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B-TO-B

MARKETING
Market segmentation
• Segmentation for its own sake is of little value, its value comes when it
is used to make decisions about target markets & to establish specific
competitive positions with respect to those targets that bring value to
the firm.

• Ultimately, it is the success of differential competitive positioning within


markets that creates success: doing things differently from competitors
to establish advantage( like customized offerings at lower costs)

• Activities required to achieve success are-segmentation, targeting &


positioning.

• While all customers are different, some may share similar needs &
behaviors. It is through the of segmentation that a BToB marketer can
establish a degree of homogeneity in respect of different customers in
marketplace.

• In this way notional groups of like-minded or like behaved customers are


created, for whom it becomes possible to talk meaningfully about
different market offerings.

• It enables the marketer to research the needs of specific groups , make


choices about which groups are worth the investment of marketing
efforts & how that effot needs to be managed.
Market segmentation
• Thus, market segmentation is a process of dividing the
total market for a product into several segments or
distinct group of buyers.

• Each group of buyers is homogeneous and may require


separate benefits from the offered product or service.
Introduction
• Organizations & consumers often buy the same products; laptops,
cleaning services, medical services, stationary etc.
• One cannot distinguish between a business market and a consumer
market on the basis of the nature of the product.
• There are certain products that are often bought by organizations
and never by individual consumers, such as management services,
forklifts, cranes etc.
• The key distinguishing feature of a B-TO-B market is that the
customer is an organization rather than an individual consumer.
• Business organizations include manufacturing companies, govt.
undertakings, educational bodies, dealers and distributors etc.
• On the other hand, it is difficult to think of anything that consumer
buys that would not be bought by some organization.
• The generally accepted term for the marketing of goods & services
to organizations is business to business marketing or industrial
marketing as it was called in the 1980s.
INTRODUCTION
• Business markets involve both goods and services.

• Most of the developed economies have a very large & influential


service sector.

• Business markets can be differentiated from consumer markets on


the basis of market structure differences, buying behavior
differences, and marketing practice differences.

• It is not the nature of the product that is bought and sold that
differentiates business markets from consumer markets.

• Business organizations buy products & services to manufacture


goods & services, to make profits.

• Consumers buy products & services for their own consumption.

• So, what are the differences or defining characteristics by which


business markets can be distinguished from consumer markets?
Comparison
• Market Structure Differences:

• Dimension Business Mktg Con.Mkt

• Nature of demand derived direct


 Demand volatility greater less

• Demand elasticity less more

• nature of Customers heterogeneity homoge

• Fragmentation greater less

• Mkt complexity more less

• Mkt size large value smaller

• No of buyers/seller few many

• No of buyers/segment few many

• Size of buyer/seller often similar seller larger

• Geog concentration often clustered dispersed


Comparison
• Buying Behavior Differences
• Dimension B. mktg C. mktg
• Buying influences many few
• Purchase cycles often long short
• transaction value often high small
• Buying complexity complex simple
• Buyer/sellerdepend high low
• Pur professionalism high low
• Imp of relationships importantunimp
• Interactivity high low
• Written rules common uncommon
Comparison
• Marketing Practice Differences

• Dimension B. mktg c.mktg

• Selling process system selling prod sell

• Personal selling extensive limited

• Relationships extensive limited

• Pormo strategy cust specific mass mkt

• Web integration greater limited

• Branding limited extensive

• Mkt research limited extensive

• Segmentation unsophisticated sophisticated

• Comp. awareness lower(?) higher

• Product complexity greater lesser


Comparison
• Marketing practice in business markets differs from that in
consumer markets because of the underlying differences in
markets structure, and because of the differences in buying
behavior.
• For example, the extensive use of personal selling in
business markets can be traced to the market structure and
buying behavior characteristics commonly found in
business markets which are usually not found in consumer
markets.
• Typically, in many business markets, demand is
concentrated in the hands of a few powerful buyers(market
structure), who employ teams of purchasing professionals to
do their buying(buying behavior).
• In most consumer markets demand is dispersed widely
throughout the buying public and no single consumer has
any real buying power(market structure), buyers are not
trained professionals(buying behavior).
Comparison
• Therefore, personal selling makes sense in business markets( concentrated
demand, powerful buyers, trained professional), since trained organizational
buyers expect to hear a well-argued case specifically tailored to the needs of
their organization, and costs of employing a sales executive are justified by the
high potential value of each order.

• Whereas, mass advertisement makes sense in consumer markets( dispersed


demand, no powerful buyers), primarily because the relatively low value of a
typical transaction only justifies low selling costs.

• Now, with current advancement in IT technology, it is possible to send


specifically tailored messages to meet the needs of individual customers.

• The new technologies and the use of CRM software has brought about a degree
of convergence between the marketing practices of consumer and business
markets.
Market Structure Differences
• A. Derived demand:
• Conventionally, in marketing demand by consumers is
treated as direct demand and demand from business as
derived.
• The word derived indicates that the demand for something
only exists so long as there is a demand for the goods or
services that it helps to produce.
• The whole chain of derived demand is driven by the direct
demand of consumers.
• The implication of derived demand in business markets is
that marketers must be aware of developments, both
upstream and downstream, that may affect their marketing
strategy. (Ex: Demand for new housing increases the
demand for housing materials like steel, cement, paints
timber etc. known as the accelerator effect.)
Market Structure Differences
• B. Market concentration in B-TO-B markets

• B-to-B markets are in general characterized by higher


concentration of demand than consumer markets.

• The measure used is concentration ratio.

• It is defined as the combined market shares of the few(


three or four or five) top largest firms in the market-
oligopoly group of firms in the market.

• The higher the concentration ratio, the more likely it is


that firms in an industry will collude to raise prices
above those that would be found in a truly competitive
market.
Market Structure Differences
• Derived demand, the accelerator effect and concentration
ratios provide a basis for analyzing many of the structural
differences between consumer and business markets.
• Businesses have less freedom simply to stop buying things
than consumers, so that business demand is likely to be
less price elastic( less responsive to price changes) than
consumer demand.
• For similar reasons, there will be more instances of reverse
price elasticity of demand in business markets than in
consumer markets.
• Businesses need critical inputs if they are to continue
trading.
• If due to shortage in supply the price of a critical input
increases, this may lead to an increase in orders in the
short term to guarantee sufficient supply of that input. (
reverse elasticity where a price rise triggers an increase in
demand)
Buying behavior & marketing
practice differences
• Business organizations have more professionalized
buying processes than consumers, involving formal
procedures and explicit decision making practices.

• Transaction values are high. As a result, sellers tend to


tailor their product offerings to the needs of the buyers,
seeking to offer complete solutions to their business
problems, rather than just to sell them a product.

• Conventional tools of consumer mass marketing are


inappropriate here.

• Sales managers and key account executives/managers


are employed to develop and mage relationship between
buying & selling organization.
Classifying business
products and markets
• Basically, key difference between business marketing & consumer marketing
is the nature of the customer rather than the product.

• In business markets customers are organizations who buy products that are
not bought by consumers—management consultancy service, heavy
engineering equipment etc.

• There are many products bought by both- organizations and consumers-like


PCs, stationary, ACs, etc.

• The product classification is based on the use to which the products are put,
and the extent to which they are incorporated or enter into the final product.

• Example- services like cleaning are not incorporated in to the final product of
an organization. The difference between ‘entering goods’ and other goods is
based on the idea that something incorporated into the organization’s final
products contribute directly to finished product quality.
use to which the products are put, and the extent to which they are
incorporated (enter) into the final product.
Example: office cleaning services are not incorporated into final product.
Something incorporated into the buying organization’s final product
contributes directly to the finished product quality and to the business
reputation.
Other products purchased do not have such an immediate influence on the
business performance.
For example, installations are major investment items as heavy engineering
equipment, accessories are smaller items like hand tools, maintenance ,repair
and operating supplies are essential for running the organization, raw
materials are basic materials used in production, manufactured material and
parts are processed raw materials like finished steels, component parts and
business services are maintenance and repair, advisory services.
Classification of products..
• Installations are major investment items-engineering
equipment which are treated as investment items which
can be depreciated

• Accessory equipment are smaller items like hand tools.

• Maintenance and repair operating supplies are minor


but recurring items of expenditure.

• Raw materials are basic materials like crude oil, steel.

• Manufactured materials and parts are finished goods


and components ready for incorporation into final
product.

• Business services like maintenance and repair services,


business advisory services.
Classification of products…
• Based on the product classification, organizations are
classified into original equipment manufacturers, and
others.
• OEMs are manufacturing businesses that buy component
parts from other firms to incorporate into a finished product
that is sold under their brand.[Honda,
Toyoya,Leneovo,Dell]
• There is OEM market & after market. Customers in after
market can be either organizations or consumers.
• OEM customers are by definition business customers.
• The demand for industrial products & services is a derived
demand—it does not exist by itself but is derived from the
ultimate demand for consumer goods & services.
• Joint demand for a product occurs when one industrial
product is useful if the other products exist—pump &
electric motor or diesel engine.
Types of business markets
• Commercial enterprises: industrial distributors, OEMs,
manufacturing & non-manufacturing companies( ad
companies, service providers

• Government bodies like central and state governments,


PSUs, railways, other government departments like
defense, road building etc.

• Institutional customers: schools, hospitals,

• Cooperatives: sugar, milk producers


Organizational Buying Behavior

• To function, an organization requires access to supply


markets for sustaining its activities.
• Efforts[amount of money, energy & time] and risks are
considered to be costs incurred by buyers when making
a decision.
• Access to supply markets and products is affected by
factors like general macro-environmental factors and
influences that are more peculiar to the sector & market
in which the organization operates.
• In addition to the external factors, purchasing is
affected by what goes on inside a firm.( like
organizational characteristics and group as well as
individual factors like purchasing behavior of managers
as well as groups.)
Factors affecting purchasing
decisions
• 1. The nature of company business:

• The industry sector or the market in which customers


operate & how the dynamics of these industries
influence their purchasing behavior.

