0 Chapter 1 A Business Marketing Perspective © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 12e The dynamic nature of the business marketing environment and the basic similarities and differences between consumer-goods and business marketing The types of customers in this important market The underlying factors that influence the demand for industrial goods Chapter Outline 0 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. The nature of buyer-seller relationships in a product’s supply chain A method for classifying products and services for the business market Chapter Outline (continued) 0 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. Markets for products and services bought by businesses, government bodies, and institutions for: Incorporation Consumption Use Resale Business Markets 0 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. Business marketers serve the largest market of all Dollar volume of the business market greatly exceeds the consumer market Single customer can account for an enormous level of purchasing activity Known as industrial marketing Business Marketing 0 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. Factors that distinguish business marketing from consumer marketing Nature of the customer Utility of the product for the customer Key to successful marketing strategy To identify unique dimensions of each major business market and formulate programs that respond to specific characteristics of each business market sector Business Marketing (continued) © 2017 Cengage Learni ...

1. 0
Chapter 3
Customer Relationship Management Strategies for Business
Markets
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12e
The patterns of buyer–seller relationships in the business
market
The factors that influence the profitability of individual
customers
A procedure for designing effective customer relationship
management programs
The critical determinants of relationship marketing
effectiveness
Chapter Outline
0

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Created by demonstrating special skills in:
Managing relationships with key customers
Developing innovative strategies with alliance partners
Collaborative Advantage
0
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3. Figure 3.1 - Buyer–Seller Relationships
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Transactional exchange: Centers on timely exchange of basic
products at highly competitive market prices
These transactions are autonomous
Collaborative exchange: Features close information, social,
operational linkages, and mutual commitments
Operational linkages: Reflect how much the systems,
procedures, and routines of the buying and selling firms have
been connected to facilitate operations
Types of Relationships
0

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Fall between transactional and collaborative exchanges
Selling firms shift from attracting customers to keeping them
by:
Understanding customer’s needs and changing requirements
Tailoring the firm’s offerings to those needs
Providing continuing incentives that promote repeat business
Value-Adding Exchanges
0
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Figure 3.2 - Characteristics of Relationships
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Include investments and risk of exposure
Organizational buyers invest in their relationships with
suppliers
Investments include:
Money
People
Training costs
Equipment
Procedures and processes
Switching Costs
0

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Customers perceive more risk when they:
Purchase products important to their operations
Buy from less established suppliers
Buy technically complex products
Switching Costs (continued)
0
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7. protected website or school-approved learning management
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Strong and lasting commitments are recommended
Marketers can invest resources to secure commitments and
directly assist customers with planning
Regular visits to the customer by executives and technical
personnel strengthen the relationship
Operational linkages and information-sharing mechanisms
should be designed to keep product and service offerings
aligned with customer needs
Collaborative Customers
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Service support and personal interaction
Supplier’s know-how and its ability to improve a customer’s
time to market
Product quality and delivery performance
Cost savings associated with the acquisition process and from
operations

8. Value Drivers in Collaborative Relationships
0
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Display less commitment to a particular supplier and can easily
switch part or all of the purchases from one vendor to another
Marketer needs to offer an immediate, attractive combination of
product, price, technical support, and other benefits
Transaction Customers
0

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Value created has to exceed the cost of creating and delivering
the customized features and services
Measured by higher margins and higher sales volumes
Marketer needs to understand the drivers of customer
profitability
Can allocate marketing resources and take action to convert
unprofitable relationships into profitable ones
Differentiation Strategy
0
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10. Illuminates activities associated with serving a particular
customer and how these activities are linked to revenues and the
consumption of resources
Link customer transaction data from customer relationship
management (CRM) systems with financial information
Provides marketing managers with an accurate picture of the
gross margins and cost-to-serve components
Activity-Based Costing (ABC)
0
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Figure 3.3 - Whale Curve

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High-cost-to-serve customersLow-cost-to-serve
customersPresale costs Extensive presales support required (i.e.,
technical and sales resources)Limited presales support (i.e.,
standard pricing and ordering)Production costs Order custom
products
Small order quantities Unpredictable ordering Pattern manual
processingOrder standard products Large order quantities
Predictable ordering cycle Electronic processingPost-sale
service costs Extensive post-sales support required (i.e.,
customer training, installation, technical support)Limited post-
sales support
Characteristics of High- versus Low-Cost-to-Serve Customers
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Determined by looking at the cost/profitability structure with
the plan to:
Keep profitable customers
Convert unprofitable ones to profitability
Fire those who are not profitable
Customer Profitability
0
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Figure 3.4 - Profit Lens

