Industrial MarketingAlso called: Business-to-Business (B2B) and Organizational Marketing.Definition: the creation and management of mutually beneficial relationships between organizational suppliers and organizational customers.Customer can be private firm, public agency, or nonprofit organization. 3
The Marketing ConceptCreating value for customers with goods and services that address organizational needs and objectives. 4
Marketing ConceptThree major components: All company activities should begin with, and be based on, the recognition of a fundamental customer need. A customer orientation should be integrated throughout the functional areas of the firm: production, engineering, finance, R&D. Customer satisfaction is viewed as the means to long-term profitability goals. 5
Strategic Focus Grid High Follower InteractCustomerFocus Isolate Shaper Low Low Technology Focus High 6
Market OrientationAcquire intelligence from the external environment.Disseminate that intelligence throughout the organization.Respond to the intelligence: take action. (Kohli and Jaworski 1990, Journal of Marketing) 7
Marketing Mission StatementState in terms of meeting customer needs, not in terms of products or technologies.Marketing Myopia (Levitt 1960 HBR) 8
Marketing ActivitiesIdentify customer needsResearch customer behaviorDivide market into manageable segmentsDevelop new products/servicesEstablish/negotiate pricesDeliver, install, service productsEnsure adequate and timely supply of products at correct placeAllocate resources across product linesCommunicate with customersEvaluate/control marketing programs 9
Marketing MixLimited number of variables under Marketing’s control to create position that is attractive to the target market segment.Four Ps Product Price Promotion Place (Distribution) 10
So what’s different about B2B?Marketing ConceptMarketing MixMarket SegmentationProduct Life CycleAll apply in both B2C and B2B. 13
So what’s different about B2B?The technical characteristics of the product are important.These products directly affect the operations and economic health of the customer.The customer is an organization rather than an individual consumer, or family. 14
Five Major Differences Between B2B and B2CProducts/Services being marketedNature of demandHow the customer buysCommunication processEconomic/Financial factors 15
Products/ServicesMore complexFunctional vs. Symbolic AttributesLarge unit dollar value/Large quantitiesCustom/TailoredVarious Stages from raw material to finished goods.Foundation, Entering, Facilitating Goods 16
Raw Material Extraction Material Processing Manufacturing Parts/Subassembly Facilitators Assembly DistributionWholesale/Retail Trade Final Consumers Firms in Production Chain 17
Nature of DemandDerivedJoint/SharedConcentratedInelastic 18
How Customer BuysGroup ProcessFormalLengthyLoyalDecisions based on risk and opportunity 19
CommunicationPersonal selling more important than mass paid advertisingSupport sales with other promotional activities: advertising in trade journals, catalogs, trade shows, direct mail, WWW.Message focused on technical, factual, and descriptive content.Multiple audience members. 20
Economic/Financial FactorsCompetition oligopolisticPower/Dependency relationshipsReciprocity:Doing business with companies that do business with them.Economic variables: interest rates, inflation, business cycle 21
PurchasingUsually the main point of contactBoundary spanning functionChecks and Balances Purchase requisition Written purchase order Negotiated/bid prices and terms Contract Receiving report Invoice
Major Tasks of PurchasingIdentify/evaluate suppliersNegotiate prices and termsPurchase contractMatch delivery and production schedulesExpedite ordersHandle returnsMonitor changes in prices, markets, and regulations
Strategic ImportanceHistorically, not a top-level functionNow seen as: a major source of cost savings, contributor to operational efficiencyMaterials Management Concept: Buying Storing Moving
Life-Cycle CostingInitial Costs Purchase price to vendor, freight, insurance, trainingStart-up Costs Paid to other than vendor: modifying facilities and complimentary/support infrastructurePost-purchase Costs Maintenance, repairs, power, financing, inventory costs, and space requirementsSalvage Value Recovery amount: resale, trade-in, scrap
Value AnalysisReducing cost without reducing quality or effectiveness. Also called value engineering.Cost/Benefit trade-offRedesign, standardization, less expensive manufacture, substituteFive stages: information gathering, speculation, analysis, execution, reporting.Reverse engineering/absorptive capacity
Time-Based Buying StrategiesSpeculative BuyingBuying in excess of foreseeable requirementsInflation or short-term price dropAdded inventory/carry costsRisky May buy too much Prices may not go up
Time-Based Buying StrategiesForward BuyingBuying in excess of current needs, but not foreseeable needsTake advantage of quantity discounts or volume freight ratesProtect against temporary shortages or delays due to unreliable vendors or transportation
Time-Based Buying StrategiesJust-in-TimeParts and materials arrives as neededNo luxury of excess inventory against: Human error, machine breakdowns, or defective partsRequires cooperative relationships Substantial investments (e.g. computer systems), short lead times, reliable deliveries, intensive communication, long-term purchase commitmentReduced cost, quicker response, fewer delays, simplified administration, and higher quality
Technology Impact(TLA, or Alphabet Soup)Materials Requirement Planning (MRP)Electronic Data Interchange/Internet (EDI)Web-Based Procurement (WWW)Enterprise Resource Planning (ERP)
Materials Requirement PlanningSystematic determination of current and foreseeable needs for materials and parts.Uses economic order quantity (EOQ) models, probability theory, and statistical demand forecasting.Three Inputs Production schedule Bill of materials Inventory record fileDoesn’t work well for large volume, long lead times, or irregular/infrequent purchases
Electronic Data Interchangeand the InternetComputers communicate without regular involvement of managers.Not the World Wide WebLarge investment in equipment and software. Can use third parties.Timely, accurate, simpler, cheaperDis-intermediation vs. Sales ProductivityMarketing intelligence: Can track customers, order quantities, purchase frequencies, and prices over time.
Web-Based ProcurementQuick, low-cost access to get data on suppliers and their offerings.On-line catalogs and purchasingSearch engines help gather informationThree procurement models: Catalog-based Auction-based Bid-based
Enterprise Resource PlanningInternal software-based systemTies together all basic processes of the business Order taking, inventory control, production, financial systems, etc.Lengthy implementation (Years)Return on Investment questionable Costly to convert data, modify procedures, overhaul networks.
ValueMay not be tangibleValue is PERCEIVED by the buyerCan enhance value: Packaging Support services Reliability Warranties Training
Selling to Organizations ISocial as well as economic dimensionIndividual behavior contributes to the mission.Formal reward system for individualsBad purchasing decisions Interruptions in production/operations Reduction in product quality Slowdown in distribution Dissatisfied customers Wasted resources Higher costs/lower sales and cash flow/lower profit
Selling to Organizations IIUsually formal contractsExtensive search for suppliersNegotiationLong buying processMultiple suppliersLong-term, loyal relationships
Why?Reduce risk of mistakesFormal policies and informal culture
Business CustomersFewerConcentratedNeed long-term relationships because they are not easy to replace
Technical ComplexitiesProducts and services, and their applications can be complex.New technologyInterface with existing technologyCustomHigh standards (e.g. clean rooms, surgical suites)
Commercial ComplexitiesSo much is open to negotiation Product, price, terms, discounts, warranties, delivery, training, service, returns, etc.Liability, nonperformancePOWER$ize of deal, characteristics of parties, the deal, # of parties involved, complexity of products
Behavioral ComplexitiesNegotiating not just with purchasing agent, but multiple parties from multiple functional areas in the organizationThe more people involved, the more complicated it getsTechnical and commercial complexity can exacerbate the behavioral complexity
Who’s on first?Key decision maker(s)Important Product/Vendor attributesAccess to key decision makersCustomer purchasing policies and procedures
The Buying Center RolesInitiatorBuyerUserInfluencerDeciderGatekeeperNot really a center at all. Group decision process.