• A company can be categorized according to its activities-


- unit, mass or process production technology.(
manufacturing, engineering or service business)

• These categories can be used to generate some


understanding of the nature of key product capabilities
that customer companies might purchase and the
expectations that might be placed on suppliers.
Factors affecting purchasing
decisions
• Unit production involves design & supply of products that are tailor
made to specific customer requirements( high capital investment
products like power plants ).

• Technological complexity & scale of such projects affects supply


needs & purchasing behavior of organizations.

• Here, design & production capabilities of suppliers are central to


finished products.

• Unit production companies require involvement of suppliers in its


design, production, assembly phases & requires coordination among
its various suppliers.

• Mass production company is involved in design & supply of high-


volume, standard products.( production efficiency & low cost base).
Here, importance is attached to stable and secure flow of materials
& components to support the buying organization’s primary
production needs results in company seeking some influence over
the behavior & activities of the supplier.(invest in just in time
delivery systems).
Purchasing decisions..
• Production activities are inflexible, requiring supplies of materials & components to be
precise, regular & consistent.
• The company expects its suppliers to adjust its administrative & logistical procedures
to suit its needs to link these procedures with its own operations.
• The purchasing company exercises influence over the behavior & activities of suppliers.
The mass producing company’s ability to compete is also determined by cost &
introduction of new products. Hence, its key suppliers are expected to contribute to the
buying organization’s new product development activities.
• Supply continuity is essential for big retailers like Wall-Mart as they work with their
key suppliers to maximise efficiency of retail operations.
• Process production companies are involved in high volume production, with low cost
requiring supply continuity.
• 2. Business strategy: It can give some indication of the way in which customer will deal
with supply markets.
• A product leadership strategy purses innovation in order to offer leading-edge products
requires a company has excellent technical & creative capabilities. Here, involvement of
suppliers in those processes is key to its ability to pursue product leadership strategy.(
logistic/ supply chain efficiency is critical for e-commerce leadership).
Purchasing decisions..
• Alternatively, cost leadership pursuit, where a company
competes to provide reliable products at competitive
prices, must contain costs to achieve the lowest possible
cost. Suppliers or business markets dealing with such
companies would expect procurement of products at the
minimum costs.( low cost airlines must have efficient
ground services like refueling, luggage handling, aircraft
cleaning within minimum time).

• It might rethink the design & implementation of


business processes, eliminating redundant activities.

• Suppliers dealing with such companies will procure


products in a way to keep costs to a minimum. Hence,
cost cutting ways would be an ongoing & central feature
of dealing with suppliers.
Purchasing orientation
• Classification of buying orientations : buying, procurement
and supply management.
• Buying orientation uses purchasing practices whose main
purpose is to achieve reductions in monetary value spent by
a company on bought in goods and services.
• Here, decisions are driven by attempts to get the best deal
for buying organization by maximizing power over suppliers
so that target prices are met as set by the purchaser.(
target buying prices are set based on the selling prices of
the final product).
• To strengthen its negotiating position, the buyer might
centralize his purchasing decisions thereby consolidating
his volume requirements and thus enhancing his
negotiating position.
• He can enhance his negotiating power by using multiple
supply sources for the same category and by playing
suppliers off against each other.
Purchasing orientation
• Purchased items and the purchasing function can have a
dramatic impact on an org’s financial performance ( buy
better).

• When the emphasis shifts from getting the ‘best deal’ to


optimizing the purchase resource, to increasing
productivity, the use of ‘procurement orientation’ and
the use of this approach changes the way that
purchasing managers deal with suppliers and with other
functions inside their own company.

• To increase productivity, a firm will not select & review


suppliers according to lowest price offer with
specification conformance, but will base evaluation &
decision on total cost ownership.(TCO)
Purchasing orientation
• TCO looks at the true cost of obtaining a product from a
given supplier, and involves a company measuring costs in
terms of its acquisition, possession, use and disposal.
• TCO varies depending on the category, value & volume of
product purchases.
• TCO is used for products that are used over an extended
time period, like capital goods, purchase of raw materials,
manufactured parts involving large financial sums,
repetitive buying.
• Here the purchasing firm has a long term (strategic) focus
& is proactive.
• Buyers with procurement orientation look for both quality
improvements & cost reductions and adopt collaborative
relationships with major suppliers and work closely with
other functional areas.(like material handling, logistics).
Purchasing Orientation
• TCO is an analysis meant to uncover all the lifetime
costs that follow from owning a certain kinds of assets.
Its also called as lifecycle cost analysis; as the after
purchase costs can be substantial.

• Apart from asset purchase costs, there are costs


involved due to installation, deployment, using,
upgrading, maintaining an asset.

• TCO analysis finds a very large difference between a


purchase price & the total life cycle costs.

• Such differences can be used to make large value


purchase decisions.

• TCO analysis gives a strong message to corporate


buyers, capital review groups, asset managers.
Purchasing Orientation
• TCO is thus valuable while making purchase decisions
for large IT systems, vehicles, buildings, medical
equipment, factory equipment, aircrafts etc. (Neo
engines in A-320).

• It attempts to uncover both the obvious costs & the


hidden costs of ownership.

• It helps in activities like budgeting & planning,


evaluating capital project proposals, asset life cycle
management, vendor selection, prioritizing capital
purchase decisions, lease v/s buy decisions.
Purchasing orientation
• Companies with procurement orientation are most likely to
use target costing—it will work back from the selling price.
• Reducing total ownership costs requires willingness to
share information & align more closely activities between
supplier & buyer orgns.
• The purchase and supply process and handling of goods can
be improved by just-in-time delivery systems so that
administrative and material flow costs are reduced.
• A supply management orientation is driven by efforts to
maximize value along the chain resulting in assessment of
core competencies & key capabilities by the companies to
determine what activities they will perform themselves,
which activities will be outsourced, restructuring of
suppliers so that a company will rely on a smaller number
of direct suppliers and larger network of second and third
tier suppliers.
Purchasing orientation..
• The firm might be buying from fewer direct suppliers but
their contribution is more important in terms of product
expertise, involvement in the company’s development
activities, coordination of activities with second and third
tier suppliers.
• In short, business buyers choose one of the three
purchasing orientations-buying, procurement, supply chain
management.
• Buying orientation has a narrow & short term focus and
buyers follow practices like lowest price involving hard
negotiations with short-listed or qualified suppliers. Buyers
typically argue that there are no differences between
various suppliers’ offers in terms of product quality,
technical services or product features as it is a commodity
& price is the only thing negotiable. Here, buyers avoid risk
to reduce chance of any criticism. Tactics used are-follow
standard & established purchase procedure; depend on
earlier proven suppliers to avoid risk.
Purchasing orientation
• Procurement orientation has a strategic or long term
focus. The focus is on integration of other activities like
order processing, material handling & logistics. Buyers
seek both quality improvements and cost reductions and
to achieve this the firm follows practices like
collaborative relationship with major suppliers( for this
both the firm & the supplier must trust each other,
agree to share the rewards of working together like JIT
working and delivery scheduling, quality assurance to
attain zero defects. It involves integrative negotiation
where it is assumed that resources can be expanded to
benefit both buyer & supplier, focus on common interest
and goals, exchanging information & seeking solutions
to meet goals) and working closely with other functional
areas( buyers are involved in describing the
specifications of products & services that the firm is
looking for, ensuring quality of purchased goods, timely
availability of products.)
Purchasing orientation
• Supply chain management orientation: Here the purchasing
role is further expanded to become more value-adding and strategic
operations. It includes co-ordination & integration of purchasing
function with other functions within the company and also with
other organizations in the whole value chain like customers,
customers’ customers, intermediaries, suppliers and suppliers’
suppliers. The objective is to improve the whole value chain from
raw materials to end users.
• The firm tries to deliver value to end users by conducting research
to understand the requirements of end users & direct supply chain
to deliver superior value to end users.
• Top management identifies core competencies and groups its
products & services into strategic and non-strategic systems. The
firm outsources those systems that have become non-competitive,
are non-strategic.
• Managers work with major suppliers in partnering relationships
requiring close co-operation, communication, trust, commitment
between supplier and customer. Objective is to lower costs ,
increase value in order to achieve mutual benefits.
Purchase process
• Buying a product consists of a number of linked activities,
involving the decision making process. In business markets,
buying consists of following activities:
• Need/ problem recognition: Purchases are triggered by
the need to solve specific supply problems such as
identification of under-capacity which would trigger the
purchase of extra production capacity in the form of
equipment, staff, or subcontracting of production activity.
• If the company has to develop new products to pursue new
market opportunities, then it will look to its supply markets
for support.
• Determining product specification: Based on the
supply need, the company will draw up specifications for
the item. It could include what product will be required, its
physical properties, how it should be produced, performance
of the product.
Purchase process..
• For vendors or suppliers, this stage in buying process is critical as
the vendors through their contacts can influence the specification &
thus potentially lock out competing suppliers(example of vvip
helicopter purchase by GOI).

• Supplier & product search: Here the buyer will look for
organizations that can meet its product needs. The search will
centre on finding a product that will match its specification and the
organizations that can satisfy its requirements.

• Proposal evaluation & selection of suppliers: Evaluation will


depend on complexity & risk attached to the purchase decision.

• Assessment of supplier organization & the expected contribution of


supplier orgn to the buying company’s business is carried out.

• Supplier selection & evaluation will consider points like financial


stability of a supplier, technological capabilities, geographic
location, after sales technical support, TQM, JIT capabilities, cost
etc.
Purchase process..
• Selection: Once a supplier is chosen, purchasing team
will be responsible for negotiating price, delivery etc.

• Performance feedback & evaluation: In this process,


user departments will evaluate the performance of the
supplier & the product & give feedback to the supplier.

