Managing Business Markets

Session Review Slides: Assessing Value

 Assessing Value

• Managing Business Markets- An Over view

• Fundamentals of Customer Value
• Quantifying Value, Crafting a Value Model
• Branding in Business Markets
• What do we refer to as Business Markets?

• Business Markets versus Consumer markets- How

are they different?

• What does managing business markets involve?

• What exactly is customer value?

 Business Markets

Business markets are firms, institutions or

governments that acquire products and services
for their own use, to incorporate into products and
services they produce or for resale along with
products and services they produce to other firms
institutions and governments.
 Managing Business Markets
• Business Market Management is the process of understanding,
creating, and delivering value.

• Value in business markets is the worth in monetary terms of the

economic, technical, service and social benefits a customer firms
receives in exchange for the price it pays for a market offering

• The fundamental value equation:

(Valuef – Pricef ) > (Valuea – Pricea )
1. What is Value in Business Markets?

2. Customer Value Management

 What is Value?

• “Worth in usefulness or importance to the

possessor”
(i) Value is customer defined

• What you sell (products and services) is not what

customer buy (utility and value)

• Customers does n’t want better mouse traps;

they want to get rid of mice
(ii) Value is opaque
• What is value to the customer is anything but
obvious
• If value is defined by the customer we need to get
into the heart and mind of customer to really
understand value
• Quantifying value is difficult because we don’t
understand customers, customer’s don’t
understand themselves and we don’t speak the
same language customers speak
• Spend a day in the life of your customers
(iii) Value is contextual

• Value like beauty lies in the eyes of the beholder

• Context: User, end use situation and the

environment
(iv) Value is multi dimensional

• Technical benefits, Service benefits, Economic

benefits, Social benefits
(v) Value is a trade off

• To make an accurate value trade off you should

ensure that the customers are seeing a full picture
of benefits as well as costs
(vi) Value is relative

• Base: Best available substitute or equivalent

• Focus on points of differences
(vii) Value is a mindset
• Belief that the sole purpose is to create value and
to be compensated equitably for its efforts
• You cannot offer value to the customer without
changing your firms values– because what the firm
believes determines how it thinks and acts and its
action and behavior in turn manifests in its
offerings
• Value can serve as an anchor reminding that every
initiative you engage in should be grounded in a
clearly articulated proposition
 What is Value in Business Markets?
What being market-oriented means in business
markets is changing:

Features of an offering
Supplier needs to translate

Benefits of an offering

Supplier needs to translate

What the offering is worth in the customer’s

Application
•Benefits are the source of value – termed as Value Elements
 What is Value in Business Markets?

Value in business markets is the worth in monetary

terms of the technical, economic, service, and
social benefits a customer firm receives in
exchange for the price it pays for a market
offering.

The fundamental value equation:

(Value f – Price f ) > (Value a – Price a)

 Value Placeholders

• Value elements whose monetary worth are not

assessed are termed as Value Placeholders
 Customer Value Management

The essence of customer value management:

-- Deliver superior value to targeted

market segments and customer firms.

-- Get an equitable return on the

value delivered.

Increasingly, to get an equitable return, suppliers must be able to

persuasively demonstrate and document the superior value their
offerings deliver.
 Guiding Principles of
Managing Business Markets
• Regard value as the cornerstone

• Focus on business market processes

• Stress doing business across borders, and

• Accentuate working relationships and business

networks
 Processes
• Management Processes
– Organization context and Style of Working
– How CEO runs the company?
– How management interacts with employees?
– How decisions get made?
– How communications takes place
• Business Processes
– Collection of Activities
– Product Development, Supply Chain Management,
Customer Relationship Management
• Work Processes
– Building blocks of business processes
– Prototype development, finished goods warehousing
and purchasing
 Managing Business Markets

I. Nature, Characteristics, Scope

II. Business Marketing Vs Consumer Marketing

III. Understanding, Creating and Delivering Value

 The Consumer Market (B2C) and the Business Market (B2B) at Dell, Inc.

Dell, Inc.

