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B 2 B MARKETING

What are B2B Market

-- Business markets consist of all organizations that purchase goods and services to use in the
creation of their own goods & services

-- They generally consist of fewer but large customers than consumer markets

-- Purchases are of larger value and more complex in economical, technological,and financial
terms.

-- Business Marketing is the process of matchin the capability of the supplier to supply goods
and services to the buyer who in turn matches the requirements of the customer

-- That is, business marketing aims to create value for the customer

The Marketing Mix

-- The principles of marketing are the same for consumer & B2B marketing, with some
differnces

Product

-- In general marketing theory a product means a core product which can have additional features
and options to appeal to different buyers

-- Some of the differences are:

* In B2B marketing the sellers product is incorporated into the buyers product to offer to their
own customers.

* Therefore there is considerable partnership between seller & buyer.

* The product is therefore specific to the buyer

* It maximizes the value creation ability of the seller

* Since the product is tailor made and technical in nature, there will be a written specification

-- Price

* In any transaction price is the amount of money that is agreed upon to satisfy both parties

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* Price, the value of exchange is decided by the market, not the cost incurred in creating the
product

* In B2B marketing price usually is the final step in a complex series of activities involving
design, development, negotiation etc:-

* This is usually because products are complex and is usually produced in a collaborative
manner

Place

* In a consumer markets, place is about getting the right form ( size, packaging, quantity
etc:- ) at a useful time ( retail hours ) with minimum inconvenience

* In consumer markets economic utility refer to consumer preferences in locational


convenience, required quantities / sizes and acquisition convenience

* Using a car as an example, the company gains economic utility by

-- locating dealership near population centers

-- Heavily trafficked shopping areas

-- Easy availability with minimum fuss

-- can usually drive away with the new car in a couple of hours

* In B2B marketing economic utility takes the form of the supply chain management,
inventory, services, material planning etc:-

* Using the same example of a car, the company to add to the customers fleet offers cars in
various models and numbers at periodic time intervals

* the cars are shipped to right locations with appropriate quantities of spare parts at the right
timing

* This is not easy when production schedules have to be matched with delivery schedules

* the manufacturing plants may not be located near the many rental outlets of the

company

-- Promotion

* In consumer markets the promotion mix of advertising, sales promotion, public relations
personal selling plays a major role

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* In B2B marketing advertising cannot be leveraged as Ads are a monologue a one way
communication

* In B2B marketing personal selling is the most effective way of promotion

* In B2B marketing as said earlier, products are made collaboratively

* The relationship is close and long lasting

The Marketing Concept

-- In many organizations the focus is on production or sales, or even marketing

-- In such organizations marketing is perceived to be a distinct but dependent part of the Org.

* It is seen as an expense rather than a generation of margin.

In the marketing concept it says that to be successful should

Understand customer needs

Meet those needs through co-ordinated activities

Do it in a way that meets organizational needs

A firm that operates under this philosophy focuses all its efforts and resources towards
satisfying the needs of its customers

Marketing is the driving force in the organization and defines the role of other functions
to meet the needs of the customers

Volatility and the nature of Demand.

Consumer Demand

i. In consumer demand it is the quantity of goods or services that the customer wants.

ii. It is dependent on market conditions and is usually expressed as a function of market


price.

Derived Demand

i. In Derived Demand it is the demand of the chain of supplies and produces that constitute
to a total offering.

ii. Without initial consumer demand there is no demand in the supply chain.

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iii. Cotton is not purchased because of its inherent properties but to make cloth

iv. The demand for nylon fabrics by consumer does not exist. However nylon is needed to
spin yarn . To weave fabrics which are needed to make clothes. These are all derived
demands arising out off the ultimate consumer demand

Joint Demand

When several different products go to make up another product, the demand or availability of
any other products effects the manufacturing of that product

Exp : Flour , yeast sugar eggs for making bread . Each affects the other.

Cross Elasticity of Demand

Sometimes one product replaces another for various reasons may be price, advancement in
technology,

Exp : Furniture wood Steel or plastic

House Construction Redwood or cedar.

Volatility of Demand:

It partially explains the volatility of derived demand when consumer demand varies it has
effect on all the contribution who go to make up the final product.

This impact or leveraging causes wide swings in demand

Suppliers in the chain forecast production & inventory based on current orders in
hand

When consumers demand drops , chain members immediately cut production and
inventory levels

The initial production cut will be larger than the difference between the old and
the new order . This is because:

There is already some inventory being held and is enough for the new smaller order.

Customer who closely monitor their inventory change order frequently sometimes daily.

Thus small frequent adjustments lead to inventory problems, multiply these effects
throughout the supply chain and we see why there is so much volatility in derived
demand.

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Exp: Firestone recalled 6.5 million tyres fitted Ford Explorer SUVs . Ford had to shut
down till new tyres were available. The shut down cost them $100 million and a fixed
profit was less by $500 million. This had a ripple effect back through the entire supply
system

Discontinued Demand

This is a condition in which quantity demand in the market makes :

Market makes large changes in the response to the market forces.