• For business customer the decision making process can


vary depending on the buyer orgn’s familiarity with &
experience of the product to be purchased, such that it
has three different buying situations: new task(new
purchase), modified re-buy(change in supplier), straight
re-buy(repeat purchase).
Buying situations
• New Task: When a company is buying the item for the first time.
In this situation, a judgmental(high uncertainty, decision based on
personal judgment ) or strategic buying approach(requires long
term perspective for supply needs & lot of efforts needed to evaluate
info on suppliers) might be used.

• Need for a new purchase arises due to diversification, changes in


product specifications or components, modernization/modification of
an existing product.

• In new purchase situation, the buyers may have limited knowledge


& lack of previous experience. Here, the risks are more, decisions
may take longer time, more people will be involved in decision
making(production, quality, ).

• Modified re-buy: It might consist of either a simple or complex


buying approach.

• A modified re-buy can occur when the organization is not satisfied


with performance of existing supplier or is looking for cost
reduction or quality improvement.
Buying situations..
• If technical specifications of a product changes or the
marketing department asks for additional features in
the product to meet competition or to outsmart
competition. In this situation search for an alternate
supplier becomes necessary.

• Straight re-buy: The company might use the routine or


casual or routine low-priority purchasing approaches.

• This situation occurs when the buyer wants certain


products or services continuously and when such
products had been purchased in the past.

• A mere re-order or repeat order is placed with existing


suppliers, mostly without making any changes in the
terms.
Buyer-grid framework
Orgn. Buying process
• Buying stages new taskmod rebuy str
reby
• Problem recognition yes possibl
no
• Product specification yes yes
no
• Prod & supplier search extensive
limited no
• Evaluation & supp. Select extensive limited
no
• Selection of order routine yes possibly
no
• Perfor. Feedback,evaluation yes yes
yes
Role of buying centre/team
• Purchase decisions are made by individual managers
but also involves managers that represent buying team
or ‘decision making unit’.(DCU)
• Members of the DCU have following roles:
• Initiators: requesting the purchase item & therefore
triggering the decision-making process.
• Deciders: making actual purchase decisions. Members
may not have formal authority but have sufficient
influence such that their decision carries weight within
the buying team. Difficult to identify for a business
marketer due to lack of formal authority.
• Buyers: select suppliers, manage buying process such
that necessary products are bought. Can greatly
influence the parameters of the decision.
Buying center/team..
• Influencers: contribute to the formulation of the product &
supply specifications, recommend which vendors to consider
or which products best satisfy organization needs.
Contribute to the evaluation of offers from suppliers.
• Users: frequently initiate purchase and actually use the
product. May be involved in specification process prior to
purchase, and will also evaluate its performance.
• Gatekeepers: controlling the type and flow of information
in to & out of the company and members of the buying
team.
• To influence the purchase decisions in your favor, a
business marketer must know who key members of the
DMU are and what are their specific requirements or
concerns in relation to the purchase decision.
• This information enables the marketer to formulate
solutions/answers to satisfy individual needs/concerns.
Buying center/team
• If a decision involves new purchase or modified re-buys,
the marketer has to have contact with members of the
DMU at an early stage of decision making process in
order to influence key decisions( product specifications-
vvip helicopters) that could subsequently determine
supplier selection decisions.
• Business marketers will have to know which managers
across a range of departments will yield the required
influence for a favorable decision in their favor.
• Business managers must be able to identify senior
managers who can exert considerable influence by
identifying employees who work in boundary-spanning
roles, who have close involvement in buying centre , who
are heavily involved in communication across
departments in the buying organization, who have direct
links with senior management.
Buying center/team
• Generally, decisions are made by a team effort and not
by single individual, like in public sector units or
government departments.

• There is a certain degree of risk attached to purchase


decisions which could be linked to financial or
performance issues.

• As the level of risk increases ,the buying centre


composition changes, both in terms of members and
their authority, the buying team actively reaches for
information & uses a wide range of sources( personal
contacts from other companies, users) to guide the
decision process; suppliers with a proven track record
tend to be preferred by the buying team.
Business Market Segmentation
• While all customers are different some may share similar needs and behaviors, is
at the heart of segmentation.

• Through a process of segmentation a BtoB marketer can establish a degree of


homogeneity in respect of different customers in the marketplace.

• In this way, notional groups or like-behaved customers are created for whom it is
possible to communicate meaningfully about a range of different market
offerings.

• It enables the marketer to research the needs of specific groups and make choices
about which groups in the market are worth the investment of marketing efforts
and how to manage the efforts.

• Segmentation gets its value when it is used to make decisions about target
markets and to establish specific competitive positions with respect to those
targets that bring value to the firm.

• It is the success of differential competitive positioning within markets that


creates success: doing things differently from competitors to establish advantage
( more customized offerings or similar offerings at lower costs)

• Activities associated with approaching market to obtain success are-


segmentation, targeting, positioning.
Segmentation
• There is no perfect competition as per the economics books and markets are
imperfectly competitive.

• This means there is scope to differentiate products of different suppliers and to


identify different market segments, each with different demand characteristics.

• Though standardization brings operating efficiencies to the firm, it does not meet
the needs of all customers.

• Hence, other firms will try to satisfy the needs of such customers by providing
them more satisfying offerings.

• Failure to recognize the reality of market segments results in loss of market


position.

• The difficult task of understanding customers & delivering market offerings


involves adopting a position somewhere between standardization & over
customized offerings.

• The value of segmentation lies in this territory.

• By viewing markets in terms of a set of different customer requirements, the


marketers can make clearer choices about those segments that they want to
serve, enabling them to match their strengths & capabilities with specific needs
of each segment.
Segmentation
• Single segment concentration: Mc Donald, Bata

• Selective specialization: ERP systems, School &


educational books for schools(S.Chand & Co.)

• Product specilization: M&M(suv), fashion clothing,


Swiss watches(Rolex)

• Full coverage: Coca Cola, Titan


Segmentation
• Importance and strategic use:
• Segmentation is valuable as it facilitates better understanding of
the whole marketplace including buyer behavior and why they buy;
enabling better selection of market segments that best fit the
company’s capabilities; enabling improved management of
marketing activity.
• It helps marketer to identify groups of needs shared by customers
and deal with more homogeneously identifiable groups of customers
so that marketing activity can be undertaken more effectively.
• It makes possible for the marketer to determine how the company
stands competitively with respect to different market segments
thereby facilitating decisions to leave some segments & pursue
others.
• This strategic use of segmentation means the marketer can choose
which customers to target, which others to treat similarly and
which ones to treat differently or uniquely.
• Fundamental skill in BtoB marketing is knowing which customers
to treat similarly & which to treat differently.
Segmentation
• Process:

• Step-by-step classification of market in terms of sets of meaningful groupings


with each further step to define further subdivisions.

• Then, on the basis of classification criteria, known as segmentation bases, a set of


market segments are created.

• Industry and company size and customer location are the major macro-factors
providing a broad classification of customers.

• Here, the expectation is that companies from the same industry, or of similar sizes
or locations, share similar product needs or usage patterns.

• A) Industry: First step in segmentation is to consider where a product would be


used( application of the product).

• Knowledge of an industry that may have use for its technology enables it to quickly
identify prospects.

• B) Customer location: Location of a customer will affect the ease with which it can
be reached by a company. Location will influence decisions about where a company
makes it presence felt, how it deploys its staff, or communicates with its customers.

• Its expected that companies from the same industry, or of similar sizes or locations,
share similar product needs or usage patterns.
Segmentation

• Companies providing goods or services that are easily transportable


like design services are not hampered by geographic distances from
customers.
• C) Customer size: Size of customer companies as a basis for
distinguishing one from other.
• Size often matters because of its relationship with the scale of the
customer organizations’ needs and therefore for their demands for
volume.
• D) Operating variables: These segmentation criteria variables
can be applied singly or in combination.
• a)company technology: There is an element of technological
readiness involved. Bigger players tend to invest large amounts in
technology which is most likely to be up-to-date.
• Thus, an analysis of technology of companies is valuable in
segmentation and targeting decisions because it gives a strong
indication of a company’s buying needs as well as the ease with
which the supplying company can meet those needs.
Segmentation
• b)Product & brand use status: Companies segment market in order to establish
targets for their products, so they would use the behavior of customers with
respect to brands or products to aid their segmentation.

• Customer reactions to products in terms of readiness to use(for those who are


not yet customers) and usage rate( light , medium or heavy for those who
already purchase) are valuable means of distinguishing one from another.

• Retaining heavy users is the obvious use of segmentation.

• c) Customer capabilities: A supplier might genuinely want to esstablish what


customers are capable of doing with either its product or the process.( Providing
key technical support schemes or inputs to glass processors by glass
manufacturers).

• E) Purchasing approach: How buying companies are organized to buy and the
buying criteria can be a valuable intelligence to marketer, as this information
will enable them to produce an offering that is most valuable to a target segment
defined in terms of purchasing approach.

• Buying companies differ in how they organize themselves for procurement.