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Marketing manager should:
Explore possible ways to reduce the cost of activities associated
with serving these customers
Direct attention to the customer actions that contribute to higher
selling costs
Managing Unprofitable Customers
0
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Should occur only when the customer resists all attempts to

14. convert the unprofitable relationship into a profitable one
Let customers fire themselves
Refuse to grant discounts and reduce or eliminate marketing and
technical support
Customer divestment
Must be exercised sparingly
Firing the Customer
0
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Cross-functional process for achieving:
Continuing dialogue with customers across all contact and
access points
Personalized service to the most valuable customers
Increased customer retention
Continued marketing effectiveness
Customer Relationship Management (CRM)
0

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Enterprise software systems that integrate sales, marketing, and
customer service information
Synthesize information from all of a company’s contact points
to:
Support later customer interactions
Inform market forecasts, product design, and supply chain
management
Yields positive returns when a firm has a customer strategy
CRM Systems
0
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16. duplicated, or posted to a publicly accessible website, in w hole
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Steps in Successful Customer Strategy
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23
Acquiring the right customer
Crafting the right value proposition
Instituting the best processes

17. Motivating employees
Learning to retain customers
Customer relationship management places importance on:
Stock of current and potential customer relationships
Collective knowledge of how to select, initiate, develop, and
maintain profitable relationships with these customers
Customer portfolio management - Process of creating value
across a firm’s customer relationships
Acquiring the Right Customer
0

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Value proposition: Encompasses the products, services, ideas,
and solutions that a business marketer presents
To advance the performance goals of the customer organization
Marketer can gain an advantage over rivals by adding a justifier
to the value proposition
Best-practice suppliers base their value proposition on thei r
target market’s needs
Crafting the Right Value Proposition
0
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19. Figure 3.5 - Bandwidth of Strategies
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Offering should include the bare-bones-minimum number of
services valued by all customers in a particular market segment
Optional services need to be created that add value by reducing
costs or improving the performance of a customer’s operations
Creating Flexible Service Offerings
0
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Sales force plays a key role in relationship-management
Technical service and customer service personnel assume
implementation roles
Requires effective organization and deployment of personal
selling effort and close coordination with supporting units
Through careful management and screening, transactional
accounts can progress to partnerships
Instituting Best Processes
0
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21. Responsiveness of the supplier in meeting the firm’s needs
Product quality
Broad product line
Delivery reliability
Knowledgeable sales and service personnel
Performance Attributes that Influence Customer Satisfaction
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Dedicated employees are the key to a successful customer
relationship strategy
Employee loyalty is earned by:
Investing in training and development
Providing challenging career paths to facilitate professional
development
Aligning employee incentives to performance measures
Motivating Employees
0

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Reasons to retain loyal customers
Established customers buy more
Cost of serving loyal customers declines
Less expensive than acquiring new customers
Ways to retain customers
Provide superior value to ensure high satisfaction
Nurture trust and developing mutual commitment
Help customers grow their business, if possible
Learning to Retain Customers
0
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Identifying and cultivating customers that offer the most growth
potential by:
Estimating current percent share of wallet the firm has attained
Pursuing opportunities to increase share
Projecting and enhancing customer profitability
Pursuing Growth from Existing Customers
0
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Some relationship-building efforts fail as expectations of the
parties do not weave together
By isolating customer needs and the costs of augmented service
features, marketer is equipped to match their product offerings

24. to the needs
Goal of a relationship is to enable the buyer and seller to
maximize joint value
Business marketers should continually update the value of their
product and relationship offering
Evaluating Relationships
0
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Relationship quality: High-caliber relational bond characterized
by commitment and trust
Relationship breadth: Number of interpersonal ties that connect
the relationship
Relationship composition: Decision-making capability of
relational contacts at the customer firm
Drivers of Relationship Marketing Effectiveness

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34
Relationship strength: Ability of the buyer–seller relationship to
withstand stress and/or conflict
Relationship efficacy: Ability of an interfirm relationship to
achieve desired objectives
Drivers of Relationship Marketing Effectiveness (continued)
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26. 35
Figure 3.6 - Model of Interfirm Relationship Marketing
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Relationship Marketing (RM) Programs
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37
Social RM programs
Use social engagements, personalized communication that
develop bond and highlight the customer’s special status
Structural RM programs
Designed to increase productivity and/or efficiency for
customers through targeted investments
Financial RM programs
Provide economic benefits to increase customer loyalty

28. Represents the customer’s desire to engage in strong
relationships with a current or potential supplier
RM investments improve if business marketers are able to target
customers on the basis of their RO rather than size
Relationship Orientation (RO)
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0
Chapter 5
Business Marketing Planning: Strategic Perspectives
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29. or in part, except for use as permitted in a license distributed
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12e
Marketing’s strategic role in corporate strategy development
The multifunctional nature of business marketing decision
making
The components of a business model that can be converted into
superior positions of advantage in the business market
Chapter Outline
0
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The way in which a new class of smart, connected products is
transforming competition
A valuable framework for detailing the processes and systems