The transition from on market state to another occurs in large increments rather than
small incremental changes.

A supplier tailors his capacity based on forecasts of demand

Due to increase in consumer demand his customer makes increasing demand on the
supplier and he increases his production and purchase of raw materials.

When he reaches the maximum capacity a situation:

where there is a discontinuity in supply till such time as the suppliers sets up additional
capacity

If the supplier elects to increase the capacity then the entire supply chain is impacted by
increased demand.

Price Elasticity

Price elasticity of demand refers to the percentage change in quantity demand relating to
the percentage change in price

If the price change produces a demand change that is less than the percentage price
change then it is inelastic

Opportunities

In B 2 B Markets additional product design effect is needed to ensure that the


product complexity enhances the value to the customers and not detract it.

The dialogue between customer / supplier will be complex and must be quickly
understood .

Communication is personal in B 2 B market.

The close relationship ensures that the uniqueness of the customer is emphasized
and accommodated.

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When this uniqueness and closeness is very effective the cost becomes very high
for the customer to switch supplier.

This is because due to the closeness of the parties concerned there is a high matching of buying ,
ordering, in bound logistics and delivery systems.

The personal rapport and closeness may not be as tangible as the logistical linkages , but
however this binding is also very difficult to break

CLASSIFYING CUSTOMERS, ORGANIZATIONS AND MARKETERS

There are several standard forms of products, competition and market conditions that
make up the business environment.

Marketers have their own system for classifying customers. The main categories are:

1] Commercial enterprises

These are those segments of profit oriented organizations.

A] Industrial Distributors

-- Also known as industrial wholesalers

-- act as middlemen providing services to the customers in terms of form, time, place, and
possession.

-- Matches the product need of the customers with the manufacturers.

-- Manufacturers use such middlemen when customers needs are small for direct mktg.

-- They take ownership of the goods

B] Value Added Resellers ( VAR )

-- The presence of these intermediaries in the market place has broadened traditional concepts

-- They provide unique enhancements to manufacturing products

-- Typically the provide systems to its customers tailored to their needs( Exp. Matching
software with hardware )

-- They draw goods from many manufacturers to provide systems to the customers

-- They develop unique expertise in the integration of many different products

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C] Original Equipment Manufacturers ( OEM )

-- Purchase goods to integrate them into goods they manufacture and sell to their customers

-- B2B marketers spend the major part of their resources approaching, learning about,
developing and satisfying customer

-- OEMs are usually largest-volume users of goods/ services in oligopolistic markets

Exp: Maruti -- buys tires from MRF

HP -- buys processors from Intel

-- But these also supplies the replacement markets through industrial marketers

D] End User

-- Manufacturers that purchase goods for consumption as supplies, capital goods, or


materials for incorporation in their products such that the identity of the purchased goods is lost

-- In the above example, MRF is an OEM. But when MRF buys steel to make tires the supplier
views Goodyear as an end-user.

-- When MRF buys fuel for its trucks, its a routine re-buy involving one purchasing
individual.

-- When MRF buys a robot tire plant a large number of individuals would participate in this
one time purchase

-- In either situation MRF is the end-user

2] a ) Government Units

-- Governments, either federal or state are the largest consuming group in the country

-- Widely dispersed, with a large number of players, these units are influenced by specifying
agencies, legislations, evaluators and end users.

-- Value as understood in the private sector takes on a completely different meaning in the
public sector.

-- complicated procurement laws & regulation often have social goals/ policies as the driving
force.

-- Socially motivated contract provisions,quotas, & other regulations that have nothing to do
with the product attributes can be frustrating.

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-- The roles governments play in society,defense, education, disaster relief, political agenda
Etc:- leads to a requirement of non-standard products.

-- Competitive bidding is often resorted to,so that favoritism & undue influence is avoided

Nonprofit/ Not- For Profit Organizations

-- Institutional customers such as , hospitals,churches, colleges, nursing homes etc:- are part of
this category.

-- It may appear that for this category of customers price may be a major factor.

-- However this is not always true and best value offered can be decisive.

-- Many of these entities are sometimes open to public scrutiny, hence their buying habits may
become similar to government buying.

3] a) Raw Material Producers

-- Depending on the goods/ materials in its life cycle, producers may find materials price
sensitive.

-- Raw material supplies that have significant competition, seek value added aspects to core
products.

Example: Sugar supplied to Britannia: Texture,granule size, quick dissolving are alldistinct
competitive advantage.

-- Items like steel, plastics, glass are usually supplied by large producers directly to consumers

-- Smaller customers are supplied by industrial distributors.

-- Many times raw materials loos their identity when combined into a customers product.

Examples: sheet steel to automobile bodies sugar into a soft drink rubber into tires

-- That is, the commodity value of steel, sugar, rubber has been replaced by the value addition
to the finished product.