Segmentation

• In smaller firms there may not be an identifiable group or


department with purchasing responsibilities where as in big
companies there is an identifiable purchasing function or group.
• Whether the responsibility is delegated to each division or handled
centrally or both.
• Understanding how a purchase function is organized is valuable in
knowing who to approach, as well as understanding the levels and
types of purchasing they control.
• The relative influence of different departments will have an impact
on the buying process.
• Different forms of purchasing criteria are applied by buying
companies.
• They may be financial (purchase price), technical performance
characteristics( power consumption, durability, quality
consistency), quality of service( continuity of supply, delivery
performance), technical assistance pre and post sales, standard of
customer service.
Segmentation

• While organizational structures, policies and processes


create a framework for purchase decisions, it is the buying
staff who actually conduct the process.
• Marketers can segment in terms of the characteristics of
the people, like what drives their buying behavior, how
fastidious they are in evaluating suppliers, their
approaches to managing risks.
• To use these personal characteristics, a company must have
very close contact with the buyers.
• The greater the number of segmentation steps, and the
differentiating criteria that are applied, the smaller and
more fragmented are the segments produced.
• When fragmentation begins to reach the point where
further separation does not lead to meaningful differences
in customer purchase behavior, the process should be
curtailed.
Segmentation

• The tests that business markets can use to establish the


quality of segmentation process are:
• 1. Measurable: Segmentation must be clearly
measurable—it must be possible to establish the size of the
firm, its capabilities, its purchasing policies, selection
criteria, its size of orders and the attitude to risk.
• 2.Accessable: A segment needs to be accessible to be
targeted usefully. Reach includes physical ease of getting to
the customers & the ability to communicate with them.
• 3.Substantial & profitable: Size & potential profitability
of segments are crucial. Segments must be big enough, be
able to pay enough, to justify the costs of serving them.
• 4.Actionable: The company should be able to bring
offerings to bear that will meet needs of the segment. It
should know what capabilities the company has or needs to
develop to serve a segment profitably.
Segmentation

• In short, a common procedure to carry out market segmentation


has three steps: marketing research, analysis to identify segments,
profile of segments.
• Secondary marketing research can be done first by collecting
information on the markets from company’s past data, online
databases, library scanning, industry associations etc.
• If primary research data is inadequate, more detailed research can
be done from existing and potential industrial buyers on major
purchasing attributes, buyers’ present and future requirements and
their purchasing policies, competitors’ information( their present
market perception, market share of each, quality, capacity
available, strategies followed in pricing, payment terms, after-sales
service, distribution & promotion strategies, level of technology.
• Analysis of the collected data from secondary & primary research is
analyzed using statistical techniques like factor analysis, cluster
analysis.
• Profiling each group of customers by its specific characteristics like
use of product, volume required, location, type of industry,
purchasing policies and major purchasing attributes, buyers
personal characteristics, buying behavior.
Segmentation

• Benefits of segmentation:

• 1.It enables the industrial marketer to compare


marketing opportunities of different market
segments by studying customer needs & potential,
competition, satisfaction levels of customers in each
market segment.

• 2. Firms can develop separate marketing programs to


meet the needs of different market segments.

• 3. Allocation of budgeted resources can be done


effectively to various segments.
Targeting
• To make the best-informed choices about what markets to serve and how to serve
them by devising appropriate strategies.

• Target segment selection: After establishing relevant segments, the firm will have
to consider its possible competitive position in relation to each segment to
determine whether the segments merit the company’s attention.

• The company’s competitive position within a market and its ability to reach the
buyers, the size of a market, the extent to which the segment is compatible with its
objectives & resources, the extent to which the company considers it profitable,
whether the company expects future growth in the sector, segment size, customer
product/service needs and fit with company’s competence in meeting the needs,
how activities of Government or public at large may affect the segment, how
technology impacts it, structure & nature of competition in the segment, are the
most commonly used criteria.

• The evaluation of such factors is followed by an estimation of the demands of the


segment would make in terms of finance, technology, human resources.

• Whether the management wants to pursue a segment as a part of strategic


development.

• After these steps, the company can decide on targeting strategy it should adopt.
Targeting
• Targeting strategy: Three strategic approaches: undifferentiated,
differentiated and niche targeting.

• 1.Undifferentiated targeting strategy is where the firms makes same


offer to all segments.

• A standard offering to whole market has advantages like operating


efficiency, when large volumes produce economies of scale.

• Such companies risk over-generalized offerings that expose the company to


attack from competitors.

• In new marketplaces, a company in order to take first mover advantage,


may try to seek as much return as possible, before competitors arrive.

• 2.Differentiated target market involves choosing a variety of different


segments & providing offerings that are focused on meeting the needs of
those targets.

• This approach is less subject to challenges of an over-generalized offering


as it fits the needs of customers.

• There are numerous possibilities of customization in physical form as well


as the service elements.

• Competitive markets demand differentiation . The crucial issue is to know


whether to produce a different offering for each different segment.
Targeting
• There will be always new segments that could be targeted, but a company needs to
analyze the costs and benefits associated to ensure that over the long run, benefits
overweigh costs.
• 3.In niche marketing strategies, companies concentrate customer focus to one or a
small number of segments.
• A niche is a narrowly defined customer group, that seeks products & services tailored
specifically to individual needs & preferences.
• Its objective is to reach unsatisfied markets more effectively and profitably.
• This is a selective approach to the market where a company’s strengths or capabilities
are best matched with customer needs.
• The customers in a niche have a different needs which should be first identified through
marketing research.
• It should then develop a new product or a service so as to tailor the special needs of
benefits of such customers( financial services, specialized training, high performance
bikes/cars)
• Generally, customers in a niche are willing to pay a much higher price which best
satisfies their specific needs, giving higher profits to company.
• The key idea in niche marketing is specialization which can be achieved by following
ways:
Targeting
a) Geographic specialization by selling in certain area
b) End-user specialization where one particular type of end-user customer is
targeted( IIM, IIT specializing in high quality education)
c) Product-line specialization by concentrating on one product line( high
performance bikes/cars)
d) Customer specialization by marketing their products to one or few major
customers like OE suppliers to automobile makers.
e) Niche marketing strategy has the advantage of high profits.

f) In order to select target segments and decide which market strategy to


adopt, a company should evaluate market segments by analyzing
four factors –size & growth, profitability analysis, competitive
analysis, company objective & resources.

1.Size & growth: what is the size or market potential of such a market
segment. The current & future market potential can be obtained by using
demand forecasting methods such as time-series analysis, regression analysis,
econometric models, sales force estimates, and expert opinion.
Targeting

2. Profitability analysis involves analyzing profitability of each potential


segment.
a) Market potential, which is estimating the quantity & value of a product
that the total market will purchase within a time period.
b)Sales forecast is to estimate the company’s sales based on its share out of
the market potential in a specified period.
• Sales forecast are based on informed judgment of sales persons & dealers to
estimate the market share of a company.
• This can be done by detailed analysis of customers, individually or in a group,
to estimate the market potential while taking into consideration competitors’
position.
• c) Profitability refers to difference between sales revenue and marketing
costs of servicing & maintaining customers.
• Marketing costs are sales force costs, advertising & sales promotion costs,
new variant product development costs, discounts, warehousing and
inventory carrying costs.
• 3) Competitive analysis is the careful analysis of strengths & weaknesses
of competitors. The analysis must be done for all competitors in areas like
manufacturing, R&D, finance, technology, delivery performance, sales force,
advertisement, distribution, management etc.
Targeting

• Some of factors for selecting target segments could be-


size of market in Rs., growth rate in percentage,
profitability, degree of competition( no of competitors,
intensity), competitors’ strengths and weaknesses,
company strengths, compatibility with company’s long-
term objectives, success factors( special raw materials,
technology, large volume, low pricing, low costs).

• After evaluating several markets based on these


factors, a company can decide which & how many
segments it should select as its target market segments.
Positioning
• Segmentation, targeting, and positioning(STP) process is a
core element of strategic marketing planning.
• The aim of competitive/market positioning is to encourage buyers to
view a supplier as different from other suppliers in elements of
their offering that the customer perceives as adding value.
• Successful positioning entails establishing a clear distinction your
organization’s products and services, and those of your competition.
• Hence, it is very important the attributes on which you choose to
differentiate yourself are actually important to customers.
• Here, there is little point in basing your position on a low-cost
strategy , when what is valued by customers is high-quality
components or flexible delivery or outstanding after sales service
etc.
• Thus, the key role of the B to B marketing manager is to represent
market and customer’s point of view to the organization so that it
can define the characteristics of the offer and decide upon its
position.
Positioning
• There are three ways to use customer value proposition in
order to position their organization.

• 1. The all benefit approach: Here, suppliers just list all the
potential benefits they believe their product or service might
provide for target segments.

• Here, there is a danger of making claims that are not actually


deliverable to individual customers and to distinguish the firm’s
offerings from the competitive alternatives.

• 2. The favourable points of difference approach which aims to


answer the customer’s questions: why should our company buy your
offering rather than your competitor’s?

• This means managers need more detailed knowledge of their


offering in order to be able to differentiate it from the next best
alternative.

• The points of difference listed by supplier must be valuable to


customers.
Positioning
• The most targeted approach, the resonating focus
proposition: Here, the selling firm makes its offerings
superior on the few elements where performance
matters most to customers.(fuel/electrical efficiency).

• The supplier manager must be able to demonstrate this


superiority and communicate/convince the buyers in a
manner that suggests the supplier understands the
customer’s business needs these key issues.

• To build a position that resonates, the supplier will need


to conduct research to provide the necessary insights
into customer perceptions of value.
Positioning
• After selecting target markets, the industrial marketer should decide
positioning strategy for each target market.
• The offering from a marketer /company occupies a space in the minds of the
buyer( Dell was perceived as a customized and low priced product).
• This position establishes the supplier in an idealized position that most closely
represent the customer need.
• This relative position becomes the basis by which the supplier is compared to
other competitors .
• It is necessary to ensure that this relative position occupied in the buyer’s mind
is most favorable.
• Thus, positioning is defined as the distinct place a product/service occupies in
the minds of the target customers relative to other competing
products/services.(high tech products, specialised applications, custom-made
products etc)
• It is how a firm wants its products/ services to be perceived by the target
customers on important attributes or benefits.( TCS, L&T)
• In establishing the relative position a firm has to be clear where its strengths
lie.
• The positioning it adopts must be clear and clearly communicated to buyers.
Positioning
• Developing a positioning strategy:
• --Identify the target customers’ needs in terms of major attributes or
benefits. This is done by marketing research to find these differentiating
attributes which the target customer consider important while taking decision.
• The purpose is to understand the major attributes the target customer
organizations consider important while making buying decisions.
• After capturing the customers’ perceptions regarding various competing
products, an industrial marketer can use several variables to differentiate his
offerings from that of competing products by product variables, service variables,
personnel variables, image variables.
• --Product variables for standard industrial products may be few. Here,
product quality or product performance can be used for differentiation like
getting ISO or other certifications indicating superior quality or efficiency.
• For products that can be offered with extra features, the firms have to decide
which features to make standard & which optional.
• Use of one or five star to indicate electrical savings in appliances is an example
which differentiates the quality and get higher price.
Positioning
• -- Service variables offered by industrial firms like pre-sales services(providing
assistance in arriving at specific requirement of a product in terms of capacity, like
air conditioning or steam requirement or arriving at a solution to a problem), during
- sales services( like on time delivery) .

