BUSINESS MARKETING

Dr. S. MANJUNATH Module 1 and 2

What is Business Marketing?

Business marketing also referred to as Industrial marketing or B2B marketing or Organizational marketing. Business marketing is the marketing of products & services to business organizations. Business organizations include: Manufacturing companies Govt. undertakings Private sector organizations Educational institutions Hospitals
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.

Distributors / Dealers

NATURE OF THE BUSINESS MARKET

Companies also buy services, such as legal, accounting, office-cleaning, and other services. Some firms focus entirely on business markets. Example: Caterpillar, which makes construction and mining equipment. Diverse market, everything from a box of paper clips to thousands of parts for an automobile manufacturer.

COMPONENTS OF THE BUSINESS MARKET

Four main components: Commercial market Individuals and firms that acquire products to support, directly or indirectly, production of other goods and services. Largest segment of the business market. Trade industries Retailers or wholesalers that purchase products for resale to others. Also called resellers, marketing intermediaries that operate in the trade sector. Governmentall domestic levels (federal, state, local) and foreign governments; also act as sellerse.g., confiscated goods. Public and private institutions, such as hospitals, churches, colleges and universities, and museums.

B2B MARKETS: THE INTERNET CONNECTION

More than 94 percent of all Internet sales are B2B transactions. Opens up foreign markets to sellers. Largest segment of the business market.

DIFFERENCES IN FOREIGN BUSINESS MARKETS

May differ due to variations in regulations and cultural practices. Businesses must be willing to adapt to local customs and business practices and research cultural preferences.

B2C and B2B

The Consumer Market (B2C) and the Business Market (B2B) at

Dell, Inc.
B2C
Customers: Individuals & Households

B2B
Businesses Global Large corporations Small & Medium sized businesses Institutions Healthcare Education Government Federal State Local

Selected Products:

PCs Printers Consumer Electronics Simple Service Agreements

PCs Enterprise Storage Servers Complex Service Offerings

The Supply Chain

Upstream Suppliers
(USX, Du Pont) Suppliers of manufactured materials and parts such as sheet metal or plastic resin

Direct Suppliers
(TRW, Johnson Controls)

Auto Manufacturers
(Ford, General Motors) Purchase input used in creating automobiles

Auto Buyers
(Consumers) Purchase automobiles

Purchase input used in creating power-steering systems (TRW) or car seats (Johnson Controls)

Business Marketing

Business Marketing

Consumer Marketing
(Individuals, Households) and

Business Marketing
(Organisations such as Fleet Buyers)
Source: Hutt, M.D. and Speh, T.W. (2004): Business Marketing Management: A Strategic View of Industrial and Organizational Markets, 8th Edition, p. 15.

Major Categories of Business Customers

Identify the four major categories of business market customers

Major Categories of Business Customers

Producers
OEMs (Original Equipment Manufacturers)

Resellers

Wholesalers Retailers

Governments

National Party Municipal Local

Schools Hospitals Colleges Churches Unions Fraternal groups Civic Clubs Foundations Nonbusiness organizations
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Institutions

Producers
Original Equipment Manufacturers

OEMs. Individuals and organizations that buy

business goods and incorporate them into the products that they produce for eventual sale to other producers or to consumers.

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REVIEW LEARNING OUTCOME

Business Market Customers
Business Marketing
Producers Resellers Governments Institutions

OEMs

Wholesalers

Federal

Unions Civic Clubs Other

Churches

Retailers

State Municipal

Foundations

Nonprofits

County

Business versus Consumer Markets

Explain the major differences between business and consumer markets

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Business and Consumer Marketing Differs In:

1. 2. 3. 4. 5.

Nature of their markets Market demand Buyer behavior Buyer-seller relationship Environmental influences (competition, political, legal) and 6. Market strategy Due to these differences, business marketers need to understand how demand for industrial products and services differs from consumer demand.

