B2B marketing – role & scope

Session 2-3

Why do we need to understand the scope of b2b?

• To initiate the thinking process in the mind of a b2b manager

• There are several classifications of products, competition and market combinations that make up the business environment.

• Such understanding can assist the marketer to understand various types of customers, their perception of value and how competitors will try to create superior value.

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?

Classifying Goods for the Business Market

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.

Types of B2B customers - OEMs• They purchase goods to incorporate them into goods they

produce and sell to the customers.• Examples – Maruti, Samsung, HP• Industrial marketers (suppliers to OEM ) spend the major

part of their resources approaching, learning about and targeting these customers.

OEM suppliers also do B2C marketing through their distribution channels for replacement markets.

End Users• Manufacturers that purchase goods and services for

consumption, either as supplies, capital goods or materials for incorporation into their products such that the identity of the purchased product is lost.

• Example – Apollo Tyres for Tata Steel

OEMs / End users are attempting to place some responsibility of the quality of their products with their suppliers now.

Institutional Customers• Organizations that buy product and services essentially for their

internal consumption.• No conversion is done on the purchased product and internal

customers’ consume them.• There might be compromises in value-for-money concepts.• Corporate offices, Hotels, Hospitals, Education institutes etc.

Like ‘staples’ in consumer markets, many items like stationery, banking, computers, couriers have become essential for institutional customers.

Government Units• Ministries• Central Government organizations• Defence sector• PSUs• State Government organizations• PDS• Government cooperatives

Specialized role of government and different motives like social, disaster relief, defence, education, political make B2G different from B2B marketing considerations

Competition buyers

• Selling of excess capacity to competitors.• Selling of specialized technology / patents to

competitors.

Example – Moser Baer, pharma companies selling patented generics, garment manufacturing companies etc.

Organized Retailers

• Big volumes• Centralized decision making with defined

procedures• Disintermediation• Key account tie-ups.

Prices and all other Supply Chain parameters are critical for such dealings.

Cross-promotion customers• Companies buying lots of finished products for helping

their own promotions such as:• Pharma• Liquor & Tobacco• Magazines• FMCG companies• Airlines

Customer similarity, strong brand rub-off, customization and joint promotion are key to such deals.

Types of B2B seller organizations• Raw Material Producers• The basic raw materials are commodities.• Usually oligopolistic markets.• Selling directly to large end users.• Use of industrial distributors for smaller customers.

Raw materials often lose their identity when combined into the customer’s products.

Component parts and manufactured materials producers

• These are generally used in ‘as-is’ condition. Usually retain their identity.

• More easily differentiated from the competition by value-addition to the core product and their own brand identity.Example – Intel microprocessor in Compaq computers.

Capital goods manufacturers

• Capital goods are normally used to produce output.• Big-ticket purchases with considerable risk for the customer.• Lengthy process and sophisticated specifications.• Oligopolistic markets

Example – machine tools, earth-moving equipment etc.

Supplier’s trustworthiness and track record are key.

Finished goods suppliers

• For institutional consumption – stationery, computers, dress material, transport facility providers etc.

• Suppliers of packaging materials like cartons, bags, pallets etc.

• For the cross-promotion customers.• As suppliers to organized retailers.

Other auxiliary institutional services

• Logistics (3PL & 4PL services)• Financial services• Consultancies• Market Research & analysis• Courier• Medicare• Software development• Advertising & BTL agencies• More …?

New intermediaries

• FedEx – outsourced partners redefining their roles– Supplier of Dell: tracking, monitoring, procuring

parts– Integrator for Dell– Distributor for Nat-Semi: distributed products

through FedEx DC in Singapore – Assembler for Cisco: Assemble parts at Cisco’s

customer-site

Types of organizational channels• Industrial Distributors – Companies use them to reach

customers whose purchase volumes do not justify direct sales.

• Hence their role is significant in 2 cases –• 1. If the customer is small. • 2. If the value of item being sold is low .

They provide time, place, assortment and possession utilities to the customers.Major industry – Stationery, FMCG, MRO, chemicals

MRO suppliers

• Maintenance• Repairs• Operations

Major industry – computers, OA, electrical, civil, plumbing, security, lubricants, tooling, house keeping, auto hire, auto repairs & maintenance etc.

Value-Added Resellers• VAR draws on goods & services from many manufacturers to create

customized solutions, often developing unique expertise in the integration of many different products.

• VAR provides systems to an organization tailored to a particular customer’s needs.

They lead to creation of value networks and supplier partnerships for customers. Major industry - computer software and hardware integrators, communication systems, gifts & mementos

ApplicationDevelopers

ContentProviders

InfrastructureProvider

Device Manufacturers

End-UserConsumer

Network Operators

Retail /VAR

Consumer service contract

VARs sell devices as middleman

Users must be able to operate device

Device must gain network access

Content must meet customer needs

Network Operators need applications

Infrastructure facilitates network management

Content sites must promote brand

VAR intermediaries

Infrastructure supports

applications

Air interface compatibility

Applications provide access to content

Information Information PartnershipPartnership

Cash-flow Cash-flow ExchangeExchange

-----

Exchanges Between Links Exchanges Between Links

Telecommunication supply network

Industrial agents

• Generally used for international b2b• When the business is big ticket but infrequent• When the company requires specialized knowledge

or connections at the customer levelExamples – arms & ammunition deals with government forces, aviation sector, power sector, infrastructural projects

Specialty product/market suppliers

Customized products & services to:• Defence• Hotels• Hospitals• Libraries• Research Organizations• Educational sector• Railways

Do organized retailers do B2B business?

• Yes• Cash-n-carry format• Examples from the world?• Examples from India?

