Industrial marketing
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Industrial marketing Industrial marketing Presentation Transcript

  • McDonaldTexas Tech University
  • Industrial MarketingAlso 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 ConceptCreating value for customers with goods and services that address organizational needs and objectives. 4
  • Marketing ConceptThree 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 OrientationAcquire 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 StatementState in terms of meeting customer needs, not in terms of products or technologies.Marketing Myopia (Levitt 1960 HBR) 8
  • Marketing ActivitiesIdentify customer needsResearch customer behaviorDivide market into manageable segmentsDevelop new products/servicesEstablish/negotiate pricesDeliver, install, service productsEnsure adequate and timely supply of products at correct placeAllocate resources across product linesCommunicate with customersEvaluate/control marketing programs 9
  • Marketing MixLimited 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
  • External EnvironmentCharacterized by: Degree of Stability Complexity Diversity Hostility 11
  • External EnvironmentSix Environments Technological Economic Social/Cultural (Customer) Political/Legal Natural/Climatic Competitive 12
  • So what’s different about B2B?Marketing ConceptMarketing MixMarket SegmentationProduct Life CycleAll 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 B2CProducts/Services being marketedNature of demandHow the customer buysCommunication processEconomic/Financial factors 15
  • Products/ServicesMore complexFunctional vs. Symbolic AttributesLarge unit dollar value/Large quantitiesCustom/TailoredVarious 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 DemandDerivedJoint/SharedConcentratedInelastic 18
  • How Customer BuysGroup ProcessFormalLengthyLoyalDecisions based on risk and opportunity 19
  • CommunicationPersonal selling more important than mass paid advertisingSupport 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 FactorsCompetition oligopolisticPower/Dependency relationshipsReciprocity:Doing business with companies that do business with them.Economic variables: interest rates, inflation, business cycle 21
  • PurchasingUsually the main point of contactBoundary spanning functionChecks and Balances Purchase requisition Written purchase order Negotiated/bid prices and terms Contract Receiving report Invoice
  • Major Tasks of PurchasingIdentify/evaluate suppliersNegotiate prices and termsPurchase contractMatch delivery and production schedulesExpedite ordersHandle returnsMonitor changes in prices, markets, and regulations
  • Strategic ImportanceHistorically, not a top-level functionNow seen as: a major source of cost savings, contributor to operational efficiencyMaterials Management Concept: Buying Storing Moving
  • Life-Cycle CostingInitial Costs Purchase price to vendor, freight, insurance, trainingStart-up Costs Paid to other than vendor: modifying facilities and complimentary/support infrastructurePost-purchase Costs Maintenance, repairs, power, financing, inventory costs, and space requirementsSalvage Value Recovery amount: resale, trade-in, scrap
  • Value AnalysisReducing cost without reducing quality or effectiveness. Also called value engineering.Cost/Benefit trade-offRedesign, standardization, less expensive manufacture, substituteFive stages: information gathering, speculation, analysis, execution, reporting.Reverse engineering/absorptive capacity
  • Time-Based Buying StrategiesSpeculative BuyingBuying in excess of foreseeable requirementsInflation or short-term price dropAdded inventory/carry costsRisky May buy too much Prices may not go up
  • Time-Based Buying StrategiesForward BuyingBuying in excess of current needs, but not foreseeable needsTake advantage of quantity discounts or volume freight ratesProtect against temporary shortages or delays due to unreliable vendors or transportation
  • Time-Based Buying StrategiesHand-to-Mouth BuyingShort-term strategyMinimize inventories Falling prices Changing technologies Cash flow problems
  • Time-Based Buying StrategiesJust-in-TimeParts and materials arrives as neededNo luxury of excess inventory against: Human error, machine breakdowns, or defective partsRequires cooperative relationships Substantial investments (e.g. computer systems), short lead times, reliable deliveries, intensive communication, long-term purchase commitmentReduced 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 PlanningSystematic 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 fileDoesn’t work well for large volume, long lead times, or irregular/infrequent purchases
  • Electronic Data Interchangeand the InternetComputers communicate without regular involvement of managers.Not the World Wide WebLarge investment in equipment and software. Can use third parties.Timely, accurate, simpler, cheaperDis-intermediation vs. Sales ProductivityMarketing intelligence: Can track customers, order quantities, purchase frequencies, and prices over time.
  • Web-Based ProcurementQuick, low-cost access to get data on suppliers and their offerings.On-line catalogs and purchasingSearch engines help gather informationThree procurement models: Catalog-based Auction-based Bid-based
  • Enterprise Resource PlanningInternal software-based systemTies 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.
  • ValueMay not be tangibleValue is PERCEIVED by the buyerCan enhance value: Packaging Support services Reliability Warranties Training
  • Selling to Organizations ISocial as well as economic dimensionIndividual behavior contributes to the mission.Formal reward system for individualsBad 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 IIUsually formal contractsExtensive search for suppliersNegotiationLong buying processMultiple suppliersLong-term, loyal relationships
  • Why?Reduce risk of mistakesFormal policies and informal culture
  • Business CustomersFewerConcentratedNeed long-term relationships because they are not easy to replace
  • Technical ComplexitiesProducts and services, and their applications can be complex.New technologyInterface with existing technologyCustomHigh standards (e.g. clean rooms, surgical suites)
  • Commercial ComplexitiesSo much is open to negotiation Product, price, terms, discounts, warranties, delivery, training, service, returns, etc.Liability, nonperformancePOWER$ize of deal, characteristics of parties, the deal, # of parties involved, complexity of products
  • Behavioral ComplexitiesNegotiating not just with purchasing agent, but multiple parties from multiple functional areas in the organizationThe more people involved, the more complicated it getsTechnical and commercial complexity can exacerbate the behavioral complexity
  • Who’s on first?Key decision maker(s)Important Product/Vendor attributesAccess to key decision makersCustomer purchasing policies and procedures
  • The Buying Center RolesInitiatorBuyerUserInfluencerDeciderGatekeeperNot really a center at all. Group decision process.
  • Rational Decision-Making?Purchasing for business, not selfPurchaser being judged on performanceFiduciary responsibilityFormal 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.