Business versus Consumer Markets

Characteristic Demand Volume # of Customers Location Distribution Nature of Buy Buy Influence Negotiations Reciprocity Leasing Promotion Business Market Organizational Larger Fewer Concentrated More Direct More Professional Multiple More Complex Yes Greater Personal Selling Consumer Market Individual Smaller Many Dispersed More Indirect More Personal Single Simpler No Lesser Advertising

B2B Marketing vs. Consumer Marketing

Areas 1. Market characteristics 2. Product characteristics 3. Service characteristics Industrial Markets Geographically concentrated Relatively fewer buyers Technical complexity Customized Service, timely delivery & availability is very important 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 Consumer Markets Geographically distributed Mass markets Standardized Service, timely delivery & availability is somewhat important Involvement of family members Purchase decisions are mostly made on physiological / social / psychological needs Less technical expertise Non-personal relationship

4. Buying behavior

B2B Marketing vs. Consumer Marketing

Areas 5. Channel characteristics Industrial Markets More direct Fewer intermediaries Consumer Markets Indirect Multiple layers of intermediaries

6. Promotional characteristics

7. Price characteristics

New Work
Competitive bidding & negotiated prices List prices for standard products

Emphasis on personal selling

Emphasis on advertising
List prices or maximum retail price (MRP)

Types of Business Products

Major Equipment

Accessory Equipment
Raw Materials

Component Parts
Processed Materials Supplies
http://www.zzzzz.com

Business Services

Online

Types of Business Products (Cont.)

Major Equipment Accessory Equipment Raw Materials Component Parts

Major Categories of Business Products

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Processed Materials Supplies Business Services

Classifying Goods for the Business Market

Classifying industrial goods by the following questions: How does the good or service enter the production process? How does it enter the cost structure of the firm?
Source: Adapted from Philip Kotler, Marketing Management: Analysis, Planning, and Control, 4th ed. (Englewood Cliffs, N.J.: Prentice-Hall, 1980), p. 172, with permission of Prentice-Hall, Inc.

Classifying Business Goods & Services

3 Main Categories of Products Entering Goods
Become part of the finished product Cost assigned to the manufacturing process

Foundation Goods
Capital Items Typically depreciated over time

Facilitating Products
Support organizational operations Handled as overhead expenses

Classifying Business Goods & Services

Entering Goods Raw Materials
Farm products & natural products Only processed as necessary for handling & transport Require extensive processing

Manufactured Materials & Parts

Any product that has undergone extensive processing prior to purchase Component Materials require additional processing Component Parts generally do not require additional processing

Classifying Business Goods & Services Foundation Goods Installations

Major long-term investment items Buildings, land, fixed equipment, etc.

Accessory Equipment
Less expensive & short-lived Not considered part of fixed plant Portable tools, PCs, etc.

Classifying Business Goods & Services Facilitating Products Supplies

Any supplies necessary to maintain the organizations operations

Services
Maintenance & Repair support Advisory support Logistical support

REVIEW LEARNING OUTCOME

Types of Business Goods and Services
Aluminum ore: raw material Extruding machine: major equipment Tool cart: accessory equipment

Extruded metal: processed material

Propeller blade: component part

Paper: supply

Uniforms: contracted service

Evaluative Criteria
1. Quality
2. Service 3. Price

Buying Situations
New Buy
A situation requiring the purchase of a product for the first time.

Modified Rebuy

A situation where the purchaser wants some change in the original good or service. A situation in which the purchaser reorders the same goods or services without looking for new information or investigating other suppliers.

Straight Rebuy

What is market segmentation?

Market segmentation is the partitioning of the market into groups of customers (segments) with similar needs and/or characteristics who are likely to exhibit similar purchase behaviour.

Source: Weinstein, A. (1994) Market Segmentation, Chicago: Probus Publishing Company. 27

Why market segmentation?

To identify customer needs ( information). To cluster customers into groups to more efficiently and effectively satisfy their needs ( decision). To tailor the marketing strategy to the customers needs and thus to efficiently allocate marketing resources ( action).

Source: Hutt, Michael D. and Speh, Thomas W. (2004): Business Marketing Management: A Strategic View of Industrial and Organizational Markets, 8th Edition, p. 177-8. 28

Macro- and micro-segmentation

Relevant market Level 1 Macro-Segmentation Basis: industry, region, size, etc. Macro-segment1 Macro-segment2 ...

Level 2/3

Micro-Segmentation Basis: buying centre structure, etc. ...

Micro-segment 1 Micro-segment 2

Source: Wind, Y. and Cardozo, R. (1974) Industrial Market Segmentation, Industrial Marketing Management, Vol. 3, March, p. 156.
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Bases for Macro-segmentation

Source: Hutt, Michael D. and Speh, Thomas W. (2004): Business Marketing Management: A Strategic View of Industrial and Organizational Markets, 8th Edition, p. 180. 30

Bases for Micro-segmentation

Source: Hutt, Michael D. and Speh, Thomas W. (2004): Business Marketing Management: A Strategic View of Industrial and Organizational Markets, 8th Edition, p. 184. 31

Quantitative Evaluation of Segments

sales per segment turnover / profit per segment price (margin) per unit market share within the segment number of customers segment specific costs

Source: Guenter, Bernd (1990) Marktsegmentierung, TV Lehrbrief, Berlin, p. 28.