B2C B2B

Customers Individuals & Businesses Institutions Government

Households Global Healthcare State
Large Education Local
corporations
Small & Medium
sized businesses

Selected
PC’s PC’s
Products
Printers Enterprise Storage
Consumer Electronics Servers
Simple Service Complex Service Offerings
Agreements
Classifying
Goods for the
Business
Market

Classifying industrial goods by

the following questions:
How does the good or service
enter the production process?
How does it enter the cost
structure of the firm?
Source: Adapted from Philip
Kotler, Marketing
Management: Analysis,
Planning, and Control, 4th ed.
(Englewood Cliffs, N.J.:
Prentice-Hall, 1980), p. 172,
with permission of Prentice-
Hall, Inc.
 Classification: B.M Products/Services
• Heavy Equipments:
• Engines, Compressors etc (high investments; plant investment)

• Light Equipments:
• Hand tools, personal computers (low investment; large no of
customers; mass marketing; distributors)

• Systems
• MIS; Turnkey project; (Selling: complex and time consuming)
 Classification: B.M Products/Services
• Raw Materials
• Crude oil, iron ore, cotton fibre (sold as commodities; price;
brokers)
• Processed Materials
• Rolled steel, fabric, plastic polymers,
• Undergo further processing from raw materials
• Differentiation possible by adding value for special applications
• Consumable supplies
• Coolants, abrasives, medical syringes,
• Mfg.; MRO consumables
 Classification

• Components
• Engines, Motors, Tires, Disk drives, Monitors, Keyboard
• Different from supplies and materials
• Close relationship (memory) Vs low cost efficient (keyboard)
approach

• Industrial Supplies
• Engineering Services; Mgmt Consulting; Contract maintenance
• Comprehensive design, installation and operation Vs support
service (transportation)
 (ii) Characteristics: BM

• External Linkages

• Internal Linkages
 Key Linkages
External Environment Internal Organization

CUSTOMER MARKETING MANUFACTURING

Derived Demand
Emphasis on Technology
Fluctuating Demand
High Level of Customization
Complex Buying Process
Made to Order
Concentrated Customer Base’
Cross Functional Relationships
Relationships/ Business
Networks
 External Linkages

• Derived Demand
• Driven by consumer goods demand
• Automobile—Dashboard - ABS Plastic Pellets—3 chemicals
(Styrene)---ethylene---petroleum
• Need to predict future economic and market conditions in
strategic decisions
 External Linkages
• Complex Buying/Selling Process
• Individual / household vs Buying Centers
• B.C (DMU): Members of engineering, purchase, finance and
manufacturing
• Complexity: The influence of the formal organization; Strategic
importance of the purchase item; cost of item being
purchased; complexity of the need being serviced;
centralization of purchase decisions
• Professional sellers and buyers
• Encourages long term relationships; Buyer becomes
dependent on a supplier
 External Linkages

• Concentrated Customer Base

• Few Large Customers
• Geographically concentrated ( industrial clusters- silicon valley,
auto component industry, diamond cutting..)
• Personal Selling; Direct Marketing
 The Supply Chain

Michael Porter and Victor Millar observed that “to gain competitive
advantage over its rivals, a company must either perform these activities at
a lower cost or perform them in a way that leads to differentiation and a
premium (more value).”
 Relationships, Networks, Technology
• Relationship Perspective: Implications
– Task of selecting, developing and managing customer
relationships for the advantage of both customer and
supplier with regard to their respective skills, resources,
technologies, strategies and objectives
– Variety of relationships (critical for survival; contribution
large or small; friendly/antagonistic; close/distant;
simple/complex); Profitable; Leading to technological
developments; Provide access to other companies
– Need to manage a portfolio of relationships
 Relationship Perspective: Implications
• Unit of analysis: relationships--- rather than single purchase;
sales territory or market
• Each transaction to be seen in the context of relationship
• Relationships as primary assets; value can only be delivered
through relationship channels
• Business relationships develop, integrate and use the skills
resources and technologies of both supplier and customer;
Links activities of the companies, ties their resources to
each other and form bond between individuals from each
company
 Relationship Perspective: Implications

• Business Buying:
– Similar Activity to Business Marketing
– Choose suppliers on the basis of their resources and
skills
– Persuade that they are good customers
– Manage based on mutual interest

• B.M: Interaction between two active parties

 (iii) Relationships, Business Networks,
Technology
• Business Networks
– Relationships do not exist in isolation
– Embedded in network of relationships
– Work Teams - Working Relationships -Collaborative
Relationships (Strategic Alliance) - Business Networks
– Business Network : Two or more connected business
relationships
– Example of a business network: Alliance Network- to
create new markets; to bring together resources; to
agree on common standards; to spread risk across a no
of firms
 Business Networks
• Characteristics
•Organized around a market opportunity
•Multiplex relationship between firms
•Increasingly international in composition (domestic :
Chaebol, Keiretsu)