Rational Decision-Making?Purchasing for business, not selfPurchaser being judged on performanceFiduciary responsibilityFormal structure and procedures # bidders Evaluation criteria Multiple signatories
Rational Decision-Making?Emotional and Social Factors Friendship Like/Dislike vendor/rep Personal/Professional Favors Influence of others in organization (+/-)Personal/Departmental Needs & Objectives may not match those of the organization.Conflict
Rational Decision-Making?Manage process to control social & emotional influences.Need to have good decisions being made.
BuystagesNeed recognition (May not be decider)Solution characteristics/quantity (Specs)Describe solution in detail (Make/Buy)Find qualified sources (product +)Receive/analyze proposals (price +)Evaluate proposalsSelect supplierEstablish order routineFeedback/Evaluate (FOLLOWUP)
Buying ScenariosNewness and past experience with productAmount/Type of information needed by influencers/decidersNumber of alternativesCommon buying situations (buyclasses) Straight rebuy Modified rebuy New task purchase
Structural PerspectiveVertical Involvement: # levelsLateral Involvement: # functional areasAbsolute Size: # peopleConnectedness: Direct communication among buying center membersCentrality: Degree of communication regarding purchase flowing through purchasing department
Power PerspectiveAbility to influence or make buying decisions; often situation specificTypes Reward: $, social, political, Ψ Coercive: punish, penalty Referent: personality, charisma, persuasion Expert: specialized knowledge Legitimate: formal position/title
Risk PerspectivePurchase decision is risk reducing behaviorProbability of Loss x Magnitude of Loss (What about consequences?)Risk mitigation strategies may help to make the salePERCEIVED uncertainty
Problem-Solving PerspectiveRoutine orders: little riskProcedural: How to use product. Learning/trainingPerformance: Can product meet need?Political: Internal politics, departmental squabbles (legitimate and petty)
Reward PerspectiveIndividual motivationInfluenced by evaluation & rewardIndividual values and objectives; brought from department to buying centerAgency Theory
External Environmental Organizational Influences Influences Buyer Center Dynamics Individual InfluencesBuyer Center Model
From Single Sale to SymbiosisDiscrete Repeat Brand/Source Dyadic StrategicTransactions Transactions Loyalty Relationships Partnerships Perspective Short-Term Long-Term
Shifting ObjectivesSales Revenue: “Close the Deal.” Transaction PerspectiveMarket Share: “Own the Market.”Operating Profit: “Generate ‘acceptable’ rates of return on product, segment, channel investmentCustomer Equity: “Capture desired portion of Customer’s Lifetime Value
Industrial LoyaltiesTake longer to establishLast longerMore difficult to dissolve
Loyalty FactorsTask Concerns Quality, Delivery, Service, PriceOrganizational Concerns Politically safe, minimal benefit for changeWork Simplification Concerns Makes it easier, too much trouble to changeAttitudes Toward Source Buyer’s attitude toward company and people
Relationship MarketingStrong, Lasting TiesEarned TrustSuccessful Long-Term ExchangesStructural and Social BondsCooperation/CollaborationLong-Term, personalized, mutually beneficial, based in deep understanding of customer needs and characteristics
Relationship MarketingStrategic OrientationBoth Buyer and Seller are committedLong-TermMutually BeneficialCollaborationWin-Win
Relationship Marketing: Reality or LipService?Requires more commitment than most are willing to make.Most take tactical steps rather than strategicShortcomings observed: Locking in the customer: Needs to be win-win Informality: legal, strategic, outcomes Primarily non-financial investments: Capital equipment is important Avoiding Dependency: Flexibility over commitment Unilateral: Buyers should initiate Not all customers are worth the investment One size never fits all
Relationship Strength Affected By:Volume of purchasesFrequency of contactExtent of collaboration in product developmentTechnical distancePhysical distance(See Table 4.1)
Some Helpful Criteria for SelectingPartnersHigh risk of losing accountImportant customerCustomer open to partnershipCan improve relationshipCultural match (Not Gateway/IBM: cows and suits)Potentially mutually beneficialCan add benefits in serviceGood competitive position
Market SegmentA group of existing or potential customers sharing some common characteristic that is relevant in explaining or predicting their response to a company’s marketing program.
Market SegmentationIdentify sub-markets within marketDecide which one(s) to pursue (target)Design marketing mix(es) to be attractive to targeted segment(s)
Segmentation Strategies Undifferentiated Mix 1 (A-E) A B Mix 2 (C) C Differentiated Mix 2 (E) D Concentrated Mix 3 (E) E
HomogeneityKey to successful segmentation: everyone in the segment is the same on segmentation basis, not necessarily on multiple bases.Can think in terms of the “typical” segmentation member, and create the marketing mix that positions your company in the most attractive place.
Segment Selection IAttractiveness Long-term profitability +Judgments Use market research and forecasting Size Likely market share/segment Long-term profits
Segment Selection IISelect and prioritize based on: Time (Sales force) Effort (Customer service) Money (Promotions)
Segment Selection IVAfter selection, study deeper Patterns in buying behavior Assess strengths and weaknesses of competitors Identify areas of competitive opportunity
PositioningDesign marketing program(s) to cater to distinct needs or problems of target segment(s).Marketing Mix Product Price Place Promotion
Degrees of SegmentationUndifferentiated: One marketing mix for the entire market.Reality Differentiated Concentrated NicheOne-to-one: The ultimate segmentation Every customer is a market segment.
Why Segment?Efficiency Optimize firm resources Target most promising customers Rifle vs. ShotgunEffectiveness Match capabilities to needs/wants/problems Pinpoint prospects Identify/Exploit competitor weaknesses
Usefulness CriteriaDoes the segmentation fit firm’s strategy?Are there homogeneous sub-groups in the market? Needs Buying behaviorsCan the segments be measured? Potential?Are the segments accessible? Reachable via unique marketing mix
Selecting Target Segment(s)Fit with company image and experienceResponsiveSubstantialCompetitiveProfitable
How to allocate resourcesQuantitative Financial: Revenue & Profitability Marginal return ContributionQualitative Non-financial, strategic benefit Image Insulation from competition Access to technologies ControlCost-Benefit
Micro StrategyCharacteristics of decision-making process and buying structure of customer organization. Perceived importance of purchase Relative importance: product/vendor attributes Attitudes toward vendors Vendor selection rules Buying center structural Power of key departments in buying center Key member: personality, demographics
Nested ApproachHierarchical structureStart with macro and work down to microSee Figure 5.6, page 144
Why do research?The external environment is dynamic.Knowledge becomes outdated.To gather more informationBetter Information Better Decisions
LimitationsManagers NEVER have all of the relevant information that they need.Constraints of time and money Desired information is often more costly than it’s worth. Decisions are time sensitive. Can’t wait for all of the information.
When NOT to do researchGood research has already been done.When decisions have been made and won’t be altered by new information.When management does not understand scope necessary and won’t commit $.Don’t have talent, won’t hire.Uncertainty reduction justifies cost.
