fundamentals of business to business marketing summary.pdf_4bs bsdfstf

8/22/2019 Fundamentals of Business to Business Marketing Summary.pdf_4bS bSDFSTf

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Fundamentals of Business-to-Business Marketing , book: Author: Ross Brennan, LouiseCanning and Raymond McDowell; Edition: 2; Editor: SAGE Chapter 1-12

University of Twente - September, 2011

Chapter 1 Business-to-Business Markets and Marketing

Introduction

Lying behind every consumer purchase in a modern economy there is a network ofbusiness-to-business transactions.

The nature of Business Markets

B2B B2C

Customer is an organization Customer is an individual

You cannot base your business market on the product: businesses could buy the sameproducts as customers and vice versa!

There are two factors which are important while analyzing the economic changes:1. Distinction between manufacturing goods and services:

a. Belief that additional services generate value that customers desire;2. Upcoming BRIC-countries;

Business Markets: Defining Characteristics

The company has to focus on markets, because it cannot be based on products.

B2B-marketing and B2C-marketing are being done differently based on different points:1. Market structure;

Dimension Business marketing Consumer marketing

Nature of demand Derived (afgeleid) Direct

Demand volatility(beweeglijkheid)

Greater Less

Demand elasticity Less elastic More elastic

Reverse elasticity

(averechts)

More common Less common

Nature of customers Heterogeneity Homogeneity

Market fragmentation Greater Less

Market complexity More complex Less complex

Market size Larger overall value Smaller overall value# of buyer per seller Few Many

# of buyer per segment Few Many

Relative size ofbuyer/seller

Often similar Seller much larger

Geographic concentration Often clustered Usually dispersed

Remarks:

- Derived demand:o Businesses only buy things to facilitate the production of goods and

services;

o The demand for something only exists so long as there is a demand forthe goods or services that it helps to produce;


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o The whole chain of derived demand is driven by the direct demand ofconsumers;

- The accelerator effect:o Marketers must be aware of developments, both upstream and

downstream, that may affect their marketing strategy;

oThe percentage change in derived demand may be much larger, or muchsmaller than the percentage change of original demand;

o Especially in capital equipment industries;Market concentration in business-to-business markets

The degree of demand concentration varies from market to market and it is importantto have some means of comparing markets to establish just how highly concentrated

they are:

- Concentration ratio;o Combined market shares of the few largest firms in the market

(oligopoly group);

o Sum of market shares held by the top three, four or five firms;o Perspective: Supplier sales and marketing strategymonopsony

power;

Other differences:

- Demand elasticity businesses have less freedom simply to stop buying thingsthan consumers;

- Reverse elasticity;- More complexity, more fragmentation, more heterogeneous enormous

diversity of organizational forms found in business markets;

2. Buying behavior;Dimension Business Marketing Consumer Marketing

Buying influences Many Few

Purchase cycles Often long Usually shortTransaction value Often high Usually small

Buying process complexity Often complex Usually simple

Buyer/seller

interdependence

Often high Usually low

Purchase professionalism Often high Usually low

Importance of relationships Often high Usually low

Degree of interactivity Often high Usually lowFormal, written rules Common Uncommon

Remarks:- Organizations tend to have more professionalized buying processes than

consumers;- No mass marketing possible because of the complexity;3. Marketing practice;

Dimension Business Marketing Consumer Marketing

Selling process Systems selling Product selling

Personal selling Used extensively Limited

Use of relationships Used extensively LimitedPromotional strategies Limited, customer-specific Mass market


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Web integration Greater Limited

Branding Limited Extensive, sophisticatedMarket research Limited Extensive

Segmentation Unsophisticated SophisticatedCompetitor awareness Lower Higher

Product complexity Greater Lesser

The key difference between business marketing and consumer marketing is the nature

of the customer rather than the nature of the product.

Business Customer is an organization Different need for products;

The standard approach to classifying business products is to use a classification systemthat is quite separate from the usual consumer product classifications.

Classification Examples

Installations Heavy engineering equipment

Accessory equipment Hand tools

MRO supplies (Maintenance,

repair and operating)

Office supplies, lubricants, abrasives

Raw materials Crude oil, coal, metal ores

Manufactured materials and

parts

Windscreens, computer drives

Business services Maintenance, repair, advisory

OEM Original equipment manufacturersManufacturing businesses that buycomponent parts from other firms to incorporate into a finished product that is then

sold under their own brand name to other business or to consumers.Examples: Car manufacturers, computer manufacturers and classic OEM businesses.

Two elements in the market:- OEM Market: By definition business customers (B2B);- After-market: For both customers and businesses (B2C & B2B);

Another classification in which businesses and customers are not distinguished is based

on effort (money, energy and time) and risk.

Classification Explanation

Convenience

products

Little effort, negligible risk (MRO)

Preference products Little more effort, more risk (minor items of accessoryequipment);

Shopping products More effort, perceived risk (Accessory equipment,manufactured materials and parts);Specialty products Highest risk for both risk and effort (Installations, highly

specialized business services);

Chapter 2 Buyer Behavior

Behavior associated with gaining access to necessary supply markets and products is

affected by a variety of factors:- ExternalMacro-environmental factors;- Internal organizational factors;

Organizational factors affecting Purchasing Decisions

Organizations are not faceless and monolithic; rather they consist of human beings whorepeatedly make decisions and take particular courses of action regarding purchasing.


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The nature of company business

Technology associated with customers business the way that a customer organizestheir own activities in order to perform transformation processes that represent the

essential components of their value-adding activities:

-

Process production:o Manufacture of high-volume products, with low cost, operational

efficiency and therefore supply continuity being central to the

organizations performance;

o Consume high volumes of necessary materials, with those that have astandard specification being sourced via commodity markets;

- Unit production:o Design & supply of products that are tailored to specific customer

requirements;

o Major capital investment projects;- Mass production:

o Design & supply of high-volume, standard products;o Production efficiency, low cost base;o High degree of inflexibility;o Supply continuity;

Business strategy

In addition to thinking about a customers operational technology, vendors could also

consider the customers business strategy as this can give some indication of the way in

which the customer will deal with supply markets:

- Organizations competitive domain;- Positioning themselves against competitors;

Strategies:

1.

Product leadership = technical and creative abilities, using own experience andlearning capability;2. Cost leadership = providing reliable products with minimal inconvenience to

consumers and at competitive prices;

Purchasing orientation

A companys approach to acquiring resources and capabilities from external supplymarkets, its purchasing orientation, is guided by the expected contribution of

purchasing to that organizations performance.

Purchasing orientation Explanation

Buying Principal purpose is to achieve reductions

in the monetary value spent by a companyon bought-in good and services;Getting the best deal;

Maximizing power over suppliers Powerful negotiation;

Lowest purchase price/target price;

Short-term focus;Procurement Optimizing the purchase resource;

Increase productivity;

TCO (total costs of ownership) true cost

of obtaining a product from a given

supplier;Target costing selling your own product


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to a target group;

Supply Management Dealing beyond immediate suppliers andcustomers in the knowledge that their own

performance is linked to the activities ofother companies in the same value chain;

Segmenting purchase categories

All organizations buy a range of products. These vary in their importance to the

company, so the purchasing orientation adopted is likely to vary too:

- Risk;- Complexity;

Look at page 36 for the table!

Market implications of a customers purchasing orientation

Knowing the purchasing orientation of customers and the way in which supplier

products might be categorized by them can help business market managers decidewhich customers to target and how to formulate solutions for the supply needs of those

customers.