• Analyzing Networks
•Actors; Activities; Resources
•Network Horizon; Network Context; Network
Identities;
•Network Roles : Architect; Lead Operator; Care Taker
 Business Networks
• Supplier Networks: Toyota
•50,000 companies
•First Tier: system suppliers; Second Tier: Deliver
System Parts; Third Tier: Standardized, non adapted
components; Fifth tier: homeworkers
•Indirect relationships
•Co-ordination between relationships (Quality /Eff.)
•Influence of large companies (invest, long term,
others interests)
•Problems with a single perspective
 Relationships, Networks, Technology
• Inextricably linked technology on which the offer is
based and the supplier technology
• Increasing use of technology eg. Electronic
technology in automobiles
• Need a wide range of know-how , skills and abilities
or technologies to provide improved offerings
 Technology
• Increasing cost of new gen. technologies
• Competitors in a race to use new technologies (Al
replacing steel in car bodies construction)
• New competitors arrive with new technologies
• Increasingly difficult to develop and maintain all
technologies required- Hence becoming more
dependent on business networks
 Technology

• Acquiring (Internal/External/Outsource Offerings)

• Exploiting (Internal/External)
• Managing Technology (Commercializing)
• Understanding and using technologies in
relationships and networks
 Key Linkages
External Environment Internal Organization

CUSTOMER MARKETING MANUFACTURING

Derived Demand
Emphasis on Technology
Complex Buying Process
High Level of Customization
Concentrated Customer Base’
Made to Order
Business Networks
 Internal Linkages

• Emphasis on technology
• Technology: Visible
• Performance, functions and features important in design,
manufacturing and marketing of a product
• Price/Performance ratio (semiconductors; memory)

• High Level of Customization

• Meet users technical requirements

• Cross Functional Relationships

 Marketing’s Cross Functional Relationship

Business marketing planning must

be coordinated and synchronized
with corresponding planning efforts.

Developed by Cool Pictures and MultiMedia Presentations

 Customer Value Management
• To understand customer requirements and preferences,
and what it is worth in monetary terms to fulfill them,
progressive suppliers rely on customer value assessment.

• They then put this understanding of customer value to use

in:
1. Choosing &Creating Value
-- Crafting market strategy
-- Managing market offerings
-- Guiding new offering realization
2. Delivering Value
-- Gaining customers
-- Sustaining customer relationships
 Customer Value Management
Customer value management can be implemented as a
process for improving specific business performance:

– Translating business issues into projects

– Customer value workshop: Build an initial value model

– Customer value research: Data collection and analysis

– Constructing a business case for change

– Value realization

More broadly, customer value management can be an

underlying philosophy for running a business.
 Building Customer Value Models
Building the initial value model:

Generate a comprehensive list of value elements.

Decide which competitor’s market offering customers in
each (sub)segment regard as the next-best-alternative.
Revisit the value elements to delineate:
Points of parity
Points of difference
In initial customer visits, determine points of contention.
Focus the model and data-gathering on points of difference
and points of contention.
Construct a word equation for each one and be explicit in
the assumptions made.
 Building Customer Value Models

An example of a word equation:

A point-of-difference between two large-format, document

reproduction systems was the number of paper jams a
customer would experience each day. The word equation
for this was expressed as:
Paper Jam Cost Savings B,A =
[(paper jams per day x minutes to fix jam)A –
(paper jams per day x minutes to fix jam)B] / 60 minutes
per hour
x operator wages per hour x annual work days
An explicit assumption made was that if operator hours could
be reduced, he/she can be reassigned for doing to other
value-adding tasks.
 Building Customer Value Models

Customer Value Research:

– Gain customer co-operation
– Data Collection
– Analysing the data
 Constructing a Business Case for Change
• What specific action does the team recommend based on
research?

• What resources would be needed to accomplish the

recommended changes in doing business?

• What are the specific concern in implementing the business

case?

• What milestones can be specified to chart the progress in

accomplishing the change?

• What would be the profitability impact if the business case

for change were approved?
 Building Customer Value Models

Building customers value models takes time

and money, and is not easy.

Yet, can suppliers afford not to build them?