Marketing Research TasksEstimate market potentialAnalyze market share/share of customerTrack competitorsIdentify market characteristics & trendsAnalyze sales dataSales forecasting: Existing/new products
Key ConcernsReliability: measures/methods yield consistent results Xt1 ≈ Xt2 ≈ Xt3 ≈ Xt4Validity: research measures what it says it measures; i.e. little or no error XA ≈ XM; or XA = XM + Є, and Є ≈ 0
Types of DataPrimary New information generated for specific task. Can be expensive/time consuming. Gather by survey, tests, observation, focus groups, interviews.Secondary Existing information. May not be in useful form. Sources: government, trade/professional associations, company records
QuestionnairesAsk what you want to knowWatch lengthAestheticsEasily understood; watch vernacularSocial desirability biasNon-response biasQuestion order effects
Coding-Analysis-InterpretationData entry tedious. Mistakes are made Need to clean dataUse statistical tools to analyze data. SPSS/SAS Can data mineImportant to understand analysis What results means Limitations of method
B2B vs. B2C Research ITechnology Need to understand technical needs of customersDirect economic effect Quality/Price trade-off very importantOrganization, professionals Understand multiple players, in socio-political setting
B2B vs. B2C Research IISmaller #s of buyers to studySmaller sample sizesSecondary data often existsTough to get buyer’s attention for researchNeed to know which buyer(s) to studyNeed technical knowledge for researchSurveys take longer, cost more
Marketing IntelligenceContinuous flow of information Strategic and Tactical Systematic and periodicBetter understanding of environment over timeCollect from variety of sourcesCustomers, competitors, regulators, etc.Constant vigilance
Marketing Intelligence System IPeople, Procedures, ComputersAcquires, Disseminates, Interprets, Stores information about internal and external environments
Marketing Intelligence System IITransform raw data to useful informationCan organize information by customer, competitor, product line, territory, activitySources Internal: sales, service, accounting External: government, trade associations, competitor literature, customers, publicationsOutput Periodic reports Special information needs
Decision Support SystemsComputer-aided decision-makingInvolve analysis, not just retrievalDatabase: Repository of dataStatistics: Analyze dataModel: Patterns in the data; relationshipsOptimization: Decisions leading to best outcome given model
What is strategy?Recognize and interpret opportunities (and threats) in the environment.Capitalize on these opportunities (and threats) in a timely fashion.
Characteristics of StrategyBased on clearly defined objectivesTake comprehensive approach to organization problemsAdopt long-term viewFlexible Planning is everything. The plan is nothing. Dwight D. Eisenhower
Why have strategy?State where company wants to be and how it plans to get there.Ensure long-term prosperity.Coordinate efforts throughout the organization.Have an idea what to do when things don’t go according to plan.
Goal of strategyMatch organization’s core capabilities to its environment to gain/maintain competitive advantage.Strategies at multiple levels Overall corporation SBU Product Lines/Markets
Strategy vs. TacticsStrategy Long-term overall plan = Σ TacticsTactics Short-term Action-oriented Narrow, immediate goal
Strategy QuestionsDoes it match environment?Assumptions valid?Basic elements consistent?Feasible?Risk mitigated?Rewards adequate?
Strategy TypesGrowth strategy: Product/Market-BasedPrimary/Selective Demand Growth (Product Category vs. Own Brand)Strategic Target/Advantage (Porter)
Growth Strategies Existing New Market ProductExisting Penetration Development Markets Market New Diversification Development Products
Demand Development Market Potential Industry Sales Sales Company SalesPrimary Secondary Time
Strategic Marketing ManagementEmphasize a continuous search for competitive advantage (lower cost or higher perceived value).Maximize portfolio or product line rather than every product. Product strategies: Build for future profits Reap profits Fill product line (RTE Cereal) Defend against cheaper competitors Support other products (ink jet printers)
Price ChangeLow Long-Term ImpactLow InvestmentLow RiskEasy to implement quicklyEasy for competitor to respondHigh chance of similar competitive response.
Reengineer Existing Products/ProcessModerate Long-Term ImpactModerate InvestmentModerate RiskModerately easy to implement quicklyModerately easy for competition to respondHigh likelihood of competitor responding with similar action
New Products/Major Process ΔHigh Long-Term impactHigh InvestmentModerate-High RiskDifficult to implement quicklyDifficult for competitor to respondLow chance of competitor responding with similar action
Potential Pitfalls of PlanningLow motivation to plan Justification; HabitPoor planning abilities Art (creativity) and Science (analysis) “Plans are nothing, planning is everything” (Eisenhower)Unanticipated environmental changes Contingency Plans and Continuous Updating Goldilocks Forecasting
Planning ToolsProduct Life CyclePortfolios BCG Matrix GE PortfolioExperience CurvesTechnology Life Cycles “Killer Aps” Creative Destruction
Strategy: Planned or HappensIntentional vs. Emergent Planned Strategy Crafting Strategy
ConceptsKiller ApplicationsMoore’s Law (Intel) (2X Transistors/Chip or 2X speed every 18 – 24 monthsMetcalfe’s Law: Network externalities and complimentary products (Telephone, www)Coasian Economics: Transaction costsFlock of Birds (not seagulls) Technology is nonproprietaryFish Tank Phenomenon: Startups compete
Closing ThoughtsStrategy cannot be discussed separately from marketing.Marketing is an integral part of the process of developing and implementing strategy.
Why innovate?Maintain/Gain competitive advantageCustomer needs & wants changeCompetitors’ offerings changeNew products are a significant portion of many companies’ revenues.
Dynamic Theories of CompetitionDickson 1992, 1996Hunt 2002Hunt and Morgan 1995, 1996, 1997Innovation is central to gaining and holding competitive advantage.
Root of TheoriesJoseph Schumpeter 1934, 1942Some firms are always innovating, looking for an edge over competitors.Not satisfied with status quo.Creative Destruction World-Changing Innovation: telephone, automobile, airplane, television, computer, Bakelite
Innovation Dilemmas VGenius vs. Persistence Inspiration vs. PerspirationBreaking the rules of the game vs. playing a different game Discontinuity; Creative Destruction
Innovation Dilemmas VIFirst to market does not equal success Need complimentary assets (Teece 1988) Market needs to be ready
Risks INatural tendency to resist change Don’t want to learn new things Threat of taking resourcesHigh failure rates Hasn’t been done beforeExpensive
Risks IIEconomic FailureEffect on company imagePsychological well-being of company after failure (also myopia of success)Drain on company resources Cash FlowDistraction of managementCannibalism
Reasons for FailureNo marketToo much competitionCompetitor leap frogEnvironmental myopiaCan’t deliver on promisesPrice
Internal IncompetencePoor technical assessmentLoose screening criteriaMarket potential over/under-estimatesSloppy financial analysisWeak quality control in productionUnder-estimating competitor’s strengths & customer loyaltyBias in marketing research
Dimensions of Success IKeys to success Product Uniqueness/Superiority Market Knowledge/Proficiency Technical and Production Synergy
Dimensions of Success IISuccess Facilitators Marketing Resources Strength of Communications and Launch Large, Growing Market with Need
Dimensions of Success IIIBarriers to Success No Economic Advantage Extremely Dynamic Market Customers Already Satisfied
Dimensions of Success IVFactors of Unknown Impact Market-entry order Pre-commercialization proficiency Dominant Competitor in Market Production Start-up smoothness Newness of product to company Project magnitude/technical complexity Clear product demand Customer Attitudes
Innovation CharterInnovativeness How radical How riskyProactiveness (Offensiveness) Lead vs. followSynergy Compatibility with current products and resources
Characteristics of InnovativeCompaniesOrganizational commitment to innovationEntire organization involvedAttention to MarketingEffective design/developmentGood Communication (Internal/External)Management Skills/Professionalism
Process of InnovationIdea GenerationScreeningTechnical Feasibility AnalysisProduct TestingProfitability AnalysisTest MarketingMarket LaunchLife-Cycle Management
Organizing for InnovationSee Table 8.6, pp. 260-1Notice that each has certain advantages and disadvantagesThere is no one right wayTask DependentResource Dependent
Marketing-R&D InterfaceHouse of QualityIt takes both sides of the organizational brain working together to be successful.Each has talents and knowledge that compliments the other.