  • BuystagesNeed recognition (May not be decider)Solution characteristics/quantity (Specs)Describe solution in detail (Make/Buy)Find qualified sources (product +)Receive/analyze proposals (price +)Evaluate proposalsSelect supplierEstablish order routineFeedback/Evaluate (FOLLOWUP)
  • Buying ScenariosNewness and past experience with productAmount/Type of information needed by influencers/decidersNumber of alternativesCommon buying situations (buyclasses) Straight rebuy Modified rebuy New task purchase
  • Structural PerspectiveVertical Involvement: # levelsLateral Involvement: # functional areasAbsolute Size: # peopleConnectedness: Direct communication among buying center membersCentrality: Degree of communication regarding purchase flowing through purchasing department
  • Power PerspectiveAbility to influence or make buying decisions; often situation specificTypes Reward: $, social, political, Ψ Coercive: punish, penalty Referent: personality, charisma, persuasion Expert: specialized knowledge Legitimate: formal position/title
  • Risk PerspectivePurchase decision is risk reducing behaviorProbability of Loss x Magnitude of Loss (What about consequences?)Risk mitigation strategies may help to make the salePERCEIVED uncertainty
  • Problem-Solving PerspectiveRoutine orders: little riskProcedural: How to use product. Learning/trainingPerformance: Can product meet need?Political: Internal politics, departmental squabbles (legitimate and petty)
  • Reward PerspectiveIndividual motivationInfluenced by evaluation & rewardIndividual values and objectives; brought from department to buying centerAgency 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 ObjectivesSales Revenue: “Close the Deal.” Transaction PerspectiveMarket Share: “Own the Market.”Operating Profit: “Generate ‘acceptable’ rates of return on product, segment, channel investmentCustomer Equity: “Capture desired portion of Customer’s Lifetime Value
  • LoyaltyTechnologyProduct CategoryParticular BrandVendorPerson
  • Industrial LoyaltiesTake longer to establishLast longerMore difficult to dissolve
  • Loyalty FactorsTask Concerns Quality, Delivery, Service, PriceOrganizational Concerns Politically safe, minimal benefit for changeWork Simplification Concerns Makes it easier, too much trouble to changeAttitudes Toward Source Buyer’s attitude toward company and people
  • Relationship MarketingStrong, Lasting TiesEarned TrustSuccessful Long-Term ExchangesStructural and Social BondsCooperation/CollaborationLong-Term, personalized, mutually beneficial, based in deep understanding of customer needs and characteristics
  • Relationship MarketingStrategic OrientationBoth Buyer and Seller are committedLong-TermMutually BeneficialCollaborationWin-Win
  • Relationship Marketing: Reality or LipService?Requires more commitment than most are willing to make.Most take tactical steps rather than strategicShortcomings 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 purchasesFrequency of contactExtent of collaboration in product developmentTechnical distancePhysical distance(See Table 4.1)
  • Relationship ClassificationsOn/Off TransactionsRepeat TransactionsSource Loyal AccountsRelationshipsStrategic Partnerships
  • Variables Affecting RelationshipRelationalSocial/StructuralSocial ActorNormative
  • Some Helpful Criteria for SelectingPartnersHigh risk of losing accountImportant customerCustomer open to partnershipCan improve relationshipCultural match (Not Gateway/IBM: cows and suits)Potentially mutually beneficialCan add benefits in serviceGood competitive position
  • Market SegmentA 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 SegmentationIdentify sub-markets within marketDecide 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
  • Segmentation BasesCompany sizeCompany locationIndustryTechnology (used)Policies (purchasing)Product applicationBenefits soughtBuying center characteristics
  • HomogeneityKey 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 IAttractiveness Long-term profitability +Judgments Use market research and forecasting Size Likely market share/segment Long-term profits
  • Segment Selection IISelect and prioritize based on: Time (Sales force) Effort (Customer service) Money (Promotions)
  • Segment Selection IIIStress profitability +: Sales volume Ease of penetration Image enhancement
  • Segment Selection IVAfter selection, study deeper Patterns in buying behavior Assess strengths and weaknesses of competitors Identify areas of competitive opportunity
  • PositioningDesign marketing program(s) to cater to distinct needs or problems of target segment(s).Marketing Mix Product Price Place Promotion
  • Degrees of SegmentationUndifferentiated: One marketing mix for the entire market.Reality Differentiated Concentrated NicheOne-to-one: The ultimate segmentation Every customer is a market segment.
  • Why Segment?Efficiency Optimize firm resources Target most promising customers Rifle vs. ShotgunEffectiveness Match capabilities to needs/wants/problems Pinpoint prospects Identify/Exploit competitor weaknesses
  • Usefulness CriteriaDoes the segmentation fit firm’s strategy?Are there homogeneous sub-groups in the market? Needs Buying behaviorsCan the segments be measured? Potential?Are the segments accessible? Reachable via unique marketing mix
  • Selecting Target Segment(s)Fit with company image and experienceResponsiveSubstantialCompetitiveProfitable
  • How to allocate resourcesQuantitative Financial: Revenue & Profitability  Marginal return  ContributionQualitative Non-financial, strategic benefit  Image  Insulation from competition  Access to technologies  ControlCost-Benefit
  • Macro StrategyGroup by customer organization characteristics Size Usage rate Industry Organization structure Location End Market New/Repeat purchase
  • Micro StrategyCharacteristics 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 ApproachHierarchical structureStart with macro and work down to microSee Figure 5.6, page 144
  • Why do research?The external environment is dynamic.Knowledge becomes outdated.To gather more informationBetter Information  Better Decisions
  • LimitationsManagers 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 researchGood 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 TasksEstimate market potentialAnalyze market share/share of customerTrack competitorsIdentify market characteristics & trendsAnalyze sales dataSales forecasting: Existing/new products
  • Key ConcernsReliability: measures/methods yield consistent results Xt1 ≈ Xt2 ≈ Xt3 ≈ Xt4Validity: research measures what it says it measures; i.e. little or no error XA ≈ XM; or XA = XM + Є, and Є ≈ 0
  • Types of DataPrimary 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
  • Sampling IssuesSample vs. CensusProbability Random, equal chance Random, stratifiedNon-Probability Convenience Judgment
  • QuestionnairesAsk what you want to knowWatch lengthAestheticsEasily understood; watch vernacularSocial desirability biasNon-response biasQuestion order effects
  • Coding-Analysis-InterpretationData entry tedious. Mistakes are made Need to clean dataUse statistical tools to analyze data. SPSS/SAS Can data mineImportant to understand analysis What results means Limitations of method
  • B2B vs. B2C Research ITechnology Need to understand technical needs of customersDirect economic effect Quality/Price trade-off very importantOrganization, professionals Understand multiple players, in socio-political setting
  • B2B vs. B2C Research IISmaller #s of buyers to studySmaller sample sizesSecondary data often existsTough to get buyer’s attention for researchNeed to know which buyer(s) to studyNeed technical knowledge for researchSurveys take longer, cost more
  • Marketing IntelligenceContinuous flow of information Strategic and Tactical Systematic and periodicBetter understanding of environment over timeCollect from variety of sourcesCustomers, competitors, regulators, etc.Constant vigilance
  • Marketing Intelligence System IPeople, Procedures, ComputersAcquires, Disseminates, Interprets, Stores information about internal and external environments
  • Marketing Intelligence System IITransform raw data to useful informationCan organize information by customer, competitor, product line, territory, activitySources Internal: sales, service, accounting External: government, trade associations, competitor literature, customers, publicationsOutput Periodic reports Special information needs
  • Decision Support SystemsComputer-aided decision-makingInvolve analysis, not just retrievalDatabase: Repository of dataStatistics: Analyze dataModel: Patterns in the data; relationshipsOptimization: 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 StrategyBased on clearly defined objectivesTake comprehensive approach to organization problemsAdopt long-term viewFlexible 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 strategyMatch organization’s core capabilities to its environment to gain/maintain competitive advantage.Strategies at multiple levels Overall corporation SBU Product Lines/Markets
  • Strategy vs. TacticsStrategy Long-term overall plan = Σ TacticsTactics Short-term Action-oriented Narrow, immediate goal
  • Strategy QuestionsDoes it match environment?Assumptions valid?Basic elements consistent?Feasible?Risk mitigated?Rewards adequate?