• The pre-sales services will be further complemented by after-sales service set-up


(maintenance, spares).

• Pre-sale service is an important variable to differentiate one supplier from others


when an industrial buyer finds a solution to a vexing problem like air/water
pollution or savings due to wastage reduction like in fuel, electricity.

• The importance of these services depend upon types of products—industrial


products.

• Service variables become key competitive advantage when products offered by


competitors are similar( so, instead of a product, a company offers a comprehensive
solution to a problem or requirement after thorough study at the buyer’s plant).

• --Personnel variable is in the form of providing better quality people or by arranging


training programs for its people as well as for the buyer. (implementing ERP
packages with customer training)

• --Image variables are in the way buyers perceive a company. It can build its image
by identity or image building programs to shape the buyers’ opinion.
Positioning
• Promotional, advertisement tools are used over a period of time to
deliberately project the desired image.

• Strategies for positioning:

• --Industrial marketer has to decide how many and which product attributes
should be selected to differentiate the company or its products from other
competitors.

• --Some companies promote general attributes like best quality or best


service or in time delivery.

• --Some promote multiple and attributes like no.1 in R&D, No.1 in


technology or latest technology, or maximum power saver, or global business
operations to convince buyers that it can deliver better solutions than
competition.

• --Some companies like Accenture highlight its global capability to


‘deliver’ solutions to the best corporations.

• --While deciding the positioning strategy, the industrial marketer should


consider three factors after thorough market research.

• --First, identify the most important attributes in order of priority that target
customers consider while deciding to place orders.
Positioning
• --Second, how the target customers perceive the company’s products or
service with respect t

• After knowing the customer’s perceptions o these important attributes.

• -- Service variables like pre-sales services(providing assistance in arriving at


specific requirement of a product in terms of capacity, like air conditioning or
steam requirement or arriving at a solution to a problem).

• --Third, how the target customers perceive the competitors’ products or


services with respect to the same attributes.

• --After knowing the customer’s perspectives based on the interactions over a


period of time, a statistical analysis can be carried out.

• This is called perceptual map, which helps in deciding the positioning


strategy.

• Communicating company’s positioning:

• --The industrial marketers must communicate their positioning strategy


effectively to target markets.

• --In consumer markets the positioning strategy is mainly communicated


through advertisements.
Positioning
• --In industrial markets the positioning strategy has to be communicated in
personal selling, sales promotion through trade shows or exhibitions,
advertising in trade journals.

• --When a company wants to communicate ‘world class quality’, it must


implement TQM concepts, ISO certification, and communicate to its
customers its superior quality through actions like timely deliveries, superior
communication and customer service, installation references etc.

• Summary:
• Important strategic marketing decisions an industrial marketer makes is
regarding market segmentation, target marketing and positioning.

• In market segmentation a firm decides whether it can serve the entire market
or a part/ segment of the whole market more effectively than competitors.

• Variables used for segmenting are macro variables—industry /customer type,


company size, customer location, end use/application of product.

• Micro-variables are organizational capabilities, purchasing policies,


purchasing criteria, personal characteristics, customer interaction needs.
Positioning

• After selecting target segments, the target market


strategies are chosen out of three strategies– concentrated
marketing, differentiated marketing and undifferentiated
marketing.
• Niche marketing strategy is commonly used for a more
narrowly defined customer group that seeks specialized
products or services.
• For each selected target segment, a firm decides positioning
strategy by differentiating its products and services vis-à-
vis its competitors.
• Procedure followed for positioning is identifying major
attributes/benefits needed by target market and selecting
one or more attributes that differentiates the company from
its competitors.
• It is essential to communicate the positioning strategy
effectively to the target market through promotional
efforts.
Product Decisions
• Understanding your customers’ needs is essential, but if a firm cannot create
an offering that satisfactorily meets customer needs then everything else is
pointless.

• To meet customer needs continuously, a marketer must adapt to changing


needs.

• This is a dynamic process and implies that there is a development cycle for
product offerings, from conception through to deletion and need constant
reappraisal.

• It implies a need to adjust to changes in market circumstances like


competitive actions, over and above changing customer needs.

• In a dynamic world, we need to study the product offering concept, its nature
and extent.

• The offering management tasks that face the B-TO-B marketer is to make the
right interventions throughout the life of an individual product/offering and
managing each individual offering as a part of a balanced portfolio.

• This simply means that an industrial organization must consider two


objectives while developing product strategies such as to ensure that the
product mix is in line with overall company and marketing objectives and to
evolve guidelines for reviewing performance of existing products by using
sales, profits, competition, customer acceptance.
Product Decisions
• Based on these points, product strategies are decided like which of the
existing products be continued, modified, or dropped and which new products
need to be developed.

• (A product may only capture physical aspects and attributes which is a part of
an overall offering. There are huge service elements involved for which
customers pay a lot more than market prices due to the value of the offering.)

• Product strategy in industrial markets needs to be flexible.

• Industrial firms need to change their product strategy because of


changes in customer needs, technology, government policies, product
life-cycle.

• Customer needs: To succeed and survive in competitive markets, an


industrial firm must continuously monitor changes in the needs of its target
customers and continue to satisfy customers by making changes in product
line.

• Customer needs change because of changes in environment.

• Technology: Changes in technology require either product modification or


new products as existing ones become obsolete.

• Government policies/law: Open policies after liberalization has helped


many Indian industries.
Product Decisions
• Product life-cycle: There are four major stages in the product life cycle-
introduction, growth, maturity, decline.
• There is also substantial activity before launch in development and in
preparation for launch( pre-launch stage).
• In industrial markets, the time from product concept to market launch may be
substantial, even when directly working with customer that has a particular
product need.
• 1. Introduction stage:
• --There can be huge development costs involved.
• --During introductory phase it will be costing more money than it is bringing
in, since there are marketing tasks to be carried out.
• --Up to the launch and after that, customers need to be made aware of the
product, so there are many communication activities like demonstrations,
exhibitions, trade shows etc.
• --If it is a completely new concept for the market, there is a need to generate
primary demand for the product.
• --There can be trial offers from existing key customers, especially if they are
important reference customers.
Product Decisions
• --Field sales time is likely to be invested in communicating its value( advice
giving), so the sales force must be trained in the product and shown how to
demonstrate its benefits to customers.

• -- Distribution channels must be set up.

• --All these activities are likely to continue until sales start to rise, indicating
market acceptance.

• --By this time, early problems with the offering can be identified and resolved
and experience learned in the entire process of offering stabilization will
enhance sales training.( Chesterton).

• 2. Growth stage:

• --As the offering is increasingly gets accepted in the market, and sales and
profits begin to rise more rapidly than before, the nature of the demands on the
business marketer change.

• --Competition is likely to increase resulting a pressure on prices, and as this


pressure creates greater demand thus fueling further growth.

• --For innovative products, competition is likely from copycat products


tapping into the same primary demand without costs of development in
creating the demand.
Product Decisions
• --Defending the market share by differentiation may be successful in
achieving secondary demand.

• --This will involve additional costs in expanding production, increasing


the product line, adding product extensions or securing additional
distribution channels.

• --The business marketer will ride the growth phase as long as possible and
achieve the best margins possible.

• 3.Maturity stage

• --Finally, the rate of sales growth slows.

• --Profits may continue to rise in the aftermath of growth phase.

• --To maintain the profit trend requires cost reductions, may be by


cutting the amount of sales force time spent on pioneering activities
like finding new applications for the product.

• --There can be a shift from more personal marketing to focus on


trade customers (rather than end-users).

• --There could be price-based promotional activities aimed at increasing


customer loyalty of big users.
Product Decisions
• --Where the offering requires maintenance and repair, it is important to have sufficient
capacity for this(manpower, material like spares).
• --Reduction in other cost sources may be necessary to be considered(like logistics,
transportation).

• 4.Decline stage:
• --The efforts in maintaining price levels and reducing costs which were initiated in the
mature market phase, will work for a limited time.
• --Profit margins will decline and the business marketer will have to look for ways to
extract further value.
• --Sustaining profitability levels requires cost reductions.
• --Marketing expenses should be at a minimum.
• --Business marketer should drop unprofitable customers and channels.
• Identifying life-cycle stage:
• Where a product is in its life-cycle stage depends on factors like industry profits, level of
technology, rate of change in the industry sales growth etc.
• The information required to locate a product in its life cycle is:
Product Decisions
• --Develop a trend analysis for last three to five years based on information to be
collected for an industrial firm for factors like industry profits as a percentage of sales,
value of sales, market share number of competitors, pricing trends.

• --Analysis of competitor’s market share product performance, new product introduction,


diversification and expansions.

• Estimate and project sales & profits of the product over next three to five years

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

• Managing new product development:

• Development and marketing new industrial products is vital for a profitable growth of a
firm.

• It tests a firm’s market knowledge, technical competence, financial strength, ability to


compete.

• Products that have entered the decline stage must be replaced by new products to
maintain profitability and growth.

• A firm’s value creating potential may stem from its production innovations, process
innovations, marketing innovations, organizational or management innovations.
Product Decisions
• While managing innovation to create advantage, the key questions are how the
firm should be organized to encourage innovation and the role that relationships
with external partners have in aiding this process.
• Organizing innovation: Companies need to create an environment where
creative individuals can harness their creativity to meet the market needs &
opportunities.
• Some of the requirements to create the right environment are:
• --commitment to long-term growth rather than short-term profits
• --awareness of threats and opportunities
• --invest in long-term development of technology
• --ability to be aware of & take advantage of externally developed technology
• --readiness to accept change
• New products can be a) innovative & new to the world/market b) products that
are new to the company c) revisions or improvements to the existing products in
the existing markets d) additions to existing products lines with additional
markets e) repositioning existing products to new markets f) products with
substantial cost reductions but without reductions in performance
Product Decisions
• Success & failure factors of new industrial products:
• Product superiority & uniqueness– superior quality & new product features that give
product a competitive advantage

• Market knowledge – to understand needs & wants of markets and then translate this
knowledge into marketing strategies & action plans.