ProductsMarketing is exchange, and the product is what the company is offering.
TimeNew industrial products can take years to develop. Technologies Patents Packaging From prototype to reliable commercial productStrategies for the supporting parts of the marketing mix (price, promotion, and distribution) take weeks or months to develop.
Product vs. ServiceTangible/IntangibleCaterpillar Tractor vs. Federal Express DeliveryCustomers are really buying “solutions.”Caterpillar provides intangible services to support products.FedEx uses tangible products to support services.
ProductsEach product should be thought of as a bundle of problem-solving attributes, or a package of benefits.Each product can be evaluated on four levels. Core Product Tangible Product Augmented Product Communicated Product
Core ProductThe primary benefit sought by the customer. An engine would provide the power to make an automobile run. A tractor will enable a farmer to till the field. A computer will allow an organization to keep records, and communicate. A desk will provide employees a place to work.
Tangible ProductThe physical aspects of the product. Quality Features Options Styling Color Packaging
Augmented ProductServices/extras that support the product. Warranties Delivery Installation Training Service Tech Support
Communicated ProductThat which the company uses to present the product to its customers Brand name Logo/trademark: Identity Positioning Image
StrategiesGenerally we think of moving out from the core benefit as the best strategy.However, a competitor’s product advantage might be diffused by moving back in.
Uniqueness of Industrial ProductsBroad range of products: trucks, factories, staples.The type of product has implications for the development of the marketing strategy and tactics.Can qualify products along 8 dimensions.
Eight Product DimensionsStandardized/CustomizedSimple/ComplexLow/High Unit CostSystem Part/Stand AloneSold in Volume/Per-Unit BasisReady to Use/Requires InstallationUnfinished Good, Component/Finished GoodConsumed Quickly/Over Many Years
ServiceDeed, Performance, EffortService Experience delivery of service attributes to customerVisible Components: Front Office, Customer sees Personnel, facilities, equipment (Quality Cues)Invisible Components: Back Office Internal Operations, Customer does not see Administration, purchasing, accounting, computer operations, maintenance, employee training
Dry dock: Boat building and boat repairs (Ketchikan, Alaska)
Unique Characteristicsof Industrial ServicesIntangible (Most distinguishing characteristic)Perishable (can’t inventory)Often consumed at purchase (simultaneous)Difficult to gain production economiesCustomized more frequently than productsConsumed in irregular patterns typicallyGenerate less customer loyalty than products
Industrial vs. Consumer Services INon-convenience type: Custom, impact $, searchTransportable Brought to customer (Auditing, Legal)Not as conducive to mass production/marketingCustomer (as individual) does not become part of the service. (Janitorial vs. Haircut) Often service is performed on facilities, equipment, or end products.
Industrial vs. Consumer Services IIPeople intensive (capabilities, experience, background), but also expensive equipmentSophisticated, knowledgeable customers with specific expectationsFormal buying process; tangible evidence of ability (cues, referrals)Longer term, more stable relationshipsDemand patterns more stable/predictable
Classifying Products and Services Based on TangibilityConsulting Corporate FurnitureIntangible Retreat Tangible
Most Companies Sell BothFew pure products or pure servicesOften companies sell complementary products and servicesConsultants may sell software to implement their recommendationsSecurity service might also install equipmentAdvertising medium might also design ads
Product/Service Line DecisionsCannot make decisions on isolated products or servicesDecisions must be made holistically.Some products/services support othersSome might protect market shareMight use one to set up demand for more profitable after-sale service or products
Mixes, Lines, and ItemsMixes are largest group: Total set of items/lines Nokia Mobile CommunicationsMid-level are lines: Related Items Tech, production, cost, distribution, customer aps Can have sub-lines by P/Q Nokia Cellular TelephonesItems are within lines: Specific Offering Nokia 3210 Cellular Telephone
Assess Item RelationshipsCross-Elasticity Effect of one product/service on anotherPositive Cross-Elasticity Substitute one product for another Product from lower end lineNegative Cross-Elasticity Complimentary products Computer and Printer
Breadth, Length, & Depth IBreadth is the number of different lines carried by the company. Not just #s, but Consistency: tech, production, distribution, customersLength is the number of items in a given line. Shallow (few items) or Deep (many items)Depth is the number of variations of a particular item in a line.
Breadth, Length, & Depth IISee example of 3M, Figure 9.5, pg. 288.Do not spread company too thin, or offer products that do not capitalize on core competencies.Shallow lines may appeal to fewer segments; deeper lines may be inefficient.Depth may grow with PLC, until decline stage
Managing Product Quality IPRODUCT QUALITYHow well do the product specifications meet customer needs? How well does the product design conform to these specs?How well does the product conform to design?How well does the product perform?: Reliability, Safety, Durability, Maintainability
Managing Product Quality IISUPPORT QUALITY How well does product meet customer’s needs at and after sale?DELIVERY QUALITY Timely delivery
Managing Product Quality IIIMarketers need to ensure that delivered quality meets or exceeds customer expectations.Goal is a satisfied customer.Tracking cost of quality; benchmarking. Negative costs: of defective products Positive costs: of eliminating defects
Managing Service QualityMatching service features/characteristics to customers’ needsMore difficult to do with intangible services vs. tangible productsEstablish formal service standards
Service Standards IFocus on the major components of the service experience (people, equipment, tangibles)Technical Quality What the customer receives: audit rpt, market rpt.,… General know-how, equipment, abilitiesFunctional Quality How the customer receives service: professionalism Reflects attitudes and behaviors of contact employeesNeed both functional & technical working together
Service Standards IIDifficult to measureSubjective measures easier to administer than objective measuresObjective: On-time deliver %Subjective: Customer judgment of sales performanceSERVQUAL (See Table 9.4, pg. 295)
Positioning IHow the firm wants the product/service lines to be perceived by the customers. (Not where the store is located!)Perceptions about underlying benefitsPerceptions about how they compare to competitors’ offeringsUse the marketing mix (4 Ps) to create position
Positioning IIAttribute (Reliable: UPS)Price/Quality (Cheap: USPS)Competitor (Away/Against)Product Application (Medical, Transportation)Product User (Medical, Finance, Trucking)Product Class (Locks as security: Schlage)
Perceptual Map High QualityPoor Service Excellent Service Low Quality
PricePrice is unique among the 4 Ps in that it directly affects the company’s revenues and profits.Pricing is both a science and an art.Diligence and creativity are both necessary.Pricing seems to be the one “P” that has been dramatically affected by the use of the Internet.