  • Strategy TypesGrowth strategy: Product/Market-BasedPrimary/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
  • Porter’s StrategiesOverall Cost Leader CostDifferentiation ValueNiche Own Target SegmentMiddle-of-the-Road Road-Kill
  • Strategic Marketing ManagementEmphasize 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)
  • Strategy PlanningSWOT Analysis Strengths Weaknesses Opportunities ThreatsObjectivesStrategyTactics
  • Price ChangeLow Long-Term ImpactLow InvestmentLow RiskEasy to implement quicklyEasy for competitor to respondHigh chance of similar competitive response.
  • Reengineer Existing Products/ProcessModerate Long-Term ImpactModerate InvestmentModerate RiskModerately easy to implement quicklyModerately easy for competition to respondHigh likelihood of competitor responding with similar action
  • New Products/Major Process ΔHigh Long-Term impactHigh InvestmentModerate-High RiskDifficult to implement quicklyDifficult for competitor to respondLow chance of competitor responding with similar action
  • Potential Pitfalls of PlanningLow motivation to plan Justification; HabitPoor 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 ToolsProduct Life CyclePortfolios BCG Matrix GE PortfolioExperience CurvesTechnology Life Cycles “Killer Aps” Creative Destruction
  • Strategy: Planned or HappensIntentional vs. Emergent Planned Strategy Crafting Strategy
  • ConceptsKiller ApplicationsMoore’s Law (Intel) (2X Transistors/Chip or 2X speed every 18 – 24 monthsMetcalfe’s Law: Network externalities and complimentary products (Telephone, www)Coasian Economics: Transaction costsFlock of Birds (not seagulls) Technology is nonproprietaryFish Tank Phenomenon: Startups compete
  • Closing ThoughtsStrategy cannot be discussed separately from marketing.Marketing is an integral part of the process of developing and implementing strategy.
  • Why innovate?Maintain/Gain competitive advantageCustomer needs & wants changeCompetitors’ offerings changeNew products are a significant portion of many companies’ revenues.
  • Dynamic Theories of CompetitionDickson 1992, 1996Hunt 2002Hunt and Morgan 1995, 1996, 1997Innovation is central to gaining and holding competitive advantage.
  • Root of TheoriesJoseph Schumpeter 1934, 1942Some 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Radical/IncrementalProduct/ProcessTechnical/AdministrativeProactive/ReactiveEfficiency Enhancing/Value Adding
  • Decreased Cost Increased quality Lower cost & lower cost & lower quality Increased Quality Higher cost & lower quality Increased quality & higher cost“Innovations” in this Decision Linequadrant wouldhurtthe organization’s McDonald and Srinivasan 2004competitive
  • Types of Innovations IDiscontinuous Fairly revolutionary Disruptive impact on buyer patternsDynamically Continuous Some disruptive effects Generally same ways to satisfy needs
  • Types of Innovations IIContinuous Most common Little or no disruptionImitation Replicate someone else’s idea  Cheap, no R&D $
  • Innovation Dilemmas IUnknown vs. ControlBreaking/Following Rules (Skunk-works)Freedom/Discipline Constraints, Deadlines
  • Innovation Dilemmas IIAnswering needs that customers are not aware of (MOPRO)Innovating and Not Innovating RiskyRevolutionary vs. Evolutionary
  • Innovation Dilemmas IIIInnovation  Obsolete Products (Intel)Infrastructure may become obsoleteInnovation generally comes from small entrepreneurs, but is costly
  • Innovation Dilemmas IVPerfection vs. “Good Enough”Technology-Driven  Market? (Iridium, Ricochet, Dot-Coms)Customer-Driven:  Competition? (Dig. Cellular)
  • Innovation Dilemmas VGenius vs. Persistence Inspiration vs. PerspirationBreaking the rules of the game vs. playing a different game Discontinuity; Creative Destruction
  • Innovation Dilemmas VIFirst to market does not equal success Need complimentary assets (Teece 1988) Market needs to be ready
  • Risks INatural tendency to resist change Don’t want to learn new things Threat of taking resourcesHigh failure rates Hasn’t been done beforeExpensive
  • Risks IIEconomic FailureEffect on company imagePsychological well-being of company after failure (also myopia of success)Drain on company resources Cash FlowDistraction of managementCannibalism
  • Reasons for FailureNo marketToo much competitionCompetitor leap frogEnvironmental myopiaCan’t deliver on promisesPrice
  • Necessary ResourcesFinancialEngineeringR&DMarketing ResearchProductionSales
  • Internal IncompetencePoor technical assessmentLoose screening criteriaMarket potential over/under-estimatesSloppy financial analysisWeak quality control in productionUnder-estimating competitor’s strengths & customer loyaltyBias in marketing research
  • Dimensions of Success IKeys to success Product Uniqueness/Superiority Market Knowledge/Proficiency Technical and Production Synergy
  • Dimensions of Success IISuccess Facilitators Marketing Resources Strength of Communications and Launch Large, Growing Market with Need
  • Dimensions of Success IIIBarriers to Success No Economic Advantage Extremely Dynamic Market Customers Already Satisfied
  • Dimensions of Success IVFactors 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 CharterInnovativeness How radical How riskyProactiveness (Offensiveness) Lead vs. followSynergy Compatibility with current products and resources
  • Characteristics of InnovativeCompaniesOrganizational commitment to innovationEntire organization involvedAttention to MarketingEffective design/developmentGood Communication (Internal/External)Management Skills/Professionalism
  • Process of InnovationIdea GenerationScreeningTechnical Feasibility AnalysisProduct TestingProfitability AnalysisTest MarketingMarket LaunchLife-Cycle Management
  • Organizing for InnovationSee Table 8.6, pp. 260-1Notice that each has certain advantages and disadvantagesThere is no one right wayTask DependentResource Dependent
  • Marketing-R&D InterfaceHouse of QualityIt takes both sides of the organizational brain working together to be successful.Each has talents and knowledge that compliments the other.