• Technical & production capabilities to translate the product concept into product development
& commercial production

• Failure factors: /If new products do not satisfy the needs of potential customers.

• New products not significantly different than existing products– may be just imitations.

• New products do not deliver the expected performance, due to say poor product design

• Prices of new products may be higher than value perceived by customers.

• Successful new product development requires an effective organization for managing new
product development process.

• New product development is a risky venture as research shows that not more than 10% of all
new products or services continue to be profitable after three years.
Product Decisions

• In spite of high failure rates, companies have no choice.


• Failure to offer new products & services leads to a portfolio that
over time will come under greater pressure and ultimately will
produce less value for the firm.
• The risk in offering new products is further compounded by the
costs of development that a company must incur.( The cost of
developing A380 s in excess of $11 billion).
• Smaller firms may not face such high costs but in comparison to
their size the commitment may seem just as great( they will face
capital costs)
• There may be a need to change production processes, distribution
processes or material handling methods.
• To justify such large costs for a new offering, the company will want
to be sure that there will be sufficient demand to obtain a return on
its investment after meeting development costs.
• The lower risk approach is to develop incrementally, just add new
variants to existing product lines.
Product Decisions
• New product development process:

• Because of the inherent risk, it is essential to manage the process well


and take appropriate decisions at each stage to make the risk
manageable.

• 1.Identifying opportunities/generating ideas: The new offering


development process is creative and requires creating seeds of creation
into ideas.( The more ideas that are generated greater the prospect of
finding a successful product offering).

• They can come from different sources like talking to end-users,


distributors, suppliers, by examining what the competitors are doing,
suggestions from staff.

• Company can have brainstorming sessions with employees, suppliers,


forming CFTs.

• 2. Screening ideas and making preliminary investigations: to


implement screening of ideas, the criteria are: company’s ability to make
the offerings; the fit with company production capabilities or technical
expertise; the fit with company’s objectives & image; the market sale &
profit potential; the fit with current offerings & distribution channels.

• Initial screening and assessment will remove the weakest ideas.


Product Decisions
• Remaining ideas will be subjected to further screening and investigation
like how customers will react to the offering & how competitors will react.
• Customer reaction focus will be on certain segments & aspects of the new
offering concept that will be attractive to them.
• On the basis of further evaluation, some more ideas will be discarded.
• 3.Analysing the business case: Further screening of ideas for finding
those having the greatest business potential.
• Business analysis involves careful financial estimates of market size,
growth rate & potential for each product offering idea.
• Business case analysis needs to establish what the development costs are
likely to be for each new idea before it can be brought to market.
• These costs include capital investment needed, staff costs, break-even level
and payback period, rate of return on investment.
• When each new offering is seen in these financial terms, it becomes
possible to compare them as prospective projects.
• 4.Developing the concept & specifying the features: The clear
identification of the likely targets & their reactions to the offerings helps
to specify the features.
Product Decisions
• It becomes possible to state what the concept is and the benefits it brings to
customers and the use of such offering.
• A likely price can be estimated.
• 5. developing prototypes & developing marketing support: Having
arrived at the clear concept, the offering can be prototyped.
• A prototype is a facsimile of final product offering that enables evaluation
of the form, design, performance & material composition.
• The intention is to develop a series of working prototypes that can be fine-
tuned towards final offering.
• Simultaneously, the marketing support activities can commence—activities
like pricing, packaging, labeling, promotional plans, for final commercial
launch.
• 6.Limited scale trial marketing: Successive refinements in product
offering will lead to fewer & fewer changes and the offering is ready to be
used by customers.
• If feasible, test marketing in a small market or area can be beneficial in
obtaining feedback on pricing product use, marketing activities &
communication.
Product Decisions
• For an industrial product, a company , through its excellent customer
relations, can use key customers to get crucial feedback on the machine
performance in a live situation.

• 7. Commercial launch: On the basis of successful trials, final changes


can be made and strategy can be finalized to bring the offering to the
market.

• The launch can be a big event depending on the company size, its
market etc.

• It can also be launched on geographical basis.

• If the product is novel, then customer education may be required


concerning its function, the benefits it brings and how it can be used.

• If any service need is found during this period, training of personnel may
be carried out.

• 8. Evaluating the development processes and drawing lessons for


the next time: It’s a good idea to reflect on the process, the soundness
of decisions & effectiveness of implementation.

• The intention is to learn lessons for future.


Pricing Decisions
• Price has a direct & substantial effect on profitability, hence a critical part of
industrial marketing strategy.

• Pricing strategy is related to market segmentation strategy, product strategy,


distribution strategy, promotion strategy.

• On average, a 5% price increase can increase earnings before interest and


taxes(EBIT) by 22%, whereas a 5% increase in sales turnover increases EBIT
by 12%, and a reduction of 5% in costs of goods sold increases CBIT by 10%.

• When a buying firm buys a product from a supplier ( which is in competition


with many other suppliers in the market), it means that the buying firm
perceives that the said supplier offered the highest delivered value( Delivered
value is the difference between the overall perception of value and the total
cost to the buying firm).

• The total cost to the buying firm includes not only the price of the product,
but cost of transportation, transit insurance cost, installation cost etc.

• The buying firm also takes the risks of product failure, delivery delays, lack of
technical support or service.

• Hence, the supplier offering the lowest price may not be the lowest in the
total cost, if other costs and risks are considered.
Pricing Decisions

• An industrial marketing firm has to consider many factors in


pricing decisions: pricing objectives, demand analysis, costs,
customers, competitors, Government regulations.
• 1.Pricing objectives: Pricing objectives are derived from corporate
& marketing objectives. Major pricing objectives are:
• A) Survival is a short term objective in situations like when
factory production capacity is underutilized, or piling up of unsold
finished products, due to intense competition.
• In such situations, to keep factory going and liquidate the
inventory, an industrial firm will reduce prices as a part of its
survival strategy in the short term.
• In such a situation, profits are less important than survival.
• The firm will set prices in such a way that they cover variable costs
and a part of fixed costs so that it remains in business.
• This will be a short term strategy and in the longer run it will raise
prices to cover total costs.
Pricing Decisions
• B) Maximize short-term profits: Such a policy is to select a price that gives
maximum current profits.

• Such companies estimate the market demand and costs at different alternate
prices, but in reality it is difficult to accurately estimate demand & cost.

• The emphasis is on short-term profit maximization rather than long-term


performance and customer relationships.

• Such a policy does not take into account competitors’ reactions or legal issues.

• C) Maximum short-term sales: Some companies set prices with an objective


of maximizing short-term sales revenue.

• The assumption is that by maximizing sales revenues the companies will


show growth in market share and profit maximization.

• Maximum sales growth/market share: The assumptions are– market is price


sensitive so that low prices will induce higher sales volume and market share,
higher volumes will reduce production costs leading to higher long-term
profits, or low prices will discourage entry of new competitors.

• D) Market skimming: Companies may set high price in the initial stages of
the product life cycle when they introduce new products.
Pricing Decisions

• The new product is initially aimed at those market


segments where demand is least sensitive to price and
customers are willing to pay higher price.
• By following the skimming policy, the company skims
maximum revenue and profits.
• As time passes, it may not be feasible to follow the policy
and as sales slow down, the prices are reduces to attract
new customers from price sensitive segments.
• The assumption made here is that different prices can be
charged to different segments of customers at different
times.
• Main risk is that high profits will attract competitors.
• E) Product-quality leadership : The objective is to a
product-quality leader in the market by producing superior
quality product(as compared to competition) and charge a
higher price. It results in higher profits.
Pricing Decisions

• 2. Demand Analysis: The demand-price relationship is elastic


when small changes in price level leads to changes in demand.

• Demand can be inelastic when i) there are few competitors, ii) no


availability of substitute products, iii) buyers think higher prices
are justified by normal inflation or changes in taxes like excise,
sales tax.

• Demand for industrial products are inelastic because these


products are technically advanced, many times customized for
specific customer, or very crucial for a buyer’s operation.

• Costs: Relevant costs associated with making of a product or


delivering a service determine the price floor, while the benefits
that the buyer perceives from the product or service to deliver
determine the price ceiling, the intensity of competition and the
strategies of competitors affect the feasible pricing region that lies
between costs floor and the customer benefits ceiling.

• To calculate price of a manufactured product, one has to look at


following different cost components:
Pricing Decisions
• Variable costs of production(material, direct labor), allocated overhead costs, full cost of
production, desired profit margin(%), final selling price.

• To calculate allocated overheads one has to consider total overhead cost for factory, divide it
by expected sales volume to arrive at overhead cost per unit.

• There are cost elements like fixed costs(rent, interest) which do not vary with production,
variable costs(raw materials, labor) that vary with production level, direct costs(selling
expenses, freight) are fixed or variable costs for a product.

• Cost plus pricing is a common pricing approach.

• It may give the firm an illusion of security since the firm covers its costs and make a profit.

• However, cost-plus pricing ignores both competitors and customers and contains a logical
flaw because-

• --in order to set price one must know average costs of production

• --one cannot know average cost of production without knowing production & sales volumes;

• --sales volume will vary with price;

• Therefore, in order to set price one must know---price!


Pricing Decisions
• To calculate full average cost of production the fixed overheads of
business have to be allocated, and this allocation is based on a sales
volume estimate.

• If sales volume is overestimated then fixed costs per unit of production


will be higher than expected, and the firm will make less than target
profit margin.