 Value Realization

• Senior management approval and continued support of

business case

• Refining or extending customer value models

• Action plan for implementing business case:

– Supporting changes in performance review and

compensation

– Devise system for tracking incremental profitability

– Create value-based sales tools and sales force

training
 Value Realization

• Use the customer value model results to create

value-based sales tools:

– Value in-use case histories

– Value calculators
– Value documenters

-- Value assessment as a consultative selling

approach
 Customer Value Models

• Generate a comprehensive list of value elements

– Less tangible elements: value placeholders
• Gather data
• Validate the model and understand the variance in
the estimates
• Create value based sales tools
– Value case histories; Report savings to the customer
– Value assessment and consultative selling
– Tailor supplementary services
Spend a day in the life of your
customers
 Spend a day in the life of your customers
• No substitute for managers instincts, imagination
and personal knowledge of the market
• Single most important skill: instinctive capacity to
empathize with and gain insights from customers
• Imaginative probing keeping aside pre-conceived
idea about a clients situation
• Market focused leadership essential to meet new
market needs
Volvo
 Volvo - Success

• Sales
– 2001: 20 coaches
– Dec 2011: 5000 (76% of luxury bus market share)

• Price
– Tata/Ashok Leyland Bus: Rs. 35 lakhs/-
– Volvo (B7R): 80 lakhs
 Volvo

• Technological Benefits
– Air-conditioning, advanced suspension system, high
performance and rugged engine,
– Cabin comfort and ergonomics
– Appearance: attractive; more customers; premium fare
 Volvo

• Economic Benefits
– Costs: Lower maintenance Costs- 8.25 lakhs versus 32
lakhs per lakh km
– Revenues:
• Premium fares; 1200 versus 700 for Bangalore – Mumbai route
• Duration of the trip – 15 hours versus 22 hours
• Service benefits
– Low maintenance; time saved; more trips
– 275 days/year compared to 200 days/year
• Net Value in use- Rs. 3,18,250/year
Tata Steel
 Tata Steel

• Steel Coil of 900mm*1300mm used by OEM auto

customers
• Proposed 1300mm wide rolls instead of 900mm (18
tonne to 22 tonne)
• Higher throughput of tata steel mill – high order
compliance; reduced customer inventory
 Tata Steel

• Wider coil improved the yield loss from 2 to 0.8% in

cust. operations
• Set up to be done in 22 tons instead of 18 tons; set
up time reduced
• Increased productivity of customer shearing
equipment used to cut the sheet into pieces of
1300*900mm
• Increased cuts per minute of the critical resource
 Tata Steel – Value to Customers

• Tata Steel; Value to Customers-AR

– http://www.tatasteel.com/investors/annual-report-2011-
12/html/templates/pdf/principles/principle9.pdf
Understanding the Business
Customer
• Buy Grid Framework

• Business Customers & Buying

• Business Mktg. Strategy

• Challenges in Business Markets

Buy Grid Framework
 Depicting the Buying Process
The BuyGrid Framework
Buying Classes:
New Modified Straight
Task Rebuy Rebuy
Buying Phases:
1. problem recognition yes maybe no

2. determination of need yes maybe no

3. product specification yes yes yes

4. certification of vendors yes maybe no

 Depicting the Buying Process
The BuyGrid Framework

Buying Classes:
New Modified Straight
Buying Phases: Task Rebuy Rebuy

5. request for proposals yes maybe no

6. supplier selection yes maybe no

7. order routine selection yes yes yes

8. performance evaluation yes yes yes

yes

(Adapted from Robinson, Faris, with Wind 1967)

Business Customer and Buying
 Business Customers & Buying
• Understanding of Customer requirements and
preference :
• To create and deliver value (using available resources and
abilities)
• Helps supplier focus on the right customer managers
• Understanding Customers is the process of
learning how:
i. companies rely on a network of suppliers to add value to
their offerings? (Purchase orientation)
ii.Integrate purchasing decisions with other functional areas
and outside firms? (Buying Teams)
iii.Make purchase decisions
 Understanding How Purchasing Works
with Other Functions and Firms
Adding Value
Through Buying
Framework: Teams
Co-Creation
of Value Working with
suppliers and
across functions
Understanding
Purchasing Understanding
Orientation: Value for
• Buying Present and
• Procurement Understanding the Purchase Decision Process Prospective
• Supply Customer
Management Firms
Und. Learning the
Customer Evaluating
Purchase
Req. and the supplier
Process
Preferences performance
 Understanding Purchase Orientation
Purchase Orientation
– Overall philosophy that guides managers
– Buying, Procurement and Supply Management