30. that drive strategy success
Chapter Outline (continued)
0
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Market-driven organizations:
Center on customers
Take an outside-in view of strategy
Demonstrate an ability to sense market trends ahead of their
competitors
Marketing’s Strategic Role
0

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Hierarchy of Strategies
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Corporate strategy
Business-level strategy

32. Functional strategy
Defines the businesses in which a company competes, in a
manner that uses resources to convert distinctive competence
into competitive advantage
Role of marketing
Assessing market attractiveness and the competitive
effectiveness of the firm
Promoting a customer orientation to the various constituencies
in management decision making
Formulating the firm’s overall value proposition and
articulating it to the market
Corporate Strategy
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Centers on how a firm competes in a given industry and

33. positions itself against its competitors
Competition is between individual business units
Strategic business unit (SBU): Single business or collection of
businesses that has:
A distinct mission
A responsible manager
Its own competitors and that is relatively independe nt of other
business units
Business-Level Strategy
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Centers on how resources allocated to the various functional
areas can be used most efficiently and effectively to support the
business-level strategy
Focus of marketing strategy is to allocate and coordinate
marketing resources and activities to achieve the firm’s
objective within a specific product market
Functional Strategy
0

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Interplay between the three levels of strategic formulation:
Cuts across functional areas
Involves issues related to long term objectives
Involves allocating resources across SBUs and/or product
markets
Include decisions about the direction of corporate strategy,
application of technology, and choice of alliance partners
Strategic Formulation and the Hierarchy of Strategies
0

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Figure 5.1 - Strategic Decision Processes
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Different meanings assigned to a proposed strategy are
motivated by deeper differences in organizational subcultures
Subcultures exist when one subunit shares different values,
beliefs, and goals than another subunit, resulting in different
thought-worlds
Functional managers are likely to resist strategic changes that
threaten their field
Conflicts in Strategy Formulation Process

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Collective decisions emerge from negotiation and compromise
among partisan participants
Choices must be negotiated with each interest group attempting
to achieve its own ends
Results of collective decisions tend to develop incrementally
and depend on the partisan values and influence of the various
interest groups
Negotiated Outcomes
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37. with a certain product or service or otherwise on a password-
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Marketing managers should:
Be sensitive to the likely response it may arouse in other
interest groups
Develop and use a communication network that includes
organizational members who have a major stake in the decision
Be able to use the personal networks to understa nd the interests
of other stakeholders, communicate their own interests clearly
and sensitively
13
Implications for Marketing Managers
0
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Successful marketing managers know how to integrate
functional areas
Understand the capabilities of manufacturing, R&D, and

38. customer service
Capitalize on the strengths in developing marketing strategies
Facilitate strategies that are responsive to customer needs
Assume a central role in strategy implementation
Functional Integrated Planning
0
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Approach that can classify decision-making roles and highlight
the multifunctional nature of business marketing decision
making
Responsible (R) - Manager takes initiative, analyzes situation,
develops alternatives, consults with others, makes initial
recommendation
Approve (A) - Manager accepts or rejects decisions
Consult (C) - Manager offers input
Responsibility Charting
0

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Implement (M) - Manager is accountable for implementing
decision
Inform (I) - Manager is informed of the decision
Responsibility Charting (continued)
0
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40. system for classroom use.
Constitutes members of the organization involved in the
business marketing decision-making process
Representatives may assume more than one role
Roles evolve during the marketing strategy development process
Composition is not strictly prescribed by the organization chart
Needs of a particular strategy situation influence the
composition of the strategy center
Marketing Strategy Center
0
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Minimizing interdepartmental conflict is a challenge for
marketer
Individual strategy center participants are motivated by personal
and organizational goals
Organizational objectives may be different for different

41. functional areas
Managing conflict, promoting cooperation, developing and
coordinating strategy is a fundamental responsibility for
marketing managers
Managing Strategic Interdependencies
0
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Figure 5.2 - Components of a Business Model
0

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Elements of Customer Interface
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Fulfillment and support
Channels a firm uses to reach and support customers
Information and insight

43. Knowledge captured from customers and the degree to which
this information is used
Relationship dynamics
Nature of the interaction between the firm and its customers
Pricing structure
Pricing choices offered by a business concept
Determines how the firm chooses to compete
Elements
Business mission: Describes overall strategic objective, sets
course direction, and defines performance criteria to measure

