Business marketing bims-1 & 2 module


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Business Marketing Module 1 & 2

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Business marketing bims-1 & 2 module

  1. 1. BUSINESS MARKETING Dr. S. MANJUNATH Module 1 and 2
  2. 2. What is Business Marketing? • Business marketing also referred to as “Industrial marketing” or “B2B marketing” or “Organizational marketing”. • Business marketing is the marketing of products & services to business organizations. • Business organizations include: Manufacturing companies Govt. undertakings Private sector organizations Educational institutions Hospitals Distributors / Dealers Business organizations buy products & services to satisfy many objectives like production of other goods & services, making profits, reducing costs, & so on. Consumer marketing is the marketing of products & services to individuals, families, & households. The consumers buy products & services for their own consumption.
  3. 3. NATURE OF THE BUSINESS MARKET • Companies also buy services, such as legal, accounting, office-cleaning, and other services. • Some firms focus entirely on business markets. • Example: Caterpillar, which makes construction and mining equipment. • Diverse market, everything from a box of paper clips to thousands of parts for an automobile manufacturer.
  4. 4. COMPONENTS OF THE BUSINESS MARKET • Four main components: • Commercial market Individuals and firms that acquire products to support, directly or indirectly, production of other goods and services. • Largest segment of the business market. • Trade industries Retailers or wholesalers that purchase products for resale to others. • Also called resellers, marketing intermediaries that operate in the trade sector. • Government—all domestic levels (federal, state, local) and foreign governments; also act as sellers—e.g., confiscated goods. • Public and private institutions, such as hospitals, churches, colleges and universities, and museums.
  5. 5. B2B MARKETS: THE INTERNET CONNECTION • More than 94 percent of all Internet sales are B2B transactions. • Opens up foreign markets to sellers. • Largest segment of the business market. DIFFERENCES IN FOREIGN BUSINESS MARKETS • May differ due to variations in regulations and cultural practices. • Businesses must be willing to adapt to local customs and business practices and research cultural preferences.
  6. 6. B2C and B2B The Consumer Market (B2C) and the Business Market (B2B) at Dell, Inc. B2C B2B Institutions Healthcare Education Customers: Individuals & Households Businesses Global Large corporations Small & Medium sized businesses Selected Products: PCs Printers Consumer Electronics Simple Service Agreements PCs Enterprise Storage Servers Complex Service Offerings Government Federal State Local
  7. 7. The Supply Chain Upstream Suppliers Direct Suppliers Auto Manufacturers Auto Buyers (USX, Du Pont) (TRW, Johnson Controls) (Ford, General Motors) (Consumers) Suppliers of manufactured materials and parts such as sheet metal or plastic resin Purchase input used in creating power-steering systems (TRW) or car seats (Johnson Controls) Purchase input used in creating automobiles Purchase automobiles Business Marketing Business Marketing Consumer Marketing (Individuals, Households) and Business Marketing (Organisations such as Fleet Buyers) Source: Hutt, M.D. and Speh, T.W. (2004): Business Marketing Management: A Strategic View of Industrial and Organizational Markets, 8th Edition, p. 15.
  8. 8. Major Categories of Business Customers Identify the four major categories of business market customers 8
  9. 9. Major Categories of Business Customers Producers Resellers Governments Institutions OEMs (Original Equipment Manufacturers) Wholesalers Retailers National Party Municipal Local Schools Hospitals Colleges Churches Unions Fraternal groups Civic Clubs Foundations Nonbusiness organizations 9
  10. 10. Producers Original Equipment Manufacturers OEMs. Individuals and organizations that buy business goods and incorporate them into the products that they produce for eventual sale to other producers or to consumers. 10
  11. 11. REVIEW LEARNING OUTCOME Business Market Customers Business Marketing Producers Resellers Governments OEMs Wholesalers Federal Unions Churches Retailers State Civic Clubs Foundations Municipal Other Nonprofits County Institutions
  12. 12. Business versus Consumer Markets Explain the major differences between business and consumer markets 12
  13. 13. Business and Consumer Marketing Differs In: 1. 2. 3. 4. 5. Nature of their markets Market demand Buyer behavior Buyer-seller relationship Environmental influences (competition, political, legal) and 6. Market strategy • Due to these differences, business marketers need to understand how demand for industrial products and services differs from consumer demand.