Purchasing process

Decision-making:

1. Need/problem recognition:a. Need to solve specific supply problems (under-capacity);b. Improvement of its operational performance or pursue new market

opportunities;

2. Determining product specification:a. Functional: what is it required to do;b.

Technical: Physical properties;c. Process: How to produce;

d. Performance: Expectations of the use;3. Supplier and product search:

a. Finding a product that will match the buying firms specification;b. Satisfying the companys supply requirements;

4. Evaluation of proposal and selection of suppliers:a. Risk & complexity;b. Compatibility of a suppliers proposal against the buying companys

product specification;5. Selection of order routine:

a. Responsible for negotiating and agreeing processes for order deliveryand payment;

6. Performance feedback and evaluation:a. Evaluation sheets;b. More informal;

Variations in the Purchase process

A key cause of variation in the process is the degree of risk associated with the purchase

decision. Risk is an inherent feature of exchange in business markets, where managershave to deal with uncertainty and possible negative consequences surrounding

purchase and supply decisions.

There are three variations in the process:1. New-task buying:


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a. Decision is completely different from previous experiences;b. Judgmental buying approach highest degree of uncertainty;c. Strategic buying approach strategically important to the business

customer;

d. Guidelines:i.

Building a strong position;ii. Monitoring the changing needs of the customer and being able tosupport the company in such new-purchase situations;

2. Modified re-buy:a. Repetition of purchases;b. Normally based on dissatisfaction with the existing supplier;c. Simple modified re-buy familiarity, limited information need;d. Complex modified re-buy Little uncertainty, large choice of possible

suppliers,

e. Guidelines:i. Reducing or eliminating perceived benefits;

ii. Understanding and satisfying the customers purchaserequirement;

3. Straight re-buy:a. Satisfying a recurring need;b. Casual re-buy: low-value, low-importance, little effort;c. Routine, low-priority re-buy: repetitive purchase, periodically

considering alternative supply sources;

d. Guidelines:i. Regular contact with suppliers;

ii. Reduction of buyers effort;iii. Use of TCO reducing costs?

Buying teamsA few purchase decisions are made by individual managers.DMU Decision Making Unit:

- Initiators: requesting the item;- Deciders: making the actual decision;- Buyers: purchasing managers;- Influencers: contributing to the formulation of product and supply

specifications, and recommending which vendors to consider;

- Users: initiating the purchase as well as using the product;- Gatekeepers: controlling the type and flow of information;

Which department has which roles?

Purchasing GatekeeperOperations UserEngineering User

Finance InfluencerBuyer

R&D

Marketing Influencer

The effect of risk on buying teams

The use of buying teams is determined by the degree of risk attached to the purchasedecision. The risk that managers may perceive in relation to purchase decisions takes a

variety of forms:- Financial issues;


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- Performance issues;- Social risk;

Business Buying and the Individual Manager

Personal factors

As human beings, we have different personalities and learned experiences and we arenot necessarily wholly rational or objective in our decisions. The business marketerneeds to understand what makes managers tick to try to influence the behavior of key

players in the buying company.

The purchasing professionalPurchasing managers have to be familiar with a firms specific needs and must be able to

use negotiating techniques and pricing methods so that purchase costs can be

minimized.

The effect of information technology on Purchase behavior

Securing supplies incurs significant cost to the buying company, in relation to not only

the price paid for those supplies but also the time spent by employees and managementin handling the buying process.

Communicating with external markets

Electronic marketplaces are essentially online markets where companies are able toexchange information, do business and collaborate with each other.

Electronic marketplaces can be grouped according to their main stakeholders and

operators:

- Independent third parties accessed by buyers and suppliers in a particularindustry or sector;

- Industry consortiums limited number of companies either combine theirsupply capabilities in order to deal with a large customer base and make thesales process more efficient;

- Horizontal marketplace Used by buyers for items that do no contributedirectly to the companys own products;

- Vertical marketplace In order to buy and sell items that contribute directly toa product chain;

AuctionsAny auction is based on the common principle that it represents a form of exchange in

which competitive bidding drives a sale or purchase:- English auction;- Dutch auction;- Reverse auction;

Catalogue purchasing

The catalogue idea is pretty straightforward, whether it is a printed or electronicversion. It involves an organization that is effectively acting as an intermediary collating

a wide range of items within a particular product category from a range of suppliers.

Internal coordination of buying activities

Challenge:

- Range of products;- Different functional areas that have some purchasing authority;-

Geographical dispersion;

Inter- and intra-firm coordination


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For companies whose purchasing orientation centers around supply management, theability to minimize waste and costs along its supply chain is critical alignment of

administrative and operation activities;

Chapter 3 Inter-firm relationships and networks

Inadequacies of traditional approaches to Business Marketing

Traditional approaches to B2B-marketing tend to make several assumptions:- Marketer and customer operate separately and at odds with each other;

o Conflicting interests in exchange;o Lowest price for customers, but best price for supplier;

- Marketer is active while the customer is relatively passive;- Marketing process typically involves the study of the buying behavior of

business customers;

In the B2B-context the traditional approach is lacking relevance to the way in which

business markets actually work.

Matching the Uncertainties and abilities of both partiesSuccess in business markets comes from the recognition that the customer andmarketer together create value in exchange by each providing solutions to the others

problem. Success also involves cultivating the ability to reduce uncertainties:

- Customers face uncertainties:o Need uncertainties difficulties of knowing exactly what or how much

to buy;

o Market uncertainties Degree of choice a buyer perceives in the supplybase and the difficulty in knowing which supply choices to make;

o Transaction uncertainty Degree of exposure that the buyer is facedwith once a transaction has been agreed;

-

Supplier abilities can reduce customer uncertainties:o Problem-solving abilitiesmeeting the customer need, transferring the

solution;

o Transfer ability reducing transaction uncertainty;- Suppliers face uncertainties:

o Capacity uncertainty;o Application uncertainty;o Transaction uncertainty;

- Customers abilities can reduce supplier uncertainties:o Demand abilities;o Transfer ability;

Relationship Theories and VariablesRelationships between organizations are complex phenomena. However, there is a

range of variables than can characterize a relationship:

- Exchange risk and its management;o Perception of risk is a function of the possible negative outcomes and the

probability of those outcomes arising.

o Outcomes: late delivery, poor quality, inadequate level of service, etc.o The parties in the relationship exchange may not necessarily react in the

same way to the same level of uncertainty;

o The perennial difficulty for a company (principal) that is forced to retainan agent to work on its behalf is that there are unknowns and

unknowables: Hidden characteristics;


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Hidden actions; Hidden intentions;

o Contract is the basis for the management of the exchange risk because itis through a contract that risk is distributed between the parties;

o Where greater formality is sought in a relationship then severalquestions need to be borne in mind when it comes to drafting a contract: Who control the contract?

What is the product? What is the nature of the operating procedures?

- Allocating exchange costs:o All transaction incur costs:

Administrative costs; Opportunity costs; Initiation costs; Control costs; Transaction costs:

Uncertainty; Asset specificity; Frequency of the transaction;

- Dealing with relative power dependence:o Dependence is inevitable as a consequence of exchange;o Switching costs;o Exercise of power;

- Social dimensions of relationships:o The central role of business relationships is to manage economic

exchange seeking to control it;o However, after all, relationships have a social dimension!

Trust;

Commitment;- Business marketing: an interaction perspective:o Dynamic processes of interaction over time action & reaction;

It involves the manager working with other companies, but alsoagainst them, through them and in spite of them;

- Interaction process:o Several types:

Product/service reason for exchange in the first place,relationship builds around this central element;

Financial amount of money involved in the exchange; Informational not always products or money, often a large

amount of informational contact;

Social exchangemaintaining a relationship between economictransactions and seems particularly important in reducing the

uncertainties between parties that arise from cultural and

geographical exchange;

o Relationships: Interactions episodes over time create a relationship with a

history; Contact pattern; Institutionalization you dont have to think about every step to

take (because you already know your customer);

o Participants:

Without the parties there is no relationship; Two organizations + the individuals from those organizations;


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IMP interaction model posits that the organizational factorsinclude physical characteristics of the firms in term of:

Size; Structure; Technological resource base; Organizational strategy; Experience of the firms; Personalities; Experience; Motivations of the individuals;

Environment: Market structure; Dynamism; Position in the manufacturing channel; Social system;

Atmosphere:

Time brings the degree of stability;

Business Marketing as Network Analysis and Management

Beyond relationships to the network

Relationships are the primary basis for exchange, and are thus central to businessmarketing.