44. progress
Product/market scope: Defines where the firm competes
Basis for differentiation: Captures the essence of how firm
competes differently than its rivals do
Core Strategy
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Business is differentiated when its value-adding activities are
perceived as superior and profitable
Value-added features need to motivate customers to pay a
higher premium than the cost of superior performance
Differentiation of Products and Services
0

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Core competencies
Set of skills, systems, and technologies that create uniquely
high value for customers
Strategic assets
Tangible requirements for advantage that enable a firm to
exercise its capabilities
Core processes
Methodologies and routines that companies use
Strategic Resources
0
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23
Complements and enriches the firm’s research base
Includes:
Suppliers
Strategic alliance partners
Coalitions
Value Network
0
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Figure 5.3 - Strategic Positioning
0

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Cloud computing: Scalable and elastic IT-related capabilities
are provided as a service to external customers using Internet
technologies
Internet of Things (IoT): Connects devices such as everyday
consumer objects and industrial equipment onto the network
Big Data: Massive amounts of data collected over time that are
difficult to analyze and process using common database
management tools
Smart, Connected Products
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48. or in part, except for use as permitted in a license distributed
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Big Data Analytics: Process of examining large data sets
containing a variety of data types
To uncover hidden patterns, unknown correlations, market
trends, customer preferences, and other useful information
Smart, Connected Products (continued)
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Continuous monitoring of a product’s condition, operation,
usage, and external environment through sensors and external
data sources
Control through remote commands or algorithms that are
incorporated into the device or reside in the product cloud
Application of algorithms and analytics to product usage data to
enhance product performance
Capabilities of Smart, Connected Products

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Preventative maintenance when failure is imminent and
completes repairs remotely
Smart, connected products:
Operate autonomously
Self-diagnose their own service needs
Adapt to users’ preferences
Self-coordinate with other products and systems
Capabilities of Smart, Connected Products (continued)
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50. system for classroom use.
Marketing strategists can secure new insights into how products
create value for customers by gathering and analyzing product
usage data
By capitalizing on the rich data flows from customers, managers
can:
Create product and service bundles that provide greater value to
each segment
Price the bundles to capture a greater share of that value
Effect of Smart, Connected Products on Marketing Strategies
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Product usage and performance data offer improvements in
predictive maintenance and service productivity
Product data can signal existing and future problems and enable
firms to make timely equipment repairs
Effect of Smart, Connected Products on Marketing Strategies
(continued)

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Figure 5.4 - The Management System
0
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Comprehensive system for converting a company’s vision and
strategy into a tightly connected set of performance measures

52. Combines financial measures of past performance with measures
of the drivers of performance
Balanced Scorecard
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Figure 5.5 - Balanced Scorecard
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53. with a certain product or service or otherwise on a password-
protected website or school-approved learning management
system for classroom use.
Market shareRepresents the proportion of business in a given
market (in terms of number of customers, dollars spent, or unit
volume sold) that a business unit sells.Customer
acquisitionTracks, in absolute or relative terms, the rate at
which a business unit attracts or wins new customers or
business. Customer retentionTracks, in absolute or relative
terms, the rate at which a business unit retains customers.
Customer satisfactionMatches the satisfaction level of
customers on specific performance criteria such as quality,
service, or on-time delivery reliability. Customer
profitabilityAssesses the net profit of a customer, or segment,
after deducting the unique expenses required to support that
customer or segment.
35
Customer Perspective: Core Measures
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54. Aligning Internal Business Processes to the Customer
StrategyCustomer StrategyThe Focus of Internal Business
ProcessesOperations ManagementCustomer Relationship
ManagementInnovation ManagementLow-total-cost
strategyHighly efficient operating processes efficient, timely
distributionEase of access for customers; superb post-sales
serviceSeek process innovations gain scale economiesProduct
leadership strategyFlexible manufacturing processes rapid
introduction of new productsCapture customer ideas for new
offering educate customers about complex new product/services
Disciplined, high-performance product development first-to-
market
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Aligning Internal Business Processes to the Customer Strategy
(continued)Customer StrategyThe Focus of Internal Business
ProcessesOperations ManagementCustomer Relationship
ManagementInnovation ManagementComplete customer
solutions strategyDeliver broad product/ service line create
network of suppliers for extended product/ service
capabilitiesCreate customized solutions for customers build

55. strong customer relationships develop customer
knowledgeIdentify new opportunities to serve customers
anticipate future customer needsLock-in strategiesProvide
capacity for proprietary product/service reliable access and ease
of useCreate awareness influence switching costs of existing
and potential customersDevelop and enhance proprietary
product increase breadth/applications of standard
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Tool for visualizing a firm’s strategy as a chain of cause-and-
effect relationships among strategic objectives
Enables an organization to describe and illustrate its objectives,
initiatives, and targets
Strategy Map

