Dr.C.V.Krishna
UNIT I I ) Difference between B2B & B2C Marketing Derived demand It is the convention in marketing to treat demand by consumers as direct and demand from businesses as derived. In essence, consumers want certain goods to satisfy their needs. Businesses require certain goods in order to produce products that satisfy customer needs. Therefore a business’s demand is derived from consumer demand. The accelerator effect The accelerator effect describes the effect of a change in direct demand on the derived demand. In some cases, relatively small changes in direct demand can result in a relatively large (possibly temporary change in derived demand, or the other way round. This is called the accelerator effect (see b!b snapshot ".! for an e#ample. $ne task for the business marketer is to understand both the scale of the underlying un derlying accelerator e#erted by conditions in the market and the behavior of managers in customer organi%ations. Market concentration in b2b markets B!b markets in general are characteri%ed by higher concentration of demand than consumer markets. &owever, the degree of demand concentration varies from market to market and it is important important to have some means of comparing markets to establish establish 'ust how highly concentrated concentrated they are. standard measure used is concentration ratio. This ratio reflects the market shares of the few largest firms in the market ) known as the *oligopoly group’. It usually consists out of the top + or firms.
To a business marketer it is the perspective of the industry supplier that is generally most relevant, relevant, along with the implicatio implications ns of the industry industry structure structure for sales and marketing marketing strategy. strategy. -hile economists are generally most concerned about the monopoly power that businesses have over their customers, business marketers are usually more interested in the monopsony power that businesses have with respect to their suppliers because of the concentration of buying power. &owever, since those firms that control large shares of the customer market are also the largest customers for suppliers to the industry, we can use the concentration ratio as a pro#y for the concentration of buying power. ther market str!ct!re differences emand elasticity ) it is argued that businesses have less freedom simply to stop b uying things than consumers, so that demand is likely to be less price elastic. /econd, it has been b een suggested that there will be more instances of reverse price elasticity e lasticity.. Businesses need critical inputs if they are to continue trading. If prices on these critical inputs start to rise, it might mean that supply is running out (demand0supply. This might cause a business to increase their the ir orders (reverse price elasticity. 1ore heterogeneous, fragmented and comple# ) it is argued that organi%ations are even more diverse than consumers 20 local decorating business employing three people has almost nothing in common with a global electrical equipment manufacturer. B!"ing behavior differences and marketing #ractice differences
UNIT I I ) Difference between B2B & B2C Marketing Derived demand It is the convention in marketing to treat demand by consumers as direct and demand from businesses as derived. In essence, consumers want certain goods to satisfy their needs. Businesses require certain goods in order to produce products that satisfy customer needs. Therefore a business’s demand is derived from consumer demand. The accelerator effect The accelerator effect describes the effect of a change in direct demand on the derived demand. In some cases, relatively small changes in direct demand can result in a relatively large (possibly temporary change in derived demand, or the other way round. This is called the accelerator effect (see b!b snapshot ".! for an e#ample. $ne task for the business marketer is to understand both the scale of the underlying un derlying accelerator e#erted by conditions in the market and the behavior of managers in customer organi%ations. Market concentration in b2b markets B!b markets in general are characteri%ed by higher concentration of demand than consumer markets. &owever, the degree of demand concentration varies from market to market and it is important important to have some means of comparing markets to establish establish 'ust how highly concentrated concentrated they are. standard measure used is concentration ratio. This ratio reflects the market shares of the few largest firms in the market ) known as the *oligopoly group’. It usually consists out of the top + or firms.
To a business marketer it is the perspective of the industry supplier that is generally most relevant, relevant, along with the implicatio implications ns of the industry industry structure structure for sales and marketing marketing strategy. strategy. -hile economists are generally most concerned about the monopoly power that businesses have over their customers, business marketers are usually more interested in the monopsony power that businesses have with respect to their suppliers because of the concentration of buying power. &owever, since those firms that control large shares of the customer market are also the largest customers for suppliers to the industry, we can use the concentration ratio as a pro#y for the concentration of buying power. ther market str!ct!re differences emand elasticity ) it is argued that businesses have less freedom simply to stop b uying things than consumers, so that demand is likely to be less price elastic. /econd, it has been b een suggested that there will be more instances of reverse price elasticity e lasticity.. Businesses need critical inputs if they are to continue trading. If prices on these critical inputs start to rise, it might mean that supply is running out (demand0supply. This might cause a business to increase their the ir orders (reverse price elasticity. 1ore heterogeneous, fragmented and comple# ) it is argued that organi%ations are even more diverse than consumers 20 local decorating business employing three people has almost nothing in common with a global electrical equipment manufacturer. B!"ing behavior differences and marketing #ractice differences
In essence, organi%ations tend to have more professionali%ed buying processes than consumers, often often involv involving ing formal formal proced procedures ures and e#plici e#plicitt decisio decision2m n2makin aking g practi practices ces,, which which in many organi organi%at %ation ionss are implem implement ented ed by manager managerss who are specif specifica ically lly employ employed ed as purcha purchasin sing g professionals. Transaction Transaction values can be very high. s a result, sellers tend to tailor their product offerings to the needs of the buyer.
II) Classification of B2B C!stomers$Markets Commercial %nter#rises
The classification or commercial enterprises rcflects a segmentation of for2profit organi%ations based on how the products or services in question are going to be used. This group includes industrial distributors and dcalers, resellers, original equipment manufacturers, and users or end users.