All relationships are connected to the wider network within which they are embedded.

This network is the arena in which the business marketer must operate. The

relationships in the network enable the company to grow and develop, but they are also

a constraint on that development and may restrict its activities.

The task for a firm is to analyze the network in order to establish its network position

and engage in relationship behavior that will enhance that position:- Acting within existing relationships;- Forging new relationships;

Network analysis to establish current positionThe level of analysis is unnecessary to obtain some knowledge of the relative

positioning of firms in a network three elements in the ARA analysis:

1. Actors: it is people who initiate relationships;2. Resources: used by actors, but may also be created as part of the relationship

exchange;3. Activities: relationships start operating to achieve the purpose when activitiesare undertaken that deliver that purpose;

Initiating changes towards a new network position

Stronger network parties are unlikely to welcome relationship advances from any party

that does not maintain or further enhance their existing positions.

Parties also need to be aware of the costs of attempting to forge lots of relationships.

Relationships are not free, so you need to obtain any value.

Part 2 Business-to-business Marketing analysis and Strategy

Chapter 4 Business-to-business Marketing Strategy


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Strategy is one of those words that is used commonly in the business world, but whichcannot easily be defined. We used the five Ps for strategy:

- Plan: direction, guide, path;- Pattern: consistency in behavior over time (realized strategy);- Position: locating products in markets;-

Perspective: fundamental way of doing things;- Ploy: reference to clever maneuvers designed to outwit competitors;Strategy: meaning and process

There is a distinction between:

1. Business unit strategy Concerned with how an individual business competeswith its rivals, with what it does and what it could do to stay in business and to

beat the competition; Strategic marketing management & competitive strategy;

a. Long-term orientation;b. Defining the scope of the organizations activities;c. Matching of the organizations activities (variety of different products

and roles);

2. Corporate strategy concerned with decisions made in an organizationcomprising multiple businesses;

Strategy has been understood as a process by which a business systematically appraises

its current position with respect to the immediate competitive environment and thewider macro-environment:

- SWOT;- Long-term goals and objectives;- Alternatives;

The ability of a business to learn from and adapt to changing circumstances has become

a key component of strategic thinking.

The purpose of Strategy: value and value creation

Marketing is concerned with the establishment of mutually satisfying exchange

relationships in which the judgments as to what is satisfying depend upon the

perception of the parties to the exchange:- Focus on value:

o Consumer surplus;o Producer surplus;

- By the time it has become complex:o Multiple interconnected exchanges;

Customer value: give-get definitions

Perceived value is the consumers overall assessment of the utility of a product basedon perceptions of what is received and what is given value represents a tradeoff of the

salient give and get components.

Customer/product value:

- The value of the sellers product to the customer;- Benefits the customer receives minus the costs incurred;- Trade off between quality and price;- Distinction between customer-received value and customer-desired value;

Customer value: means-end chain definition

Common aspects of customer value:

- Linked to product use;- Customer perception rather than an objective phenomenon;


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- Tradeoff between what a customer receives and what the customer gives up;Perceived customer value for an organization

A substantial unresolved issue in the conceptualization of value is the nature of value for

an organization.

Value rests in the perceptions of key decisions-makers in the organization, which isclearly not a solution (they are agents for stakeholders).

Organizations are abstractions and do not have desired end states. The desired end

states that they mention seem likely to appeal very differently to different stakeholdersin the organization. Customer responsiveness and quality are not desired end states at

all; they are means to an end, namely, economic success.

Customer lifetime value

Definition: the net present value of expected profits over the duration of the customer

relationship;

The concept of lifetime customer value measures value to the supplier, not value to thecustomer. Clearly, lifetime customer value is an expression of supplier value, not of

customer value!

Relationship value

Three bases for the analysis of value in relationships between firms:

- The economic financial give-get nature;- The social satisfaction of the exchange;- The distributive;

Approaches to Strategy

-

Rational planning approach:o Big, long-term decisions;o Strategic market planning/marketing planning;o Competitive advantage:

Differentiation; Cost leadership; Differentiation focus; Cost focus;

o Porters 5 forces model;o SWOT;o External and internal audit;o Alternatives;

- Resource-based approach:o Firms are heterogeneous;o Resources are not perfectly mobile between firms;o Competitive advantage;o Potential source must be valuable, rare, inimitable and non-

substitutable;- Management of relationships and networks:

o Identifiable networks of heterogeneous suppliers and customers;o Unique atmosphere;o ARA (actors, resources, activities);o An organizations performance is largely dependent on whom it interacts

with;

Ethics, corporate social responsibility and sustainability


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Marketing ethics: the systematic study of how moral standards are applied to marketingdecisions, behaviors and institutions.

Reasons why managers need to improve ethical decision-making:- Cost risks with unethical conducts;- Benefits of increased profitability and intrinsically desirable organizational

order;

Four approaches to marketing ethics are generally distinguished:

1. Managerial egoism the basis for egoism is the pursuit of self-interest (notvaluable for an organization), link between shareholder value and marketing

activities;2. Utilitarianism the best-known form of consequentialist ethical theory, refers

to ethical theories that judge whether an action is wrong or right on the basis of

the consequences of the action, valued in terms of the balance between utility

and disutility;3. Deontological ethics duty-based approaches to ethics focus on the ethical

nature of actions, rather than on the consequences of those actions, products

code of conduct;4. Virtue ethics Stresses the cultivation of virtuous principles and the pursuit of

a virtuous life, morality;

5. Sustainability How can firms conduct their business while doing as littledamage as possible to the natural environment?

a. Pollution prevention;b. Product stewardship;c. Clean technology;d. Sustainability vision;

New technology and business market strategy

There is an overall strategic impact of new technology:- Buying organizations are using new technology extensively in their buyingprocesses, and this affects the structure and processes of the buying center

business marketing strategy;

- Adoption of new technology is expected to influence the way in which inter-organizational relationships are formed, develop and are managed

relationship management strategy;- New technology has created new, online market forms business marketing

strategy;

Chapter 5 Researching Business-to-business markets

Introduction:- Market segmentation;- Development of specific marketing plans;

The value of marketing information

Important points of information:

- Accuracy;- Timeliness;- Relevance;- Uniqueness;

The Internet makes it easier to find information characterized by this.


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Hooley & Jobber:- The use of market research information is associated with above-average

corporate performance;- No difference between industrial and customer marketing organization;

Much attention in marketing research is paid to technical aspects, such as how to designmeasurement instruments, particularly questionnaires and techniques for analyzingdata.

Market research and the nature of business markets

The characteristics of business markets introduce some differences regarding tocustomer markets, important characteristics are:

- Derived demand;- Accelerator effect;- Concentration ratios;

Research fundamentals in business-to-business markets

Sampling and sampling frames

The fundamentals of sampling theory are the same no matter what kind of market one is

dealing with, and the statistical accuracy of estimates based on sample parameters is the

same whether they are b2b or b2c. However:- Certain sampling techniques are used more frequently in B2B-markets;

Probability sampling every member of the target population has a known, non-zero

probability of being included in the sample:

- Simple random sampling every unit within the sampling frame has an equalchance of being selected for the sample;

-

Stratified random sampling

population and sampling frame are divided upinto meaningful groups or strata and then samples are taken from each of the

strata according to their representation in the population;- Systematic sampling alternative to simple random sampling, only when we

are sure that there is no systematic variation within the sampling frame;

- Cluster/multi-stage sampling used when there are naturally occurring unitsin the population;

Non-probability sampling the units in the population do not have a know, non-zero

probability of being selected for the sample, building a representative sample:

- Convenience sample a group of respondents who are ready and available tocomplete the survey;

- Snowball sampling the researcher relies on previously identified members ofthe target population to identify other sample members;

- Quota sampling Divides the relevant population into subgroups, and small,medium and large firms;

- Focus groups Often used for purposes of exploratory market researchResponse rates

A sample is designed to be representative of the target population, so that resultsachieved for the sample can be generalized to the whole population.

