Business marketing

Busi

ness

M

arke

ting

Nature of Business Marketing

ISB&M 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

What is Business Marketing?

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.


B2B Marketing vs. Consumer MarketingAreas 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


B2B Marketing vs. Consumer MarketingAreas 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)


Industrial Demand

Derived Demand

The demand for industrial products & services does not exist by itself. It is derived from the ultimate demand for consumer goods & services.

Industrial customers buy goods & services for use in producing other goods & services.

Joint Demand

Joint demand occurs when one industrial product is useful if other product also exists.

Demand for pen

Demand for ink

Cross-Elasticity Demand

Demand is ‘elastic’ if the %age change in quantity demanded is more than the %age change in price.

Cross elasticity of demand is the responsiveness of the sales of one product to a price change in another product.

Demand for wood

Demand for

furniture

Demand for new

homes

Price of Tea

Demand for

Coffee

Back


Industrial Market & EnvironmentBu

sine

ss /

Indu

stria

l cus

tom

ers

Com

mer

cial

en

terp

rise

Gov

t. cu

stom

ers

Insti

tutio

nal

cust

omer

sCo

oper

ative

so

cieti

es

Industrial distributors / dealers

Original equipment manufacturers

Users

Public sector units

Govt. undertakings

Public institutions

Private institutions

Manufacturing units

Non-manufacturing units

Intermediaries / middlemen, reselling to OEMs, users, Govt. firms

For Exide (battery manufacturer), Telco, is an OEM

For HMT, TVS-Suzuki is the ‘user’

BHEL, ONGC, IOL

Indian Railways, Defence units, State Elec. Boards

Govt. hospitals, prisons

Schools, colleges

Maharashtra Sugar Cooperative Society

Cooperative banks, housing cooperative societies


Industrial Market & EnvironmentIn

dust

rial p

rodu

cts

& s

ervi

ces

Mat

eria

ls &

pa

rts

Capi

tal

item

sSu

pplie

rs &

se

rvic

esRaw materials

Manufactured materials

Component parts

Subassemblies

Light equipment or accessories

Installations or heavy equipment

Plant & building

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


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:

Marketing Implications for Different Customer & Product Types

Product quality & performance

Delivery dependability

Price

Payment terms

Customer service

Customer rapport


Marketing Strategy for Capital Items, Supplies & ServicesCapital Items (heavy machinery, office buildings, construction of factories etc.)

Direct selling with extensive interactions, involving top executives from both sides.

Negotiations take considerable time on key factors such as price, ROI, credit facilities, delivery period, installation time etc.

Personal selling is the primary promotional method used.

Suppliers

Direct selling is used for large-volume buying firms.

Distributors or dealers are used to market to diverse markets consisting of small & medium size companies.

The purchase or materials department generally make buying decisions based on dependable delivery, price, & location convenience.

Advt. in magazines, trade journals, local newspapers, & yellow pages are used to create awareness of the company & its products to potential users & distributers/dealers.

Services (consulting, advising etc.)

Buying firms contact the selling firms who have their reputation by way of word-of mouth.

Continuation of service depends upon the quality, price, & timeliness of service.


Business buyers choose one of the three purchasing orientations

Buying Orientation - Firms has narrow & short-term focus.

Lowest price

They follow the practice of Lowest Price where they select the lowest price supplier.

Quality & availability are the “qualifying factors” for a supplier.

Negotiation style – “I win-you lose”.

Gain power

Buyer firm gain power over suppliers by applying tactics like Commoditization – all suppliers provide similar technical services, product quality & product features. Price is the only thing to be negotiated.

Multisourcing – the buyer firm asks quotations from various suppliers, & after negotiations, places order with many suppliers, who compete to get more share of buying firms purchase.

Purchasing Orientations of Industrial Customers


Risk

Buyers avoid risk from buying from new suppliers. The tactics used for avoiding risks are

• Follow the standard purchasing procedure of the company.

• Depend on suppliers who have proved their performance earlier.

Procurement Orientation – Purchasing firm has a strategic (i.e. long term) focus & is proactive. The buyers seek both quality improvement & cost reduction.

Practices adopted by the company to fulfill the above objectives are:

Collaborative relationship with major suppliers

This results in quality improvements & cost reduction.

The buyer & supplier have inter-firm teams who implement JIT delivery scheduling & quality assurance to attain zero defects level.

Integrative negotiation – resources can be expanded to benefit both buyer & supplier.

Working closely with other functional areas

Buyers are involved in describing specifications of products & services ensuring quality & timely availability.



Supply chain management (SCM) Orientation – Focus is on how to improve the value chain from raw-materials to end users.

Purchasing philosophy

Deliver value to end users

Using market research, the supply managers would understand the requirements of end-users.

Outsource non-core activities

The firm would outsource those systems or sub-systems that have become non competitive, are non-strategic, involve mature technology, & have qualified suppliers.

