Business Marketing

Industrial marketing consists

of all the activities involved in
marketing of products and
services to organizations that
uses products and services in
•Production of consumer or
industrial goods
•To facilitate the operation of
their enterprises
 Business Marketing
 Industrial Marketing is the marketing
of the products and services to
business organisations.
 Business organisation includes

manufacturing companies,
government undertakings, private
sector, educational institution, etc
 Business marketing is the practice of
individuals, or organizations, including
commercial businesses, governments and
institutions, facilitating the sale of their
products or services to other companies or
organizations that in turn resell them, use
them as components in products or services
they offer, or use them to support their
operations. business marketing is also called
business-to-business marketing, or B2B
marketing.
THE SUPPLY CHAIN
 Industrial versus consumer
marketing
 Less number of customers but large
customers
 Geographically concentrated market

 Channels of distribution are shorter

 Highly organized and well informed

buyers
 Business Marketing is focused on

personal selling.
 Price is fixed as per competitive

bidding and negotiated prices.

 Nature of Industrial Marketing
 Industrial/ B-to-B marketing involves
the process of providing goods and
services to industrial market
intermediaries , as opposed to
ultimate (final) consumers.
 Industrial goods are differentiated

from final consumer goods based on

their ultimate use.
 Characteristics of Business Marketing
 Creation of utilities: Business denotes

creation of utility and service for

satisfaction of human wants. Business
helps in the creation, distribution and
production of utilities.
 Recurring activities: Business activities

are recurring in nature. Recurring

purchase and sales are regarded as
identifying marks of the business.
 Transfer of title: The goods produced
or purchased by the business are made
with the intention of sale or transfer of
title from the seller to the buyer.
Because of this reason goods acquired
for the sake of personal consumption
are excluded from business.
 Mutual benefit: Business activities are 
not one sided affairs because both the
parties are benefited. The buyer gets the
benefit of having the goods and the seller
gets the benefit of having money.

 Expectation of earning: Business

provides a way of living to the
businessman because he intends to earn
profit.
 Scope of Industrial Marketing
 Marketing of goods and services to
industrial and institutional customers
(B to B marketing).
 The institutional customers use

purchased goods and services in

their own production of goods and
services. Consumer marketing, in
contrast, is for own consumption
 Types of industrial customers
Lubricants
users Coal
Commercial paper
enterprises OEMs
Original equipment mfrs Steel
Cement
Industrial Raw materials
Government
suppliers agencies
Airplanes
guns
Institutions
Hospitals,schools etc

Products
Consumables
 Commercial enterprise: it includes
private sector, profit-seeking
organisation consisting of : Industrial
distributors or dealers
 Significance of Industrial
Marketing
Major contribution to most national
economies
For ex. Caribbean island of Dominica
relies for 60% of its exports on
bananas, marketed to buyers
representing supermarkets in the US
& Europe and the income of over
10% of the country’s population is
directly dependent on selling this
crop.
 Major Share of Revenue
 Less Promotional Efforts

 Permanent Customers

 Greater impact on people’s lives than

B2C trading
 B2C marketers are learning from

B2B marketing practices

 Classification of industrial
products
 Material and parts
• Raw materials
• Components
 Capital items
• Installations(Heavy equipments)
• Accessory equipment (Light equipment)
 Supplies and services
 Supplies items includes paints, soaps, oil

and grease
 These items are generally
standardized & are marketed to a
wide cross-section of industrial
users.
 Services: It includes services like
building maintenance services,
auditing services, legal services,
marketing research services
 Market Segmentation and B2B Marketing

company size
Behaviour or Needs
Certainly large companies may be of key or strategic value to a
business but some want a low cost offer stripped bare of all services
while others are demanding in every way
 Size Segmentation Examples
  Targeting companies who see $500 million/year in revenue.
 Only targeting the largest companies in your region based on
number of employees.

 Segmenting By Vertical
 A hanger warehouse may only target companies in the retail industry, a
graphic software firm may only target design departments or design houses

 Segmenting by Geography

 Segmenting by Behavior
 segmenting targets prospect groups based on their buying behavior. How
are your customers using your product, how often are they using it, and
what is the challenge your prospects face? Those questions, coupled with
the propensity of your prospect to actually pull the ‘buy’ trigger, is the
cornerstone of behavioral segmenting.
 Eg: selling enterprise software, you’ll probably have at
least 4 sets of campaigns / messages aimed at different
groups within the company:
- business function: the department who’ll be using your
software the most, focus on use cases, user benefits,
features
- IT: how it’s technically superior, integration options,
reliability, security…
- Finance: return on investment, compliance, legal
requirements, financial credibility
- Executive: strategic, case studies, overviews, hospitality
 Chapter 2