Two issues:

-

What is the response rate from those who are selected for the sample?o Take into account the expected response rate;o Eight aspects that affect the response rate:


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Survey sponsorship; Covering letter; Questionnaire; Anonymity/confidentiality; Contacts;

Postage; Monetary incentives; Non-monetary incentives;

- Are those who respond representative of the whole sample?Standard industrial classification

A standard industrial classification is a systematic method of classifying economic

activity Tourism industry, banking industry, etc.

- Matter of fundamental importance to the success of a B2B marketing researchproject;

- In order to be on the same level, you need a rigorous classification of industries,sectors and subsectors;

- The principle behind any standard industrial classification system is to put everyform of economic activity into a unique numeric category;

Using market research agencies

B2B marketing managers collect, analyze and act upon marketing information all of thetime:

- Automatically internal reports, trade press, etc.;- Non-automatically samples;- Done-in-house;- Outsourced;

The client agency relationship in business marketsMarket research agencies are B2B professional services organizations.

Client-agency relationship in business markets:

- Have a clear understanding of the problem prior to contacting the researchsupplier;

- Get closely involved;- Check past clients of the suppliers and evaluate their prior experience and

industry familiarity;

Open lines of frank and honest communication with the research seller early in the

research process and maintain them throughout project implementation. Provide

whatever information you have which bears on the problem at hand (Peterson andKerin, 1980).

The positive aspects of engaging in partnerships with research agencies their betterknowledge of your business and understanding of your research requirements more

than offset any negative aspects associated with complacency. A research firm that has

developed a close relationship with a client is in a better position to know the clientsneeds and preference and to provide more efficient service.

Secondary research in business markets

The importance and usefulness of secondary researchSecondary market research is used in all areas of marketing but is particularly

important in B2B markets:


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- Costs;- Derived markets;

Using the Internet in B2B research

Naturally, many of the sources are of potential value to the B2B marketer.

However, be careful: Internet contains also a lot of information with dubious quality.

6. Business Market Segmentation

Principles and value of segmentation

There is a great diversity in the needs and behaviors of business customers: they are all

unique Although the market is imperfectly competitive:- Scope to differentiate;- Standardization brings operating efficiencies for the firm;- Value of industrial segmentation can be divided in three areas:

o Facilitating better understanding of the whole marketplace;o Enabling better selection of market segments that best fit the companys

capabilities;o Enabling improved management of the marketing activity;

- Strategic use of segmentation means that the marketer can choose whichcustomers to target, which ones to treat similarly and which ones to treat

differently, even uniquely.

Segmentation process

The process of segmentation involves an iterative classification of the market in terms of

sets of meaningful groupings, with each additional step in the iterative process defining

further subdivisions.

Segmentation basesThe process of segmentation requires the application of criteria that can support the

classification activity:Macro economy Micro economy

Firmographics Operating variables Purchasing Situation Personal

Firmographics

- Industryo Surface inspection;

- Customer locationo Distance to reach the customer;o Prospective customer concentration;

- Customer size:o Because of the relationship with the scale of the customer organizations

needs and demands for volume;

Operating variables

- Company technologyo Inspection;

- Product and brand-use statuso Readiness to use;o Usage rate;

- Customer capabilitieso

Abilities and uncertainties of buyers and sellers;- Customer strategic type


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o Customer representatives;o Observation;o Content analysis;

Purchasing approach

-

Purchasing function organizationo Small companies dont have a special department for purchasing;

- Power structures- Buyer-seller relationships

o Reputation;o Lost-for-goods (look for a relationship);o Always-a-share (no relationship);

- General purchasing policies- Purchasing criteria

o Financial;o Technical;o Quality;

Situational factors

- Same product differently at a different time;o Urgency;

Personal characteristics of buyers

- Contact;Where to Stop? Successful segmentation

The greater the number of segmentation steps undertaken, and thus the number of

differentiating criteria that are applied, the smaller and more fragmented are the

segments produced.

When the fragmentation begins to reach the point where further separation does not

really lead to meaningful differences with respect to customer purchase behavior, then

it is likely that the process should be curtailed.

There are a series of tests that business marketers can use to establish the quality of thesegmentation process and the usefulness of the segments that are proposed:

- Measurable/distinctive;- Accessible;- Substantial/profitable;- Actionable;

Also compatibility between buyer and seller is important, on the grounds that similarapproaches to risk taking, service standards and corporate style will be preferred.

Targeting

What markets to serve and how to serve them Targeting: making choices about

segments that should be pursued and devising the most appropriate strategies forpursuing them.

Target segment selection

A company will need to consider its possible competitive position in relation to eachsegment in order to determine whether it merits the companys attention.

Steps:

1. Identified segment Relative attractiveness;


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2. Resource demands;3. Management demands;4. Organizational demands;

Targeting strategy

Three strategic approaches:- Undifferentiated Same offer to all segments;- Differentiated Choosing a variety of different segments and providing

offerings that are focused on meeting the needs of those targets more

specifically;

- Niche targeting Customer focus to one or a small number of segments;Business-to-business positioning

When it comes to each individual segment there is a need to consider the position that

the market occupies in the mind of the buying company:- The offering from a marketer occupies a space in the mind of the buyer;- The relative position becomes the basis by which the supplier is compared to

others as well as the ideal;o SWOT;o Segmentation analysis;

Part III Communicating and interacting with customers

Chapter 7 Market Communication

It is important that the actions undertaken by an organization are consistent with its

core values and customer expectations so that its brands and corporate image areenhanced.

Business brands

Meaning and relevance in business markets

The notion that brands can represent ideas and the value that might be associated with

these has gained currency in business-to-business markets with the recognition that apowerful brand can:

- Increase an organizations scope of influence;- Augment a companys reputation;- Create points of difference in a firms offer in terms of tangible features;

A brand can be explained as consisting of a mixture of tangible features and intangible

associations, or alternatively functional and emotional values.

Identity, image and reputationBrands can be understood from an internal perspective in terms of identity, and

externally in terms of image and reputation. Attributes captured within the identity of abrand will be determined by:

- The nature of the business marketers value proposition;- The nature of the relationship;

In contrast to identity, corporate brand image assumes an external perspective.

Internally Externally

Identity (Corporate Brand) Image

Reputation

Brand architecture: product or company


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Organizations and customers can share brand ideas at the product or company level:

- House of brands it has series of independent brands that are managedseparately, and from an external viewpoint have no obvious links between them;

- Branded house A single brand is used to cover a range of offerings, there is anoverarching brand which dominates the sharing of ideas;

Brand communication

Market and relationship communication play key roles in the development of brands atthe product or organizational levels strategic approach towards communication,

starting with the understanding of the organizational competencies and culture

embodies in a brand.

Integrated communication strategy

Strategy:

- Planning;- Implementing;- Controlling;

To achieve specified objectives with each audience.

Assimilation (verwerking) of the information Companies cannot control this

assimilation process:

- Try to understand the process;- Modify your approach;- Promotional material:

o Setting objecives;o Deciding on the role of each component to be used in the communication

mix;

o Determining the budget;o

Selecting specific strategies; Guided by the organizations choice of target market and positioning strategy;

Communications objectives

Communications objectives help with deciding how the various communications tools

will be used in a marketing programwhat a firms wants its target audience to do withthe information transmitted via its communication tools;

Communication

objectives

Potential customers

(Target segments)

Communication tools

Awareness Leads AdvertisingDirect mail

PublicityInterest Enquiries Brochures

VideosRecorded demonstrations

WebsiteTrade shows

Evaluation Prospects TelemarketingField sales visits

Trial New customers Inside sales callsPurchase Established customers Transactional and

relationship sales teams

Communications mix


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The promotional tools at the business marketers disposal are not interchangeable andtheir effects at the different stages of the purchase process are not the same.