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Qualitative Evaluation of Segments

growth potential (internal and external to the segment) domination by competitors entry barriers degree of customer retention know-how transfer innovation potential
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Source: Hlavacek, J. D. and Reddy, N. M. (1986) Identifying Industrial Market Segments, European Journal of Marketing, Vol. 20, No. 2, p. 1

The Market Segmentation Process

Identify the relevant market Identify macro-segments based on important organisational criteria Evaluate acceptable macro-segments and judge whether the are homogenous in responding to marketing measures
No
Source: According to Wind, Y. and Cardozo, R. (1974) Industrial Market Segmentation, Industrial Marketing Management, Vol. 3, March, p. 156.

Yes

Stop! macro-segments = market segments

Identify micro-segments based on important buying centre criteria within macro-segments Evaluate and select the most attractive micro-segments
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Evaluate and select the most attractive macro-segments

BUSINESS MARKET DEMAND

Demand characteristics vary from market to market.

DERIVED DEMAND
The linkage between demand for a companys output and its purchases of resources such as machinery, components, supplies, and raw materials. Example: Demand for computer microprocessor chips is derived from demand for personal computers. Organizational buyers purchase two types of items: Capital itemslong-lived business aspects that depreciate. Expense itemsitems consumed within short time periods.

VOLATILE DEMAND
Derived demand creates volatility. Example: Demand for gasoline pumps may be reduced if demand for

JOINT DEMAND
Results when the demand for one business product is related to the demand for another business product used in combination with the first item. Example: If lumber supply falls, then decrease in construction will affect concrete market.

INELASTIC DEMAND
Demand throughout an industry will not change significantly due to a price change. Example: Construction firms will not necessarily buy more lumber if prices fall unless overall housing demand also increases.

INVENTORY ADJUSTMENTS
Just-in-time (JIT) inventory policies boost efficiency by cutting inventory and requiring vendors to deliver inputs as they are needed. Often use sole sourcing, buying a firms entire stock of a product from just one supplier. Latest inventory trend: JIT II, suppliers to place representatives at the customers facility to work as part of an integrated, on-site customersupplier team.

Inventory adjustments are also vital to wholesalers and retailers.

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. 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 furniture Demand for new homes

Demand for wood

NEW WORK
Demand for pen

Demand for ink

Price of Tea
Back

Industrial Market & Environment

Business / Industrial customers
Commercial enterprise

Industrial distributors / dealers

Original equipment manufacturers Users Public sector units Govt. undertakings Public institutions Private institutions

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

Cooperative societies

Institutional customers

Govt. customers

Manufacturing units

Maharashtra Sugar Cooperative Society Cooperative banks, housing cooperative societies

Non-manufacturing units

Industrial Market & Environment

Materials & parts Raw materials Manufactured materials Component parts

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

Industrial products & services

Subassemblies
Capital items Light equipment or accessories

Installations or heavy equipment

Plant & building

Furnaces, machines, turbines

Offices, plants, warehouses, parking lots, real estate property

Suppliers & services

Supplies Services

Operating & maintenance suppliers like fuels, packaging materials, lubricants, paints, elec. items
Legal, auditing, advertising, courier, marketing research agency

Marketing Implications for Different Customer & Product Types

Materials & Parts products, for large OEMs or users, selling is done directly from a seller organization to a buyer organization. For smaller volume OEMs & users, standard raw materials or components are sold through industrial dealers or distributors as it is cost effective. If the components are custom-made, considerable interaction takes place between technical & commercial persons from both buyer & seller organizations. Selling is direct. Industrial salesman remain in close touch with various departments like purchase, finance, R&D, marketing, production & quality of buyer organizations as they influence the buying or payment releasing decisions. Personal contacts, product leaflets/brochures help as industrial marketer in communicating product & other information. For standard products, the factors which influence buying decisions are: Product quality & performance Delivery dependability Price Payment terms

Customer service
Customer rapport

THE BUSINESS BUYING PROCESS

More complex than the consumer decision process. Takes place within formal organizations budget, cost, and profit considerations.
INFLUENCES ON PURCHASE DECISIONS Environmental Factors

Economic, political, regulatory, competitive, and technological considerations influence business buying decisions. Example: Law freezing cable rates or introduction of new product by a competitor will affect demand. Natural disasters, such as Hurricane Katrina. Example: Rising fuel prices prompted Viking Energy Management to lock in fuel prices.