  14. 14. Business versus Consumer Markets Characteristic Demand Business Market Consumer Market Organizational Individual Volume Larger Smaller # of Customers Location Distribution Nature of Buy Buy Influence Fewer Concentrated More Direct More Professional Multiple Many Dispersed More Indirect More Personal Single Negotiations More Complex Simpler Reciprocity Leasing Promotion Yes Greater Personal Selling No Lesser Advertising
  15. 15. B2B Marketing vs. Consumer Marketing Areas Industrial Markets Consumer Markets 1. Market characteristics • Geographically concentrated • Relatively fewer buyers • Geographically distributed • Mass markets 2. Product characteristics • Technical complexity • Customized • Standardized 3. Service characteristics • Service, timely delivery & availability is very important • Service, timely delivery & availability is somewhat important 4. Buying behavior • Involvement of various functional areas in both buyer & supplier firms • Purchase decisions are mainly made on rational/performance basis •Technical expertise • Stable interpersonal relationship between buyers & sellers • Involvement of family members • Purchase decisions are mostly made on physiological / social / psychological needs • Less technical expertise • Non-personal relationship
  16. 16. B2B Marketing vs. Consumer Marketing Areas Industrial Markets Consumer Markets 5. Channel characteristics • More direct • Fewer intermediaries • Indirect • Multiple layers of intermediaries 6. Promotional characteristics • Emphasis on personal selling • Emphasis on advertising 7. Price characteristics • Competitive bidding & negotiated prices • List prices for standard products • List prices or maximum retail price (MRP) New Work
  17. 17. Types of Business Products Major Equipment Accessory Equipment Raw Materials Component Parts Processed Materials Supplies Business Services Online
  18. 18. Types of Business Products (Cont.) Major Equipment Accessory Equipment Raw Materials Component Parts Major Categories of Business Products 18 Processed Materials Supplies Business Services
  19. 19. Classifying Goods for the Business Market Classifying industrial goods by the following questions: How does the good or service enter the production process? How does it enter the cost structure of the firm? Source: Adapted from Philip Kotler, Marketing Management: Analysis, Planning, and Control, 4th ed. (Englewood Cliffs, N.J.: Prentice-Hall, 1980), p. 172, with permission of Prentice-Hall, Inc.
  20. 20. Classifying Business Goods & Services 3 Main Categories of Products Entering Goods Become part of the finished product Cost assigned to the manufacturing process Foundation Goods Capital Items Typically depreciated over time Facilitating Products Support organizational operations Handled as overhead expenses
  21. 21. Classifying Business Goods & Services Entering Goods  Raw Materials  Farm products & natural products  Only processed as necessary for handling & transport  Require extensive processing  Manufactured Materials & Parts  Any product that has undergone extensive processing prior to purchase  Component Materials require additional processing  Component Parts generally do not require additional processing
  22. 22. Classifying Business Goods & Services Foundation Goods Installations Major long-term investment items Buildings, land, fixed equipment, etc. Accessory Equipment Less expensive & short-lived Not considered part of fixed plant Portable tools, PC’s, etc.
  23. 23. Classifying Business Goods & Services Facilitating Products Supplies Any supplies necessary to maintain the organization’s operations Services Maintenance & Repair support Advisory support Logistical support
  24. 24. REVIEW LEARNING OUTCOME Types of Business Goods and Services Extruding machine: major equipment Aluminum ore: raw material Tool cart: accessory equipment Extruded metal: processed material Propeller blade: component part Paper: supply Uniforms: contracted service
  25. 25. Evaluative Criteria 1. Quality 2. Service 3. Price
  26. 26. Buying Situations New Buy A situation requiring the purchase of a product for the first time. Modified Rebuy A situation where the purchaser wants some change in the original good or service. Straight Rebuy A situation in which the purchaser reorders the same goods or services without looking for new information or investigating other suppliers.