Support collaborative relationships with major suppliers

Partnering relationship requires cooperation, communication, trust, & commitment between buyers & suppliers.

The objective is to lower total cost and/or increase value in order to achieve mutual benefit.




Raw Material Suppliers

Component &

Subassembly Suppliers

Final Assembly

Manufacturer

Intermediaries(dealers)

Consumers / End users

SCM Orientation

Procurement Orientation

Buying Orientation

Back


Purchasing in Commercial Enterprise

Depends on nature of business, size of the enterprise, volume, variety, & technical complexity of the products purchased.

In large/medium organizations, purchase decision involves persons from departments like production, materials, quality, finance, engineering, & also senior management executives.

Various techniques, such as material planning, supplier rating system, EOQ etc. are used by the buyer organization.

Take use of in-house technical expertise when required.

Major tasks in purchasing process are:

Identifying potential suppliers

Negotiating & selecting suppliers

Ensuring right quality & quantity of material at right time

A long-term business relationship with the suppliers

Many commercial organizations have separated purchasing (material or purchase function) from manufacturing to form a distinct functional area, on the same level as marketing, finance, R&D etc.

Purchasing Practices of Industrial Customers


Purchasing in Govt. Units

Get the name of the company & the products registered with the govt. units.

Registration involves the submission of duly filled standard forms, product leaflets, & company details certified by a chartered accountant.

Some govt. units depute their inspectors to inspect the company’s manufacturing facilities before approving their registration.

For standard products & services, tender notices are advertised in national newspapers, based on which suppliers procure tender fees.

In closed & limited tender, tender inquiry is to only few (limited) suppliers who are registered with govt. unit for certain category of non-standard products.

Based on the lowest price or the lowest landed cost, the orders are released on the lowest bidder.

If the tender value is large, maximum order is placed on the lowest bidder (L1) & the balance order is distributed to more than two bidders (L2, L3, L4, .. etc) if they match the lowest bid.



Institutional Purchasing & Purchasing in Cooperative Societies

Institutional buyers are either the government or the private organizations.

For govt. organizations, it normally follows the govt. purchase procedure.

An industrial marketer should study the purchasing practices of each institutional buyer so as be effective in marketing the company’s goods or services.


Purchasing in Reseller’s Market

Reseller market (replacement market) consists of industrial dealers/distributors whose main goals are profits & sales volume.

Dealers / distributors select suppliers not only on product quality but also on the policies of the supplier’s product.

Supplier related policies which affect competiveness of traders are

Sharing local advt. cost by the supplier

Providing product leaflets or display materials

Competitive prices & trade discounts

Flexible payment terms with credit facility etc.

Both reseller & supplier has to work harmoniously to beat the competition.


Environmental Analysis in Business Marketing

Envi

ronm

ent

Ecological & Physical

Internal

External

Air & water pollution, solid waste disposal, conserving natural resources

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

Micro

Macro

• Economic• Technological• Govt. & political, & legal• Cultural & social• Public-press, institutional investors,

shareholders, banks, public interest groups

• Customers & competitors• Suppliers

Strength & weaknesses analysis

Opportunity & threat analysis

Affects all firms

Affect a particular firm


Strategies for Managing Industrial Environment

Effective use of marketing mix such as 4Ps are not adequate for the survival & success in such a dynamic environment.

The first step is the continuous gathering & monitoring of information on the relevant external environment. This is done by:

Collecting information on customers & competitors through marketing & field sales persons.

Analyzing trade & govt. publications.

Carrying out marketing research & economic forecasting.

These activities help the company to:

Understand changes in customer needs.

Monitor competitor’s actions & strategies.

Identify technological innovations.

Consider the changes talking place in govt., political, & legal factors.

Identify changes in demand of major customers & the total market.

Consider the changes in any other relevant environmental factors.



The strategies to respond proactively & creatively for managing external environment

Independent Strategies: These are the independent efforts of an industrial firm by using its own resources (or strengths).

Pricing strategy based on competitors pricing.

Product superiority through product development.

Carry env. protection measure & creates awareness through corporate image advt.

If the product is not performing well, a firm might decide to demarket in that geographic region.

Cooperative Strategies: An industrial firm cooperates with other firms, industries, or groups in the environment.

Industry associations like Confederation of Indian Industries (CII) & Federation of Indian Chamber of Commerce & Industries (FICCI) protect the Indian industries from unfair political or legal regulations of the govt.



Strategic Planning: An industrial firm carries out strategic planning by identifying long-term product/markets, based on forecasts of external env., analysis of its strengths & weaknesses, & its long-term objectives & goals.

Backward integration – A company seeks ownership or control of its supply system. Eg., Set up new manufacturing plant for the product which earlier was procured from other supplier.

Forward integration – A company seeks ownership or increased control on its distribution system. Eg., open own branches with warehousing facilities, in place of agents, in order to improve customer service.