(i) Buying
– Minimize price paid for a given transaction
• Obtain the best deal in terms of price, quality and
availability
– Price premium, distributive negotiations, price analysis, supplier
cost analysis
• Maximize power over suppliers
– Commoditization, multi-sourcing, sole sourcing and single sourcing
• Avoid risk wherever possible
– Follow established procedures; Rely on proven vendors
 Understanding Purchase Orientation
(ii) Procurement
– Reduce total costs associated with a product/service
– Broadening the domain and span and influence of purchasing (Rs.
1cost reduction eq. to Rs. 6 revenue increase)
– Quality improvements and cost reduction
– Integration of procurement activities
– Co-operative relationships with suppliers & Target Costing
– TQM / ERP / JIT
 Understanding Purchase Orientation
(iii) Supply Management
– Obtain the maximum benefits relative to costs and price from an
offering
– Realizes the interdependence among other firms
– Entails the integration and co-ordination of purchasing with other
functions within the organization as well with other firms in the
value network
– Four central tenets
– Focus on end users
– Formulate and Administer a Sourcing Strategy
(Competencies/make or buy)
– Build a supply network (members, amounts, inventory
locations, delivery routing)
– Build Collaborative relationships
 Understanding How Purchasing Works
with Other Functions and Firms
• Buying teams or Buying Centre
– Informal / Formal Group
– Roles: Initiator (user), Gatekeeper (purchase), Influencer, Decider,
Buyer, User

• Buying Situations
– New task; Modified re-buy; Straight re-buy
 Understanding the
Purchase Decision Process

• Understanding customer requirements and preferences

• Learning the customers purchase process
– Buy Grid Framework; Process and Situation
• Evaluating Supplier Performance
– Balanced score cards
– Vary by purchase orientation
• Reviewing price, quality and availability
• Scrutinizing total costs
• Tracking supplier value
 Business Mktg. Strategy
• Focus on Tools (4P’s) inadequate; focus on underlying
processes & people essential
• Understanding, Creating and Delivering Customer Value
– Understanding: Customers, Relationships, Networks,
Technology
– Creating: Product, Price
– Delivering: Channels, Communication (PC &EC)
• Building Customer Relationships
– Understanding and managing the relationship portfolio
 Challenges in Business Markets
• Managing Strategic Alliances
• High Obsolescence and short PLC
• High R&D Costs; Continuous innovation needs
• Core competence and Outsourcing
• Managing Hybrid Channels
• Partner not just intermediary
• Information/warranty/breaking bulk
• E linking channels; system integration
 Challenges in Business Markets
• Managing the Commodity Trend
• Intensifying competition and demanding customers
• TQM and Quality improvement
• Product differentiation: Quality and Cost
• Service support and Convenience (Augmented product / core
product)
• Managing Across Borders
• Managing Social Responsibility
• Pollution, Waste and Global Warming
• Corporate Brand & Reputation
Branding in Business Markets
 Business Purchasing & Brands
• Business Purchasing :
Combination of individual and organisational decision
making processes; brands influence both processes
Involves many actors; take place over a long period; go
through a series of decision stages
• Importance of Branding to Business Buyers
– Based on perceived importance of branding three
clusters of buyers emerged in a research- Branding
receptive; highly tangible and low interest
 Business Buying & Brands

• Business Buyers and Branding

– Branding Receptive: Found in more risky purchasing
situations; tended to be formal and thorough but open
minded; more sophisticated better educated and
bought in large volumes.
– Highly Tangible: Typical product oriented modified re-
buys and went by the book in a structured process
– Low interest: transaction oriented, straight rebuy
procurements based on conveneince ; characterised by
low involvement
 Buying Centres and Brands

• Buying Centre: Initiators, Users, Buyers, Deciders,

Influencers, Gatekeepers
– Need to build consensus in the buying process
– Getting all participants in the DMU to the same
conclusion and getting a commitment out of the
organisation- complicated process
– Strong helps in the process of building consensus and
helping the decision process
 General guidelines for successful
business brands
1. The role and importance of branding should be
directly linked to business model and value
delivery strategy
2. Understand the role of brand in the organisational
buying process
3. Craft VP relevant to multiple members of DMU
4. Emphasise a corporate branding approach
5. Educate the supplier organisation members the
value of branding and their role in delivering
brand value
End of Session Review Slides- Module 1
Quantifying Value, Crafting a Value Model and
Branding in Business Markets