  • Corporate EntrepreneurshipIntrepreneurshipChampion/Marketing Subversive Skunk-worksCharacteristics Proactive Risk Taking Innovative
  • ProductsMarketing is exchange, and the product is what the company is offering.
  • TimeNew industrial products can take years to develop. Technologies Patents Packaging From prototype to reliable commercial productStrategies for the supporting parts of the marketing mix (price, promotion, and distribution) take weeks or months to develop.
  • Marketing Mix ElementsThe product/service offering determines Appropriate quality position Target markets Competitors Appropriate distribution/logisticsFurthermore, cost structure/financial needs influenced by design, production, delivery requirements.
  • Product vs. ServiceTangible/IntangibleCaterpillar Tractor vs. Federal Express DeliveryCustomers are really buying “solutions.”Caterpillar provides intangible services to support products.FedEx uses tangible products to support services.
  • ProductsEach 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 ProductThe 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 ProductThe physical aspects of the product. Quality Features Options Styling Color Packaging
  • Augmented ProductServices/extras that support the product. Warranties Delivery Installation Training Service Tech Support
  • Communicated ProductThat which the company uses to present the product to its customers Brand name Logo/trademark: Identity Positioning Image
  • StrategiesGenerally 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 ProductsBroad 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 DimensionsStandardized/CustomizedSimple/ComplexLow/High Unit CostSystem Part/Stand AloneSold in Volume/Per-Unit BasisReady to Use/Requires InstallationUnfinished Good, Component/Finished GoodConsumed Quickly/Over Many Years
  • ServiceDeed, Performance, EffortService Experience  delivery of service attributes to customerVisible 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 ServicesIntangible (Most distinguishing characteristic)Perishable (can’t inventory)Often consumed at purchase (simultaneous)Difficult to gain production economiesCustomized more frequently than productsConsumed in irregular patterns typicallyGenerate less customer loyalty than products
  • Industrial vs. Consumer Services INon-convenience type: Custom, impact $, searchTransportable Brought to customer (Auditing, Legal)Not as conducive to mass production/marketingCustomer (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 IIPeople intensive (capabilities, experience, background), but also expensive equipmentSophisticated, knowledgeable customers with specific expectationsFormal buying process; tangible evidence of ability (cues, referrals)Longer term, more stable relationshipsDemand patterns more stable/predictable
  • Classifying Products and Services Based on TangibilityConsulting Corporate FurnitureIntangible Retreat Tangible
  • Most Companies Sell BothFew pure products or pure servicesOften companies sell complementary products and servicesConsultants may sell software to implement their recommendationsSecurity service might also install equipmentAdvertising medium might also design ads
  • Product/Service Line DecisionsCannot make decisions on isolated products or servicesDecisions must be made holistically.Some products/services support othersSome might protect market shareMight use one to set up demand for more profitable after-sale service or products
  • Mixes, Lines, and ItemsMixes are largest group: Total set of items/lines Nokia Mobile CommunicationsMid-level are lines: Related Items Tech, production, cost, distribution, customer aps Can have sub-lines by P/Q Nokia Cellular TelephonesItems are within lines: Specific Offering Nokia 3210 Cellular Telephone
  • Assess Item RelationshipsCross-Elasticity Effect of one product/service on anotherPositive Cross-Elasticity Substitute one product for another Product from lower end lineNegative Cross-Elasticity Complimentary products Computer and Printer
  • Breadth, Length, & Depth IBreadth is the number of different lines carried by the company. Not just #s, but Consistency: tech, production, distribution, customersLength 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 IISee 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
  • Breadth, Length, & Depth IIIStrategies Full Line/All Market (GE) Market Specialist (Kidder Peabody Financial Services) Line Specialist (TRW Valves) Limited Line Specialist (ACI) Single Item Company (ADD Systems) Special Situation Company (Pilko, Boots & Coots)
  • Managing Product Quality IPRODUCT QUALITYHow 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 IISUPPORT QUALITY How well does product meet customer’s needs at and after sale?DELIVERY QUALITY Timely delivery
  • Managing Product Quality IIIMarketers 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 QualityMatching service features/characteristics to customers’ needsMore difficult to do with intangible services vs. tangible productsEstablish formal service standards
  • Service Standards IFocus 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, abilitiesFunctional Quality How the customer receives service: professionalism Reflects attitudes and behaviors of contact employeesNeed both functional & technical working together
  • Service Standards IIDifficult to measureSubjective measures easier to administer than objective measuresObjective: On-time deliver %Subjective: Customer judgment of sales performanceSERVQUAL (See Table 9.4, pg. 295)
  • Positioning IHow the firm wants the product/service lines to be perceived by the customers. (Not where the store is located!)Perceptions about underlying benefitsPerceptions about how they compare to competitors’ offeringsUse the marketing mix (4 Ps) to create position
  • Positioning IIAttribute (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
  • PricePrice 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 IIncludes 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 IINot an independent variable. Pricing interacts with: product, promotion, and distribution strategiesMust consider complementary or substitute products when establishing price strategy
  • Characteristics of Industrial Prices IIIPrices 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 IVPricing 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 VAffected 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 CustomerPurely economic sources of valueNeed to compare life-cycle costs of your product and substitutesIf incremental value is high enough to justify a higher price, then there is EVCSometimes 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?