Horizontal integration – A company seeks ownership or control of some of its competitors. Eg., Reduce the competition by acquiring the management control of some competing firm.

Back

Organizational Buying & Buying Behavior


Purchasing ObjectivesThe purchase / materials management objective is defined as buying the right items in the right quantity, at the right price, for delivery at the right time & place.

Delivery / availability – Purchased goods are delivered when & where it is needed.

Product quality – Consistent quality as per the specifications & product use.

Lowest price – Lowest price consistent with availability & quality of the product.

Services – Services accompanying the purchase of goods like:

Prompt & accurate information from suppliers

Technical assistance

Spare-parts availability

Repairs & maintenance capability

Training (if required)

Supplier relationship – Develop a good long-term supplier/vendor relationship & to develop new sources of supply.

Buying members are influenced by both purchasing objectives of the firm & personal objectives like higher status, job security, salary increments, promotions, & social considerations (friendship, mutually beneficial relationships etc.)


Purchasing ActivitiesThe industrial purchasing/buying activities consists of various phases/stages of buying decision making process called ‘Buyphases’.

Phases in Buying Decision ProcessRecognition of a problem or need.

Determination of the application or characteristics & quantity of needed product.

Development of specifications or description of needed product.

Early Supplier Involvement (ESI) Program: Involving purchasing persons as active members of cross-functional development teams.

Search for & qualification of potential suppliers.

Obtaining & analyzing supplier potential.

Evaluation of proposals & selection of suppliers.

Selection of an order routine. – Placements of orders, quantity, frequency, levels of inventory needed, follow-up of actual delivery to ensure delivery is as per schedule, payment.

Performance feedback & post-purchase evaluation.


Supplier Evaluation System

Attribute (Factors) Weight (Importance) Supplier performance

Supplier Rating

Quality 30 0.8 30 X 0.8 = 24

Delivery 25 0.4 25 X 0.4 = 10

Price 15 0.6 15 X 0.6 = 9

Service 20 0.6 20 X 0.6 = 12

Flexibility 10 0.2 10 X 0.2 = 2

Total 100 57

The supplier(s) who gets the highest total score receives the business or the order form from the buying organization.


Supplier Evaluation - Balanced Scorecards Technique

The BSC is a new technique or framework that can be used to evaluate supplier performance in information age companies. It translates a company’s mission & strategy into a set of performance measurements.

The Balanced Scorecard (BSC) Framework

FinancialTo succeed financially,

Company should focus on financial objectives that will

satisfy shareholders.

Learning & GrowthHow can company improve &

change to achieve its mission?

CustomerWhich customer value

company should focus on to achieve its mission?

Internal-Business-ProcessTo satisfy shareholders & customers, what business

process company must excel at?

Mission&

Strategy


Internal-Business-Process

Identify Customer Needs & Market

Design & Develop Product/Services

Make/Buy Products/Services

Market Products/Services

Satisfy Customer Needs

Innovation Processes

Operations Processes

Company executives should identify the key internal processes in which the company must excel in order to –

• deliver superior customer value

• satisfy shareholders with excellent financial performance


Buying SituationsThree types of buying situations also called ‘buyclasses’.

New purchase (or New Task) – In this situation the company is buying the item for the first time.

Risk is more

Decision takes longer time

More people are involved in decision making

Change in supplier (or Modified Rebuy) – This situation occurs when the company is not satisfied with the performance of the existing supplier, or there is a need for cost reduction or quality improvement.

Repeat Purchase (or Straight Rebuy) – This situation occurs when the buying organization requires certain products or services continuously & when such products/services has been purchased in the past.


Buying Centre or Decision making Unit (DMU)The buying center is a useful tool which answers the question – Who are involved in buying decision in an industrial organization?

Buying Center Roles

Initiators – This category includes individuals who first recognize a problem or a need, which could be resolved by purchase of a product or service. Often users play this role.

Buyers – Their major responsibility includes

Obtaining quotations

Supplier evaluation & selection

Negotiation

Processing purchase orders

Expediting deliveries

Implementing purchasing policies of the organization

They are usually purchase officers.

Users – Individuals who use the product or service that is to be purchased. They may be floor workers, R&D engineers etc.


Buying Centre or Decision making Unit (DMU) contd..

Influencers – People who can influence the buying decision like technical people (QC engineers, design engineers etc.)

Deciders – People (Senior executives / purchase executives) who make the actual buying decisions.

Gatekeepers – People who control/filter the flow of information regarding products/services to the members of buying center.

Key members of Buying Centre

Top Management Persons (MD, President, VP, GM etc.)

Generally involved in -

• Purchase policy decisions like diversification into a new product/project

• Approval of purchase or materials department annual budgets & objectives

• Deciding the guidelines for purchase decisions

Technical Persons (Design Engr., Prod. Mgr., Maintenance Mgr., QC Mgr., R&D Mgr., Industrial Engr. etc.)