Marketers promotional mix:

- Trade advertising;-

Technical literature;- Direct mail;- Sales promotion;- Trade shows;- Personal selling;

Budgeting

Setting a communications budget in relation to sales targets is difficult, with companies

typically specifying improvements in the effectiveness of promotional activities and

using practical methods to set budgets:- Objective and task;- Percentage of sales;- Competitive parity (based on the amount invested by competitors);- All that can be afforded (based on expenditure what a business can afford);

Advertising

Advertising represents the largest share of the communications budget for a lot ofbusiness marketers. It can serve a variety of purposes and its principal strength is that it

allows a firm to communicate with large audiences at a far lower average cost per

customer than with personal selling:

- Effectiveness to firms sales;- Efficiency to selling

Advertising strategyA firm must make a number of decisions that result in the articulation of its advertisingstrategy:

- Setting objectives:o Performance goals;o Target audience;o Realistic and expressed to be measured;o Engaging members of a customer organization;o Choice criteria that are important to members of that audience;

- Formulating a creative plano Development of the message;o Hierarchy-of-effects model;o Appeal to emotions;o Information about performance and product quality;o Symbolism and metaphors;

- Media selectiono Broadcast media: television and radio

Speed of raising awareness;o Digital media: engine marketing, display and video advertisements

Horizontal: keywords (Google, Yahoo, Bing); Vertical: locate more specific and focused information; Display advertisement: graphical unit contained within a

webpage;

o Offline media: Trade publications;- Evaluation of advertising effectiveness


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Sales promotionThe use of sales promotion in business markets can be classified according to whether it

is designed to trigger a response from members of a companys sales force, channelpartners or organizational customers:

- Sales personnel To motivate staff or to support them in their selling roles;-

Incentives

To hit short-term targets;- Informational material To perform their various tasks Brochures,catalogues, etc.;

Trade missions and trade shows/exhibitions

Trade missions and trade shows bring buyers and sellers together in one physical

location.

Trade mission: A government-sponsored promotional activity Facilitating growth of

a particular region or country.

Trade missions enable participants to acquire information fairly quickly about overseasmarkets as well as knowledge about the process of exporting to those countries:

- How is business conducted overseas?- Which services and products are available overseas?- What about the interest of potential buyers?- What about the commitment and resources needed to compete overseas?- What about the features and the process of exporting?

Trade shows and exhibitions: Temporary versions of the shopping centers or retail

parks that are such a prominent feature in consumer markets.

Trade shows are:

- Temporary;- Matching between supply markets and target audiences;

Functions performed by trade shows:

- Non-selling functions:o Building or maintaining company image;o Gathering competitor information;o Product testing/evaluation;o Maintaining company morale;

- Selling functions:o Identification of prospects;o Gaining access to key decision-makers in current and potential customer

companies;

o Disseminating facts about vendor products, services and personnel;o Selling products and winning orders;o Servicing current accounts problems via contacts made;

Why do customers visit trade shows?- Seeing and trying new products and developments;- Seeing new companies;- Discussing problems;- Comparing products;- Making contact with companies;

Planning trade shows

The planning process normally includes the following stages:1. Setting trade-show objectives;


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2. Trade-show selection (costs, type of products, space, time, reputation of theshow, number and types of visitors, etc.);

3. Tactics:a. Promotional activities to support participation;b. The design and location of a firms stand;c.

The selection and behavior of staff on the stand;4. Post-exhibition follow-up:

5. Post-exhibition evaluation;Public relations

PR is used to manage the image of an organization with its stakeholders and to close thegap between a companys desired image and the way in which it is perceived by its

various publics.

It can be used to:

- Attract and keep good employees;- Handle issues and overcome misconceptions;- Build goodwill;- Build an organizations prestige and reputation;- Promote products;

It includes tasks such as:

- Lobbying;- Donations;- Press releases;- Corporate advertising;- Seminars;- Publications;

The digital communication tools which might be used:

- Blogs;-

Code of conduct for social media;- Word-of-mouth;Chapter 8 Relationship communication

Relationship communication consists ofdirect marketing andpersonal selling.

Direct marketing

Interaction between individual customers and the vendor organization, with customerresponses to communication from and transactions with the vendor being recorded and

the data used to guide the formulation, execution and control of relationshipmanagement programs with those customers:

- Absence of face-to-face contact;- Use of on- and offline media;- Facility to measure responses;- Use of a database for targets;

IT systems provide a company with the means to store and access a variety of

information relating to areas such as:- Customers and prospects;- Transactions;- Promotions;- Products;- Industry, market or geographic regions;

Different forms of direct marketing:

- Direct marketing campaigns:


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o Target audience;o Objectives;o Choose right media;

- Direct mail:o On- or offline;o

Personalized;o Precise point in time;o Goal: develop familiarity and interest in the product;o Quality is most important;

- Telemarketing:o Performed by trained specialists;o Inbound contact is initiated by a potential customer;o Outbound contact is made by the vendor;o Various roles:

Account management; Field support (personal visits); Prospecting (screening);

Personal selling

Personal selling involves a suppliers employees communicating directly with managers

from a customer company. Allows to:

- Determine precise requirements;- Negotiate to adjustments;- Interact between representatives from both organizations;

Sales responsibilities and people

- Identify and secure revenue-generating opportunities;- Match the marketing organizations product offering with a customers supply

need;- Augment the suppliers product;- Representation

o Supplier;o On behalf of the customer inside their own organization;

- Maintaining customer files and feeding back information;- Handling the complaints;

The sales function can take a variety of forms within a marketing organization such thata company makes use of three different characteristic types:

- Missionary salespeopleDirect efforts at creating business by influencingindividuals or companies who have the authority to specify particular suppliers

when orders are issued;- Frontline salespeopleWinning orders from existing customers or to target

new ones;- Internal salespeople Administering the order process, from initial receipt to

the eventual delivery of an order;

The relationship communication process

1. Lead generation:a. Direct marketing;b. Enquiries;

2. Prospecting:a. Is the company using a similar product or is considering purchasing one

offered by the marketing organization?

b. Timescale and value/volume;


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c. Who is the ultimate decision-maker?d. Is funding for purchase approved?

3. Call preparation:a. Set objectivesDetermines the content and scope of communication;b. Product knowledge;c.

Behavioral features of the target customers

Nature of purchasesituation, complexity of the solution, etc.

4. Selling:a. Low-priority prospects/transactional customers

i. Straightforward purchases (straight or modified rebuys);ii. Script-based selling use of a standard presentation or dialogue

to engage the customer;

iii. Needs-satisfaction selling the sales representative engages acustomer in a series of questions and answers to determine the

customers actual product needs;b. High-priority customers

i. Scope to develop a potential relationship;ii. A supply need that has some degree of uncertainty;

iii. Identify gatekeeper understand the purchase problem andrequirements;

iv. Rely on questioning members of the buying team in order touncover requirements and to determine how the supplier mightuse its problem-solving abilities to configure an offering that will

match these needs;

v. Consultative selling;vi. Strategic partner selling supplier and customer companies

combining resources and expertise to pursue opportunities that

benefit both parties;

c.

Dealing with objections and closing salesi. Focus on substantive elements seek for complete clarification;ii. Listenwhat does the customer say? No interruption!

iii. Agree and counter acknowledges the customers point of view;5. Order fulfillment

a. Effective delivery of the product offering;b. Capabilities;c. Contract details;

Relationship building

Provided that new clients represent viable long-term prospects for a supplier, theemphasis for the business marketer switches to building an ongoing relationship with

and winning repeat business from that customer. Principle tasks:- Handling the ongoing contracts;- Overviewing;- Determining the scope;- Negotiating about the expansion of the suppliers share;- Responding and seeking to resolve new sourcing problems;- Monitoring developments;- Negotiating new contracts;

CultureThe principles which are shared by a group of people and which shape the behavior,

perceptions and emotional responses of people within that group.