  • Strategic Pricing Programs:Objectives IROI; Market ShareLT/ST ProfitSales GrowthStabilize MarketConvey Desired ImageDesensitize customers to priceBe Price LeaderDiscourage entry & push out weak competitors
  • Strategic Pricing Programs:Objectives IIAvoid Government interference (Anti-Trust/Regs)Perceived Fairness Customers, Distributors, SuppliersCreate interest & excitementSell other items in lineDiscourage competitors from dropping priceRecover investment quicklyGenerate sales volumeEncourage quick payment
  • Strategic Pricing Programs:StrategyCost-Based Fixed and Variable costs/Unit Markup/ROIMarket-Based Competitor Prices Customer Demand
  • Market-Based Pricing StrategiesFloor: just cover costsPenetration: lower than marketParity: match marketPremium: skimmingPrice Leadership: everyone plays follow the leaderStay Out/Keep OutBundle: Multiple products/servicesValue-Based: Segment pricingCross-Benefit: “Gotcha” (Razors, Ink Jet)
  • Strategic Pricing Programs:StructureBasic: One price, no discounts, everyone pays the sameLacks flexibility, limits salesLow Cost  competitive advantage in pricePrice moves toward costs in PLC, until endCreative Pricing: empty seats, box filler, late cancellations, season, demand, advance purchase, customer loyalty
  • Strategic Pricing Programs:Levels/TacticsActual price charge w/discountsAcceptable range that conveys valueOdd ($2,999) vs. Round ($3000)Ensure adequate price gaps between itemsModify for costs, competitors, market ΔsTiming: not arbitrary, justify to customerSends signals to customers/competitorsRebates, 2/1, trade-in, etc.
  • Pricing ProgramStrategy, 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).ObjectivesCostsDemandCompetition
  • Objectives/StrategiesDifferentiation  Higher Margins Fewer competitors are substitutes Increased brand loyaltyMoving to low price from premium-quality position can hurt sales, not helpRecoup development costs over longer period of time. Otherwise run risk of sales numbers that are too low to ever recoup costs.
  • CostsEstablishes the minimum priceSet price based on target margin or returnCan 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 ApproachTarget 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 ApproachCan 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 eitherNeed reliable standard volume estimateInitial low price may increase volume, which in turn lowers per unit fixed costs
  • Contribution AnalysisTrade off between price and units soldTotal Revenue – Total Variable Cost = Variable Contribution MarginFixed 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
  • DemandSets the upper limit of priceNeed to understand customer’s reasons for buying product; how they use itHard Benefits Physical Attributes: hp, productivity, durability, error rate, performance tolerances Soft Benefits Warranty, service, other augmented productBalance benefits to customer against the costs (price +)
  • CostsPrice + (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 houseRisk (defect, poor performance)  CostWhat trade offs are the customers willing to accept? Slower delivery; Low service priority Higher, chunkier inventory Larger purchase commitment
  • Elasticity of DemandSensitivity of customer’s quantity demand to changes in priceUsually demand has a negative slope (higher price  lower demand)Issue is how steepSometimes must hit a threshold level before there is a change in elasticity  Substitutes become more palatable as prices rise
  • $ Elastic Inelastic Quantity
  • Elasticity% Δ Quantity ÷ % Δ PriceIf > 1, elasticIf < 1, inelastic
  • Determinants of ElasticityAvailable substitutesNecessity of productRelative size of purchase $$$Differentiation of product/StandardizationCustomer switching costsEase/Difficulty of comparison (Complexity)Third-Party Payer (Pass-Through)Price/Quality AssociationTime (Payment due, need for product)
  • Industrial ProductsTend to have inelastic demandEspecially if technically sophisticated, customized, or crucial to operationsRoutine purchases more elasticSituational elasticity: customer and market circumstancesIncumbents push uniquenessChallengers push substitutabilityElasticity can vary across segments
  • Cross ElasticityCompliments Lumber and nails, drill presses and bits Negative cross elasticitySubstitutes Shipping by train vs. truck, Company B vs. A Positive cross elasticity
  • CompetitionNeed to monitor continuouslyAnticipate changesRelatively easy because there are relatively few suppliers and few customersTends to be oligopolisticStructure: concentratedPrice Leader Sets the tone for pricing Usually the organization with the best cost structure (competitive advantage)
  • Four Strategic Pricing OptionsPressure PricingOpportunistic PricingGold-Standard PricingNegotiated Pricing
  • Pressure PricingMarket leader maintains fairly stable price levelPrice not dictated by demand fluctuationsPrice increases controlledControls market entry
  • Opportunistic PricingFollow the swings of the marketRaise prices as high as elasticity will allowRaise prices as high as customer goodwill or loyalty will allowLower prices as demand drops
  • Gold-Standard Pricing William Jennings Bryan Cross of Gold Speech
  • Gold-Standard PricingShort run policyQuote all customers the same priceIgnore specific circumstances
  • Negotiated PricingTailor pricing to each customer (or segment) based on Elasticity Competitive Alternatives Type of Customers
  • PLC Pricing ICritical at Introductory StageSets the tone for future pricing decisionsPenetration pricing (low) Higher sales, lower margins Can leave too much on the tableParity pricing (match)Premium/Skimming pricing (high) Can get highest margins Risk competitive entryAlways easier to lower prices than to raiseDon’t try to recoup R&D costs too quickly
  • PLC Pricing IIGrowth: New competitionMore specialized need segments developProduct extensions developedScale economies and experience curve start to come into playPrice ranges narrow; convergence on market priceDownward pressure on pricing
  • PLC Pricing IIIMaturity: Market more saturatedCompetition aggressive and entrenchedProduct may be cash generator (Cash Cow)Focus is on repeat sales/internal cost efficiencyCompetition more heavily priced based; but stop short of price warMaximize short-term direct product contribution to profit
  • PLC Pricing IVDeclineMay raise price to capitalize on remaining, inelastic demand, orLeave prices stable, cut expenditures, let product die, orCut price, toward break-even, use as loss leader to sell complimentary products
  • Competitive Bidding IMost common with public projects governmental agencies custom, technically complex products long manufacturing cyclesUsually the low bidderNot always in private sector Consider bidder qualifications (See AGC form)
  • Competitive Bidding IIInvitation to Bid: RFP published Newspaper Private Publications: Dodge ReportsUsually very precise plans and specifications that become part of the purchase contractMay have to provide a performance bond to ensure that the product/service will be completed. Bid bonds less common.