Use of e-commerce in B2B

• The Internet can help in generating leads• Using the Internet to Promote

Products/Services• Executing Instant Information Fulfillment on

the Net• Generating Orders• Obtaining Payments• Enhancing Customer Relationships

A major B2B potential area: E-commerce interface providers

“At every stage e-commerce avoids the need to translate computer files into paper documents, a process that generally involves errors, delay and costly clerical personnel.” (Lucking-Reiley and Spulber 2000)

Cost Efficiencies

“The potential cost savings in this area are substantial. Processing a purchase order manually, including paperwork, data entry, phone calls, faxes and approval requests, can be quite expensive, so online transactions might easily reduce costs by a factor of five or ten or more.” – Lucking-Reiley and Spulber 2000

How are costs compressed?

B2B e-commerce can save or make money for a company. Some ways companies have benefited from B2B e-commerce include.

• Managing inventory more efficiently • Adjusting more quickly to customer demand • Getting products to market faster • Cutting the cost of paperwork • Obtaining lower prices on supplies (e-bidding)

Cost EfficienciesExamples:• British Telecom has reduced external procurement costs

from $113 to $8 per transaction• Mastercard costs of processing purchase orders has fallen

from $125 to 40, number of days from 4 to 1.25 days• Lehman Brothers financial transactions are $1.27 for

teller, $.27 for ATM, $.01 onlineSource:Dr. Mary Wolfinbarger

Growth of Reintermediation

• The process of using the Internet to reassemble sellers, buyers & business partners in new ways

• Disintermediated players can regroup and fight back.

• Emergence of new IT-based intermediaries between customers and suppliers to provide info based services like source search and evaluation, price comparisons etc.

• Growth of virtual marketplaces & communities

Efficiency Gains from Re-intermediation

“Online markets have been established for aircraft parts, agriculture, apparel automotive parts, chemicals, computers and electronics, energy, financial instruments, food and beverages, health care, intellectual property, freelance services, laboratory supplies, industrial machinery, advertising, metals, office supplies, plastics, paper, printing services, telecommunications, shipping, and travel services.” –Lucking-Reiley and Spulber, 2000

Direct Marketing and B2B

• Internet-based direct marketing can be used in combination with postal mail and telephone

• Similar to direct mail, on web we can combine graphics and text

• Micro-segmentation

Illustration - Hewlett Packard closes the

Payment Gap in B2B E-Commerce• HP payment solution—seamless electronic B2B

payment– Two components are preintegrated and provide end-to-end

automation• Embedded options that establish rules to facilitate direct

debit payment options– Buyer accounts– Purchasing limits– Corporate discounting

• The system connects all these accounts with their online financial institutions

Hewlett Packard Closes the Payment Gapin B2B E-Commerce (cont.)

• HP payment solution– The integrated system reduces cost of:

• Order processing• Contract administration• Customer service

– Captures and analyzes information that allows company to offer unique purchasing experience

• Customers—best value online experience• Partners—handle complex transactions quickly and securely• Employees—reduce cost and time for processing

Web Hosting and Other Services

• Business hosting—hosting is popular for SMEs; large businesses need more advanced services– Dedicated server—assigned for specific purpose or

customer– Free Web hosting is an attractive option for small

start-ups• Provider company inserts a banner ad on their site• Starting point for small company—minimize start-up

costs

Financial B2B Services

• Payments – Electronic letters of credit

• Benefits to seller– Credit risk reduced– Payment highly assured– Political/country risk reduced

• Benefits to the buyer– Allows negotiation of lower purchase price– Expansion of supply sources – Payment received after document inspected by issuing

bank

Order Fulfillment, Logistics,and Supply Chain Services

• Supply chain management– Reengineering & managing

complex supply chains• Supplier• Manufacturer• Distributor• Customer

• Transportation services– Manages complex

deliveries• Transportation

networks• Dedicated fleets• Carriers• Multimodal

transportation

Illustration : UPS Logistics Group

Order Fulfillment, Logistics,and Supply Chain Services (cont.)

• Parts distribution– Comprehensive return-

and-repair– Parts distributions

operations• Logistics technologies

– Integration of logistics information systems

– Services to provide supply chain visibility

• EC solutions– Logistics services– Web-based businesses

worldwide

• Global services– Logistics facilities– Staffing– Expertise about global

commerce

Order Fulfillment, Logistics,and Supply Chain Services (cont.)

• Call center services– Customer care– Communications (call center

services to EC capabilities)• Financial services—full range

of financial services that complement:– Logistics– Transporting– Additional business needs

• Solutions for EC initiatives– Tracking systems– Product return systems– Shipping solutions– E-document exchange– Customization

• EC software/providers• E-services/partners

Marketing and Advertisement

• Communication methods used by offline marketers– Specialty trade shows– Ads in industry magazines– Salespeople call on:

• Existing customers• Potential buyers

• Digital advertisers– Ad server network provider– Electronic wholesalers

Online Data Mining Services

• Clickstream data—data collected by monitoring what people do online

• Analyzed and mined to produce useful knowledge used to improve:– Services– Marketing efforts

• Firms use these services to extend their ability to execute a successful EC strategy– NetTracker– WebTrends

Directory Services &Search Engines

• Directory services– B2Business.net– B2BToday.com– Communityb2b.com– A2zofb2b.com– I-stores.co.uk– Websteronline.com– Thomasregister.com– Bocal.com– B2b.yahoo.com

• Search engines and news aggregators (Infomediary business)– Moreover.com– Google.com– Ientry.com

• E- Newsletters

Other B2B Services

• Trust services• Trust Trademark and

domain names• Digital photos• Global business

communities• Client matching

• E-business rating sites• Promotion programs• Encryption sites• Web research services• Coupon-generating

sites