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Figure 5.6 - Strategy Map
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0
Chapter 7
Managing Products for Business Markets

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12e
How to build a strong business-to-business brand
The way in which sustainability strategies are transforming the
competitive landscape
The strategic importance of providing competitively superior
value to customers
Chapter Outline
0
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58. The various type of industrial product lines and the strategic
choices that smart, connected products present
A strategic approach for managing products across the stages of
the technology adoption life cycle
Chapter Outline (continued)
0
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Established through brand, products, and services
Brand is one of the firm’s most valuable intangible assets
Branding has emerged as a priority to marketing executives,
CEOs, and the financial community
Marketplace Identity
0

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Brand
Name, sign, symbol, or logo that identifies and differentiates
the product from competitors
Brand equity
Set of brand assets and liabilities linked to a brand, its name,
and symbol
Brand and Brand Equity
0
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60. Differential effect that customer’s brand knowledge has on their
response to market activities and programs for the brand
Brand power relies on what customers have learned, felt, seen,
and heard about the brand over time
Customer-Based Brand Equity (CBBE)
0
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Brand-Building Steps
0

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Develop deep brand identity
Establish unique brand identity by highlighting differences
Employ marketing programs to elicit positive brand responses
Build brand relationships with loyal customers
Figure 7.1 - CBBE Model

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To achieve brand identity, marketers must create brand salience
Brand salience: Tied directly to brand awareness
Brand awareness: Customer’s ability to recall or recognize the
brand under different conditions
Marketers need to create a clear connection between the product
and the brand name in markets where the product competes
Brand Identity
0
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63. protected website or school-approved learning management
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Establishes unique association in the customer’s mind that
differentiates the brand and creates competitive superiority
Types of brand associations
Brand performance: Way in which the product/service meets
customers’ functional needs
Brand imagery: Ways in which the brand meets customers’
psychological or social needs
Should incorporate points of parity and differences
Brand Positioning
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Brand Response: Consumer Judgments
0

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Quality
Customer’s attitude towards brand’s perceived quality and their
perceptions of value and satisfaction
Credibility
Extent to which customer perceives brand to be credible with
respect to expertise, trustworthiness, and likeability
Consideration set
Degree to which customer finds brand a viable option and worth
consideration

65. Superiority
Extent to which customer believes that brand offers advantages
over competitive brands
Brand resonance
Strength of the psychological bond that a customer has with a
brand
Degree to which this connection translates into loyalty,
attachment, and active engagement with the brand
Forging Brand Relationships
0

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Percentage of organizational buyers who have a positive image
of a company minus those with a negative opinion
Component and indicator of brand equity
Building brand attitude for high-technology firms increases the
firm’s value
Firms that have developed strong brands create value for their
shareholders by yielding greater returns
13
Brand Attitude
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67. 13
Many international companies insist that suppliers meet quality
standards set out by the Geneva-based International Standards
Organization (ISO)
ISO-9000 standards
Certification requires a supplier to thoroughly document its
quality-assurance program
Has become a seal of approval to compete for business overseas
and in the United States
Affects the entire supply chain
Product Quality
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Stage one - Centers on conformance to standards or success in
meeting specifications
Stage two - Emphasizes that quality is more than a technical
specialty
Stage three - Examines a firm’s quality performance relative to
that of competitors

68. Analyses customer perceptions of the value of competing
products
Stages of Quality Movement
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Emerging mega-trend that forces companies to change the way
they think about products, processes, and business models
Involves the integration of economic, environmental, and
societal considerations into business decision making
Integral part of value creation
Sustainability
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69. or in part, except for use as permitted in a license distributed
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Distinct segments
Cautious adopters - View sustainability as a vehicle for cost
cutting, resource efficiency, and risk management
Embracers - Recognize that sustainability strategies provide a
means for gaining competitive advantage
Through innovation, process improvements, brand building, and
access to new markets
Sustainability (continued)
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Figure 7.2 - Sustainability

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Figure 7.3 - Benefits and Sacrifices
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Core - Requirements a product must possess for a relationship
to exist
Add-ons - Attributes that create differentiation and provides
more value than competition
Forms of Customer Benefits
0

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Involves the set of all decisions concerning the products and
services that the company offers
Business marketing firms attempt to satisfy customer needs and
build a sustainable competitive advantage by capitalizing on
core competencies
Product Policy
0
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72. with a certain product or service or otherwise on a password-
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Proprietary or catalog products : Offered only in certain
configurations and produced in anticipation of orders
Custom-built products: Offered as a set of basic units, with
numerous accessories and options
Custom-designed products: Created to meet the needs of one or
a small group of customers
Industrial services: Buyer is purchasing a company’s capability
in an area rather than an actual product
Types of Product Lines Defined
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Fundamental to a sound product policy decision
Attention must be given to the alternative ways to satisfy
customer needs
Product strategists can be in touch with the market by including
products and technology that compete for the same end-user