  27. 27. What is market segmentation? Market segmentation is the partitioning of the market into groups of customers (segments) with similar needs and/or characteristics who are likely to exhibit similar purchase behaviour. Source: Weinstein, A. (1994) Market Segmentation, Chicago: Probus Publishing Company. 27
  28. 28. Why market segmentation? • To identify customer needs ( information). • To cluster customers into groups to more efficiently and effectively satisfy their needs ( decision). • To tailor the marketing strategy to the customers’ needs and thus to efficiently allocate marketing resources ( action). Source: Hutt, Michael D. and Speh, Thomas W. (2004): Business Marketing Management: A Strategic View of Industrial and Organizational Markets, 8th Edition, p. 177-8. 28
  29. 29. Macro- and micro-segmentation Relevant market Macro-Segmentation Basis: industry, region, size, etc. Level 1 Macro-segment1 Macro-segment2 Level 2/3 ... Micro-Segmentation Basis: buying centre structure, etc. Micro-segment 1 Micro-segment 2 ... Source: Wind, Y. and Cardozo, R. (1974) Industrial Market Segmentation, Industrial Marketing Management, Vol. 3, March, p. 156. 29
  30. 30. Bases for Macro-segmentation Source: Hutt, Michael D. and Speh, Thomas W. (2004): Business Marketing Management: A Strategic View of Industrial and Organizational Markets, 8th Edition, p. 180. 30
  31. 31. Bases for Micro-segmentation Source: Hutt, Michael D. and Speh, Thomas W. (2004): Business Marketing Management: A Strategic View of Industrial and Organizational Markets, 8th Edition, p. 184. 31
  32. 32. Quantitative Evaluation of Segments • • • • • • sales per segment turnover / profit per segment price (margin) per unit market share within the segment number of customers segment specific costs Source: Guenter, Bernd (1990) Marktsegmentierung, TV Lehrbrief, Berlin, p. 28. 32
  33. 33. Qualitative Evaluation of Segments • growth potential (internal and external to the segment) • domination by competitors • entry barriers • degree of customer retention • know-how transfer • innovation potential Source: Hlavacek, J. D. and Reddy, N. M. (1986) Identifying Industrial Market Segments, European Journal of Marketing, Vol. 20, No. 2, p. 1 33
  34. 34. The Market Segmentation Process Source: According to Wind, Y. and Cardozo, R. (1974) Industrial Market Segmentation, Industrial Marketing Management, Vol. 3, March, p. 156. Identify the relevant market Identify macro-segments based on important organisational criteria Evaluate acceptable macro-segments and judge whether the are homogenous in responding to marketing measures Yes Stop! macro-segments = market segments No Identify micro-segments based on important buying centre criteria within macro-segments Evaluate and select the most attractive micro-segments 34 Evaluate and select the most attractive macro-segments
  35. 35. BUSINESS MARKET DEMAND • Demand characteristics vary from market to market.
  36. 36. DERIVED DEMAND • The linkage between demand for a company’s output and its purchases of resources such as machinery, components, supplies, and raw materials. • Example: Demand for computer microprocessor chips is derived from demand for personal computers. • Organizational buyers purchase two types of items: • Capital items—long-lived business aspects that depreciate. • Expense items—items consumed within short time periods. VOLATILE DEMAND • Derived demand creates volatility. • Example: Demand for gasoline pumps may be reduced if demand for
  37. 37. JOINT DEMAND • Results when the demand for one business product is related to the demand for another business product used in combination with the first item. • Example: If lumber supply falls, then decrease in construction will affect concrete market. INELASTIC DEMAND • Demand throughout an industry will not change significantly due to a price change. • Example: Construction firms will not necessarily buy more lumber if prices fall unless overall housing demand also increases.