Generally involved in product specification, technical evaluation, negotiation with suppliers, performance feedback of product supplied etc.


Buying Centre or Decision making Unit (DMU) contd..

Key members of Buying Centre

Buyer/Purchasers or Purchase Dept. (Sr. Exe., Managers, Purchase Officers or assistants)

Generally involved in -

• Coordinate with Top Management, Technical persons, Finance persons within the org. as well as with suppliers.

• Maintain good relationship with Suppliers & Decision making members.

Accounts/Finance Persons (or Dept.)

The contribution of finance/accounts are seen while finalizing commercial terms such as mode of payment, financial approval of capital purchases, issuing payments to suppliers etc.

Marketing Function

Ensure the product is marketable (packaging).


Models of Organizational Buying Behavior- The Webster and Wing Model

Environmental Variables• Physical• Technological• Economic• Political & legal• Labor unions• Cultural• Customer demands• Competitive practices &

pressures• Supplier information

Organizational Variables• Objectives/goals• Organization structure• Purchasing policies & procedures• Evaluating & reward systems• Degree of decentralization in

purchasing

Buying Centre Variables• Authority• Size• Key influencers• Interpersonal relationship• Communication

Individual Variables• Personal Goals• Education• Experience• Expertise• Values• Job Position• Lifestyle• Income

Organizational Buying Decisions• Choice of suppliers• Delay decision & search for more

information• Do not buy


Models of Organizational Buying Behavior- The Sheth Model

Component (1) Component (2) Component (3) Situational Factors

Differences among individual buyers caused by factors:• Background of

individuals• Their

information sources

• Active search• Perceptual

distortion• Satisfaction with

past purchases

Variables that determine if the buying decision is autonomous or joint:

(A) Product specific factors -

• Time pressure• Perceived risk• Type of purchase

(B) Company specific factors –

• Company size• Company

orientation• Degree of

centralization

Methods used for conflict resolution in joint-decision making process • Problem solving• Persuasion/influence• Politicking

Supplier or Brand choice

Situational Factors• Economic condition• Labor disputes• Mergers & acquisition

Buyer-Seller Relationship


Buyer-Seller Relationship

Development of mutually satisfying, profitable, long-term relationships with customers is a major business asset of an industrial marketer.

Dimensions of Buyer-

Seller Relationship

Buyer’s perception of sales

rep

Role played by industrial

buyer

Role played by industrial sales rep

Is the industrial

buyer rational or irrational


Buyer-Seller Interaction – A Conceptual Framework

Ideal Transaction

Inefficient Transaction

Inefficient Transaction

No Transaction

Compatible Style Incompatible Style

Compatible Content

Incompatible Content

Styles of interaction

Self-oriented

Interaction

Oriented

Task Oriented


Relationship Marketing

Relationship marketing is a task of creating strong customer bond or loyalty.

Approaches for

developing customer

bond

Transaction marketing is

transaction oriented buyer-seller

interaction, which focuses on

closing a sale with a customer.

This is achieved by single sales

person.

For large customer, companies

are moving towards team selling

& relationship marketing.


Methods used to influence Industrial Customers

Sales PresentationGet information about the buying centre members, needs

of potential customer firms.A sales presentation must be tailor made to fit the needs

& expectation of the potential customer.A sales presentation should first present the positive

points about his products, services & company, & keep difficult or negative points at the en.

Project the products/services as differentiator.

Negotiation with Industrial CustomersNegotiation is a process that tries to maximize the

benefits to both buyer & seller, & takes long-term view of their relationship.

Purpose | Information | Customer Trust | Styles of negotiation | Time factorStyles of negotiation

I win, you lose | Both of us win | You win, I lose | Both of us lose


Methods used to influence Industrial Customers contd..

ReciprocityIt is a practice of buying from one’s own customers & also

using purchasing power to sell to one’s supplier.When products are homogenous or products have little differentiation & price competition are less, reciprocal

dealings are likely to occur.Caution must be exercised to keep it to minimum level.

Dealing with Customer’s CustomerOne of the complexities in Industrial marketing is the need

to deal with a customer’s customer & become the customer’s competitor.


Customer Service

In B2B, customer service is sometimes more important than the physical product.

Customer service supplements the sales of physical product &

creates a total value for a customer.

The nature of customer service

varies with the type of the product & the

stage of PLC.


Types of Relationship

• It include one-time-only exchanges with economy & necessity as the main motivation factors.

• Customers prefer a transactional relationship, when (a) many suppliers are available, (b) the supply market is stable, (c) the purchase decision is not complex, & (d) the purchase is considered as less important to meet firm’s objective.

Transactional Exchanges or Relationships

• The focus is on complete understanding of the present & future needs of the customer, & meeting those needs better than competitors, so as to obtain a maximum share of the customer’s business.