So you need to consider that the etiquette between different nationalities is different:


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- Hall:o High-context culture (implicit);o Low-context culture (explicit);

- Hofstede:o Individualism vs. collectivism;o

Lower power distance vs. high power distance;o Femininity vs. masculinity;o Low uncertainty avoidance vs. high uncertainty avoidance;

- Gannon Descriptive metaphors for different cultures, arguing that themetaphors provide managers with a frame of reference which can be used to

better understand the behavior of an exchange partner and to guide responses;

Culture will influence communication behavior, and in preparing for negotiations,

managers should:

- Know with whom they are dealing;- Know what they hear;- Know when to say what;

Coordinating relationship communication

Relationship communication is not just about finding the next customer or winning the

next order, rather for many organizations operating in business markets it is about

managing relationships with customers, and about handling ongoing exchangesbetween supplier and customer companies.

Inter-firm

Three categories:- A geographically based sales force effective when a business marketers

products are relatively simple and customers have broadly common

requirements in using the products;- A product based sales force diverse range of products;- A customer based sales force in some markets, suppliers might offer the same

basic product technology, but the application of that technology to solve

customer supply needs in different sectors can vary significantly expertise;

Intra-firm (vendor perspective)

Being able to access and present the necessary expertise in dealings with customers is

certainly important transactions:- Release of resources to support marketing programs;- Allocation of productive capacity to allow tasks to be performed;- Provision of assistance;

These transactions between different functions have to be synchronized:- Coordination;- Communication;- Strategic approach;

Relationship promoters

A key component of internal marketing is the investment by the service organization in

training and motivating employees to ensure a customer orientation throughout the

company.

The employees that interact with customer play key boundary-spanning roles:

Relationship promoters linking the customer with the suppliers company and

working to coordinate activities inside the supplier organization to support the

development of relationships with selected customers.


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The relationship promoter should possess:- Social competence;- Knowledge;- Portfolio of relationships;

Using these attributes helps:

-

Information sharing;- Communication;- Finding the right managers;- Facilitating relationships;- Coordinating activities;- Negotiation and conflict resolution;

Controlling relationship communication

Two principal systems associated with controlling sales force are:

- Incentive pay systemso Rewards for achieving specific performance targets;o Priority on realizing targets instead of the way in which it is achieved;o Little room for negotiation in terms of the measures against which their

performance is assessed;

- Monitoring;o Directing, evaluating and rewarding sales-related activities;o Effective performance leads to financial objectives being realized;o Stifle the flexibility and discretion that a salesperson would expect to

have in dealing with different types of customers and purchase

situations;

Chapter 9 Relationship portfolios and key account management

A substantial task for the business marketer is to recognize the differences between

customers and to manage the collection of relationships in ways that add value to thebusiness Portfolio management:- Identify key accounts;- Decision making about specific customers;- Precursor to the decisions to enable day-to-day marketing decisions of the

relationship portfolio;

Principles of portfolio management

For a business marketer the relationships they forge and maintain with their customersconstitute the basis for creating value for the firm the customer is the foundation of a

business and keeps it in existence.

It all has to do with future value!

Portfolio management is the tool that enables clear decisions to be made in order toobtain a well-balanced portfolio:

- Harvesting excess current returns;- Ploughing into future products;

The notions of portfolio management have equal applicability to customer relationships

because:

- Constitute sources of risk and return;- Varied in the type of risk they constitute;- Vary in the level of return they bring;- Vary in time horizon over which they provide that return;


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Successful portfolio management requires that the marketer make the best decisionspossible with the portfolio of relationships he or she has.

Strategy Action

Build Build a relationship further for growth;

Investing where necessary to achieve this growth;Maintain Maintain current levels of management effort;

Harvest Harvest the value in the relationship by taking the current

monetary value it brings;

Reduce Reduce in the immediate future the level of managementcommitment to a relationship;

Successful portfolio management requires an iterative process of breaking down thecustomer base into a smaller number of substantially different clusters, with the

members of each cluster sharing similar characteristics.Once a meaningful set of groups in the portfolio has been established, decisions can betaken with respect to each element in the portfolio in order to achieve balance overall.

The relationship classification process

Dichotomy of the customer base into customers (Jackson):- Get a share Always-a-share;

o Driven by price;o Best deals in the market;

- Stability in dealings;o Continuity of supply, levels of product quality or a shared market view;o Supplier let buyer down Lost-for-good;

Analyses based on behavior (Sako):

- Arms length contracting approach;o Working together;o Cooperative behavior;o Obligational contracting;

Of course, there are a lot more distinctions between different relationships.

Variables, which are useful for qualitative distinctions:

- Financial stability;- Sales:

o Amount of sales;o Number of units sold;o Proportion of total sales;

- Profits:o Net price achieved;o Cost-to-serve;Types of customers based on relative sales versus cost-to-serve:

Bargain basement low net price, low cost-to-serve; Carriage trade high net price, high cost-to-serve; Passive customer high price, low cost-to-serve; Aggressive customer low price, high cost-to-serve;

- Cost savings;- Relationship age;


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Classification criteria: Less easily observed- Replaceability of a customer;- Use of critically important products or processes;- Shared vision of the future common commonality:

o Acquaintance (Low value, low commonality);

Standard products; No customization;o Rival (High value, low commonality);

Not going in the same direction; Strong potential for opportunism;

o Friend (Low value, high commonality); Same interest; Embryonic relationship;

o Partner (high value, high commonality); Irreplaceability; Calls for adaptation; Negotiation and mutual understanding for long-term strength;

- Source of learning for the company;- The suppliers share of customers purchases;- Short-term advantage-taking (poor treatment, fall-guys because of low price);

Combining classification variables to produce varied clustersThe ultimate aim in undertaking a relationship portfolio anaylsis is to generate a series

of different, but internally consistent, clusters of customer relationship types.

Campbell and Cunningham (1993):

Yesterdays

customers

Todays

regular

customers

Todays

special

customers

Tomorrows

customers

Sales volume Low Average High Low

Profitability of

customer to

supplier

Low Average High Low

Use of

strategic

resources

Old Average Old New

Suppliers

share

Low Average High Low

Ford (2002):

Sales Cash Cow Greatest proportion of sales income

Minor relations Small customers, therefore not significant

Profits Todays profits Most profitable customers currently

Yesterdays

profits

Profitability trends indicate that they are on the wane

The Old Men They past their heyday

Tomorrows

profits

Currently unprofitable, but promise a substantial

profit

Source of

learning

New technicalrequirements

Forced to improve

Newcommercial

Innovation from commercial


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requirements

Advantage

taking

The fall guys No long-term strategic import

Relationship life cycles

The life cycle concept has long been used by marketers to derive an understanding ofthe appropriate marketing strategies to be used to support a marketing offering.

1. Product life cyclea. Birth;b. Growth;c. Maturity;d. Decline;

2. Relationship life cycle:a. Pre-relationship:

i. Nothing resembling a relationship;ii. Need for change;

b. Early stage:i. Need to deal with substantial unknowns;

ii. Social distance;iii. Uncertainty;

c. Development stage:i. Commitment of time leads to manifest reductions in uncertainty

and distance;

d. Long-term stage:i. Little distance between them socially, technologically and

culturally;ii. More commitment;

iii.

Extensive adoption;e. Final stage:i. Stable market over the long term;

Four phases during this cycle:- Awareness (pre-relationship);- Exploration (early stage);

o Attraction;o Communication, bargaining;o Power dependence;o Norm development;o Development of expectations;

- Expansion (development stage);- Commitment (long-term stage);

Value of the relationship life-cycle conceptThe value of the relationship life-cycle notion is the information that it can give to

relationship managers over time:

- Cultural distance;- Language;- Environment;

Key account management

One of the key applications of relationship management is to identify key accounts,which are of critical importance to the business and which must receive special


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treatment in order to maintain and develop the customer relationshipKey accountmanagement (KAM).