B] Component Parts Manufacturers

-- These materials usually retain their identity even after incorporation into the customers
finished products.

Examples: batteries in automobiles fan motors in computers the component manufacturers core
product contribution to finished products is still recognizable.
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C] Capital Goods Manufacturers

-- Capital goods are used to produce products

-- there is considerable risk involved for the purchase

-- The process is lengthy and the development work is considerable.

-- sophisticated/ complex specifications are arrived at, to ensure that the customer gets

what he has been promised.

-- When customers invest in a capital item, they are reposing tremendous trust in the supplier

-- customers of capital goods expect an offering involving installation, equipment, and


accessories

-- often trials/ evaluations are required

D] Accessory Equipment Suppliers

-- companies that make equipment that works with some other offering are known as AES

-- the accessories may be bundled by a system integrator.

-- business customers may buy them separately Example: CD,s for computers

-- primary product manufacturers will not make them as an independent supplier can make
them more quickly and cheaper.

CLASSIFICATION OF B2B MARKET ENVIRONMENT

A] Publics

-- These include the various publics or communities of interested parties

-- they are not direct participants as customers channel members, suppliers or competition.

B] Financial Publics

-- Banks, lending institutions, Venture capital firms, stock exchanges, financial analysts etc

-- These institutions seek to maximize returns on their investments in the company

-- they attempt to impact on company policies due to their clout in the financial community

-- most companies will be highly sensitive to the views and opinion of these entities

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-- B2B companies need to understand these sensitivities in order to make resources available

-- B2B companies may have to make presentations to these entities to raise resources.

C] Independent Press

-- The media can publish news that can enhance or destroy a market position.

-- companies must maintain cordial relations with the news media

-- pro-active public relations effort, so that a single incident does not do serious damage

D] Public Interest Groups

-- many public interest groups though a minority of the population can exert enormous
influence through opinion leaders and media

-- this effort can draw the attention of the financial publics leading to impact on investors

-- companies must recognize its socital responsibilities as these public interest groups if
showing interest maybe indicative of shifts in the market.

-- Example: When oil prices increased in the 70s/80s, Ford added more safety features and
increased fuel economy on its SUVs

E] Internal public

-- Every employee is a representative of the organization to the public

-- Every employee is a representative of their part of the company to other parts

-- The representative of a firm or its parts greatly impacted by the attitude of employees

-- The purpose of internal marketing is to promote a sense of belonging and ownership among
employees

The Macro environment

a) Demographic environment

-- They are vital statistics to describe a population

-- Characteristics of the people in the people in a potential geographic region

-- Variables include, distribution of ages, income wealth, religion, ethnic background,living


conditions etc:

-- Businesses themselves have demographic characteristics like type, size, location etc:

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b) Economic Environment

-- The macro economic environment in a region impacts on B2B customers

-- These include, how fast the economy is growing ( or slowing down ) in size, level of
employment, rate of unemployment, intrest ratios, exchange rates etc:

-- Customers willingness to buy, influence of channel members etc:

c) Socio-cultural Environment

-- The culture in which the company exists

-- What people buy, why they buy, where they buy, how they use it etc:

-- The business marketer must know the social and cultural trends effecting the customer,
competition, partners and employees.

d) The Natural Environment

-- Includes natural resources, raw materials, the ecology, weather etc:

-- Mainly raw materials, water and energy

-- Societal preferences not to spoil the local land conditions, pollution etc:

-- EXP: McDonalds changed from foamed containers to wax paper containers due to customer
feelings that the former is not bio-degradable.

-- However, it is another matter that the public does not know that wax coated paper is also not
bio-degradable.

e) The Technological Environment

-- B2B marketers need to scan the technological environment for developments that can change
the market

-- It may include changes in the competitors products/ process

-- It may be due to changes in the customers technology

-- The technological environment is both a blessing and a curse Through technology customer
service can be improved and more information given

-- News of technological changes are available through trade journals, trade conferences,trade
shows, showing future technologies and trends. Research journals, academic conferences in
science and engineering.

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-- However technology is changing at an ever increasing pace

-- It is therefore technology per say which is important. Technological advantage is fleeting

THE NATURE OF BUSINESS BUYING

We will discuss the different criteria involved in business buying in this section

1] The purchasing decision process that organizational buyers apply when confronted
with different buying situations

2] The various roles of influencers in the purchasing decision process, and to identify
these influencers and their power

The criteria that organizations apply in making buying decisions

Organizational buying activities

-- Buying centers experience and informations and about products and services

-- When it is a routine buying process of products already in use there is not much need for
information.

-- But when it is buying a new untried product or supplier, then there is a need for extensive
information on the product, suppliers and their experience

-- Buying activities will also consist of various phases of decision making

-- Depending on the type of buying situation if regular or new , these phases will vary in
importance

-- The focus will be on the buying situation the buyer is facing

-- Understanding buying behavior is more easily understood if it is divided into various phases
and analyzed under different buying situation

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