  38. 38. INVENTORY ADJUSTMENTS • Just-in-time (JIT) inventory policies boost efficiency by cutting inventory and requiring vendors to deliver inputs as they are needed. • Often use sole sourcing, buying a firm’s entire stock of a product from just one supplier. • Latest inventory trend: JIT II, suppliers to place representatives at the customer’s facility to work as part of an integrated, on-site customer–supplier team. • Inventory adjustments are also vital to wholesalers and retailers.
  39. 39. INDUSTRIAL DEMAND Demand for new homes Derived Demand The demand for industrial products & services does not exist by itself. It is derived from the ultimate demand for consumer goods & services. Demand for furniture Demand for wood Industrial customers buy goods & services for use in producing other goods & services. Joint Demand NEW WORK Joint demand occurs when one industrial product is useful if other product also exists. Demand for pen Demand for ink Cross-Elasticity Demand Demand is „elastic‟ if the %age change in quantity demanded is more than the %age change in price. Cross elasticity of demand is the responsiveness of the sales of one product to a price change in another product. Price of Tea Back
  40. 40. Commercial enterprise Govt. customers Institutional customers Cooperative societies Business / Industrial customers Industrial Market & Environment Industrial distributors / dealers Original equipment manufacturers Users Intermediaries / middlemen, reselling to OEMs, users, Govt. firms For Exide (battery manufacturer), Telco, is an OEM For HMT, TVS-Suzuki is the ‘user’ Public sector units BHEL, ONGC, IOL Govt. undertakings Indian Railways, Defence units, State Elec. Boards Public institutions Govt. hospitals, prisons Private institutions Schools, colleges Manufacturing units Maharashtra Sugar Cooperative Society Non-manufacturing units Cooperative banks, housing cooperative societies
  41. 41. Materials & parts Raw materials Manufactured materials Component parts Capital items Subassemblies Light equipment or accessories Installations or heavy equipment Plant & building Suppliers & services Industrial products & services Industrial Market & Environment Supplies Services Basic products like iron ore, crude oil, fish, fruits, vegetables Acids, fuel oil, steel, chemicals Semi-finished parts like bearings, tyres, small motors, batteries Semi-finished goods like exhaust pipe in motorcycle Hand tools, dies, computer terminals Furnaces, machines, turbines Offices, plants, warehouses, parking lots, real estate property Operating & maintenance suppliers like fuels, packaging materials, lubricants, paints, elec. items Legal, auditing, advertising, courier, marketing research agency
  42. 42. Marketing Implications for Different Customer & Product Types Materials & Parts products, for large OEMs or users, selling is done directly from a seller organization to a buyer organization. For smaller volume OEMs & users, standard raw materials or components are sold through industrial dealers or distributors as it is cost effective. If the components are custom-made, considerable interaction takes place between technical & commercial persons from both buyer & seller organizations. Selling is direct. Industrial salesman remain in close touch with various departments like purchase, finance, R&D, marketing, production & quality of buyer organizations as they influence the buying or payment releasing decisions. Personal contacts, product leaflets/brochures help as industrial marketer in communicating product & other information. For standard products, the factors which influence buying decisions are: Product quality & performance Payment terms Delivery dependability Customer service Price Customer rapport
  43. 43. THE BUSINESS BUYING PROCESS • More complex than the consumer decision process. • Takes place within formal organization’s budget, cost, and profit considerations. INFLUENCES ON PURCHASE DECISIONS Environmental Factors • Economic, political, regulatory, competitive, and technological considerations influence business buying decisions. • Example: Law freezing cable rates or introduction of new product by a competitor will affect demand. • Natural disasters, such as Hurricane Katrina. • Example: Rising fuel prices prompted Viking Energy Management to lock in fuel prices.
  44. 44. Organizational Factors • Successful marketers understand their customers’ organizational structures, policies, and purchasing systems. • Some firms have centralized procurement, others delegate it throughout the units. • Many companies use multiple sourcing to avoid depending too heavily on a sole supplier. Interpersonal Influences • Many different people influence B2B buying decisions, sometimes as individuals and sometimes as part of a committee. • Marketers must know who the influencers are and understand their priorities. • Sales personnel must be flexible and have a good technical understanding of their products.