Characteristics of Industrial Prices IIncludes more than list or quoted price Delivery & Installation Discounts (quantity, promotion, remit time) Training costs Trade-in allowance Promotions: 2 for 1 Financing costs
Characteristics of Industrial Prices IINot an independent variable. Pricing interacts with: product, promotion, and distribution strategiesMust consider complementary or substitute products when establishing price strategy
Characteristics of Industrial Prices IIIPrices can be changed by: Changing price paid by buyer Changing quantity/quality offered by seller Changing premiums or discounts Changing time and place of payment Carry Tax/Cash Flow implications Changing time and place of transfer of ownership Delivery
Characteristics of Industrial Prices IVPricing often set through competitive bidding on a project-by-project basis Don’t know competitors’ prices Negotiation may be used instead (some insist)Emphasis on fairness Need to justify price increases Also justify higher prices
Characteristics of Industrial Prices VAffected by economic factors outside company’s control: Inflation Long-Term contract (escalation clauses) Interest Rates Currency Exchange Rates Affects cost of materials Affects price of exports
Price = f(Value)Need to set an initial price that is neither too high (hurts sales) or too low (lost profit)Value has two major dimensions: Customer’s subjective estimate of product’s capacity to satisfy a set of goals Objectively established by the competitive market. “What the market will bear.”
Economic Value to the CustomerPurely economic sources of valueNeed to compare life-cycle costs of your product and substitutesIf incremental value is high enough to justify a higher price, then there is EVCSometimes it takes a convincing sales effort to help customer see the value
What’s it worth to the customer?How much money can customers save by using our product?Can the product help them increase sales or reach new customers?Does the product provide a competitive advantage?Does the product improve the safety of the products the customer sells? ( Value)How much time can customer save by buying product vs. making themselves?
Market-Based Pricing StrategiesFloor: just cover costsPenetration: lower than marketParity: match marketPremium: skimmingPrice Leadership: everyone plays follow the leaderStay Out/Keep OutBundle: Multiple products/servicesValue-Based: Segment pricingCross-Benefit: “Gotcha” (Razors, Ink Jet)
Strategic Pricing Programs:StructureBasic: One price, no discounts, everyone pays the sameLacks flexibility, limits salesLow Cost competitive advantage in pricePrice moves toward costs in PLC, until endCreative Pricing: empty seats, box filler, late cancellations, season, demand, advance purchase, customer loyalty
Strategic Pricing Programs:Levels/TacticsActual price charge w/discountsAcceptable range that conveys valueOdd ($2,999) vs. Round ($3000)Ensure adequate price gaps between itemsModify for costs, competitors, market ΔsTiming: not arbitrary, justify to customerSends signals to customers/competitorsRebates, 2/1, trade-in, etc.
Pricing ProgramStrategy, structure, level, and tactics all work together. They must be coordinated.Strategy may be long lived (several years).May need to modify structure periodically. Offer special price deals.Levels and tactics need to be monitored closely and changed as needed. Address competitor changes In response to cost changes As demand changes
Pricing Decisions: What Lies Beneath?Most companies use multiple pricing strategies.If the firm sells complimentary or substitute products, they are more likely to use product line strategies (e.g., bundling).ObjectivesCostsDemandCompetition
Objectives/StrategiesDifferentiation Higher Margins Fewer competitors are substitutes Increased brand loyaltyMoving to low price from premium-quality position can hurt sales, not helpRecoup development costs over longer period of time. Otherwise run risk of sales numbers that are too low to ever recoup costs.
CostsEstablishes the minimum priceSet price based on target margin or returnCan price below cost to: Keep employees and facilities working during downturn Support other products in the line Low bid to establish relationship. Make $ in long term, or on extras Experience or reputation New skills
Standard Cost ApproachTarget Return Pricing Need accurate sales forecast: standard volume Variable costs and fixed costs/unit: standard costs P = DVC + FC/Q + rK/Q P: Price DVC: Direct Variable Cost/Unit FC: Fixed Cost r: Rate of Return K: Capital Used Q: Standard Volume (units)
Standard Cost ApproachCan include interest rates on debt, tax rates (perhaps different countries for mfr and sales), or inflation factors.Don’t raise prices to counter weak sales; Don’t drop prices too quickly eitherNeed reliable standard volume estimateInitial low price may increase volume, which in turn lowers per unit fixed costs
Contribution AnalysisTrade off between price and units soldTotal Revenue – Total Variable Cost = Variable Contribution MarginFixed Costs ÷ Contribution/Unit = Break Even Sales Volume (minimum sales)Estimate change in volume for changes in price and compare to break even (Maximum sales/profit
DemandSets the upper limit of priceNeed to understand customer’s reasons for buying product; how they use itHard Benefits Physical Attributes: hp, productivity, durability, error rate, performance tolerances Soft Benefits Warranty, service, other augmented productBalance benefits to customer against the costs (price +)
CostsPrice + (delivery, modifications, financing, maintenance, operation, less salvage)CT machine $500K-$1MM to purchase Also costs ~ $100K/year to operate and maintain Cost to prepare facilities to houseRisk (defect, poor performance) CostWhat trade offs are the customers willing to accept? Slower delivery; Low service priority Higher, chunkier inventory Larger purchase commitment
Elasticity of DemandSensitivity of customer’s quantity demand to changes in priceUsually demand has a negative slope (higher price lower demand)Issue is how steepSometimes must hit a threshold level before there is a change in elasticity Substitutes become more palatable as prices rise
Determinants of ElasticityAvailable substitutesNecessity of productRelative size of purchase $$$Differentiation of product/StandardizationCustomer switching costsEase/Difficulty of comparison (Complexity)Third-Party Payer (Pass-Through)Price/Quality AssociationTime (Payment due, need for product)
Industrial ProductsTend to have inelastic demandEspecially if technically sophisticated, customized, or crucial to operationsRoutine purchases more elasticSituational elasticity: customer and market circumstancesIncumbents push uniquenessChallengers push substitutabilityElasticity can vary across segments
Cross ElasticityCompliments Lumber and nails, drill presses and bits Negative cross elasticitySubstitutes Shipping by train vs. truck, Company B vs. A Positive cross elasticity
CompetitionNeed to monitor continuouslyAnticipate changesRelatively easy because there are relatively few suppliers and few customersTends to be oligopolisticStructure: concentratedPrice Leader Sets the tone for pricing Usually the organization with the best cost structure (competitive advantage)
Four Strategic Pricing OptionsPressure PricingOpportunistic PricingGold-Standard PricingNegotiated Pricing
Pressure PricingMarket leader maintains fairly stable price levelPrice not dictated by demand fluctuationsPrice increases controlledControls market entry
Opportunistic PricingFollow the swings of the marketRaise prices as high as elasticity will allowRaise prices as high as customer goodwill or loyalty will allowLower prices as demand drops
Gold-Standard Pricing William Jennings Bryan Cross of Gold Speech
Gold-Standard PricingShort run policyQuote all customers the same priceIgnore specific circumstances
Negotiated PricingTailor pricing to each customer (or segment) based on Elasticity Competitive Alternatives Type of Customers
PLC Pricing ICritical at Introductory StageSets the tone for future pricing decisionsPenetration pricing (low) Higher sales, lower margins Can leave too much on the tableParity pricing (match)Premium/Skimming pricing (high) Can get highest margins Risk competitive entryAlways easier to lower prices than to raiseDon’t try to recoup R&D costs too quickly
PLC Pricing IIGrowth: New competitionMore specialized need segments developProduct extensions developedScale economies and experience curve start to come into playPrice ranges narrow; convergence on market priceDownward pressure on pricing
PLC Pricing IIIMaturity: Market more saturatedCompetition aggressive and entrenchedProduct may be cash generator (Cash Cow)Focus is on repeat sales/internal cost efficiencyCompetition more heavily priced based; but stop short of price warMaximize short-term direct product contribution to profit
PLC Pricing IVDeclineMay raise price to capitalize on remaining, inelastic demand, orLeave prices stable, cut expenditures, let product die, orCut price, toward break-even, use as loss leader to sell complimentary products
Competitive Bidding IMost common with public projects governmental agencies custom, technically complex products long manufacturing cyclesUsually the low bidderNot always in private sector Consider bidder qualifications (See AGC form)
Competitive Bidding IIInvitation to Bid: RFP published Newspaper Private Publications: Dodge ReportsUsually very precise plans and specifications that become part of the purchase contractMay have to provide a performance bond to ensure that the product/service will be completed. Bid bonds less common.
