the Target Audience Determining the Promotional Budget Develop the Message Strategy Select the Media Evaluate the Promotional Results Integrate the Promotional Programme ISB&M Business Marketing
  90. 90. Role of Advertising in Industrial Marketing Creating awareness Reaching members of buying centre Increasing sales efficiency & effectiveness Efficient reminding Sales lead generation Supporting distribution channel members ISB&M Business Marketing
  91. 91. Promotional Tools & Media Promotion Tools Advertising Sales Promotion PR & Publicity Direct marketing Personal Selling Promotion Media, & Promotion Support Print media Trade shows Charitable donations Direct mail Sales calls General business publications Exhibitions Adopting villages Telemarketing Sales presentation Trade journals Catalogues Community relations On-line marketing channels Team selling Industrial directories Sales contests News item in press Relationship marketing Promotional novelties (gifts) Seminars Promotional letters Entertainment ISB&M Business Marketing
  92. 92. Pricing Strategies & Policies
  93. 93. Pricing & Factors Influencing Pricing Decision Pricing is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product. Pricing objectives Survival Maximum short-term profits Maximum short-term sales Maximum sales growth (Market penetration) Maximum marketing skimming Product-quality leadership Demand analysis Cost analysis Break-even analysis Competitive analysis Government regulations Price discrimination Predatory pricing ISB&M Business Marketing
  94. 94. Cost Behavior at Different Production Levels – Economies of Scale Cost / Unit (in rupees) 300 200 100 0 100 200 240 300 Quantity Produced / Year (in thousand) ISB&M Business Marketing
  95. 95. The Pricing Strategies Competitive bidding in competitive markets Probabilistic bidding Pricing new products Skimming strategy Penetration strategy Pricing across the product life-cycle Growth stage pricing Maturity stage pricing Decline stage pricing ISB&M Business Marketing
  96. 96. Thank You