IND!sTI'( DIsTIB!Tos
lso known as ind!strial wholcsalers, these organi%ations act as middlemen providing the economic utilities of form, time, place, and possession to the manuf aacuurers or the products they distribute and segments or customers of those manufacturers that lhey serve. The creation of assortments of products from many manufacturers to closely match the needs or customer segments is a ma'or added value of middlemen. Busincss marketers often elect to use middlemen to reach customers whose purchase volumes do not 'ustiry direct sales cfforts. 3hapter " contains a complete discussion or marketing channcls, including appropriate products for this type of representation and the va4ue provided by these middlemen. 4or now, note that these intermediaries take ownership of goods from manufacturers and provide their customers timely access to lhese goods. '(U% 'DD%D %*%((%s
The addition of value added resellers (56s to the marketplace has broadened traditional intermediary concepts 1ore than distributors or wholesalers, v6s provide an offering with unique enhancements to manufacturers7 products. Typically, a v6 provides systems to its customers (computer software and hardware integration, communications systems, etc. tailored to a particular customer7s needs. The v6 draws on goods and services from many manufacturers o create these custom systems, often developing unique e#pertise in the integration of many different products. The combined offering may include portions or products and services trom different organi%ations that, without the v6, would normally be competitors. Thus, the 567s integration of offerings from many sources is, in effect, the creation or a value network at the user level. 8ater in this chapter we look at value networks. coalitions to satisry specific segment needs, as a rapidly developing competitive form. riginal e+!i#ment man!fact!rers ,%Ms) %M-s purchase goods ro incorporate them into goods they produce and sell to their customers. Business2bo2business marketers spend the ma'or part of their resources approaching, learning
about. developing, and satisfying these customers. $91s are usually the largest2volume users of goods and services, particularly in oligopolistic markets. .or e/am#le0 :eneral 1otors ,1M) purchases tines from :oodyear; &ewlett2
U*%* %ND U*%*
1anufacturers 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 are known as users or end users. when providing tires to :1, :oodyear is an $91 in the preceding e#ample. when purchasing steel for fabrication into steel tire belts. :oodyear is an end user. :oodyear has specified the properties of and type of steel as part of its tire design process. The steel supplier views :oodyear as its end user because the steel, produced to the :oodyear specification. becomes an integral part of the tires and loses its separate identity. Business marketers find that this traditional relationship is changing as end users attempt to differentiate their products by communicatin the quality or their raw materials or components obtained from their suppliers. 6ecogni%ing this trend, suppliers have begun to brand their produ ucss and communicate the value of their brands downstream to the end users7 customers. /uccessfully branding business2to2business products allows the supplier or brand owner the opportunity to capture some or the margin that the end user obtains by charging higher prices to its own customers. This also places responsibility for the performance of the product with the supplier as well as the specifier. T6w brands several or its product lines, principally because it does so much activity in the automotiv’c parts aftcrmarket. T6w brands include KlheyIlayes braking products, TRw steeri in> and suspension systems, Au:ospecialry brake and clutch components. Power Stop Extreme Performance rotors, and 9-1-1 Extreme Perfonmance heavy duty brake pads.+ ?sing the same branding across the o91 and aftermarket lines of business actually increases the value that T6w provides to both o91 and aftermarket (end user customens. $91 customers gain assura anc> that their products will be supported and can be easily maintained by service and repair technicians. 4urther, the inclusion of T6w7s premium brands in the manufacturer7s cars can be communicated to consumers to assure them lhat the cars are well built, using high2quality comp
onnenss. value is provided to aftermarket customers@repair technicians and consumers@by offering to them the same brands of parts that were originally installed on the car. nhis assures end users that the replacement parts meet original equipment specifications and will work 'ust as well as the original pans. 1overnment !nits any favoritism or undo influence, negotiated contracts are also possible, particularly
Non#rofit and Not5for53rofit organi6ations
Institutional customers such as hospitals. churches, colleges, nursing homes, and so on are part of this customer category. t first glance. it may appear that the ma'or part of the marketing mi used to appeal to this customer base is price. s with any customer group. however, the best value recogni%ed in the e#change is importarn. 1any of these organi%ations are also sub'ect to significant public scrutiny. s a result, their buying habits may become similar to those of
government units, particularly ir there is a strong social agenda associated with the organi%ation.
Classification on Basis of 3rod!cer T"#es
The goods they produce may also serve to classify business2to2business organi%ations. s previously stated, these classifications may provide initial bases that a marketing manager can use for segmenting markets.
aw materials #rod!cers
epending on the goods or materials position in its life cycle and the product degree or uniqueness or distinction from competition, producers or materials may find markets more sensitive to price. 6aw materials suppliers. particularly those that have significant contpctition fmom generic types, will seek added value positions unrelated to the core product. supplier or sugar to a large bakery may find that the te#ture or granule si%e of its product or how well it dissolves may be a distinctive advantage. 6aw materials (such as steel, plastics, and glass are usually supplied by a few very large producers who sell their products directly to large end users. rdying on industrial distributors to serve smaller customers. $ften. raw materials lose their IdentityA when combined into a customer7s product. s an e#amplc. consider a metal fabricator whose customers are computer nanufacturers. The fabric aaoor purchases sheets of steel from its steel supplier of choice. The fabricator forms the steel into a computer cabinet, as defined by its customer’s specification. The customer knows the sheet steel purchased by the fabricator as a sturdy cabinet for a computer housing, not as a branded material supplied by a particular steel company. The commodity nature of the steel has been replaced by the added value, created by the fabricator, of the form and function of the cabinet. Com#onent 3arts 'nd Man!fact!red Materials 3rod!cers
3omponents and manufactured materials (e.g.. upholstery fabric for fumniture, touchpads for notebook computers usually retain lheir identity ewen when fully incorporated into the customer7s product. These goods have a continuous identity and arc more easily differentiated from their direct competition.