• If sales volume is underestimated, fixed costs per unit will be lower than
expected, the profit margin will be above target.

• The basic questions for managers will face concerning pricing decisions
are—a) If price is cut, then by how much sales volume will increase so
that profits are increased? b) If we raise price, then by how much can
sales decline before we incur a loss?

• These questions can be answered by break-even sales analysis or cost-


volume-profit analysis.

• It’s a technique used to consider different prices and their possible


effects on sales volume and profits.

• It is calculated by the formula– break even volume= fixed costs/selling


price-variable cost
Pricing Decisions
• Cost-benefit analysis: While conducting demand analysis, it is useful to carry out an
analysis of benefits received and the costs incurred by target customers.

• For an appropriate pricing strategy, an analysis of the benefits and costs of the product
from the customers’ point of view is useful.

• Hard benefits refer to the physical attributes of a product like production rate or rejection
percentage of a machine.

• Soft benefits include company reputation, customer service, warranty period, customer
training, which are difficult to assess.

• Costs for an industrial product include not only price but include transportation of freight
costs, installation, energy usage costs, repair & maintenance costs etc.

• A buyer might be willing to pay a much higher price to reduce the cost of failure or cost of
poor quality.

• While buying capital item, life-cycle costing concept can be used which estimates the total
cost of a product over its life span like price, freight, insurance, maintenance, energy labor
& material costs etc.

• After calculating the benefits and costs based on these perceptions, an industrial decision
maker can evaluate the possible cost-benefit trade off decisions.
Pricing Decisions

• Thus, an industrial marketer can set an appropriate price by


understanding how the customers evaluate the competing offers on
cost-benefit analysis.
• Customer & demand analysis: Responsiveness of demand to
price changes is critical in pricing decisions.
• Cost-plus pricing ignores this factor.
• In making pricing decisions managers are forced to make
assumptions about demand responsiveness, which is measured by
using elasticity of demand with respect to price(demand elasticity).
• Where demand is elastic, a price increase will reduce revenue and a
price cut will increase revenue.
• Where demand is inelastic, a price increase will increase revenue
and a price cut will reduce revenue.
• In industrial markets, firms may wish to buy more of a product as
the price rises because price is seen as a clear indicator of quality
and buyers may not be interested in cheap products due to quality
concerns.
Pricing Decisions

• Demand elasticity is calculated as a percentage change


in demand caused by a 1% change in price.

A B

Price Price

Demand Demand

Pricing Decisions
Market segment illustrated in curve A exhibits elastic demand, meaning a 1%
change in price causes a change in demand of more than 1%.

• Segment B shows inelastic demand where a substantial change(more than just


1%) is needed to cause change in demand as a 1% change in price will cause far
less than 1% change in demand.

• Demand will be inelastic for industrial products where customers need is urgent,
products are strongly differentiated, compete against few alternatives, are
complex & difficult to compare, involve high switching costs, customers see price
as being a quality indicator.

• Competitor analysis: Under oligopolistic market conditions, the decisions of


each competitor directly affects its rivals(interdependence).

• The legal price behavior under oligopoly is price leadership, where the industry
leader is closely watched by rivals who follow its lead in pricing decisions.

• When demand is slack & there is overcapacity, the price leader is the first one to
reduce prices giving rivals a signal to do accordingly.

• When industry is operating at near to capacity the leader will be the first to raise
price, and rivals will follow.

• There are illegal or unethical ways of price fixing by collusion.( anti-competitive


pricing, price fixing, price discrimination, predatory pricing or dumping).
Pricing Decisions
• Most common pricing objectives are profits, sales volume, sales revenue,
market share, image creation, survival competitive parity, barriers to entry.

• Depending on the pricing objective followed, each competitor will have


different response to price changes.

• If the objective is to increase market share, then competitor is most likely to


match price reduction.

• If the objective is to maximize profits, then the competitor’s response to price


cut will be different , such as improvement in quality or customer service.

• A competitor’s response to a price change depends on his mind set. Hence, it


is essential to understand and study business philosophy, internal culture,
past practices to competing firms so as to predict his response.

• Some may react strongly to a price cut, some may react very selective way.

• Government regulations: Industrial firms must be aware of the effect of


government regulations on pricing decisions.

• To protect consumer interests, government makes certain laws making price


fixing or price cartels illegal. In India, we have CCI to look after such issues
and investigate issues relating to price fixing by industrial firms.
Pricing Decisions
• We have seen factors an industrial marketer must analyze like demand, competition, costs,
government policies which influence pricing decisions.

• The next step is to decide appropriate pricing strategy.

• These strategies will be different depending on product, market situations.

• Here we will consider pricing strategies followed for situations like competitive bidding in
competitive markets, pricing of new products.

• A huge business volume is transacted through competitive bidding, mainly to government


sector.

• In government bidding, generally the orders are decided in favor of lowest price bidder(L1).

• In private sectors, orders or contracts are generally finalized based on the critical
evaluation of bidders’ quality, design, delivery, price factors.

• Competitive bidding can be either closed or sealed bidding where bidders respond to
newspaper tender notices for certain products or services.

• These bids are deposited by suppliers in a tender box kept at the buyer’s place with a
specific date and time of closing of the bid.

• These bids are opened on a specified date & time in presence of bidders.
Pricing Decisions
• Each bidder’s price and commercial terms are read out during the opening
and order is placed on the lowest price bidder.

• If the volumes or value is large, the government buyer may decide to place
orders not only on L1 but also on L2 & L3.

• These orders will be placed on the decreasing percentage of share of total


share provided L2 & L3 agree to match L1 prices.

• In open or negotiated tender bidding, suppliers submit bids and the buyer
after studying the product and prices as well as terms & conditions negotiates
technical, commercial, delivery issues with each bidder who is short-listed.

• Such a method is followed in private sector.

• Open bidding is a combination of bidding & negotiation.

• Competitive bidding : The strategy used is probabilistic bidding which


assumes that the pricing objective I profit maximization and secondly the
buying organization will decide the order on the lowest price bidder.

• Variables used are a) the amount of price or the price bid b) expected profit if
the bid price is accepted & c) the probability of acceptance of the bid price.
Pricing Decisions
• An industrial marketer seeks to optimize the trade-off between the bid price
or profit on the one hand and the probability of winning the contract on the
order.

• The most difficult task is to estimate the probability of the acceptance of its
bid price as being the lowest.

• This depends on the marketer’s knowledge of the competitors’ costs, strengths


& weaknesses & the mind set.

• Pricing new products: Price-positioning strategy takes into account these


factors-the price itself, customer benefits derived from using the product or
service, competitor positioning.

• The strongest price-benefits tradeoff is offered by the market ruler position.

• This position is difficult to achieve because delivering enhanced benefits to


customers generally involves additional costs, making it difficult to offer low
price while achieving an acceptable profit margin.

• The pricing strategies available for new product at the introductory stage are
skimming(high initial cost) strategy & penetration(low initial price) strategy.

• To decide on any strategies, the marketer must study the price from
industrial buyers’ perceptions.
Pricing Decisions
• Another factor to be considered is how soon the company should recover the
investment on the new product.

• Skimming strategy is used for new product which is to be purchased by a


market segment that is not sensitive to initial high price.

• It has the advantage of recovering the investment sooner by generating


larger profits.

• Thereafter, the price will be reduced to reach other price sensitive segments.

• The disadvantage is that it attracts competition due to high profits.

• Hence such a policy is used for new products which are distinct, high in
technology, or capital intensive( which can create barrier to competition).--
Electronic items like new models of smart phones.

• Penetration strategy is used when price elasticity of demand is high or buyers


are price sensitive and when strong threats exist from potential competitors,
when there are possibilities of unit cost reduction & distribution with volume
increases.

• This can give a company cost leadership over competition and can achieve
long-term profitability goal through large market share.
Pricing Decisions
• Pricing policies for industrial products can change as the product moves
through various stages of life-cycle.

• Pricing policy is a key factor in each of the stages.

• During growth phase, new competitors enter the market & more customers
use the product.

• So, the marketer of an industrial product will face pressure of lowering prices
below the introduction stage.

• In the growing market, new competitors will enter and the marketer will be
force to differentiate the product & seek new markets.

• As more & more competitors enter with similar offerings, buyers of the
industrial product will develop more than one supplier, thereby putting more
pressure on the firm which introduced the product first in the market.

• In the maturity stage, when competitor products are well established and
there is fierce competition, the marketer has to fight for market share of his
competitors by pricing strategy of matching the competitor prices by lowering
it, if required.

• In a declining stage of the cycle, if the product quality reputation is good, the
firm can depend on cost reductions rather than price cutting to make more
profits.
Pricing Decisions
• One more strategy is to cut prices to increase sales volumes & use this
product to help sell other products in the product-mix.

• Industrial marketers deal with different types of customers– users, OEMs,


dealers, bulk users—who buy in various quantities and are located in
different geographical locations.

• To account for these differences, pricing policies are evolved.

• Industrial firms generally do not set a single price but a set of price structure
that cover different product items having different sizes, and specifications of
a product.

• The pricing plan will be determined by analysis of current situation(overview


of market & SWOT analysis), strategy determination(strategy & objectives),
and implementation & control process.

• A wide range of different functions within a company have interest in pricing


decisions. Examples are senior management, sales, marketing, finance,
operations, customer service.

• Pricing is a cross functional activity involving several people from different


departments. Hence, some companies have pricing committees comprising
these stakeholders as each brings in his own perspectives & concerns.
Pricing Decisions
• Each department tends to have its own perspective on pricing decisions,
and these perspectives may conflict, thus influencing pricing decisions.

• Sales force has an important role to play in mediating between the


company & its customers with respect to pricing decisions.

• Since sales people are closest to customers they are expected to


understand customer’s valuation of the company’s product offerings
better than anyone else in a company.

• Competitive bidding : Four basic auction mechanisms are English,


Dutch, first-price sealed bid & second price sealed bid auctions.