Value-added Exchanges

• The focus is between a customer firm & a supplier firm, & it is the process of building strong social, economic, service, & technical ties over a period of time.

• The purpose of partnering is to lower the total cost or increase value, in order to achieve mutual benefits.

Collaborative / Partnering Exchanges


Marketing Strategies

Concentrated Marketing - is a market segmentation and market coverage strategy whereby a product is developed and marketed for a very well-defined, specific segment of the consumer population. The marketing plan is highly specialized one catering to the needs of that specific consumer segment. Concentrated marketing is particularly effective for small companies with limited resources because it enables the company to achieve a strong market position in the specific market segment it serves without mass production, mass distribution, or mass advertising.

Differentiated Marketing - also called multisegment marketing. It is a market coverage strategy whereby a company attempts to appeal to two or more clearly defined market segments with a specific product and unique marketing strategy tailored to each separate segment.

Undifferentiated Marketing - market coverage strategy whereby a company ignores differences within a market and attempts to appeal to the whole market with a single basic product line and marketing strategy. Undifferentiated marketing relies on mass distribution and mass advertising, aiming to give the product a superior image in the minds of consumers. It is cost effective because there is only one product line to be produced, inventoried, distributed, and advertised. Also the absence of segmented market research lowers the costs of consumer research and product management.


Marketing Strategies

4 criteria - mostly used in Business Marketing:Technological Contributions

Dependence

Purchasing Orientations

Sales Potential (or Business Potential)Information for each customer is obtained by the sales person

Customer are categorized into A, B, & C based on high, medium, & low business potential

• Type A – Collaborative relationship

• Type B – Value-added

• Type C – Transaction relationship

B2B Marketing through E-commerce


What is E-commerce?

E-commerce is defined as a modern business methodology that addresses the needs of organizations & consumers to cut costs, improve the quality of goods & services, & increase the speed of service.

It is also defined as the process of using digital technology for transmitting information between organizations.

Important parts of E-commerceInternetWorld Wide Web (WWW)IntranetExtranet


Marketing Strategy for Electronic Market Place

Major Components of Marketing StrategySegmenting & Targeting

Product Differentiation & Positioning

Identifying the target customers’ wants in terms of major benefits

Selecting one or more benefits or niche for differentiation based on

company’s strengths or distinctive competencies

Communicating the company’s positioning to the target market

Marketing-mix Strategies, i.e., Product, Price, Promotion & Distribution Strategies

Web-design

Domain name

Distribution channel

Logistics


Distribution Channels

Manufacturer

Mfg’s Rep / Agents

Mfg’s Sales force /

Branches

Value-added

Resellers

Distributor / Dealer

Direct Marketing Brokers Commission

Merchants

Distributor / Dealer

Industrial Customers

Telemarketing Direct Mail Online Marketing


Channel Design Framework

Channel Objective

Channel Alternatives

Evaluation of Alternative

Selection of Channel

Channel tasksChannel Constraints

External environmentCompetitionCompanyProduct CharacteristicsCustomer

The type of intermediaries• VARs• Industrial distributors /

dealers• Manufacturer’s agents• Brokers• Commission merchantsNo. of intermediaries / channels• Selective distribution• Intensive distribution• Exclusive distributionTerms & responsibility of channel members

Economic factorsControl factorsAdaptive factors


Logistics Management – Business Logistics System

Raw materials

Components

Supplies

Material Storage

Manufacturing

Finished goods storage

Physical supply Industrial manufacturer Physical distribution

Industrial customers

Industrial distributors / dealers

TasksTransportationWarehousingInventory controlPackagingMaterial handlingOrder processingCommunicationFactory & warehouse locationsCustomer service

Total Distribution Cost = Freight + Warehouse Cost + Inventory Cost + Cost of Lost Sales due to Delayed Delivery

Marketing Research & Intelligence


Marketing Research & Marketing Intelligence

Marketing research is defined as the objective & systematic process of obtaining, analyzing, & reporting of data (or information) for decision making in marketing. It undertakes periodic projects to collect & analyze data with specific objectives.

Marketing Intelligence is an ongoing activity to provide continuous information for decision making.

Areas of survey methods Industrial Research Consumers Research

Sample size Small sample due to small universe (or population) & concentration of buyers

Large sample due to large dispersed population

Respondent cooperation & accessibility

More difficult due to time constraints; accessibility is limited to working hours

Less difficult to obtain data; accessibility is easier

Defining respondent More difficult as buying decisions are made by several members of the buying committee

Simple, as individuals or household users are the buyers

Difference between survey method


Scope of Industrial Marketing Research

Development of Market potential

Market Share Analysis

Sales Analysis

Forecasting

Competitor Analysis

Benchmarking

New Product Acceptance &

Potential

Business Trend Studies

Sales Quota Determination


Information typeSources of dataResearch methodsSampling planMethod of contactsData collection method

Marketing Research Process

Identify the problem /

opportunity & define research

objective

Develop research

design (or plan)

Collect the data (or

information)

Process & analyze the

data

Present the research

findings (or report)

Primary data

Secondary data

Observational | Exploratory | Survey | Experimental


Industrial marketing Intelligence

Secondary data

sources

Marketing Intelligence

System

Decision Support System

Marketing Strategy

Development

Market response

Internal Information

System

Marketing research studies


Components of DSS

Statistics

Marketing Manager

Database

Decision models

Display

Environment

Question Answer

Action

Strategic Planning, Implementing & Controlling


Market-Oriented Organizations

Market-oriented organizations stay close to the customers & ahead of the competitors.