Organizational Factors
Successful marketers understand their customers organizational structures, policies, and purchasing systems. Some firms have centralized procurement, others delegate it throughout the units. Many companies use multiple sourcing to avoid depending too heavily on a sole supplier.

Interpersonal Influences
Many different people influence B2B buying decisions, sometimes as individuals and sometimes as part of a committee. Marketers must know who the influencers are and understand their priorities. Sales personnel must be flexible and have a good technical understanding of their products.

The Role of the Professional Buyer

Many organizations rely on professionals, often called merchandisers, who implement systematic buying procedures. Firms usually buy expense items with little delay but carefully consider capital purchases. May rely on systems integration, centralization of the procurement function. Corporate buyers often use the Internet to identify sources of supplies.

MODEL OF THE ORGANIZATIONAL BUYING PROCESS

Stage 1: Anticipate a Problem/Need/Opportunity and a General Solution

Example: Need to provide employees with a good cup of coffee to enhance productivity.

Stage 2: Determine the Characteristics and Quantity of a Needed Good or Service

Example: Offering a coffee system that brews one cup of coffee at a time according to each employees preference.

Stage 3: Describe Characteristics and the Quantity of a Needed Good or Service

Example: Firms need a simple system for brewing a good cup of coffee; quantity requirements are easily correlated to the number of coffee drinkers.

Stage 4: Search for and Qualify Potential Sources

Choice of supplier may be fairly straightforward or very complex.

Stage 5: Acquire and Analyze Proposals

May involve competitive bidding, especially if the buyer is the government or a public agency.

Stage 6: Evaluate Proposals and Select Suppliers

Buyers choose proposal best suited to their needs. Final choice may involve trade-offs between feature such as price, reliability, quality, and order accuracy.

Stage 7: Select an Order Routine

Buyer and vendor work out best way to process future purchases.

Stage 8: Obtain Feedback and Evaluate Performance

Buyers measure vendors performance. Larger firms are more likely to use formal evaluation procedures. Some firms rely on outside organizations to gather quality feedback and summarize results. Example: J. D. Power and Associates

CLASSIFYING BUSINESS BUYING SITUATIONS

Business buying behavior involves degree of effort involved in the decision and the levels within the organization in which these decisions are made.

Straight Rebuying
A recurring purchase decision in which a customer reorders a product that has satisfied needs in the past. Purchaser see little reason to assess competing options. Marketers who maintain good relationships with customers can go a long way toward ensuring straight rebuys. High-quality products. Superior service.

Prompt delivery.

Modified Rebuying
Purchaser willing to reevaluate available options. May occur if supplier has let a rebuy circumstance deteriorate because of poor service or delivery performance.

New-Task Buying
First-time or unique purchase situations that require considerable effort by the decision makers. Most complex category of business buying.

Often requires purchaser to consider alternative offerings and vendors.

Reciprocity
Practice of buying from suppliers that are also customers. In U.S., Department of Justice and the Federal Trade Commission view reciprocity as an attempt to reduce competition.

ANALYSIS TOOLS
Value analysisexamines each component of a purchase in an attempt to either delete the item or replace it with a more cost-effective substitute. Vendor analysisan ongoing evaluation of a suppliers performance in categories such as price, EDI capability, back orders, delivery times, liability insurance, and attention to special requests.

THE BUYING CENTER CONCEPT

Buying center Participants in an organizational buying action.
BUYING CENTER ROLES

REVIEW LEARNING OUTCOME

Business Buying Behavior
Buying Center
Initiator Influencer Decider Purchaser User

Evaluative Criteria
Quality Service Price

Buying Situations
New buy Straight rebuy Modified rebuy

Gatekeeper

Customer service

Environmental Analysis in Business Marketing

Ecological & Physical
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 Customers & competitors Suppliers
Economic Technological Govt. & political, & legal Cultural & social Public-press, institutional investors, shareholders, banks, public interest groups

Environment

Internal
Strength & weaknesses analysis

External
Opportunity & threat analysis

Micro
Affect a particular firm

Macro
Affects all firms