KAM:

- Seller-initiated type of strategic alliance;-

A key account is a customer in a business-to-business market identified by aselling company as of strategic importance;- KAMs role facilitator and relationship developer;- Highly collaborative relationships:

o Sharing information;o Joint planning;o Joint co-ordination of responsibility and workflow;

- Different degrees in relationships:o Spot market transactions;o Repeated transactions;o Long-term relationships;o Alliances;o Vertical integration;

- Six-stage model of key account relationship development:o Pre-KAM (Identify);o Early KAM (Explore opportunities);o Mid-KAM (Develop range of contacts);o Partnership KAM (Supplier is external resource of buyer);o Synergistic KAM (Partners create joint value in marketplace);o Uncoupling KAM (Dissolution of KAM);

Implementing KAM:

- Which department?o

Sales: Supersales person or strategic relationship manager? KAMer needs to add a new dimension to how the customer is

seen by people;

- Why KAM?o Increase market share;o Change strategy;o Increase customization;o Improve relationships;o Marketplace pressures;o Being more attractive for suppliers;

KAM: Benefits and risks- Benefits

o Increased trust;o Enhanced loyalty;o Enhanced purchase intentions;o Greater likelihood of recommendation;o Commitment;

- Riskso Few key customers;o Some customers may get less attention;

Chapter 10 Managing Product Offerings

If the marketer wants to continue to meet customer needs then the offering must adapt

to changing needs.


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Dynamic process

Core benefit Physical attributes Adaption space

(Inside) Advice giving (Outside)

Service elements

=Product offering

Business-to-business product offeringsThe full extent of what is really possible can only become known through interaction

with the customer.

Strategic tools for managing product offerings

Life cycle tool

The classic idealized model of a product lifecycle depicts a series of stages throughwhich products notionally proceed during their life.

- Introduction stage: May still be costing more money than it is bringing in, sincethere is a series of marketing tasks to be carried out;

o Demonstrations, exhibitions, trade shows, other publicity;- Growth stage: Product offering is increasingly accepted by the market;

o Growth of sales and profit;o More competition;o Additional services to differentiate;

- Maturity stage: Rate of sales growth slows;o Reduction of costs;o Focus on trade customers;

- Decline stage: Profit margins will decline and the business marketer must lookfor ways to extract further value;

o Drop in the level of demand means that sustaining levels of profitabilitytypically requires cost reductions;


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Portfolio analysis

Two composite dimensions:

- Market attractiveness: Market size,growth rate, structure of competition,

market diversity;- Business strength: Growth rate, share inthe market, profitability;

Possible positions:

- Question marks:o New and growing market;o Need to establish;

- Dogs:o Successful products;o However candidates for deletion;

- Stars:o Need of money to grow;o Mostly in the growth stage;

- Cash cows:o Greatest contribution to company profits;

The greatest value for the firm ultimately comes from having the best set of offerings

available to the best set of customers and being able to do this time after time after time.

Managing innovation in the B2B ContextRelevance of innovation management

What is new product development? All the activities involved in the process of ideageneration, technology development, manufacturing and marketing of a new product ormanufacturing process or equipment.

Key questions for the B2B-marketer:- How the firm could be organized:

o Innovation is invariably a team game;o Commitment to long-term growth;o SWOT;o Balanced portfolio of activities;o Stability;o Willingness to change;o Organic organizations (decentralized);

- The role of relationships with external partners in aiding the process:o Network;o Type of innovation projects;o Degree of innovativeness required;o Formality of the mechanism for knowledge sharing;

New product offering development (From question mark to cash cow)

Unavoidable risk

- Most new product offerings fail;- Proportion of sales revenue spent on R&D is a good indicator of the level of new

product activity;


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Development process:

1. Identifying opportunities / generating ideas;2. Screening ideas and making preliminary investigations;3. Analyzing the business case (which ideas have the greatest business potential?);4. Developing the concept and specifying the features;5.

Developing prototypes and developing marketing support;6. Undertaking limited-scale trial marketing;

7. Taking the offering to commercial launch;8. Evaluating the offering development process and drawing lessons for the next

time;

Chapter 11 Routes to market

For many organizations the only way that they can maximize market coverage is by

making use of third parties, that is, intermediaries:

- Handling some of the exchanges involved;- Connecting suppliers with customers;

The business marketer and intermediaries with whom it might work do not operate in

isolation to reach and satisfy target customers Part of the supply chain.

Supply chain management and logistics

Critical to the success of any organization is its ability to maximize customer value

whilst minimizing the costs incurred in doing this.

Supply chainmanagement of which involves the planning and coordination of all

activities of parties within a specific supply chain to provide the end-customer with a

product which adds value:- Responsiveness of a supply chain:

o Monitoring;o

Adjustment to keeping the flow of product;- Integration of all organizations:o Use of multi-functional teams that cut across organizational boundaries;o Sharing of sensitive information between companies;

A key factor fuelling the growing importance of supply chain management is its

contribution to an organizations competitive advantage because of its capacity toreduce costs, improve asset utilization and reduce order cycle times.

Supply chain management performance is underpinned by the following goals:

- Waste reduction;- Time compression;- Flexible response;- Unit cost reduction;

An important contributor to the achievement of these objectives is the ability of

software (ERP):

- Transmit data in real time;- Improve supply chain processes to enhance competitive performance;

Logistics management is increasingly an important element in business marketing

strategy because of:- Cost savings;- Product variety;- Improvements in information technology;


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Critical to the provision of (ERP) programs and their competitive performance is thebalancing of cost against service level and the management of those elements of the

logistics system over which organization have control.

Reaching and satisfying customers: third-party involvement

A company uses its core competencies and capabilities to deliver superior customervalue and to gain maximum market coverage for its problem-solving abilities:- Problem: few organizations have the resources simultaneously and

independently to deliver superior value to all customers in all locations. Involvement of third parties?

Offerings Solution

Bespoke/complex offerings Where the risk/uncertainty associated

with a customers supply needs is high andit involves a complex product offering, the

marketing organization may choose todeal directly with customers:

- Complete control;The challenge for an organization arises

when it wants to enter new markets withwhich it is unfamiliar:

- Sales agent independent,knowledge about market, after-care, payment by commission

Uniform product offerings Where the risk/uncertainty associated

with the solution sought by a customer is

somewhat lower and involves a rathermore standard product offering, the

marketing organization will be lessinclined to want to control all exchanges

with all customers:- Fragmented;- Geographically dispersed;- Contract value varies;

Company uses distributors.Activities associated:

- Communication;- Modification and assembly;- Product supply;- Service and repair;

Distributors are of NO use to companiesthat supply service-based products thatrequire the physical presence of the

service operation in close proximity tocustomers to ensure ready availability of

the service.

- Franchising;- Licensing;

From single to multiple router to

market

The reality is that most organizations are

likely to operate a number of alternative

channels:

-

VAR

Value added reseller (ITmarket)


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- Integrating, customizing, installingproducts;

Pluralistic multi-channel system A company uses multiple routes to market

but they are organized so that eachchannel has responsibility for a separate

group of products and in doing so targetsquite distinct market segments:

- Size (power);- Core technology (reciprocating,

rotary screw or centrifugal);Monolithic multi-channel system In this system a company uses one

structure, consisting of direct and indirect

channels to reach customers, with eachchannel member adjusting the functions

that it performs according to the segment

that it is dealing with.

Improving channel performance- Customer expectations:

o Customers have increasingly higher expectations of the value that theyseek to derive from products purchased and the sources used to obtainthem:

Tailoring product to individual needs; More demanding of services;

- Rethinking of value/distribution chain activities:o Rethink product design:

Different product formats;o Rethink the supply network:

Positioning of the stock and location;

Amount and structure of production and distribution facilities; Outsource non-value-adding activities;

Intermediaries;- Coordination Contribution of IT:

o Prices charged for products consist of three elements: Product costs: Coordinator costsMinimizing!