Competitive Bidding IIISealed/Closed Bids Due at same time Open all at once One time pricingOpen/Negotiated Bids Iterative process Combines bidding and negotiating Web bidding has facilitated this process
Competitive Bidding IVQuestions to consider: Is project large enough to bid? Are the specs precise enough to do an accurate bid? How will successful bid affect our other jobs, products, and customers? Who else may bid? How hungry are they? Do we have time to put together quality bid? (Courtesy Bid)
Competitive Bidding VBidding StrategyProbabilistic Bidding (Value????) Assumes profit maximization is goal Assumes lowest bid selected Focus on size of bid, expected profit if win, and probability that bid will win E(X) = P(X)Z(X) X = Bid Price Z(X) = Actual profit if successful P(X) = Probability of bid acceptance E(X) = Expected profit at this bid
Competitive Bidding VIBidding models are only toolsManagerial judgment is criticalSet price to achieve a good winBids are not always fixed Might have an escalation clause Might have a pass-through clause (cost+) Post-Bid negotiation (by customer) common Extras (not addressed by bid) PROFITABLE
Price Negotiation INeed good interpersonal skills, persuasion skills, judgment, conflict resolution skillsNegotiation is the result of two sides coming together to decide how much gain each will have by working togetherIf not win-win, won’t happenEach side has minimums that it wants to “win” and needs to “win”If < “need” No dealIf << “want” No repeat deal
Price Negotiation IINeed to understand risks and rewards for both sides of negotiationEstimate settlement ranges for self and other partyBargaining zone: Seller’s minimum price to Buyer’s maximum price
Seller Buyer’s Max Buyer Opens Price WantsHigh Bargaining Low Zone Seller’s Min Buyer Seller Price Opens Wants
Negotiation StylesAvoidant: Relatively rare Avoid confrontation. Out for self.Collaborative: Good long-term strategy Win-Win. Try to satisfy self and other party.Competitive: Short-sighted Win-Lose. Get all you can from other party.Sharing: Common Both parties partially satisfied.Accommodative: Rare Satisfy other party, at own expense.
Other Issues on NegotiationOne time deal, or repeated negotiation? Repeat more cooperation Have longer term viewWhat else besides price is important? Guarantees Return Policies Volume Quality Financing ServiceTime constraints?
Discounts and IncentivesCommon point of negotiationCan use to attract new customers, or keep existing onesCan offer on select products, and to select customersPrepaid freight, drop-shipping, financing, post-dating, returns, rebateDiscounts: Cash Quantity Trade
Cash DiscountsIncentive to pay quicklyHelps cash flow2/10, n30: 2% off if paid w/in 10 days, otherwise, full amount due in 30 daysMight offer discount for prepaying, prior to delivery, or even prior to productionMany companies need cash, and will discount for up- front $ (+ no risk)Prepaid expenses can provide payer tax benefits in addition to discounts offered
Quantity DiscountsCheaper by the dozen theory Seller gets guaranteed sales Can plan production better Smoothes out production, inventory, delivery Helps with financing, & getting other businessCan offer discounts on $ or unit levelMight spread out large purchases over a period of time, but commit up front
Trade DiscountsAlso called functional discountsUsually given to distributors for performing certain functions for the manufacturer Storage, warehousing Sales Transportation PromotionCommon with automobile dealers
Leasing IContract to use an asset that is owned by someone else (renting) for a period of timeAvoid cash payment up frontSometimes avoid maintenance and ops costsCan expense for taxes (not amortize)Does not reduce debt capacityHedge against technology obsolescence
Leasing IIFinancial Lease Longer term Σ lease pmts > Purchase price of asset Lessee (buyer) responsible for maintenance & operating expenses Can apply some of lease pmt to purchase @ endOperating Lease Shorter, cancelable Not amortized Lessor (seller) responsible for ownership expenses No purchase option Lease price > financial lease price
Transfer PricingInternal sales price from one division to another within the same companyNeed to cover costsNeed to be cheaper than marketExact price subject to negotiationBoth sides usually profit centersMay need to be determined by higher-upSet formula (cost + 2/3 of margin to market)
WWW & PricingFacilitates information search by customersAuctions: buyers set prices, not sellersBuyers control transaction, on-line biddingCan get spot pricing on everything and can take competitive bids on lots of purchasesForces even strong brands to be treated like commodities
What to do about WWWUse differential pricingOptimize pricing by using customer data: increases customer switching costsDe-Menu pricing; can adjust pricing almost instantly as needed; remove lumpinessPush differentiation even more: can use web to provide pleasing aesthetics, entertainment, education, or escapismDon’t assume customers will not pay moreEstablish electronic exchanges, barter excess suppliesMaximize revenue, not price: Yield Management
What is distribution?Set of companies involved in the flow of products from the manufacturer to the ultimate customer.Sometimes called a “value-added chain”Involves intermediaries (“middlemen”)Joins makers and buyers
Channel FunctionsTransportationStorage & InventoryBreaking bulk into sellable sizes & SortingCreating assortmentFinancingSellingPromotingFeedback from marketTrainingService
Channel FlowsGoods and ServicesAssignment of risk also movesTitles are transferredMoney/Financing flowsInformation flows
Purpose of ChannelsProvide goods to the right customersIn the right quantitiesOf the right qualityAt the right timeIn the right placeTo maximize profits
Value of IntermediariesYou can eliminate intermediaries, but not their functionsThe reason that intermediaries exist is that they provide these functions more effectively and efficiently than the manufacturer can on its ownEconomists have noted fewer intermediaries at intro/growth and decline phases of PLC
B2B ChannelsFewer customers, larger purchases, complex delivery requirements, tech support/serviceMeans B2B channels are shorter and more direct than B2CB2C uses wholesalers and retailersB2B uses industrial distributors, manufacturers’ agents, jobbers, & brokers
Manufacturers’ Representatives IIndependent business, usually 5-15 clientsLong-term relationship, a decade or moreUsually a large geographic areaOften > 100 customersPrinciple function is SELLING.Established contacts and tech knowledgeOnly get paid when making sale
Manufacturers’ Representatives IIEspecially helpful for small and medium-sized manufacturersCan use instead of or to supplement sales force, esp. in remote areasWhen sales get large enough, manufacturer may choose to use own sales force. Need to anticipate this conflict.
Manufacturers’ Representatives IIIUse of reps loss of control by manufacturerConflict often occurs because rep carries products from multiple manufacturersAgency theory suggest that rep will push: Better quality products Products with higher commissions Products of mfrs they have better relation with Products with stronger promotional support
Manufacturers’ Representatives IVReps sellCare less about market information or customer serviceThey want reliable, quality products, mfr support, reasonable commission rates, training, and good mfr reputation and image
Industrial Distributors IAn independent wholesaler who sells the majority of its goods and services to industrial , commercial, and institutional customers, the government, builders, & farmers.Independently owned/operated merchantTakes title to merchandise, keeps inventory, delivers, extends credit, may service after the sale
Industrial Distributors IITwo major categories General (Grainger) Specialized (Caterpillar)Heavy reliance on short-term debtMost assets tied up in inventory and ARUse inside and outside salesStock small ticket items: Spare parts, lubricants, power tools, small machinery, bearings
Industrial Distributors IIIPrinciple functions: selling, inventory, creditCan provide important feedback to manufacturer about the local market, about problems with sales, service, etc.Sell popular parts, small quantitiesDistributor may carry competitor product lines, and many different products.