  • Competitive Bidding IIISealed/Closed Bids Due at same time Open all at once One time pricingOpen/Negotiated Bids Iterative process Combines bidding and negotiating Web bidding has facilitated this process
  • Competitive Bidding IVQuestions 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 VBidding StrategyProbabilistic 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 VIBidding models are only toolsManagerial judgment is criticalSet price to achieve a good winBids 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
  • Negotiation
  • Price Negotiation INeed good interpersonal skills, persuasion skills, judgment, conflict resolution skillsNegotiation is the result of two sides coming together to decide how much gain each will have by working togetherIf not win-win, won’t happenEach side has minimums that it wants to “win” and needs to “win”If < “need”  No dealIf << “want”  No repeat deal
  • Price Negotiation IINeed to understand risks and rewards for both sides of negotiationEstimate settlement ranges for self and other partyBargaining 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 StylesAvoidant: 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 NegotiationOne time deal, or repeated negotiation?  Repeat  more cooperation  Have longer term viewWhat else besides price is important?  Guarantees  Return Policies  Volume  Quality  Financing  ServiceTime constraints?
  • Discounts and IncentivesCommon point of negotiationCan use to attract new customers, or keep existing onesCan offer on select products, and to select customersPrepaid freight, drop-shipping, financing, post-dating, returns, rebateDiscounts: Cash Quantity Trade
  • Cash DiscountsIncentive to pay quicklyHelps cash flow2/10, n30: 2% off if paid w/in 10 days, otherwise, full amount due in 30 daysMight offer discount for prepaying, prior to delivery, or even prior to productionMany companies need cash, and will discount for up- front $ (+ no risk)Prepaid expenses can provide payer tax benefits in addition to discounts offered
  • Quantity DiscountsCheaper by the dozen theory Seller gets guaranteed sales Can plan production better Smoothes out production, inventory, delivery Helps with financing, & getting other businessCan offer discounts on $ or unit levelMight spread out large purchases over a period of time, but commit up front
  • Trade DiscountsAlso called functional discountsUsually given to distributors for performing certain functions for the manufacturer Storage, warehousing Sales Transportation PromotionCommon with automobile dealers
  • Leasing IContract to use an asset that is owned by someone else (renting) for a period of timeAvoid cash payment up frontSometimes avoid maintenance and ops costsCan expense for taxes (not amortize)Does not reduce debt capacityHedge against technology obsolescence
  • Leasing IIFinancial 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 @ endOperating Lease  Shorter, cancelable  Not amortized  Lessor (seller) responsible for ownership expenses  No purchase option  Lease price > financial lease price
  • Transfer PricingInternal sales price from one division to another within the same companyNeed to cover costsNeed to be cheaper than marketExact price subject to negotiationBoth sides usually profit centersMay need to be determined by higher-upSet formula (cost + 2/3 of margin to market)
  • WWW & PricingFacilitates information search by customersAuctions: buyers set prices, not sellersBuyers control transaction, on-line biddingCan get spot pricing on everything and can take competitive bids on lots of purchasesForces even strong brands to be treated like commodities
  • What to do about WWWUse differential pricingOptimize pricing by using customer data: increases customer switching costsDe-Menu pricing; can adjust pricing almost instantly as needed; remove lumpinessPush differentiation even more: can use web to provide pleasing aesthetics, entertainment, education, or escapismDon’t assume customers will not pay moreEstablish electronic exchanges, barter excess suppliesMaximize 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 FunctionsTransportationStorage & InventoryBreaking bulk into sellable sizes & SortingCreating assortmentFinancingSellingPromotingFeedback from marketTrainingService
  • Channel FlowsGoods and ServicesAssignment of risk also movesTitles are transferredMoney/Financing flowsInformation flows
  • Purpose of ChannelsProvide goods to the right customersIn the right quantitiesOf the right qualityAt the right timeIn the right placeTo maximize profits
  • Value of IntermediariesYou can eliminate intermediaries, but not their functionsThe reason that intermediaries exist is that they provide these functions more effectively and efficiently than the manufacturer can on its ownEconomists have noted fewer intermediaries at intro/growth and decline phases of PLC
  • B2B ChannelsFewer customers, larger purchases, complex delivery requirements, tech support/serviceMeans B2B channels are shorter and more direct than B2CB2C uses wholesalers and retailersB2B uses industrial distributors, manufacturers’ agents, jobbers, & brokers
  • Manufacturers’ Representatives IIndependent business, usually 5-15 clientsLong-term relationship, a decade or moreUsually a large geographic areaOften > 100 customersPrinciple function is SELLING.Established contacts and tech knowledgeOnly get paid when making sale
  • Manufacturers’ Representatives IIEspecially helpful for small and medium-sized manufacturersCan use instead of or to supplement sales force, esp. in remote areasWhen sales get large enough, manufacturer may choose to use own sales force. Need to anticipate this conflict.
  • Manufacturers’ Representatives IIIUse of reps  loss of control by manufacturerConflict often occurs because rep carries products from multiple manufacturersAgency 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 IVReps sellCare less about market information or customer serviceThey want reliable, quality products, mfr support, reasonable commission rates, training, and good mfr reputation and image
  • Manufacturers’ Representatives VSelection Criteria History, Growth/plans Territory Facilities, personnel, management Other lines Reputation Services
  • Industrial Distributors IAn independent wholesaler who sells the majority of its goods and services to industrial , commercial, and institutional customers, the government, builders, & farmers.Independently owned/operated merchantTakes title to merchandise, keeps inventory, delivers, extends credit, may service after the sale
  • Industrial Distributors IITwo major categories General (Grainger) Specialized (Caterpillar)Heavy reliance on short-term debtMost assets tied up in inventory and ARUse inside and outside salesStock small ticket items: Spare parts, lubricants, power tools, small machinery, bearings
  • Industrial Distributors IIIPrinciple functions: selling, inventory, creditCan provide important feedback to manufacturer about the local market, about problems with sales, service, etc.Sell popular parts, small quantitiesDistributor may carry competitor product lines, and many different products.
  • Industrial Distributors IVExclusivity Agreements: 1-Way, 2-WayMFR can provide: training discounts service missionary salesValue?
  • BrokersBring buyer and seller togetherFacilitate transaction, including negotiationsNo ownershipShort-term relationship, transaction-specificCommissionCan represent seller or buyer
  • Commission MerchantsShort term relationshipDeal with bulk products like raw materials, commoditiesNever take possession of materialsRepresent manufacturerNever take titlePaid on commission
  • FacilitatorsImproves the efficiency of the channelCan provide financing, credit, market information, grading/certificationNever take titleDoes not negotiate sale or purchase
  • JobbersManufacturers’ repBulk products (raw materials, commodities)Take titleDo not take possessionShort-term relationships
  • Sales AgentsIndependent salespeopleHandle entire marketing function of a single producerMay design promotions, establish prices, determine distribution policies, and recommend marketing strategies.