instance, the small motor manufacturer is an $91 supplier to the disk drive manufacturer that incorporates the motors into the disk drives it sells to its customers. Ca#ital 1oods Man!fact!rers
3apital goods@those goods used to produce output@are usually purchased with input from many parts of the organi%ation. These are big ticketC purchases, such as machinery specifically designed for an automated assembly line or real estate for a new building, with considerable risk involved for the customer. The process is lengthy and usually includes the development or a rather sophisticated specification to ensure that the needs of the organi%ation are met and that the organi%ation gets what it has been promised. when customers invest in a capital item, they must place a tremendous amount of trust in the supplier@and write a good specification. 3ustomers of capital goods e#pect an offering that includes installation, equipment, accessories, employee training, and often, financing. $ften, trials or evaluation installations are required. s a substitute, suppliers may provide testimonials or successful installation and application for other customers, provided confidentiality concerns of both the current and previous customers can be accommodated. If a company is providing accessory equipment2or providing an accessory service. such as cleaning uniforms or moving trade show equipment@ the key to providing value is to be compatible with the industry standards for the primary offering. 4or instance, keyboard manufacturers for computers must conform to standards for data input and connection to the computer. 1akers or add2on gadgets for personal digital assistants (<s. such as the
s already e#plained in the class room, you can use the running notes
UNIT II The Nat!re of B!"ing
1any consumer purchases (i.e., buying decisions arc spur2of2the2moment decisions, often associated with the availability of funds to make the purchase. while consumers seldom conduct a conscious value evaluation, the act or making the purchase indicates that they have decided that the value they are about to receive is greater than the value they are giving up (i.e., their costs. Ir this were not the case, the e#change would not take place. nhe value assigned by the customer is influenced by many factors beyond the serviceability of the core product or service. nhe nature or the buyer decision process in a business2lu2business environment is no unlike the consumer process, though the steps are often thought to be more visible and theoretically more quantifiable 8et us further compare the processes. .
rgani6ational B!"ing
&ow do organi%ations buyA compared to how we, as consumers, buyC in the retail marker> The initial response from an ine#perienced observer might be that organi%ations purchase whatever is cheapest, that is, that organi%ations must make the most rational, lowest2cost. most2profitable decision. while the ultimate profitability or the buying organi%ation (or minimi%ed cost for the nonprofit or$ani%ation& plays a ma'or role, price is only a part of the delivered value. $rgani%ational purchases involve inputs from many or the professional specialities in the organi%ation. The organi%ation relies on decision makers and influencers at many levels and from different disciplines to contribute their e#pertise to satisfy a diverse set of needs. The inputs from these stakeholders aim to ensure that the best possible buying decisions arc made for the organi%ation. Individual stakeholders may contribute their e#pertise to influence the decision process without full knowledge or appreciation for the requirements of other stakeholders. /eldom is any one individual
entirely responsible for an organi%ational purchase decision. This decision process requires communication among stakeholders within the buying organi%ation. It is necessary for the supplying organi%ation to
Characteristics of rgani6ational B!"ing 3rocess8
". In organi%ations, many individuals are involved in making buying decisions, !. The organi%ational buyer is motivated by both rational and quantitative criteria dominant in organi%ational decisions; the decision makers are people, sub'ect to many of the same emotional criteria used in personal purchases +. $rgani%ational buying decisions frequently involve a range of comple# technical dimensions. purchasing agent for 5olvo utomobiles, for e#ample, must consider a number of technical factors before ordering a radio to go into the new model. The electronic system, the acoustics of the interior, and the shape of the dashboard are a few of these considerations. . The organi%ational decision process frequently spans a considerable time, creating a significant lag between the marketer7s initial contact with the customer and the purchasing decision. /ince many new factors can enter the picture during this lag time, the marketer7s ability to monitor and ad'ust to these changes is critical. D. $rgani%ations cannot be grouped into precise categories. 9ach organi%ation has a characteristic way of functioning and a personality B!"ing *it!ations8 The *traight eb!"8
It is the simplest situationE The company reorders a good or service without any modifications. The transaction tends to be routine and may be handled totally by the purchasing department. Modified eb!"8
&ere the buyer is seeking to modify product specifications, prices, and so on. The purchaser is interested in negotiation, and several participants may take part in the buying decision. New Task8
company faces a new task when it considers buying a product for the first time. The number of participants and the amount of information sought tend to increase with the cost and risks associated with the transaction. This situation represents the best opportunity for the marketer.
I) 1'NI*'TIN'( BU9IN1 3C%**$*T'1%*8
:0 3roblem recognition8 The process begins when someone in the organi%ation recogni%es a problem or need that can be met by acquiring a good or service.
20 1eneral need descri#tion8 &aving recogni%ed that a need e#ists, the buyers must add further refinement to its description. -orking with engineers, users, purchasing agents, and others, the buyer identifies and prioriti%es important product characteristics.
Table ." lists several sources of information for many industrial customers. rmed with e#tensive product knowledge, this individual is capable of addressing virtually all the product2 related concerns of a typical customer. To a lesser e#tent, trade advertising provides valuable information to smaller or isolated customers. =oteworthy is the e#tensive use of direct marketing techniques (for e#ample, toll2free numbers and information cards in cor.'unction with many trade ads. 4inally, public relations play a significant role through the placement of stories in various trade 'ournals. ;0 3rod!ct s#ecification8 Technical specifications come ne#t. This is usually the responsibility of the engineering department. 9ngineers design several alternatives, depending on the priority list established earlier. <0 *!##lier search8 The buyer now tries to identify the most appropriate vendor. The buyer can e#amine trade directories, perform a computer search, or phone other companies for recommendations. 1arketers can participate in this stage by contacting possible opinion leaders and soliciting support or by contacting the buyer directly.
>0 *!##lier selection8 t this stage, the various proposals are screened and a choice is made.
significant part of this selection is evaluating the vendor. $ne study indicated that purchasing managers felt that the vendor was often more important than the proposal.
listing the technical specifications, the quantity needed, the warranty, and so on. @0 3erformance review8 In this final stage, the buyer reviews the supplier7s performance.
This may be a very simple or a very comple# process.
II ) CM *trategies for B!siness Markets A CRM program cannot help unless a company employs the proper strategy to secure and retain proftable customers. Special attention must be given to fve areas.