• The English auction is an ascending price auction in which the last


remaining bidder receives the goods by paying the amount.

• The Dutch auction starts at a high level & the price falls until
the first participant finds the price low enough to submit a bid and thus
he receives the goods at the price lower than the start of auction price.

• These two types of auctions are real time auctions.

• Sealed –bid auctions are not real time where a bidder submitting
highest bid price is the winner.
Pricing Decisions
• Ethical issues: The main ethical issues that arise in B TO B pricing
decisions are anti-competitive pricing, price fixing, price discrimination and
predatory pricing or dumping.

• Anti-competitive pricing arises when a group of producers collude to raise


prices above the level that would apply in a freely operating market.

• Such pricing policies are unfair and damaging to the free enterprise system
and is prohibited by law in India and many other countries.(US, EU, Japan).

• Companies may be tempted to enter explicit or implicit price-fixing


arrangements because they believe that otherwise there is a risk of a price
war leading to financial losses.

• Unethical pricing practices arise particularly in industries where competitive


tendering is common.

• Collusive tendering occurs where there is an agreement between competitors


either not to tender or to tender in such a manner as not to be competitive
with one of the other renderers'.(defense, construction)

• The essence of collusion in tendering is that there is an agreement between


bidders to win the contract for one bidder with others getting benefits.
Pricing Decisions
• Collusion aims to undermine competitive process by avoiding price
competition leading to buyers’ disadvantage of more payment than they
otherwise would pay for a product.

• Dumping is selling of exported goods in a foreign market below the price of


the same goods in the home market.

• Leasing : Industrial buyers have an option of either buying or leasing a


product.

• A lease is a contract through which the asset owner—called lessor– extends


the right to use the asset to another party--lessee in return for periodic
payment of rent over a specified period.

• Many capital goods like construction equipment, material handling


equipment etc are leased out to users.

• The trade off between buying & leasing are considered before any such
decision.

• The benefits of leasing are—conserving capital, gaining tax advantage,


getting the latest products.

• The cost of leasing includes the lease payment and sacrifice of asset’s salvage
value.
Pricing Decisions
• Industrial buyers have to evaluate the costs/benefits of the lease based on
whether the cash flow benefits of the lease exceed the cash flow costs.

• There are two types of lease: a)financial(or full payment) & b) operating(or
service or rental) leases.

• Financial leases are non-cancellable, long term agreements and are fully
amortized.

• The sum of the lease payments over the contract period equal or exceed the
original purchase price of the capital item.

• A buyer is generally responsible for operating & maintaining expenses.

• The buyer is given an option of purchasing the asset at the end of the contract
period, on the basis of the assets’ fair market value.

• Operating leases are short term, cancellable agreements, and not fully
amortized.

• Because the asset is provided for a short period, the purchase option is not
included.

• The rates for operating lease are usually higher than for financial lease because
the responsibility of operating expenses and the risk of obsolescence are that of
the lessor.
Pricing Decisions

• Industrial firms marketing capital goods under leasing


option should consider prospective customer’s needs &
problems.

• Some companies use leasing option as a marketing


facilitator tool for their products(xerox & other copying
machine makers).

• To stimulate demand, many companies offer attractive


lease rates for new capital goods so that the potential
customers can try new products.
Communication for B TO B
marketing

• Communication is about exchange of messages between a vendor & a specific


prospective or actual customers.

• The communication mix for industrial products is different than consumer


products due to the technical nature of industrial products, relatively smaller
number of industrial buyers, and complex nature of organizational buying
process.

• Communication mix consists of direct marketing(using online & offline


media), personal selling, advertising & sales promotion, publicity & building
personal relationships.

• Communication provides a means of signalling a firm’s value proposition to


its customers.

• It is central to positioning strategy and firms must ensure that consistent


messages are conveyed to target audiences.

• The signals and messages communicated by a company will shape a


customer’s view of an organization’s brands as well as the company itself.

• It is therefore important that decisions taken by a company are consistent


with its core values & customer expectations so that its brands & corporate
image are enhanced.
Communication
• Brands can be narrowly defined as name, term, sign or symbol or design,
but more broadly brand represents a shared desirable & exclusive idea
embodied in products, services, places or experiences.

• A brand consists of tangible features & intangible associations or


functional & emotional values.

• At the company level, corporate brand identity is developed within an


organization, resulting in the expression to target audiences of a
company’s enduring traits via selected symbols, behavior and
communication activities.

• In contrast, corporate brand image assumes an external perspective &


signifies the meaning by which an organization is known & the way
people describe, relate or remember it.

• Communication strategy involves planning, implementing, &


controlling an organization’s communication with target markets,
audiences to achieve specified objectives with each audience.

• A variety of tools are used such as advertising, sales promotion, public


relations, personal selling, direct marketing.

• These are combined into a communications program to enable a


company to engage buyers, other stakeholders.
Communication
• Communication Objectives: Objectives are related to what a firm wants its target
audience to do with the information transimitted via its communication tools.

• Many objectives are associated with “buyer readiness states”.

• Various stages in communication are related to the process enacted by a firm to acquire &
retain customers.

• Awareness is developed when potential customers become familiar with a product or a


brand.

• At this stage a company is trying to generate leads by directing its communication


campaign to all potential customers within a target market segment.

• Here a company will use mass communication, interpersonal tools like advertisement & PR
,DM.

• Interest is next step, showing buyers’ desire to learn more about what(product, brand,
company), and it is trying to trigger a response from target audience to generate enquiries
and encourage the audience to seek out more information.

• Desire is the recognition by the buyer that when a supply needs arise, a particular brand or
a product is a preferred option.

• To reach this point, target customers will evaluate the product, the brand & company
information available from alternative suppliers.
Communication

• The number of prospective customers within a target for


whom a company becomes a potential supplier falls, as
those interested customers evaluate & eliminate some
companies as potential suppliers.

• Trade shows & field sales calls assume more importance at


this stage, digital media , company websites, are equally
valuable.

• From the evaluation stage, the business marketer uses


communication tools to elicit specific courses of action like
placing a trial order.

• Prospects who place trial orders who become new customers


will need to enter into dialogue with the supplier.

• At this stage personal selling –field sales or inside sales


teams- become critical communication tools.
Communication
Communication Communication
Objectives Target customers tools

Awareness Leads Advt; DM; Industry


conferences
Interest
Enquiries Brochures, Videos,
website, Trade
Evaluation Shows
Prospects
Telemarketing,
Field Sales Visits
Trial New customers

Inside sales calls


Purchase Established
customers
Transactional &
relationship sales
teams
Communication
• These various stages of the state of buyer readiness that is assumed to be
rational over which marketer has control.

• Marketer sends messages via communications tools to affect the attitudes &
behavior of target audiences.

• In reality, customers are not passive recipients of messages who search the
information they want & also send messages to marketing organizations.

• The key to success is to understand the type of information & messages


preferred by customers and the format in which they are required.

• Communications mix: Promotional tools at the business marketer’s disposal


are not interchangeable & their effects at the different stages of purchase
process are not the same.

• So, a company has to select tools and their relative importance in the
communications mix to reflect marketing communication objectives and the
way in which information is used by its target audience.

• Personal, advertising, trade shows, technical literature are most important.

• Now, digital media is added to the list of very important source of


communication.
Communication
• Trade shows are the venues where potential buyers visit prospective sellers.

• Most visitors have a specific plan to buy a product or influence the purchase decision for a
particular product.

• In consumer markets intermediaries like retailers, distributors are the means through
which producers are able to present their products to target customers.

• In business markets, distributors as well as producers /suppliers will participate directly in


shows that are specific to their industry.

• There are many sites in different countries where trade shows for different products are
held either once a year or once in two years. (Hannover is the largest, Mila, Frankfurt,
Cologne, Paris etc).

• They can be regional or within a country or international.

• Trade shows can be used to showcase a country’s expertise in a specific industrial sector.
Farnborough Air Show).

• Trade shows perform selling & non selling tasks.

• Non-selling functions include building & maintaining company image, gathering competitor
information, product testing/evaluation, sometimes trying to know the latest technology
available, etc.
Communication

• Key sales related functions are –identification of prospects; gaining


access to key decision makers; disseminating facts about vendor
products, services & personnel; actually selling products; servicing
problems of current customers through contacts.
• A company’s exhibition strategy should complement other
communication tools.
• Trade shows are useful in the early stages of the purchase decision
process and in identifying & qualifying prospective new customers.
• As customers progress to evaluating potential suppliers to reach
purchase decision, for closing a sale or service issue, trade shows
are less valuable than personal selling.
• These shows are costly as they demand investments, but can be
economical in terms of company benefits.
• For example, it can cost less to make an initial contact through
trade shows compared to personal visits by sales person.
• A salesperson might be able make 4 to 6 calls a day, trade show
participation can generate 40 to 50 leads in a day.
Communication

• Advertisement: Represents the largest share of the


communications budget for a lot of businesses.

• It allows a firm to communicate with large audiences at a far lower


average cost per consumer than with personal selling.

• It is used to engage representatives of target customers.

• Useful in communicating with & influencing behavior of other


stakeholders like government bodies, financial markets, pressure
groups.

• It supports a business marketer in personal selling as it is used to


create awareness amongst target customers, provide information &
identify potential leads for sales personnel.

• It can make a positive contribution to a firm’s sales effectiveness


because have been exposed to supplier advertisements & sales
revenues per call can be higher & sales personnel rated more highly
on product knowledge, service, enthusiasm.
Communication

• Public relations: Is used to manage the image of an


organization with its stakeholders & to close the gap
between a company’s desired image & the way it is
perceive by various publics.
• In comparison to other tools of communication, PR has a
broader scope and its use can make marketing activities
easier.
• In dealing with external publics it can be used to attract
& keep good employees, overcome misconceptions
relating to an organization, build goodwill among
publics such as government bodies, local communities,
suppliers, distributors, suppliers.
• Build an organization’s prestige & reputation.
• Promote its products.