  • Channel ConflictOnly an issue when it becomes dysfunctionalConflict 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/manageCan address through Ownership Contract power
  • Channel Strategy
  • Channel StrategyTo intermediate or not to intermediate. That is the question.Distribution objectives Sales, profits, market share & coverage, control, costs, service, imageConsider buyers, product, competition, available channels, legal environment
  • Why Adjust Channels?Number of buyers and specialized needs change during PLCBuyers’ change and their buying changesChanges in customer demands Price, order size, delivery times, etc.Some options become available, while other options become feasible over time
  • Why Adjust Channels?
  • Why Not Adjust Channels?Long-term commitment Legal, moral, socialInertia: Change is difficult. Takes time and much energy.Competitors may tap abandoned channelsNeed data to justify changeResistance to change company and channelChange is disruptive
  • Evaluating IntermediariesNeed to periodically review channel members’ productivity, profitability, and effectivenessContribution Analysis MethodWeighted Factor Method
  • Contribution AnalysisObjective measureEvaluate intermediaries based on their contribution to indirect fixed costs and profitability, after covering fixed costsSee Table 13.6, pg. 457
  • Weighted FactorsSubjective measureIdentify evaluative criteriaAssign weights based on importanceEvaluate each intermediaryWeight x Evaluation = ScoreSee Table 13.7, pg. 459
  • Logistics
  • LogisticsTransportationWarehousing Order ProcessingInventory Management Production PlanningProtective Packaging Customer Service Plant, WarehouseMaterials Handling Location (Traveling salesman problem)
  • Ketchikan, Alaska Barge Traffic
  • Logistics Performance MeasuresTotal CostOn-time Delivery Customer ComplaintsCost Trends Inventory LevelsCustomer Satisfaction Inventory TurnsActual vs. Budget Cost/UnitStock-outs Delivery Consistency
  • Newark
  • Industrial Promotion MixFour More Ps: Personal Selling Paid Advertising Sales Promotion Publicity
  • What’s different aboutindustrial promotion?Differences due to: Products are more technical Fewer buyers Buyer location Long, complex buying processTherefore, advertising, sales promotion and publicity play support roles to sales.
  • What else is different aboutindustrial promotion?Not much mass media.Mostly print advertisingMessages logical/factual, vs. emotionalMay need different promotion to different organizations, or even people within a single organization.
  • Available Promotional Tools IGeneral Business Publications: ForbesTrade Publications (See pg. 362) Horizontal: Job/Function focused: purchasing Vertical: Industry focused: steel, agricultureIndustrial Directories: Thomas RegisterTrade ShowsCatalogs
  • Available Promotional Tools IIDirect MailVideosTechnical ReportsWeb Sites/InternetSamplesPublicityNoveltiesTelemarketing
  • Spending Promotional DollarsSpecialized business pubs: 23%Trade shows, exhibits, displays: 18%Direct Mail: 10%Electronic Media/Internet: 9%Publicity/Public Relations: 7%General Magazines: 6%Dealer/Distributor Material: 5%Directories, Yellow Pages: 5%
  • 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 BuyingCognition  Affect  BehaviorAwareness: Publicity and AdvertisingComprehension: Education and AdvertisingConviction: Personal Selling, some Adv.Ordering: Personal Selling
  • Macro Look at BuyingProblem Awareness: Sr. Mgmt/Current Users; use Trade Shows and Trade Publication AdvertisingSolution Identification/ Information Search: Techies; use Catalogs, Samples, Trade Journal Advertising, Sales Force (defense)Evaluate Alternatives: Purchasing Mgrs.; use Comparative Adv., Testimonials, Sales, Tech Reports, PublicityDecide/Purchase: SALES: negotiate, persuade, adaptPost-Purchase Evaluation: Advertising, inside sales, direct mail
  • Implications for MarketerCan influence buyer’s decisionNeed to determine: Most critical stages for product/market Which promo tool most appropriate for stage Balance cost/benefit of promoAs risk increases, the buyer seeks more infoMore conflict, the buyer seeks more info
  • Does B2B advertising make sense?
  • Should businesses advertise to businesses?Yes, but focus on print mediaNeed to reach specific industries, organizations, and individuals within organizationsCan use some TV and Radio, but usually for products with broad market appeal (insurance, computers)
  • Print MediaAdvantages 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 interestedDisadvantages 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 reachGood tool for prospecting (1-800; reply card)Can lay groundwork for salesperson’s call  Creating awareness  Providing general informationCan reduce cost of sales callMotivate/support intermediaries/distributorsCan create pull for customer’s products, leading to increased derived demandCan convey desired image
  • Advertising Objectives IExpress as sales or market share (easy to measure)Could also use awareness levels or changes in attitudes, beliefs, or perceptionsMight just be reminder (esp. in decline)Post-sale reassurance (reduce cognitive dissonance)BE SPECIFIC: Time and AudienceUnfortunately, 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 decreaseLast year’s budget + %: Easy, not rigorousCompetitive parity: Are competitors right?Product/Service profitability: Low Π needs adv.Productivity judgments: Cost/Benefit analysisTask & 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 INeed visual magnetism: get attention Color, contrast, angles, straight lines, oddities, …Select the right audienceInvite reader into the scene: identify with adPromise reward (benefits, good performance)Back up promise: support claim Testimonials, tech standards, …
  • The Message IIOrganize ad to present message in logical sequenceSpeak to reader as an individual, personalize, keep simple, ACTIVE VOICE Avoid ClichésEasy to readWhat 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 IGeneral 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 IIIndustrial Directories (Thomas Register) List suppliers of variety of product types Also Catalogs, like Sweet’sTelemarketing WATS, incoming and outgoing Complaints, inquiries, orders, service requestsWWW Catalogs, orders, email, phone directories, information on company and productsDirect Mail: Brochures, Intro letters, LISTS
  • Evaluating AdvertisingCompare 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 returnsTime lag can be monthsWas target audience reached?Which medium was most effective? $/saleEffect of adv on audience attitude, awareness, recall, behavioral intent (to buy)
  • Sales PromotionSupplements and complements salesSamplesContests for distributorsAdvertising Specialties: Trinkets and TrashTrade Shows, conventionsCatalogsTechnical Reports
