Академический Документы
Профессиональный Документы
Культура Документы
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.
• 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.
• It is not the nature of the product that is bought and sold that
differentiates business markets from consumer markets.
• 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
• In business markets customers are organizations who buy products that are
not bought by consumers—management consultancy service, heavy
engineering equipment 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
• 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.
• 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.
• 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.
• 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.
• 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
• 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.
• Benefits of segmentation:
• 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.
• 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.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
• 1. The all benefit approach: Here, suppliers just list all the
potential benefits they believe their product or service might
provide for target segments.
• --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.
• --Industrial marketer has to decide how many and which product attributes
should be selected to differentiate the company or its products from other
competitors.
• --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
• 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.
• 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.
• 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.
• (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.)
• --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.
• --The business marketer will ride the growth phase as long as possible and
achieve the best margins possible.
• 3.Maturity stage
• 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.
• 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.
• Development and marketing new industrial products is vital for a profitable growth of a
firm.
• 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
• 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
• The launch can be a big event depending on the company size, its
market etc.
• If any service need is found during this period, training of personnel may
be carried out.
• 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
• Such companies estimate the market demand and costs at different alternate
prices, but in reality it is difficult to accurately estimate demand & cost.
• Such a policy does not take into account competitors’ reactions or legal issues.
• D) Market skimming: Companies may set high price in the initial stages of
the product life cycle when they introduce new products.
Pricing Decisions
• 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.
• 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;
• 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?
• 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
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%.
• 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.
• 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.
• Some may react strongly to a price cut, some may react very selective way.
• Here we will consider pricing strategies followed for situations like competitive bidding in
competitive markets, pricing of new products.
• 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.
• 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.
• 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.
• 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.
• Thereafter, the price will be reduced to reach other price sensitive segments.
• 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.
• 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.
• 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 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 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.
• 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.
• 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).
• The trade off between buying & leasing are considered before any such
decision.
• 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.
• 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
• Various stages in communication are related to the process enacted by a firm to acquire &
retain customers.
• 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
• 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.
• 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.
• 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.
• 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).
• Trade shows can be used to showcase a country’s expertise in a specific industrial sector.
Farnborough Air Show).
• Non-selling functions include building & maintaining company image, gathering competitor
information, product testing/evaluation, sometimes trying to know the latest technology
available, etc.
Communication