CRM Strategy – Priorities: Priorities 1 Ac!uire the right customer. " Cra#t the right value proposition. $ %nstitute the best processes. & Motivate employees. '(earn to retain customers. A: 5 'c+!iring the ight C!stomer
Account selection demands a clear understanding o#: 1 Seller)s resources " Customer)s needs $ Cost o# serving various groups o# customers & Potential proft opportunities ' *o+ customers defne value and ho+ to meet those e,pectations 7hat do c!stomers val!e0 " /ome demand low price ! /ome demand customer service + /ome demand quick delivery The question isE 3an the seller deliver it profitably>A D 1any sellers try to meet all their customer’s needs, and may do so, bu t fail to 'o it profita(ly. A2 Crafting the ight al!e 3ro#osition " value proposition encompasses the products, services, ideas and solutions that a business marketer presents to the prospectGcustomer that is designed to solve the customers’ problems. ! They can be generic or customi%ed. al!e 3ro#osition
A value proposition may include: 1 Points o# parity to a competitive option " Points o# di-erence
est practice suppliers base their value proposition on their target mar/et)s needs by communicating their o-ering o# superior per#ormance in a +ay that conveys they understand their customer)s business priorities.
al!e 3ro#osition *trategies
Strategies that competitors employ #all into a range re#erred to as: 0%ndustry and+idth o# or/ing Relationships2. %t ranges #rom pure transactional to pure collaborative e,changes 3see 4ig.$.' on the ne,t slide. 4igure +.D 2 Transactional H 3ollaborative -orking 6elationships
4igure $.' 9 8ransactional :
Collaborative 1or/ing Relationships
.laring !t *trateg"
1 54laring out) strategy 34ig &.'b states that the seller can either unbundle 3point A6 that is6 reduce the service associated +ith a lo+er price 3transactional in nature6 or " Augment by adding more services to the core o-erings 3point 7 +hich +hich adds adds cost to the services. 8his is collaborative in nature.
Creating C!stomi6ed 3rod!cts
8he seller starts +ith a core service 30na/ed solutions2 and adds customi;ed services to it 30custom +rapped2 that create more value. A; 5 Instit!te Best 3ractices
8he sales #orce plays a /ey role in establishing and gro+ing a customer #rom a transactional account to a collaborative partnership.
8hey can do this by aligning and deploying technical and service support units to match +ith their customers) units.
8echnical groups can consist o# research6 logistics and customer service units.
8hrough care#ul management and screening6 transactional accounts can progress to partnerships.
Best 3ractices .ollow5U#
%n addition to using best practices6 success#ul organi;ations 3li/e %M employ #ollo+9up techni!ues such as: < Assigning a client representative to ta/e o+nership o# the relationship. < Assigning a Pro=ect >+ner +ho completes the pro=ect or solves pro=ect problems. < 7eveloping an in9process #eedbac/ and measurement system.
A< 5 Motivating %m#lo"ees
7edicated employees are the /ey to a success#ul customer relationship strategy. 8he best approach is to: 1 *ire good people. " %nvest in them to increase their value to the company and its customers. $ 7evelop challenging careers and align incentives to per#ormance measures.
A= 5 etaining C!stomers
Retain customers by: 1 Providing superior value 3more than e,pected to ensure high satis#action. " ?urturing trust. $ 7eveloping mutual commitment. & %# possible6 helping customers gro+ their business.
3!rs!ing 1rowth from %/isting C!stomers
%denti#y and cultivate customers that o-er the most gro+th potential by: 1 @stimating current percent 0share o# +allet2. " Pursuing opportunities to increase share. $ Pro=ecting and enhancing customer proftability %val!ating elationshi#s8 " /ome relationship2building efforts fail because e#pectations of the parties don’t mesh. ! 9#ampleE /eller wants a business relationship whereas the customer responds in a transactional mode. + By understanding and isolating customer needs, the marketer is better equipped to match their product offerings to a particular customer’s needs.
UNIT III
I
Business 1arket /egmentation
The fact that all customers are unique does not mean that for the B!B marketer all individual relationships need to be managed differently and uniquely. It may be necessary for a couple of strategically important customers, it is also the case that there will be a substantial number of customers that do not really require a wholly customi%ed offering. This understanding is at the heart of segmentation. Through a process of segmentation a marketer can establish a degree of homogeneity in respect of the different customers. 3rinci#les and al!e of *egmentation0 In the real world, markets are imperfectly competitive. This means that there is scope to differentiate the products of different suppliers and to identify different market segments. /ingle over2generali%ed offerings to the whole market, despite its operating efficiencies, lead to problems for companies in achieving their ob'ectives. The difficult task of understanding customers and delivering market offerings involves adopting a position somewhere in between the over2generali%ed and the over2customi%ed. The pioneering view of segmentation put forward by -endell smith was that it ’consists of viewing a heterogeneous market as a number of smaller homogeneous markets in response to differing product preferences among important market segments’. /hapiro and Bonoma pointed to the value of industrial segmentation in three areasE
2 4acilitating better understanding of the whole marketplace including the behaviour of buyers and why they buy. 2 9nabling better selection of market segments that best fit the company’s capabilities. 2 9nabling improved management of the marketing activity. The process of segmentation involves an iterative (step2by2step classification of the market in terms of sets of meaningful groupings. s far as the process is concerned, the most common difficulties that managers face are knowing the combination of descriptive or e#planatory segmentation variables to use, and where to stop with a set of meaningful segments.
*egmentation Bases. In the earliest published consideration of industrial segmentation bases, 4rederick lists five factors that should be taken into accountE industry, geographic location, channels of distribution, product use and company buying habits. 1any different variables have been used to classify segments, this means that there is agreement that there are different levels of segmentation. This involves moving from the use of more general or easily observable criteria at initial levels through to more specific and less observables measures in the later stages. The larger2scale analysis is often referred to as macro2segmentation while the finer2level analysis is micro2segmentation.
/hapiro and Bonoma captured this movement from macro2 to micro2segmentation in the figure below. 1oving from firmographics down to personal characteristics.