  • Trade Shows IFormal exhibition of productsOpportunity to make lots of contacts at onceGood for customers to ask questions and compare competitorsIntroduce/demonstrate productsBuild awarenessMake personal contactsParity with competitors (Keeping up with Joneses)Recruit employees, reps, and distributors
  • Trade Shows IINeed to identify goalsMeasure effectivenessKnow which shows to focus onDisplays and Literature: Location, Quantity/QualityStatic Displays: Well trained salespeople.Attention-Getters: Contests, Shows, Games, GimmicksAudiovisual Presentations: Tapes, Computers, FilmsLive Product Demonstrations: 10 Minutes ±Be on MUST SEE listTake-Aways: Literature, brochures, samples
  • CatalogsContain information on the company’s line of products.Might include price lists & warranties.Can customizeUse Direct Mail, Trade Shows, Sales to distributePut on-linePublish in industry directories, like Sweets
  • Technical ReportsDescribe product and its useGives fairly detailed specifications (customer understanding, no trade secrets)Cut-Sheets: Graphs, charts, illustrationsMay give results of product testingDistribute via direct mail, trade shows, sales
  • Publicity“FREE” (or at least less than advertising)Credibility: Objective 3rd PartyEvents: Chili cook-offsSponsorshipsPress releasesPress conferencesPublic speakingArticle Writing in trade journalsSupplemental Role: Inform about new products; Generate inquiries; Increase awareness
  • Personal SellingThe most important promotional tool in B2B marketingTransaction/relationship is often too complex to consummate without personal interaction between marketer and buyer.Physical link between partiesBoundary Spanner
  • Salespeople as Boundary SpannersRepresent the company to customersRepresents the customer to companyBring info back to company Sales forecasting, product suggestions, competitor impressionsNegotiates prices and termsSolves problems
  • Personal SellingNOT manipulationMight 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 $/saleMore direct, shorter channels
  • Training and SkillsMore technical knowledge in B2BNeed to know customers’ businessesBuild relationships over a long period of time before reaping rewardsNegotiate effectively Price, payment terms, delivery, quantities, returns, post- sale training and service
  • How salespeople spend their timeSelling: 32%Waiting, travel: 21%Telephone: 19%Administration: 15%Service: 13%
  • Four Types of Selling JobsTrade Selling B&D to HDMissionary Selling DeWalt to contractorsTechnical SellingNew Prospect SellingCustomer Service (Non-Sales, Selling) Post-sale satisfaction
  • Selling AidsSmall Gifts Useful, permanent, quality, tasteful, relevant Not substantial; Not to Gov’t customersPlant Tours Customer’s attention, seller’s turf, best way to educate customer about company Chaparral SteelEntertainment Lunch, dinner, drinks (careful), leisure (sports, golf), parties for clients
  • Sales Process StepsProspecting Identify QualifyPreparation Research: prospect, industry, market, competitorsPresentation Approach, Presentation, Objections, CLOSEPost-Sale Delivery, Installation, Training, Billing, Returns, Relationship Building
  • Sales ManagementSales Plan Planning Implementation Control/EvaluationResponsibilities Recruiting Training Organizing Motivating Evaluating Compensating
  • RelationshipsIndustrial sales: develop and maintain relationshipsPower: Who is dependent on whom?Effect of power on negotiationSources of conflict and cooperation
  • Structural PositionsCentral and Formal buyingLevel of key buying decisionsFunctional areas participating in buying processFit between our salesperson and buyer reps May be an issue if mismatched
  • PeopleDemographics and personal characteristics of buyers and salespeople Age, experience, education, lifestyle, race, gender, personal goalsBetter 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 Game
  • Roles, Norms, and Rules of the GameMostly unwritten Some (gifts) writtenAcceptable/Unacceptable tactics for both buyers and sellers.Perceived roles played by buyer and seller representativesAre both sides seeing same thing? Do perceptions match?
  • RolesRole Ambiguity: Unclear understandingRole Conflict: Role partners want different things from sales personRole Accuracy: MisunderstandingRole Consensus: Buyer/Seller agree on rolesRole Fulfillment: Buyer/Seller satisfiedCan improve some with training, supervision, and experience
  • Managing Sales ForceSales force sizeSales force organizationRecruiting and selecting salespeopleTrainingMotivation and CompensationStandardsEvaluation
  • Sales Force SizeBreakdown Method Forecast Sales Estimate Salesperson Productivity Calculate Number of Salespeople NeededWork 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
  • Organizational Structure• Geography: States/Regions, Downtown/Suburban• Product Type: Yard Equipment vs. Power Tools• Customer Type: Industrial/Consumer, Hospitals/Schools, Wholesalers/Retailers• Selling Function: Prospecting, presenting, servicing
  • Recruiting and Selecting SalespeopleJob analysis and description Sales jobs are different: e.g. inside/outsideCharacteristics: Enthusiasm, education, flexibility, stability, past performance, goalsTests: Intelligence, aptitude, psychologicalInterviews and ReferencesSourcesLegislation
  • Training TopicsProduct KnowledgeMarket/IndustryCompanyTime/Territory ManagementLegal/Ethical IssuesOther: Computer program, Relationship building, Selling procedures, Decision Support System (DSS)
  • Training MethodsOn-the-job: most commonExternal seminars: top three, major toolHome assignments: least favoriteIn house classes
  • Training Costs/TimeNew Hires $4,000+ to nearly $10,000 4± months averageExisting Salespeople About $4,000/year Nearly a week (32.5 hours) per year More emphasis on product vs. skills
  • MotivationExpectancy Theory Expect that effort will lead to performance Reward is instrumental in achieving reward Salesperson Valence for reward Need all for motivation.
  • Rewards and CompensationExtrinsic and Intrinsic Money, awards, recognition, travel, promotions Personal Growth, sense of accomplishmentLower/Higher Order NeedsCompensation Salary Commission Bonus Contests Benefits
  • Standards: QuotasGoals assigned to salespeople for specific time period.Three Purposes Motivate salespeople Evaluating performance Controlling salespeople’s effort
  • Characteristics of Good QuotasAttainable Motivation requires reasonable chance of attainmentEasy to understand Too complex  suspicion and mistrustComplete Cover all criteria to avoid imbalance
  • Types of QuotasVolume Units, Dollars, PointsActivity # cold calls, proposals, displays, service calls, meetings, collections, demonstrationsFinancial Expenses, Gross Margins, Net Profit
  • How to Set QuotasVolume History Territory PotentialActivity Sales reps and managers; sales reports; researchFinancial Based on financial goals of firm Adjust to meet needs