They understand the basic principle that the purpose of a business is to attract & satisfy customers at a profit.

An effective strategic planning includes market-oriented strategies in which marketing function has an important role.

Shared Values

Organization

Strategy

Stakeholders

Factors Affecting the Market Orientation


Marketing in Strategic Planning

Corporate Office

SBU ‘A’

Finance

Marketing

Production

SBU ‘B’ SBU ‘C’

Corporate Strategy(Strategic Mgmt.)

Business/SBU Strategy(Strategic Mgmt.)

Functional Strategy(Operations Mgmt.)

Strategy hierarchy(Type of management)

Organization structure


Role of Marketing in an Organization

Organizational Level Role of Marketing Formal Name

Corporate Provide information on competition & customer, & advocate customer orientation for developing long-term corporate strategy

Corporate marketing

Business Unit / SBU Provide competition & customer analysis for developing long-term business strategy, including competitive advantage

Develop segmenting, targeting, & positioning strategies

Take product-line decisions

Strategic marketing

Functional Evolve & implement marketing-mix strategy in short-term to achieve business unit objective

Coordinate marketing activities

Allocate resources

Marketing management


Developing Corporate Strategies

Market penetration strategy

Product development strategy

Market development strategy

Diversification strategyConcentric diversificationHorizontal diversificationConglomerate diversification

Product-Market

Expansion Grid

Current products New products

Current markets

Newmarkets

Strategic planning gap is filled by:

Intensive growth

Integrative growth

Diversification growth

Concentric diversification: consists of searching for new products that have technological / marketing synergies with firm’s existing products.

Horizontal diversification: consists of adding new products technologically unrelated to the existing products.

Conglomerate diversification: consists of seeking new product-markets that are unrelated to existing products.


Strategic Planning Process at BU Level

Define the business unit’s mission

Scanning the ext. env. (Opportunity & threats)

Analysis of the int. env. (Strength & weaknesses)

Developing objectives & goals

Formulating strategies for achieving the goals

Preparing programme or action-plan from the strategies

Implementing the strategies & action-plan

Monitoring results & taking corrective actions (i.e., control)


Business Unit’s Mission

The business mission statement should have the following components:

What business the company is in, & What business it intends to be in?

What methods would be uniquely followed (which are different from competitors) in pursuing business activities?

What is the social standing of the organization as a business entity?

What business the company is in? [Thermometer manufacturer]

Customer groups/segments: Who are being satisfied? Which customer groups an SBU intends to satisfy? [Household/Hotels/Health care/ Factories]

Customer needs or functions: What needs of customers are being satisfied? [Body temperature/Cooking temperature/Atmospheric temperature/ Process temperature]

Technologies used: How customer needs are satisfied? [Mercury-base/Alcohol-base/Digital]


SBU’s Objective & Goals

Corporate mission

SBU Mission

Corporate objectives & goals

SBU objectives & goals

SBU’s business strategy

Marketing strategy

Company history

Current preferences

Market environment

Company’s resources

Company’s core competence


Formulating Strategies at BU Level

FocusDifferentiation Overall cost

leadership

Uniqueness perceived by the customer Low-cost position

Strategic Advantage

Str

ateg

ic T

arg

et Industry wide

Particular segment only

Porter’s Generic Strategies Framework


Developing Industrial Marketing Plan

Section Contents

Situational analysis Market situation Includes data on market size, growth, projections, sales, market share , & profits for past 3/5 years. It also indicate target customer needs, buying behavior, buying stage, & buying situations.

Competitive situation Consists of identifying, ranking, market share, objectives & strategies, strength & weaknesses, & reaction patterns of major competitors.

Product situation Includes data on sales, unit price, profits for each major product item in the product line for past 3/5 years.

Macro-env. situation Consists of identifying PEST factors & then forecasting the future trends & the impact on the product.

SWOT & issues analysis

SWOT analysis Includes identifying major strengths, weaknesses, opportunities, & threats faced by the product.

Issues analysis Consists of determining major issues faced by the firm, based on situational & SWOT analysis.

Objectives & goals Determine sales, market share, & profit, considering the env. & issues analysis done earlier.


Developing Industrial Marketing Plan

Section Contents

Marketing strategy Selection of target market segments.