:0 .irmogra#hics are the macro2factors of a firm, divided into several subsectionsE 2 Industry; knowing an industry that may have use for your technology enables you to very quickly distinguish interesting companies from less interesting ones. The use of /I3 codes helps a lot in this. 2 3ustomer location; it is possible to segment on where prospects (future might be. 3ustomer concentration in one location seems favourable, but this really depends upon the nature of the industry. 2 3ustomer si%e; the si%e of customer companies may be a sensible basis for distinguishing one from another. The basis for measuring si%e differs, depending upon what is being purchased. ou have high volume for low2priced products customers, but also low volume for high2priced products. !. $perating variables; this involves more precise descriptions of what customer companies can do. &owever, they are still relatively easily observed. gain, this is sub2dividedE 2 3ompany technology; in selecting possible customers, there is an element of technological readiness involved. 2
difficult, it relies for measurement on either self2indication, observation, or content analysis of company’s marketing plans. +.
2 Differentiated this involves choosing a variety of different segments and providing offerings that are focused on meeting the needs of those targets more specifically. 2 Niche targeting this concentrates the customer focus to one or a small number of segments. more concentrated approach is more likely to be necessary for smaller companies that lack the resources to meet the needs of a larger number of segments. B!siness5to5B!siness 3ositioning0 -hen it comes to each individual segment there is a need to consider the position that the marketer occupies in the mind of the buying company. The reasons for this are two2foldE (" the offering from a marketer occupies a space in the mind of the buyer, and (! the relative position becomes the basis by which the supplier is compared to others as well as the ideal.
II)
1'NI'TIN'( D%M'ND 'N'(9*I*
$ne management e#pert suggests, -ithout a forecast of total market demand, decisions on investment, marketing support and other resource allocation will be based on hidden, unconscious assumptions about industry wide requirements and they often be wrongA. (Berman, !KK" $rgani%ational demand should be analy%ed from two perspectives. 4irstly the products market potential which is also influenced by the level of industry marketing efforts and assumed e#ternal conditions. /econdly firm’s sales forecast which depends on the firm’s marketing effort. (&utt H /peh, !KKLb Market Potential analysis: 1arket potential is the ma#imum possible sales of all the sellers of a
given product in a defined market during a specific time period (3o# H &avens, "MLL. $ur product is marketed to 9? and ?/ based retailers who are spread around the globe, therefore we would consider global market of 'eans as the market potential. -orld Jeans market was D".NO Billion in !KKL and e#pected to become DN.!O billion by !K". The global demand of Jeans is growing at DP per annum. There are total of D"+ denim manufacturers around the globe with over LDP in sian region. (garwal, !KKM The population and age, income groups can be analy%ed by region but we have limited our research since we our targeted customers are retailers only. nalysis can be done at the deeper level by calculating the number of outlets in the region and their growth. Qey steps in estimating the market potential is defining target market and segmentation, geographic market, selling price and annual consumption (-olfe, !KKN. Therefore we 1arket potential analysis has been done based on the check list by -olfe (Ibid.
/ourceE Tucker !KKL ?/ 1arket is by far the most prominent buying region of Jeans and this is our main market for 5olume based buyers. &owever for the premium 'eans market we would target 9uropean region.
III)
Sales Forecasting Methods
The forecast is the ma'or component of decision making process because all budgets in company ultimately depend on how many units sold, the sales forecast often determines companywide commitments for everything from raw materials and labor to capital equipment and advertising. ccurate forecasting of sales ensure better product stocking policies, improved ca sh management and cash flow, more efficient warehouse management, better product distribution and finally minimi%ation of company’s risk in covering material demand. /election of a forecasting technique is depends on many factors, including the period for which the forecast is desired, the purpose of the forecast, availability of the data, companies level of technical e#pertise, the accuracy desired, the nature of the product and the e#tent of the product line. 9valuations of each factor suggests the limits within which firm must work in terms of forecasting methods. (&utt H /peh, !KKLb Two primary approaches to sales forecasting are recogni%ed (" qualitative and (! quantitative. Fualitative techniques rely on informed 'udgment and rating schemes. The sales force, top2level e#ecutives, or distributors may be called on to use their knowledge of the economy, the market and the customers to create qualitative demand estimates. Techniques for qualitative analysis include the e#ecutive 'udgment method, the sales force composite method and the elphi method. Fuantitative forecasting offers two primary methodologies, (" time series and (! regression or causal. (&utt H /peh, !KKLb Fuantitative forecasting also referred to as systematic or ob'ective forecasting, offers two primary methodologiesE (" Time /eries and (! 6egression or 3ausal. Time /eries techniques use historical data ordered in time to pro'ect the trend and growth rate of the sales. The rationale behind time series analysis is that the past pattern of the sales will apply to the future. Time series methods are well suited to short range forecasting because the assumption that the future will be like the past is more reasonable over the short run than over the long run and that is why we have selected this method of forecasting for the denim 'eans product industry. (&utt H /peh, !KKLb
-orld Jeans market was D! O Billion in !KKL and forecasted to become DN.!O billion by !K". The global demand of Jeans is growing at DP per annum. There are total of D"+ denim manufacturers around the globe with over LDP in sian region. (garwal, !KKM
General Approaches to Forecasting
E!dgmental '##roaches to .orecasting Surveys0 This is a Cbottom upC approach where each individual contributes a piece of
what will become the final forecast. 4or e#ample, we might poll or sample our customer base to estimate demand for a coming period. lternatively, we might gather estimates from our sales force as to how much each salesperson e#pects to sell in the ne#t time period. Consensus methods. s an alternative to the Cbottom2upC survey approaches, consensus
methods use a small group of individuals to develop general forecasts. In a Jury of 9#ecutive $pinionA, for e#ample, a group of e#ecutives in the firm would meet and develop through debate and discussion a general forecast of demand. 9ach individual would presumably contribute insight and understanding based on their view of the market, the product, the competition, and so forth. %/#erimental '##roaches to .orecasting Customer Surveys are sometimes conducted over the telephone or on street corners, at
shopping malls, and so forth. The new product is displayed or described, and potential customers are asked whether they would be interested in purchasing the item. -hile this approach can help to isolate attractive or unattractive product features, e#perience has shown that Cintent to purchaseC as measured in this way is difficult to translate into a meaningful demand forecast. This falls short of being a true demand e#perimentA. Consumer Panels are also used in the early phases of product development. &ere a
small group of potential customers are brought together in a room where they can use the product and discuss it among themselves.