BrokersBring buyer and seller togetherFacilitate transaction, including negotiationsNo ownershipShort-term relationship, transaction-specificCommissionCan represent seller or buyer
Commission MerchantsShort term relationshipDeal with bulk products like raw materials, commoditiesNever take possession of materialsRepresent manufacturerNever take titlePaid on commission
FacilitatorsImproves the efficiency of the channelCan provide financing, credit, market information, grading/certificationNever take titleDoes not negotiate sale or purchase
JobbersManufacturers’ repBulk products (raw materials, commodities)Take titleDo not take possessionShort-term relationships
Sales AgentsIndependent salespeopleHandle entire marketing function of a single producerMay design promotions, establish prices, determine distribution policies, and recommend marketing strategies.
Channel ConflictOnly an issue when it becomes dysfunctionalConflict can arise over many issues: inventory levels, margins, competitors, promotional expenditures, trainings, returns, product obsolescence, delivery, sales support, commissions (See Table 13.4, p. 448)Monitor conflicts and resolve/manageCan address through Ownership Contract power
Channel StrategyTo intermediate or not to intermediate. That is the question.Distribution objectives Sales, profits, market share & coverage, control, costs, service, imageConsider buyers, product, competition, available channels, legal environment
Why Adjust Channels?Number of buyers and specialized needs change during PLCBuyers’ change and their buying changesChanges in customer demands Price, order size, delivery times, etc.Some options become available, while other options become feasible over time
Why Not Adjust Channels?Long-term commitment Legal, moral, socialInertia: Change is difficult. Takes time and much energy.Competitors may tap abandoned channelsNeed data to justify changeResistance to change company and channelChange is disruptive
Evaluating IntermediariesNeed to periodically review channel members’ productivity, profitability, and effectivenessContribution Analysis MethodWeighted Factor Method
Contribution AnalysisObjective measureEvaluate intermediaries based on their contribution to indirect fixed costs and profitability, after covering fixed costsSee Table 13.6, pg. 457
Weighted FactorsSubjective measureIdentify evaluative criteriaAssign weights based on importanceEvaluate each intermediaryWeight x Evaluation = ScoreSee Table 13.7, pg. 459
What’s different aboutindustrial promotion?Differences due to: Products are more technical Fewer buyers Buyer location Long, complex buying processTherefore, advertising, sales promotion and publicity play support roles to sales.
What else is different aboutindustrial promotion?Not much mass media.Mostly print advertisingMessages logical/factual, vs. emotionalMay need different promotion to different organizations, or even people within a single organization.
Available Promotional Tools IGeneral Business Publications: ForbesTrade Publications (See pg. 362) Horizontal: Job/Function focused: purchasing Vertical: Industry focused: steel, agricultureIndustrial Directories: Thomas RegisterTrade ShowsCatalogs
Available Promotional Tools IIDirect MailVideosTechnical ReportsWeb Sites/InternetSamplesPublicityNoveltiesTelemarketing
Cost/Effectiveness of Promo MixCost/Contact Effectiveness High Field Salesperson High Inside Salesperson (Telemarketing) Medium Trade Shows Medium Direct Mail Catalogs/Manuals Low Low Trade Journals Other Advertising
Micro Look at BuyingCognition Affect BehaviorAwareness: Publicity and AdvertisingComprehension: Education and AdvertisingConviction: Personal Selling, some Adv.Ordering: Personal Selling
Macro Look at BuyingProblem Awareness: Sr. Mgmt/Current Users; use Trade Shows and Trade Publication AdvertisingSolution Identification/ Information Search: Techies; use Catalogs, Samples, Trade Journal Advertising, Sales Force (defense)Evaluate Alternatives: Purchasing Mgrs.; use Comparative Adv., Testimonials, Sales, Tech Reports, PublicityDecide/Purchase: SALES: negotiate, persuade, adaptPost-Purchase Evaluation: Advertising, inside sales, direct mail
Implications for MarketerCan influence buyer’s decisionNeed to determine: Most critical stages for product/market Which promo tool most appropriate for stage Balance cost/benefit of promoAs risk increases, the buyer seeks more infoMore conflict, the buyer seeks more info
Should businesses advertise to businesses?Yes, but focus on print mediaNeed to reach specific industries, organizations, and individuals within organizationsCan use some TV and Radio, but usually for products with broad market appeal (insurance, computers)
Print MediaAdvantages Not fleeting like broadcast Can include technical information Buyer can go back and see again Buyer can go through at own pace & focus on what she/he is interestedDisadvantages Can’t possibly include all pertinent information May not be seen Difficult to assess effectiveness (like all adv.)
Why businesses should advertise.Can reach people in the buying center that sales can’t reachGood tool for prospecting (1-800; reply card)Can lay groundwork for salesperson’s call Creating awareness Providing general informationCan reduce cost of sales callMotivate/support intermediaries/distributorsCan create pull for customer’s products, leading to increased derived demandCan convey desired image
Advertising Objectives IExpress as sales or market share (easy to measure)Could also use awareness levels or changes in attitudes, beliefs, or perceptionsMight just be reminder (esp. in decline)Post-sale reassurance (reduce cognitive dissonance)BE SPECIFIC: Time and AudienceUnfortunately, most managers don’t know or understand their objectives
Advertising Objectives IIObjective Strategy CharacteristicsAwareness Corporate Diffuse, LT Benefits; Low Persuasion Generic Informative, not comparativeKnowledge Preemptive Establish superiority. Informative, moderate persuasionLiking Brand Image Focus on benefits, not competitors Emotion, moderate persuasionPreference Positioning Focus on differentiation vs.Conviction competition. High/moderate persuasionPurchase Unique What comp. Does not do. Hi Appeal to action persuasion Incentive to act. High persuasion
Budget% of sales: Easy, bad if sales decreaseLast year’s budget + %: Easy, not rigorousCompetitive parity: Are competitors right?Product/Service profitability: Low Π needs adv.Productivity judgments: Cost/Benefit analysisTask & Objectives: Complex, best method
How much to spend? High LowStandardized Products Customized ProductsBroad product line Narrow product lineSuperior product quality Lower product qualityHigh price Low/Average price
The Message INeed visual magnetism: get attention Color, contrast, angles, straight lines, oddities, …Select the right audienceInvite reader into the scene: identify with adPromise reward (benefits, good performance)Back up promise: support claim Testimonials, tech standards, …
The Message IIOrganize ad to present message in logical sequenceSpeak to reader as an individual, personalize, keep simple, ACTIVE VOICE Avoid ClichésEasy to readWhat vs. where or who: Focus on product or service first, not the company (except…)Reflect company’s character & personality Be consistent, takes long time to develop and maintain image
Choosing Media IGeneral B. Pubs (Forbes, Business Week) Good for products with broad appeal to large # of customers, who are geographically dispersed. Good to project image to business community. May be best to reach upper level management. Cost up to TEN TIMES price of trade journal ads.Trade Journals (Modern Metal, Purchasing Today) Special Interest. Knowledgeable readers. Vertical vs. Horizontal. Useful for directing specific, technical messages Can reach technical people who read these journals