73. needs
Defining the Product Market
0
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Dimensions of a Market Definition
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74. system for classroom use.
Customer function
Benefits that are provided to satisfy the needs of organizational
buyers
Technological function
Alternative ways in which a particular function can be
performed
Customer segment
Customer groups have distinct needs that must be served
Value-added system
Competitors serving the market can operate along a sequence of
stages

75. Planning for today
Requires clear, precise definition of the business
Focuses on shaping up the business to meet the needs of today’s
customers with excellence
Planning for Today and Tomorrow
Planning for tomorrow
Centers on how the business should be redefined for the future
Entails reshaping the business to compete more effectively in
the future
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Nonconsumers - May lack the specialized skills, training, or
resources to purchase the product or service
Undershot customers - For whom existing products are not good
enough

76. Overshot customers - For whom existing products provide more
performance than they can use
Important Customer Groups
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Require companies to build technology stack that includes:
Operating system embedded in the product and hardware
Software applications and network communications to provide
connectivity
Product cloud that provides a platform for developing software
applications
Smart, Connected Products
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77. duplicated, or posted to a publicly accessible website, in whole
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Identify features that will deliver real value to target customers
relative to their cost
Tailor for target segments the company elects to serve
Develop and incorporate those capabilities and features that
reinforce its competitive positioning
Choosing Product Capabilities and Features to Offer
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Response time - Feature that demands a fast response, requires
that the software be incorporated directly in the physical
product
Automation - Fully-automated products require functionality
that is embedded into the device
Factors in Deciding the Enabling Technology

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Network availability, reliability, and security
Embedding software in the product lowers the risk that
confidential data will be compromised during transmission
Frequency of service or product upgrades
Companies can make product changes and upgrades easily and
automatically by hosting functionality in the product cloud
Factors in Deciding the Enabling Technology (continue d)
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79. Product data is vital to competitive advantage for smart,
connected products
Costs and complexities are related to securing the rights to the
data and in transmitting, storing, and analyzing it
Firms must determine how each type of data creates tangible
value for functionality
Types of data that a firm decides to collect and analyze depends
on its core strategy
Capturing Data
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Risks Involved in Choosing Smart, Connected Products

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Adding product features that customers do not need or value
Underestimating security and privacy risks
Failing to anticipate or recognize new competitive threats
Moving slowly and allowing competitors to gain a foothold
Overestimating internal skills and capabilities
Represents the place that a product occupies in a particular

81. market
Found by measuring buyers’ perceptions and preferences in
relation to competitors
Product Positioning
0
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Figure 7.4 - Positioning Process
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Discontinuous innovations
New products or services that require the end-user and the
marketplace to change their past behavior, with the promise of
gaining equally dramatic new benefits
Common in computer-electronics industry
Technology Adoption Life Cycle
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Types of Customers in Technology Adoption Life
CycleCustomerProfileTechnology enthusiasts
(innovators)Interested in exploring the latest innovation, these
consumers possess significant influence over how products are
perceived by others in the organization but lack control over
resource commitmentsVisionaries
(early adopters)Desiring to exploit the innovation for a
competitive advantage, these consumers are the true
revolutionaries in business and government who have access to

83. organizational resources but frequently demand special
modifications to the product that are difficult for the innovator
to provide
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Types of Customers in Technology Adoption Life Cycle
(continued)CustomerProfilePragmatists (early majority)Making
the bulk of technology purchases in organizations, these
individuals believe in technology evolution, not revolution, and
seek products from a market leader with a proven track record
of providing useful productivity improvementsConservatives
(late majority)Pessimistic about their ability to derive any val ue
from technology investments, these individuals represent a
sizable group of customers who are price sensitive and
reluctantly purchase high-tech products to avoid being left
behindSkeptics (laggards) Rather than potential customers,
these individuals are ever-present critics of the hype
surrounding high-technology products

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Bowling alley - Push from hitting one segment successfully
carries over into surrounding segments
Product gains acceptance from mainstream market segments but
is yet to be adopted widely
Tornado - Technical or infrastructure buyers in organizations
who focus on the vast number of new customers entering the
market at the same time
Strategies for the Technology Adoption Life Cycle
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85. Main street
Represents a period of aftermarket development
Focuses on developing niche-specific extensions to the basic
platform for existing customers
Aims to develop value-based strategies targeted to particular
end-user segments
Strategies for the Technology Adoption Life Cycle (continued)
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0
Chapter 4
Segmenting the Business Market and Estimating Segment
Demand