national launch of a new brand or product. The idea is to choose a relatively small, reasonably isolated, yet somehow demographically CtypicalC market area. In the ?nited /tates, this is often a medium si%ed city such as 3incinnati or Buffalo. Scanner Panel !ata procedures have recently been developed that permit demand e#perimentation on e#isting brands and products. In these procedures, a large set of household customers agrees to participate
in an ongoing study of their grocery buying habits.
elational$Ca!sal '##roaches to .orecasting
The basic premise is that if we can find relationships between the e#planatory variables (population, income, and so forth and sales for the e#isting stores, then these relationships will hold in the new city as well. Thus, by collecting data on the e#planatory variables in the target city and applying these relationships, sales in the new store can be estimated. In some sense the posture here is that the e#planatory variables CcauseC the sales. 1athematical and statistical procedures are used to develop and test these e#planatory relationships and to generate forecasts from them. 3ausal methods include the followingE "conometric models, such as discrete choice models and multiple regression. 1ore
elaborate systems involving sets of simultaneous regression equations can also be attempted. These advanced models are beyond the scope of this book and are not generally applicable to the task of forecasting demand in a system. Input#output models estimate the flow of goods between markets and industries. These
models ensure the integrity of the flows into and out of the modeled markets and industries. $i%e cycle models look at the various stages in a product7s ClifeC as it is launched,
matures, and phases out. These techniques e#amine the nature of the consumers who buy the product at various stages (Cearly adopters,C Cmainstream buyers,C Claggards,C etc. to help determine product life cycle trends in the demand pattern. Simulation models are used to model the flows of components into manufacturing
plants based on 16< schedules and the flow of finished goods throughout distribution networks to meet customer demand. There is little theory to building such simulation models. Time *eries '##roaches to .orecasting
UNIT I I) Managing Innovation in the B!siness5to5B!siness Conte/t8 6elevance of innovation managementE dapting and innovating is sometimes not only important but may be also necessary to survive like during the credit crisis. It is not 'ust about new product development but concerns nearly every activity around a company. The source of value for firms thereby may not have to be the end product itself and value2creating potential may stem from anywhere in and around the firm. Therefore it is important on how the firm is organi%ed to encourage innovation and how relationships are used for this goal.
$rgani%ing for innovationE Trott (!KKD stated that innovation is invariably a team gameA and companies typically need to create an environment where creative heads can work. n innovative company likewise requires some characteristics in order to enable this operating of creative heads like e.g. ability to adapt, willingness to invest, become aware of threats H opportunities and so on. $ne step in this direction could for e#ample be organi%ing the company more organically than mechanistic. 6ole of business2to2business relationships in innovation managementE s said above innovation is a team game and therefore companies could include their relationships, sometimes even their whole supply chain and other agencies to become aware of threats and opportunities. Important is to find an answer on the question of how to encourage e#ternal linkages to add value to the firms innovation process. /everal aspects should be considered likeE the type of innovation pro'ect and degree of innovativeness required, degree of knowledge sharing and formality of the mechanisms for knowledge sharing (formal or informal, etc. II) New 3rod!ct Develo#ment8 4irms also need to develop successful new offerings and a research by 1cQinsey (!KKM showed that a focus on continued product adaption is a frequently followed approach to innovation. To ensure a balance of financial investments over the long term new offerings need to be added to the e#isting portfolio of offerings as others may be in the declining phase already. =ew product offeringsE an unavoidable riskE new product development and bringing them to the market can bring along serious risks. s failure rates are high one could understand if companies did not want to innovate. But often the proportion of sales spent on 6H is a good indicator of the level of new product activity and as we know nearly every company has that kind of department looking for new opportunities to gain value. Individual companies could e.g. compare their spent to key competitors or the sectorRs norm. 6isk is often compounded by the cost of development like e.g. "" billion for the new irbus +SK
but smaller firms will not face amounts like that. /till compared to their si%e it might be the case that they encounter series costs and therefore they are probable to innovate more incrementally. This seems to be a lower2risk approach and may also deliver incremental increases in sales. But to be stated is that incremental innovation may, due to the volume of new aspects and ideas to a whole bunch of products, lead to a even more comple# and difficult portfolio and offerings and e.g. possibilities for economies of scale might diminish. =ew product offering development processE There has been serious effort put into establishing one valid and clear development process. By managing the process well managers are helped in making appropriate and right decisions at each stage and risk becomes more manageable. There are several different models on the development process by e.g. 3rawford and iBenedetto, :ross et al. wyer and Tanner, :ross et al. and so on with different amounts of stages. The one we will have a look at in this chapter is an S stage process. :0 Identif" o##ort!nities$generating ideas8 The development is a very creative process and therefore requires as many seeds (ideas as possible. 6egardless of where they come from it is of importance to establish a repository of ideas and to introduce someone who has an eye on these ideas. 20 *creen ideas and make #reliminar" investigations8 steady stream of ideas is a good starting point but discarding useless ideas on issues like companyRs capability, fit with ob'ective or production, etc. as early as possible is 'ust as important. ;0 'nal"6e the b!siness case8 The emphasis shifts to trying to establish which ideas have the most potential and there is a need to involve careful financial estimates of market si%e, growth rate and potential of the new offering. 3osts may include nature of investments, staff costs, etc. but with information on financial issues it becomes possible to compare the offering as prospective pro'ect. <0 Develo# the conce#t and s#ecif" the feat!res8 6eactions during the preliminary investigations on the offering allow to specify the features. It becomes possible to state what the concept of the offering includes and which benefits it will bring to the customer. =0 Develo# #rotot"#es and develo# marketing s!