Routinization of tasks; Sharing of information; Automated (CRP, JIT)

Profit margin:- Web-enabled technology:

o Whatever the number and functions of organizations involved in a routeto market, the fact is that to realize both the degree of flexibility and

responsiveness expected by customers, and the tightness of coordinationof activities required between firms to minimize transactions costs, the

integration of IT systems in the form of extranets is necessary;

- Coordination handling channel partners:o A number of factors have to be taken into account to ensure the effective

management of channel operations and the relationships with other

parties in the channel system: Selection of channel members:

Reach and satisfy target customers; Criteria:


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o Necessary resources;o Intermediarys product range;o Marketing capability;o Channel partners commitment;

Support provided to channel partners:

In addition to recruiting intermediaries, a company has todevelop programs of activity to support channel

members:

o Motivating Financial incentives, territorialexclusivity, provision of supplier resources,

working relationship approach to intermediary

dealings;

o Reviewing the intermediary Means of controlling channel behavior:

Power to control activities of other channel members; Contractual arrangements franchising; Trust Patterns of behavior;

Communication in this area is very important:

Interaction; Two-way communication; Use of formal policies; Influence tactics;

Dealing with channel conflict: Differences in objectives; Differences in desired product lines; Multiple routes to market; Inadequate performance;

What can channel members do to avoid and manage conflict?

Improve performance; Training; Partitioning markets; Taking control;

Chapter 12 Price-setting in business-to-business markets

Pricing is both one of the most important and yet one of the most neglected aspects ofbusiness-to-business marketing:

- Price has impact on profitability;- Inflation/deflation;- New low-cost manufacturing capacity;- Reductions in international trade barriers;- Deregulations;- Impact of the Internet;- Sharing pricing information;- Training of purchasing managers;

3Cs of pricing1. Costs: The relevant costs associated with making a product or delivering a

service determine the price floor; the benefits that the customer perceives theproduct or service to deliver determine the price ceiling; while the intensity of

competition and the strategies of competitors affect the feasible pricing regionthat lies between the costs floor and the customer benefits ceiling.


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a. Cost-plus pricingi. Calculating the average cost of production and then adding on a

standard profit mark-up.ii. Ignores both competitors and customers;

iii. Based on sales volume;2.

Customers: In making pricing decisions managers are forced to makeassumptions about demand responsiveness, which is most convenientlymeasured using the elasticity of demand with respect to price (demand

elasticity).

a. Normal demand quantity demanded declines continuously as theprice rises;

b. Perverse demand above a certain price the demand curve is normaland demand declines as price increases, but below that price demand

declines as the price decreases.

i. Price as indicator of quality;Elasticity:

o Elastic demand Increase of price reduces revenue, cut of priceincreases revenue;

o Inelastic demand Increase of price increases revenue, cut of pricedecreases revenue;

Urgent need; Differentiated products; Few competitors in the market; Complementary goods; High switching costs; Shared price by different suppliers;

3. Competitors:a.

Oligopolistic market

zero-sum gamei. Each competitor directly affect its rivals;

ii. Formal game Gains of one player are the losses of the other;iii. Danger of price war. How to avoid?

1. Price leadership (acknowledged leader is closely watchedby rivals who follow its lead on price decisions);

2. Price stabilityb. Perfectly competitive market firms are price-takersc. Monopoly Firm is a price setter

Virtually all markets lie nowhere near the extremes of perfect competition ormonopoly, and most are dominated by a few substantial competitors.

Price: Strategy and Organization

Pricing wheel Pricing is not a decision that is taken once and then forgotten about.Rather, pricing is a more or less continuous process, in which pricing decisions must be

constantly updated to take account of factors within the control of the firm, such as new

product features, and factors outside of the control of the firm, such as new competitorpricing strategies:

- Decide strategy role- Prioritize pricing objectives:

o Profits, survival, sales volume, sales revenue, market share, imagecreation, competitive parity or advantage, barriers to entry and

perceived fairness.

o Profit targets are most important.- Assess pricing determinants


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o Keeping price sufficiently low that the prospects of profitable marketentry are minimized.

- Decide price strategy- Select pricing method- Implement control price

Price positioningPrice positioning strategy takes account of three elements:

- The price itself;- The customer benefits- Competitor positioning

Perceived benefits of competing suppliers offerings

Low Med High

Low price Chancer Thriver Market Ruler

Med price Bungler Also-ran Thriver

High price No hoper Bungler Chancer

The pricing plan and the pricing committee

The plan:

- Overall summary;- Overview of the current marketing situation;- Pricing SWOT Analysis;- Pricing strategy;- Pricing objectives;- Pricing programs;- Pricing control and review;

Similarly, just as price affects and is affected by so many other elements of themarketing mix, a wide range of different functions within the company have a legitimate

interest in pricing decisions: cross-functional activity that involves people from severaldifferent departments.

Intra-organizational aspects of pricing

Obstacles to the development of effective pricing strategies can arise from internalorganizational factors Perspectives may conflict.

Obstacles to price-setting arise out of conflicts between departmental positions (long- or

short-term).

The role of the sales force in pricingIt is assumed that because sales persons are closest to the customer, they know whatadd value to their customers.

Five factors caused salespeople to make pricing decisions that resulted in sub-optimal

profits:

- Price discounting to avoid the work or time involved in creative selling orcustomer problem-solving;

- No optimal knowledge of their customer overestimation of price sensitivityon customers;

- Salespeople are given greater price discretion which may alter competitivebehavior in the market;

-

Greater price discretion may alter buyer behavior;


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- Using sales incentive scheme based on gross profit margin may not be sufficientto ensure that salespeople make optimal price decisions;

Relational aspects of B2B Pricing

The pricing effects of long-term buyer-supplier relationships

-

Long-term customers can be used to help attract new business (test-bed for newproduct development)- Customers may be locked in to the relationship through the creation of

switching costs;

- Long-term customers also ask more moneyMore difficult to serve, moredemanding;

Supply chain pricing

- Changes in the environment of global business have encouraged companies toconcentrate on their core competencies;

- Outsourcing business activities;- Building relationships;- Pricing:

o Participants in the supply chain should collaborate to ensure that therealized value from the sale of the end product is optimized;

o How is value distributed between the members of the supply chain?- More collaborative approach to pricing by members of the supply chain will

increase their overall profitability;

Bid pricing

Form of bidding Explanation

English An ascending price auction in which the last remaining bidderreceives the good and pays the amount of their bid

Dutch A public price starts at a very high level and the price falls untilthe first participant finds the price low enough to submit a bid

First-price sealed

bid

The highest bid is the winner (not real-time auction)

Second price

sealed bid

The second highest bid is the winner (not real-time auction)

Internet auctions Can be categorized in an English and Dutch auction. The Internetacts as a medium to bring together buyers and sellers and to

exchange information about product specifications, terms and

conditions and price.

Bidding decisions

- Whether to proceed with a bid or to refrain from bidding shall we bid?- Strategy:

o Bid near cost;o Bid for reasonable profit;o Bid high;

- Expected profitability is an important criterion in deciding on how attractive acontract is;

- Also future contracts/relationship are very important;- The chance of success falls sharply as the number of rivals increases:

o Proposed bid price and the expected number of rival bidders must betaken into account when evaluating the likelihood of success in a

competitive tender;


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Ethical aspects of business-to-business pricing

Pricing common ethical concerns

Pricing is an aspect of the marketing mix which ethical issues often arise unfair price.

The principal ethical issues that arise concerning B2B pricing decisions are anti-

competitive pricing, price fixing, price discrimination and predatory pricing or dumping.

Solution might be explicit price-fixing arrangementBUT this is ILLEGAL!

Unethical pricing practices arise particularly in industries where competitive tendering

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