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12e
The benefits of and requirements for segmenting the business
market
The potential bases for segmenting the business market
A procedure for evaluating and selecting market segments
The role of market segmentation in the development of business
marketing strategy
Chapter Outline
0
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87. A process for estimating demand in each market segment
Specific techniques to effectively develop a forecast of demand
Chapter Outline (continued)
0
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Selecting a well-defined group of potentially profitable
customers
Developing a distinctive value proposition that meets these
customers’ needs better than their competitors
Focusing marketing resources on acquiring, developing, and
retaining profitable customers
Key to Successful High-Growth Companies

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Commercial enterprises, institutions, and government
Each sector has many segments
Each segment has unique needs and requires a unique marketing
strategy
Business Sectors
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Group of present or potential customers with some common
characteristic which is relevant in explaining their response to a
supplier’s marketing stimuli

89. Characteristics and needs of each segment define the direction
and focus of the marketing program
Segmentation involves identifying groups of customers that are
large and unique enough to justify a separate marketing strategy
Market Segment
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Measurability
Accessibility
Substantiality
Responsiveness
Criteria for Evaluating the Desirability of Potential Market
Segments

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Attunes marketer to unique needs of customer segments
Focuses product development efforts
Develops profitable pricing strategies
Selects appropriate distribution channels
Provides valuable guidelines to allocate marketing resources
Market Segmentation Benefits
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Figure 4.1 - Classifying Commercial Enterprises

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Macrosegmentation
Centers on the characteristics of the buying organization and the
buying situation
Microsegmentation
Focuses on the characteristics of decision-making units within
each macrosegment
Requires a higher degree of market knowledge
Classifications for Commercial Markets
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92. Identify meaningful macrosegments
Divide the macrosegments into microsegments
Two-Stage Approach to Business Market Segmentation
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Useful to partition the market by size of potential buying
organization
Usage rate - Buyers are classified on a continuum ranging from
nonuser to heavy user
Structure of the procurement function influences the degree of
buyer specialization, criteria emphasized, and composition of
the buying center
Macrolevel Bases
0

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Centralized buyers - Stress on long-term supply availability and
the development of a healthy supplier complex
Decentralized buyers - Tend to emphasize short-term cost
efficiency
Centralized and Decentralized Buyers
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Specific industrial good can be used in different applications
and, as a result, market can be divided by specific use
applications
NAICS system and related information sources are valuable for

94. this purpose
Product/Service Application
0
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Product’s economic value to the user relative to a specific
alternative in a particular application
Frequently varies by customer application
Value in Use
0

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Buying organizations are classified as new-task, straight rebuy,
or modified rebuy organizations
Marketing strategy is defined by one of the following
Position of the firm in the procurement decision process
Firm’s location on the buying situation continuum
Purchasing Situation
0
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16
Table 4.1 - Selected Macrolevel Bases of

96. SegmentationVariablesIllustrative BreakdownsCharacteristics of
Buying OrganizationsSize (the scale of operations of the
organization)Small, medium, large; based on sales or number of
employeesGeographical location USA, Asia Pacific, Europe,
Middle East, and AfricaUsage rate Nonuser, light user,
moderate user, heavy userStructure of procurement Centralized,
decentralized
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Table 4.1 - Selected Macrolevel Bases of Segmentation
(continued)VariablesIllustrative BreakdownsProduct/Service
ApplicationNAICS category Varies by product or service End
market served Varies by product or service Value in use High,
lowCharacteristics of Purchasing Situation Type of buying
situation New task, modified rebuy, straight rebuy Stage in
purchase decision processEarly stages, late stages

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Table 4.2 - Selected Microlevel Bases of
SegmentationVariablesIllustrative BreakdownsKey criteria
Quality, delivery, supplier reputation Purchasing strategies
Single source … multiple sources Structure of decision-making
unit Major decision participants (for example, purchasing
manager and plant manager)Importance of purchase High
importance … low importance Organizatio nal innovativeness
Innovator … follower
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Table 4.2 - Selected Microlevel Bases of Segmentation
(continued)VariablesIllustrative BreakdownsPersonal

98. characteristics Demographics Age, educational background
Decision style Normative, conservative, mixed mode Risk Risk
taker, risk avoider Confidence High … low Job responsibility
Purchasing, production, engineering
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Key Criteria
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99. system for classroom use.
Product quality
Prompt and reliable delivery
Technical support
Price
Supply continuity
Supplier profiles
Programmed buyers: Neither price or service sensitive
Relationship buyers: Value partnerships and are not price
sensitive
Transactional buyers: Price is important but considerations are
made to service, depending upon importance of product
Bargain hunters: Price sensitive but always relative to