##ort8 -ith a clear concept at hand the offering can be prototyped. The intention is to develop a series of prototypes that can be fine2tuned towards final offering. 1arketing support activities for the offering should be established around topics like e.g. packaging, labeling designs, pricing, distribution strategy, etc. >0 Undertake limited5scale trial marketing8 By now the offering is ready to be used by customers and it is best to identify remaining ad'ustments and the production costs. -hen it is possible test2marketing in small market areas could be beneficial. ?0 Take offering to commercial la!nch8 4inal changes can be made to the offering and the strategy on how to bring it to the market. The launch can be planned and depending on the companyRs si%e it may be sensible to roll out the offering sequentially (maybe on a geographical basis. @0 %val!ate the #rocess and draw lessons for ne/t time8 This last step is not strictly an element of the offering development process but it is always good to reflect on the soundness of decisions and the effectiveness of implementation, etc which could later lead to a
good series of new product offerings in the future and to solving problems of customers more effectively and have more chance to grow and bring value to shareholders III) B2B 3ricing
3ricing8 *trateg" and rgani6ation /hippley and Jobber (Jews proposed a comprehensive, multi2stage pricing process that takes into account of all the relevant factors affecting pricing effectiveness ) a process that they called the *pricing wheel’, see figure "!.. The point of the pricing wheel is to emphasi%e that pricing is not a decision that is taken once and then forgotten about, but a continuous process, constantly updated for changing conditions, such as new product features. In industries with highly customi%ed products that are designed specifically to meet the needs of each specific customer, price is a comparatively unimportant component of marketing strategy. 9ven within a single industry sector, there is scope for a firm to put more or less emphasis on price as a component of its marketing strategy ) if the firm positions itself as a differentiator offering enhanced customer value, then it will de2emphasi%e pri%e as a factor in its marketing strategy. lthough B!B organi%ations may pursue a very wide range of price ob'ectives, research has shown that the most common ob'ectives are concerned withE
Market r!ler8 This position is difficult to achieve, because offering high perceived value usually involves additional costs. This makes it difficult to offer a relative low price while also achieving a reasonable profit margin. The market ruler makes sense on the long. Thus, if the strategy involves becoming the established brand. This means more focus on market share than profit in the short term. The thriver (medium priceGhigh ben. is usually more sustainable than thriver (low priceGmed. Ben.. The chancer position becomes viable where the thriver and market positions are already occupied, but both positions are vulnerable. t last, it is clear that the no2hoper and bungler offer poor customer value and are unlikely to be sustainable. ?sually these positions arise in periods of shortage of supply. The also2 ran is very vulnerable to attack, since rivals can attack on its price or customer benefits alone, or on both simultaneously.
I) 3ricing Methods *!##l" chain #ricing 3hanges in the environment of global business have encouraged companies to concentrate on their core competencies and to outsource an increasing number of business activities. ?nder these circumstances /31 becomes a critically important management process, and companies seek to build partnerships with preferred suppliers. -hen this becomes the case, the traditional role of price must change. Traditionally, pricing has been regarded as the way in which the value associated with a transaction is divided up between the buyer and seller. In this traditional view, price is seen as the means of dividing up a *fi#ed’ pie of value that is created during a business transaction, and the predominant approach to pricing is winGlose or a %ero2sum game, meaning that if one party is better off than the other party must be worse off. Bid #ricing Types of bidding processE four basic auction mechanisms 9nglish ) 1ost familiar auction ) an ascending2price auction in which the last remaining bidder receives the good and pays the amount of their bid. utch ) /tarts with a high public price and the price falls until the first participant finds the price low enough to submit a bid. The first bidder is the winner and receives the good at the price prevailing when the clock was stopped 4irst2price sealed2bid ) ?nlike the previous two salad2bid auction are not in real time, each bidder submits a bid and the bids are opened at a stipulated time. -ith this variant the bidder pays the price he bided for /econd2price sealed bid ) The same is the previous, only here the highest bidder pays the second highest bid Internet a!ctions The internet auction is an important and fast2growing mechanism for facilitating B!B transactions. 1a'or companies started to investigate the use of internet auctions in the mid "MMK’s. :eneral 9lectric was a pioneer in developing its own in2house auction site, subsequently many other large firms have developed their own in2house auction site. Internet auctions can be conveniently categori%ed into the %nglish or the D!tch$reverse a!ction. In an 9nglish auction, the seller starts the bidding at a reserve price and the buyer offers higher and higher prices until no one is willing to offer any higher. &ighest bid wins the auction. utch auction is a descending price2auction. The original meaning of a utch auction arose where a seller offered a good for sale at a very high, with that price gradually declining until a willing buyer could
be found and a bargain struck. In the case of B!B commerce, buyers post a 64F and sellers respond to the 64F. particular problem that can arise with reverse auctions is the winner’s curse. 6everse auctions often take place in conditions of uncertainty, where the buyer nor the seller can be sure of the true costs of fulfilling the contract. If price is used as the most important measure, the winning seller will be the one who made the lowest estimate of costs, it is entirely possible that the seller underestimated the costs and therefore stands to make a loss on the contract ) the winner’s curse. The costs involved in buying and selling are lower, geographical pro#imity is no longer an issue and the time of the auction can be more fle#ible. ou have two different endings of an auctionE soft close and hard close. -ith soft close the bidding goes on as long as there is a substantial amount of continuing bids. -ith a hard close, the bidding ends at a stipulated time, so companies may use *sniping’ tactics (bidding in the last minute to win.