Positioning strategy relative to competitors.

Marketing-mix strategy.

Customer service & marketing research strategy.

Action plan Each marketing element is broken down to specific actions to answer: Who will take the specific action, by when, & at what cost?

Marketing budget Building the revenue & expenditure budget. Revenue budget includes forecasted sales in units, average unit price, & sales revenue. Expenditure budget includes estimated marketing expenses on personal selling, promotion, distribution, etc.

Implementation & control Building marketing org. to implement the marketing plan. Control includes periodic review of actual performance against goals & taking corrective actions.

Contingency plans Some firms prepare contingency plans in case uncertain situation arise.


Controlling Marketing PerformanceSetting Goals

Performance Analysis

Taking Corrective Actions


Types Marketing Controls

• The firm’s marketing opportunities & strategies• Use of information technology• Impact of changing environment• Strategy implementation

Strategic Control (Marketing audit)

• Sales analysis• Market share analysis• Expense-to sales ratio• Profit/contribution analysis• Customer satisfaction monitoring

Annual Plan Control

• The control system provides information on the resources like money & manpower used in product, promotion, distribution, & pricing strategies & tactics

Efficiency Control

• Purpose is to find if the company is making or loosing money• Companies measure the profitability of each product-line & product-

item, each market segment, each branch, & each distribution channel

Profitability Control

Product Strategy & New Product Development


What is an Industrial Product?

The industrial product is defined not only as a physical entity, but also as a complex set of economic, technical, legal, & personal relationship between the buyer & the seller.

From customer’s point of view, a product is a combination of basic, enhanced, & augmented properties.

Basic properties are included in the generic product, with fundamental benefits sought by the customer.

Generic products are made differentiable by adding tangible enhanced properties like product features, styling, & quality.

Augmented properties include intangible benefits such as technical assistance, availability of spare parts, maintenance & repair services, warranties, training, timely delivery, & attractive commercial payment terms.


Changes in Product Strategy

Factors determining

change in product strategy

Customer

Needs

PLC

Govt. Policies / Law

Technology


Industrial Product Life Cycle – General Model

Technological

Changes

Changing Competition

Changing needs of customer

The behavior of PLC depends on three factors on which management has little or no control.

Industrial products typically follow the pattern of sales & profits.

Different marketing strategies are needed at different stages of PLC.

The PLC concept highlights the importance of long-term planning for a new product.

Time

Introduction Growth Maturity Decline0

-1

+1

Sal

es &

Pro

fits

(R

up

ees)

Industry profits

Industry sales


Industrial Product Life Cycle – High-tech Products

Time

NPD I&G Decline

Sal

es

M

NPD = New Product Development

I&G = Introduction & Growth

M = Maturity Period


Locating Industrial Products in their Life-Cycle

Develop a trend analysis for the past 3-5 years based on information for a product on quality, value of sales, profit %, market share, no. of competitors & prices.

Estimate & project sales & profits of the product over the next 3-5 years.

From the above analysis, fix the product’s position on its life-cycle curve.


Developing Product Strategies for Existing Products

Evaluate the performance of all existing products or product lines by using product evaluation matrix.

By using perceptual mapping technique, examine the relative strengths & weaknesses of the company’s products

in comparison to competitors’ products.

Based on the above analysis, decide the product strategies for the existing products.


Product Evaluation Matrix

Decline Stable GrowthBelow Target

Target Above Target

Below Target

Target Above Target

Below Target

Target Above Target

Growth

Dominant PAverage

Marginal

Stable

Dominant S1Average SMarginal

Decline

Dominant

Average

Marginal

Industry Sales

Mkt Share

Company Sales

Profitability

Market Share less than 10% = Marginal

Market Share between 10% to 30% = Average

Market Share greater than 30% = Dominant

Product ‘P’ (Last 3 years)Market Share = 40%Company Share = 30%Industry Sales = 25% Profitability = as / target

Product ‘S’ (Last 3 years)Market Share = 12%Company Share = 15%Industry Sales = 16% Profitability = below target


Perceptual Mapping Technique

B*

C*

High Quality

Low Quality

Wea

k S

ervi

ce

Stro

ng

Service

A1*

A*Old Position

New Position

This technique is used to study the strengths & weaknesses of a firm’s product in comparison

to that of its competitors.

Deciding Product Strategies

Maintain the product & its marketing strategy.

Modify the product & change the marketing strategy.

Eliminate the product or product line.

Add new products or product lines.


Product Elimination

Dropping the product or product line is the most controversial decision as many stakeholders are threatened by this decision.

Factors to be considered:

Will the customer relationships be affected?

Will the profitability be affected due to change in overhead allocation?

What will be the reaction of the employees?

Will the sales of other products get affected?

Is there a new product to replace the eliminated product?

Will the company’s image be affected?

What will be the possible competitive reactions?