100. importance of product
Types of Buyers
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Customer Segments
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Innovation-focused customers
Committed to being the first in the market with new products
and technologies
Customers in fast-growing markets
Constantly under pressure from competitors in fast-growth
markets
Customers in highly competitive markets
Have mature products in highly competitive markets

102. Microsegments can be classified according to their purchasing
strategies
Some buyers have several suppliers and give each a healthy
volume of business
Some buyers need an assured supply, giving most of their
business to a few suppliers
Purchasing Strategies
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Importance of purchase
Appropriate when product is applied in various ways by various
customers
Organizational innovativeness
Some organizations innovate more and thus are more willing to
purchase new industrial products
Other Microsegments
0

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Personal characteristics
Research is needed on segmentation based on individual
characteristics to explore its potential
New products
When new products are introduced, marketers may need to
approach new influencers versus traditional buyers
Other Microsegments (continued)
0
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104. with a certain product or service or otherwise on a password-
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Approach that treats an individual account as a market
Ensures that marketing and sales are fully focused on a target
client’s most important business issues
Work collaboratively to create value propositions
Account-Based Marketing (ABM)
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Estimating demand within selected markets is vital to marketing
management
Forecasting demand represents probable sales and takes into
account:
Potential business
Level and type of marketing effort demanded

105. Estimating Demand
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Sales forecasts are critical to a smooth operation throughout the
supply chain
Timely forecasts allow supply chain members to effectively
coordinate their efforts and share in the benefits
Supply Chain Links
0

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Used to:
Distribute inventory within the supply chain
Manage stock at each level
Schedule resources at all levels
Provide material, components, and service to a manufacturer
Accurate forecasts go hand-in-hand with good business
practices throughout the supply chain
Sales Forecast Data
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107. Qualitative techniques - Called management judgment or
subjective techniques
Rely on informed judgment and rating schemes
Include the executive judgment method, the sales force
composite method, and the Delphi method
Quantitative techniques - Called systematic or objective
forecasting
Offers time series and regression or causal methodologies
Methods of Forecasting Demand
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Combines and averages top executives’ estimates of future sales
Easy to apply and understand
Limitations
Does not systematically analyze cause-and-effect relationships
New executives may have difficulty making reasonable
forecasts as there is no established formula for deriving
estimates
Qualitative Method: Executive Judgment

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Difficult to asses the accuracy of the method
Produces accurate forecasts when:
They are made frequently and repetitively
Environment is stable
Linkage between decision, action, and feedback is short
Qualitative Method: Executive Judgment (continued)
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Sales force knows their customers, markets, and competition,

109. and they can estimate the sales volume effectively
Sales force’s involvement in forecasting process helps them
understand how the forecast is derived and boosts their
incentives to achieve desired sales levels
Composite forecast is attained by combining the sales estimates
from all salespeople
Qualitative Method: Sales Force Composite
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Benefits
Ability to draw on sales force knowledge about markets and
customers
Executed with relative ease at minimal cost
Limitations
Does not involve systematic analysis of cause and effect
Reliance on informed judgment and opinions
Overestimation of the forecast to look good
Sales Force Composite
0

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Opinions of a panel of experts on future sales are converted into
an informed consensus through a highly structured feedback
mechanism
Process involved
Written opinions about the likelihood of some future event are
sought
Responses to the first questionnaire are used to produce a
second one
Qualitative Method: Delphi Method
0

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Analyst assembles, clarifies, and consolidates information for
dissemination in the succeeding round
Generally applied to long term forecasting of demand
Suitable for new products or for situations that are not well
suited for quantitative analysis
Difficult to measure the accuracy of the estimates
Qualitative Method: Delphi Method (continued)
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112. Uses historical data ordered chronologically to project the trend
and growth rate of sales
Past patterns can be applied to the future
Time series of sales may include trends, seasonal, cyclical, and
irregular patterns
Well suited for short range forecasting
Quantitative Methods: Time Series
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Identifies factors that have affected past sales and implements
them in a mathematical model
Forecast is derived by:
Projecting values for each of the factors in the model
Inserting these values into the regression equation
Solving for expected sales
Reliable for intermediate forecasts
Quantitative: Regression or Causal Analysis
0

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One individual in the firm is given the responsibility for
coordinating the forecasting process with functional managers
across the firm
Parties who may influence sales performance will participate
directly in the demand estimation process
Results in a very accurate forecast of demand due to the
intensive sharing of information
Collaborative Planning Forecasting and Replenishment
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