UNIT I)
B2B Marketing Channels
Direct Channels irect is when the manufacturer performs all the marketing functions. In direct distribution system the marketer reaches the target consumer directly without the use of any intermediary. The distribution chain is small and no other party can take ownership of the product being distributed. The direct distribution system can be further sub2divided on the basis of the methods of communication that takes place during sale between marketer and consumer. •
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Direct methods incl!de the following8
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!irect Marketing Systems In this system the consumer buys the product based on information gained from impersonal contact with the marketer like by visiting the marketer7s website or ordering from the marketer7s catalogue. $r he buys based on information gathered through some personal communication with a customer service personnel who is not a salesperson and can be reached through a toll2free number. !irect &etail System In this type of system the marketer operates his own retail stores. perfect e#ample of this system is /tarbucks. Personal Selling Systems In this system the distribution of the product is carried forward by people whose main responsibility is creating and managing sales (for instance a salesperson. &e persuades the buyers into placing an order. The sales person plays a vital role here in generating sales. Assisted Marketing System In this form of distribution system the marketer handles the distribution of his product and helps it reach directly to the end user.
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&owever he needs assistance from others to spread awareness about his product among the customers. n e#ample of assisted marketing system is e2bay, here the buyers and sellers are brought together for a fee. gents and brokers can also be included in this category.
Indirect Channels Indirect is when some type of intermediary sells or handles the product. In indirect distribution system the marketer includes intermediaries or other members in his distribution chain. These resellers make sure the product reaches the end user, while performing their duties they take complete ownership of the product. &owever the reseller may sell products on a consignment basis wherein the reseller pays for the product only when the product is sold. The resellers may be e#pected to take up a few responsibilities to help boost the sales of the product. • •
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Single#Party Selling System
In this system the marketer involves another party to sell and distribute his product to the end user. n e#ample can be when the product is sold through large store2based retail chains or through online retailers. In this case the distribution system is also referred to as trade selling system. Multiple#Party Selling System In multiple2party selling system the distributor involves two or more reseller in the distribution process before the product reaches the end user. This is most likely to happen when a wholesaler buys the product from the manufacturer and then sells it to the retailer. •
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Distrib!tors & Man!fact!rer e#s
There are two #rimar" intermediaries8 ". Industrial distributors !. 1anufacturers’ representatives These two groups handle a very si%eable share of B!B sales.
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:) Distrib!tors5Classification General#$ine !istri'utors *tock e/tensive variet" of low tech ,commodit") #rod!cts Specialists .oc!s on one or few related lines geared aro!nd high tech or ind!stries demanding com#le/ c!stomer re+!irements Com'ination (ouse #erates in two markets8 ind!strial and cons!mer 2) Man!fact!rers- e#resentatives ,e#s)
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1anufacturers’ 6eps fill a different role than Industrial istributors.
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;) %5Channels There are a n!mber of different distrib!tion channels available on the Internet which co!ld be !tilised efficientl"0 . Social net*orks +Face'ook, Myspace, Friendster) The current trend of the Internet is social interactions, and the trend is here to sta y for a while. 1ulti2million corporations are in the hunt to acquire popular social networking sites because they understand the potential and the impact social networking has on Internet users. Treating social networks such as 4acebook and 1yspace as your distribution channels mean reaching to more people and increasing awareness of your website. Social 'ookmarks +del.icio.us, Stum'le -pon, !igg) /ocial bookmarks enable users to share, organise and store ?68s of websites they like andGor find useful. nd because social bookmarks are created by users who understand the content of the website they bookmark, it makes it easier for other users to find stuff related to an interest. Social media +ouu'e, Flickr, Podcasts) s with social networks and social bookmarks, social media has become increasingly popular among Internet users for the same reasons. ?sing a social media like ouTube or 4lickr as a medium to promote your business could bring a lot of traffics to your website. /. 0logs Blogs are popular because they provide up2to2date information and enables readers to engage in discussions via comments. By using blog as a distribution channel, businesses can build a loyal readership and interact with their customer base. 1idgets and gadgets +ahoo2 *idgets, Google gadgets, Face'ook APIs) -idgets and gadgets deliver dynamic and updated content to the users at any time. They leverage the website’s content to create new opportunities, e#tend users and strengthen the presence of your brand. 0ro*ser e3tensions Browser e#tensions such as customised search engine, add2ons, and toolbars provide users with an easy access to your website and the functionalities that it offers instantly from their favourite browser. It is an effective distribution channel for both the business and end users as it ma#imi%es access and visibility for both parties. Search engines ccording to a survey conducted in "MMS by :eorgia Institute of Technology, SDP of users found websites through search engines (Tri21edia. Therefore, the power of search engine optimisation (/9$ and search engine marketing (/91 should be used to drive targeted and qualified traffic to your website and improve visibility of your business. •
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%stablishing channel obFectives 3hannel ob'ectives are a part of and result from the company*s marketing ob'ectives that need to be stated in terms of targeted service output levels.
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naly%ing customer needs (a 8ot si%e (b -aiting and delivery time (c /patial convenience (d
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B2B 'dvertising
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3ersonal *elling in B2B
7h" is it so im#ortant in B2BG 3osts per sales call *ales#eo#le 7hat do the" do 4or their company> 4or buyers>
6elationship 1arketing /elling 3enter initiate and maintain relationships with industrial customersA $b'ectives Buying 3enter participate in the purchasing decision and share goals and risks of that decision.A $b'ectives 6elationship quality Two dimensions
Managing the *ales .orce 7hat is *ales ManagementG 6ole of strategy and forecasts rgani6ing the %ffort epends onE Types :eographical organi%ation dvantages isadvantages
He" acco!nt management Managing *ervices for B!siness Markets 7hat is a ke" acco!ntG
*electing He" 'cco!nts 8ook at profit potential and degree to which customer values support services 8ook at
VI )Ma r k e t i ngMi xForBus i ne ssSe r v i c eFi r ms
Marketing Mi/ for B!siness *ervice8
i
evelopment of service packages,