Choosing Media IIIndustrial Directories (Thomas Register) List suppliers of variety of product types Also Catalogs, like Sweet’sTelemarketing WATS, incoming and outgoing Complaints, inquiries, orders, service requestsWWW Catalogs, orders, email, phone directories, information on company and productsDirect Mail: Brochures, Intro letters, LISTS
Evaluating AdvertisingCompare outcomes to goals.Look at bottom-line increases in sales. Be sure to account for other factors (pricing, sales efforts, competitor actions)Nonlinear relationship, diminishing returnsTime lag can be monthsWas target audience reached?Which medium was most effective? $/saleEffect of adv on audience attitude, awareness, recall, behavioral intent (to buy)
Sales PromotionSupplements and complements salesSamplesContests for distributorsAdvertising Specialties: Trinkets and TrashTrade Shows, conventionsCatalogsTechnical Reports
Trade Shows IFormal exhibition of productsOpportunity to make lots of contacts at onceGood for customers to ask questions and compare competitorsIntroduce/demonstrate productsBuild awarenessMake personal contactsParity with competitors (Keeping up with Joneses)Recruit employees, reps, and distributors
Trade Shows IINeed to identify goalsMeasure effectivenessKnow which shows to focus onDisplays and Literature: Location, Quantity/QualityStatic Displays: Well trained salespeople.Attention-Getters: Contests, Shows, Games, GimmicksAudiovisual Presentations: Tapes, Computers, FilmsLive Product Demonstrations: 10 Minutes ±Be on MUST SEE listTake-Aways: Literature, brochures, samples
CatalogsContain information on the company’s line of products.Might include price lists & warranties.Can customizeUse Direct Mail, Trade Shows, Sales to distributePut on-linePublish in industry directories, like Sweets
Technical ReportsDescribe product and its useGives fairly detailed specifications (customer understanding, no trade secrets)Cut-Sheets: Graphs, charts, illustrationsMay give results of product testingDistribute via direct mail, trade shows, sales
Publicity“FREE” (or at least less than advertising)Credibility: Objective 3rd PartyEvents: Chili cook-offsSponsorshipsPress releasesPress conferencesPublic speakingArticle Writing in trade journalsSupplemental Role: Inform about new products; Generate inquiries; Increase awareness
Personal SellingThe most important promotional tool in B2B marketingTransaction/relationship is often too complex to consummate without personal interaction between marketer and buyer.Physical link between partiesBoundary Spanner
Salespeople as Boundary SpannersRepresent the company to customersRepresents the customer to companyBring info back to company Sales forecasting, product suggestions, competitor impressionsNegotiates prices and termsSolves problems
Personal SellingNOT manipulationMight persuade or entice, but cannot force the customer to buy.Sales must be professional. Not fast-talking, shiny- suited, slick liar.Customers are sophisticated and you need a long-term relationship to be successful.B2B sales cost more than B2C selling.Account for more $/saleMore direct, shorter channels
Training and SkillsMore technical knowledge in B2BNeed to know customers’ businessesBuild relationships over a long period of time before reaping rewardsNegotiate effectively Price, payment terms, delivery, quantities, returns, post- sale training and service
How salespeople spend their timeSelling: 32%Waiting, travel: 21%Telephone: 19%Administration: 15%Service: 13%
Four Types of Selling JobsTrade Selling B&D to HDMissionary Selling DeWalt to contractorsTechnical SellingNew Prospect SellingCustomer Service (Non-Sales, Selling) Post-sale satisfaction
Selling AidsSmall Gifts Useful, permanent, quality, tasteful, relevant Not substantial; Not to Gov’t customersPlant Tours Customer’s attention, seller’s turf, best way to educate customer about company Chaparral SteelEntertainment Lunch, dinner, drinks (careful), leisure (sports, golf), parties for clients
RelationshipsIndustrial sales: develop and maintain relationshipsPower: Who is dependent on whom?Effect of power on negotiationSources of conflict and cooperation
Structural PositionsCentral and Formal buyingLevel of key buying decisionsFunctional areas participating in buying processFit between our salesperson and buyer reps May be an issue if mismatched
PeopleDemographics and personal characteristics of buyers and salespeople Age, experience, education, lifestyle, race, gender, personal goalsBetter fit might lead to better relationship, but differences may be productive too. Need to determine if relevant If so, which dimensions?
Roles, Norms, and Rules of the GameMostly unwritten Some (gifts) writtenAcceptable/Unacceptable tactics for both buyers and sellers.Perceived roles played by buyer and seller representativesAre both sides seeing same thing? Do perceptions match?
RolesRole Ambiguity: Unclear understandingRole Conflict: Role partners want different things from sales personRole Accuracy: MisunderstandingRole Consensus: Buyer/Seller agree on rolesRole Fulfillment: Buyer/Seller satisfiedCan improve some with training, supervision, and experience
Managing Sales ForceSales force sizeSales force organizationRecruiting and selecting salespeopleTrainingMotivation and CompensationStandardsEvaluation
Sales Force SizeBreakdown Method Forecast Sales Estimate Salesperson Productivity Calculate Number of Salespeople NeededWork Load Method (in text) Number of accounts (current/potential: ABC) Call Frequency Call Length
Methods of Forecasting• Subjective – Users’ Expectations – Sales Force Composite – Jury of Executive Opinion • Delphi Technique
Methods of Forecasting• Objective – Market Test – Time Series Analysis • Moving Averages • Exponential Smoothing • Decomposition – Statistical Demand Analysis
Recruiting and Selecting SalespeopleJob analysis and description Sales jobs are different: e.g. inside/outsideCharacteristics: Enthusiasm, education, flexibility, stability, past performance, goalsTests: Intelligence, aptitude, psychologicalInterviews and ReferencesSourcesLegislation
Training TopicsProduct KnowledgeMarket/IndustryCompanyTime/Territory ManagementLegal/Ethical IssuesOther: Computer program, Relationship building, Selling procedures, Decision Support System (DSS)
Training MethodsOn-the-job: most commonExternal seminars: top three, major toolHome assignments: least favoriteIn house classes
Training Costs/TimeNew Hires $4,000+ to nearly $10,000 4± months averageExisting Salespeople About $4,000/year Nearly a week (32.5 hours) per year More emphasis on product vs. skills
MotivationExpectancy Theory Expect that effort will lead to performance Reward is instrumental in achieving reward Salesperson Valence for reward Need all for motivation.
Rewards and CompensationExtrinsic and Intrinsic Money, awards, recognition, travel, promotions Personal Growth, sense of accomplishmentLower/Higher Order NeedsCompensation Salary Commission Bonus Contests Benefits
Standards: QuotasGoals assigned to salespeople for specific time period.Three Purposes Motivate salespeople Evaluating performance Controlling salespeople’s effort
Characteristics of Good QuotasAttainable Motivation requires reasonable chance of attainmentEasy to understand Too complex suspicion and mistrustComplete Cover all criteria to avoid imbalance
Types of QuotasVolume Units, Dollars, PointsActivity # cold calls, proposals, displays, service calls, meetings, collections, demonstrationsFinancial Expenses, Gross Margins, Net Profit
How to Set QuotasVolume History Territory PotentialActivity Sales reps and managers; sales reports; researchFinancial Based on financial goals of firm Adjust to meet needs