New Product Development

Classification of New Products:

Products that are innovative & new to the world.

Products that are new to the company, but not new to the world.

Revisions or improvements to the existing products in the existing markets.

Additions to the existing product lines with additional markets.

Repositioning existing products to new market segments.

Products with substantial cost reductions without reduction in performance.


New-Product Development Process

Idea generation

Idea screening

Concept development & testing

Business analysis

Product development

Market testing

Commercialization (Product Launch)

Is the new product in line with the long-term objectives & strategies?Do we have adequate resources?Is it useful to the customers?What is the future growth, market size, & competition?

A detailed version of the product idea that is stated in a meaningful customers’ terms.

The purpose is to develop an estimated projection of the sales, costs, & profitability of the new product for 5-7 years.

Design Process Engr. Tooling Mfg

Final product Testing

Alfa & Beta testingIntroduction at trade showsTesting at distributors/dealers showroomTest marketing


High-Tech Marketing

High-Tech includes a wide range of industries such as telecommunications, computers, software, biotech, & consumer electronics.

Technology

Two major characteristics that distinguish hi-tech marketing are:

High Technological Uncertainties

High Market Uncertainties

Other characteristics that distinguish hi-tech marketing are:

High Competitive Volatility

Short life or High-tech products

High Development Cost


High Technological Uncertainties

Will the product function as promised?

Will the promised delivery be met?

Will the supplier give high quality service?

Will there be a risk of obsolescence?

Will there be any side effects of the new Product/Service?S

ourc

es o

f Hig

h

Tech

nolo

gica

l Unc

erta

intie

s


High Market Uncertainties

Which are the customer needs that new technology

can meet?

How will needs change in future?

Will the market accept technical standards?

How fast will the innovation spread?

What is the size of the potential market?S

ourc

es o

f Hig

h M

arke

t

Unc

erta

intie

s


Classification of Marketing Situations

Better Mousetrap Marketing

High-tech Marketing

Low-tech Marketing

High-fashion Marketing

Low High

Low

High

Market Uncertainty

Tech

no

log

ical

Un

cert

ain

ty

Low-tech marketing includes known technology applications to meet clear & well known market needs. E.g., Pump sets

Hi-fashion marketing consists of known & slow changing technology applications to meet difficult to predict consumer needs. E.g., Motion pictures, fashion clothes.

Hi-tech marketing consists of difficult to predict both technology applications & market. E.g., Biotechnology products.

Better mousetrap marketing includes a new technology to meet well-established market. E.g., Water purifying system.


Technology Adoption Life Cycle

Innovators (3%)

Early adaptors (14%)

Early majority (34%)

Late majority (34%)

Laggards (16%)

Time of Adoption of Innovation


Unique nature of High-tech Marketing Strategy

Target a Niche market

Plan Whole Product

Properties

Develop Partnerships

Unique Positioning

Strategy

Communication Strategy

Distribution Strategy

Pricing Strategy

Business Communication


Steps to Develop Effective Communication

Determine the communication objectives

Identifying the Target Audience

Determining the Promotional Budget

Develop the Message Strategy

Select the Media

Evaluate the Promotional Results

Integrate the Promotional Programme


Role of Advertising in Industrial Marketing

Creating awareness

Reaching members of buying centre

Increasing sales efficiency & effectiveness

Efficient reminding

Sales lead generation

Supporting distribution channel members


Promotional Tools & Media

Promotion Tools

Advertising Sales Promotion

PR & Publicity Direct marketing

Personal Selling

Promotion Media, & Promotion Support

Print media Trade shows Charitable donations

Direct mail Sales calls

General business publications

Exhibitions Adopting villages Telemarketing Sales presentation

Trade journals Catalogues Community relations

On-line marketing channels

Team selling

Industrial directories

Sales contests News item in press

Relationship marketing

Promotional novelties (gifts)Seminars

Promotional lettersEntertainment

Pricing Strategies & Policies


Pricing & Factors Influencing Pricing Decision

Pricing is the process of determining what a company will receive in exchange for its products.

Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product.

Pricing objectivesSurvival

Maximum short-term profits

Maximum short-term sales

Maximum sales growth (Market penetration)

Maximum marketing skimming

Product-quality leadership

Demand analysis

Cost analysis

Break-even analysis

Competitive analysis

Government regulationsPrice discrimination

Predatory pricing


Cost Behavior at Different Production Levels – Economies of Scale

0 100 200 300

200

100

300

240

Quantity Produced / Year (in thousand)

Cos

t / U

nit (

in r

upee

s)


The Pricing Strategies

Competitive bidding in competitive markets

Probabilistic bidding

Pricing new products

Skimming strategy

Penetration strategy

Pricing across the product life-cycle

Growth stage pricing

Maturity stage pricing

Decline stage pricing

Thank You

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Education

industrial marketing

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b2b marketing

marketing implications

organizational marketing

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nature of business marketing

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