  45. 45. The Role of the Professional Buyer • Many organizations rely on professionals, often called merchandisers, who implement systematic buying procedures. • Firms usually buy expense items with little delay but carefully consider capital purchases. • May rely on systems integration, centralization of the procurement function. • Corporate buyers often use the Internet to identify sources of supplies.
  47. 47. Stage 1: Anticipate a Problem/Need/Opportunity and a General Solution • Example: Need to provide employees with a good cup of coffee to enhance productivity. Stage 2: Determine the Characteristics and Quantity of a Needed Good or Service • Example: Offering a coffee system that brews one cup of coffee at a time according to each employee’s preference. Stage 3: Describe Characteristics and the Quantity of a Needed Good or Service • Example: Firms need a simple system for brewing a good cup of coffee; quantity requirements are easily correlated to the number of coffee drinkers.
  48. 48. Stage 4: Search for and Qualify Potential Sources • Choice of supplier may be fairly straightforward or very complex. Stage 5: Acquire and Analyze Proposals • May involve competitive bidding, especially if the buyer is the government or a public agency. Stage 6: Evaluate Proposals and Select Suppliers • Buyers choose proposal best suited to their needs. • Final choice may involve trade-offs between feature such as price, reliability, quality, and order accuracy.
  49. 49. Stage 7: Select an Order Routine • Buyer and vendor work out best way to process future purchases. Stage 8: Obtain Feedback and Evaluate Performance • Buyers measure vendors’ performance. • Larger firms are more likely to use formal evaluation procedures. • Some firms rely on outside organizations to gather quality feedback and summarize results. • Example: J. D. Power and Associates
  50. 50. CLASSIFYING BUSINESS BUYING SITUATIONS • Business buying behavior involves degree of effort involved in the decision and the levels within the organization in which these decisions are made. Straight Rebuying • A recurring purchase decision in which a customer reorders a product that has satisfied needs in the past. • Purchaser see little reason to assess competing options. • Marketers who maintain good relationships with customers can go a long way toward ensuring straight rebuys. • High-quality products. • Superior service. • Prompt delivery.
  51. 51. Modified Rebuying • Purchaser willing to reevaluate available options. • May occur if supplier has let a rebuy circumstance deteriorate because of poor service or delivery performance. New-Task Buying • First-time or unique purchase situations that require considerable effort by the decision makers. • Most complex category of business buying. • Often requires purchaser to consider alternative offerings and vendors.
  52. 52. Reciprocity • Practice of buying from suppliers that are also customers. • In U.S., Department of Justice and the Federal Trade Commission view reciprocity as an attempt to reduce competition. ANALYSIS TOOLS • Value analysis—examines each component of a purchase in an attempt to either delete the item or replace it with a more cost-effective substitute. • Vendor analysis—an ongoing evaluation of a supplier’s performance in categories such as price, EDI capability, back orders, delivery times, liability insurance, and attention to special requests.
  53. 53. THE BUYING CENTER CONCEPT • Buying center Participants in an organizational buying action. BUYING CENTER ROLES
  54. 54. REVIEW LEARNING OUTCOME Business Buying Behavior Buying Center Initiator Influencer Decider Purchaser User Gatekeeper Evaluative Criteria  Quality  Service  Price Customer service Buying Situations New buy Straight rebuy Modified rebuy
  55. 55. Environmental Analysis in Business Marketing Air & water pollution, solid waste disposal, conserving natural resources Environment Ecological & Physical Water, power, skilled manpower, low-cost labor, transportation Company location, R&D facilities, production facilities, HR, Financial resources, marketing effectiveness, reputation or image of the company Internal Strength & weaknesses analysis External Micro Affect a particular firm Opportunity & threat analysis Macro Affects all firms • Customers & competitors • Suppliers • • • • • Economic Technological Govt. & political, & legal Cultural & social Public-press, institutional investors, shareholders, banks, public interest groups