 Nature of Demand in Industrial Markets

 Purchasing orientation & Practice of business customers

 Environmental analysis in industrial/business

 Channel Characteristics
 Inventory or stock control is very much

important factor in the business

organizations' therefore the distribution
channels are needed more direct from the
manufacturer to the customer in industrial
marketing.
 There are a few channel alternatives,

which are feasible in the industrial market

than the consumer market
Nature of Demand in
Industrial Markets

 The demand for industrial products

and services does not exist by itself.
It is derived from the ultimate
demand for consumer goods and
services.
 Industrial demand is therefore, called

derived demand.
Derived Demand:–
Industrial Customer buys goods and
services for use in producing other goods
and services.
 Ultimately whatever is finally produced

will be sold to the consumers. Hence the

demand for Industrial goods and services
is derived from consumer goods and
services.
 Joint Demand;–
Joint demand occurs when one
industrial product is useful if other
product also exists.
 For eg: a computer cannot be

operated without the monitor.

 Cross Elasticity of Demand:–
 Elasticity is simply the change in

demand from a change in price.

Demand is “inelastic” if the %
change in quantity demand is less
than the % change in price.
 Complementary Goods
• Complementary goods are those that are often used together, such as
motor vehicles and gasoline or DVDs and DVD players.
 Complementary Illustration
 When the price of one good declines (or increases) and the demand for a
related good increases (or decreases), then the two goods are considered
complementary.

 For example, if the price of computers increases and the demand for software
declines, computers and software can be considered complementary.
 Substitute Goods
 Substitutes are goods that are used in place of each other.
Examples include CDs and digital music files, such as MP3s or ice
cream and frozen yogurt.
 Substitute Illustration
 If a price increase for one good leads to an increase in demand for
a related good, then the two goods are considered substitutes. An
increase in beef prices, for example, followed by higher demand for
chicken or pork, indicates that chicken or pork represent substitutes
for beef.

Purchasing orientation
& Practice of business
customers

 PURCHASING ORIENTATION
 purchasing department occupied a low position in the
management hierarchy, in spite of often managing more
than half the company’s costs.

 Recent competitive pressures have led many companies to

upgrade their purchasing department and elevate
administrators to vice presidential rank.
 Today’s purchasing departments are staffed with MBAs
who aspire to be CEOs-like Thomas Stallkamp, Chrysler’s
former executive vice president of procurement and supply,
who cut costs and streamlined the automaker’s
manufacturing processes.
 Procurement Orientation:
 Here buyers simultaneously seek quality improvements and
cost reduction. Buyers develop collaborative relationships
with major suppliers and seek savings through better
management of acquisition, conversion, and disposal costs.
They encourage early supplier involvement in materials
handling, inventory levels, just-in-time management, and
even product design.

 They negotiate long-term contracts with major suppliers to

ensure the timely flow of material. They work closely with
their manufacturing group on materials requirement
planning (MRP) to make supplies arrive on time.
 Types of Purchasing Processes :
Four product related purchasing processes are distinguished,
 1. Routine product: These products have low value and cost to the

customer and involve little risk (e.g. office supplies). Customers will
seek the lowest price and emphasize routine ordering. Suppliers
will offer to standardize and consolidate orders.

 2. Leverage products: These products have high value and cost to

the customer but involve little risk of supply (e.g. engine pistons)
because many companies make them. The supplier knows that the
customer will compare market offerings and costs, and it needs to
show that its offering minimizes the customer’s total cost.
 3. Strategic products: These products have high value and cost
to the customer and also involve high risk (e.g. mainframe
computers). The customer will want a well-known and trusted
supplier and be willing to pay more than the average price. The
supplier should seek strategic alliances that take the form of
early supplier involvement, co-development programs, and co-
investment.

 4. Bottleneck products: These products have low value and cost

to the customer but they involve some risk (e.g. spare parts).
The customer will want a supplier who can guarantee a steady
supply of reliable products. The supplier should propose
standard parts and offer a tracking system, delivery on demand,
and a help desk.

 Buying Orientation:
 The purchaser focus is short term and tactical. Buyers are
rewarded in their ability to obtain the lowest price from
suppliers for the given level of quality and availability.

 Buyers use two tactics namely commoditization, where

they imply that the product is a commodity and care only
about price; and multi-sourcing where they use several
sources and make them compete for share of the company
purchases.
Environmental analysis in industrial/business
 Economic What economic trends might have an impact on business activity?
(Interest rates, inflation, unemployment levels, energy availability, disposable
income, etc)

 Technological To what extent are existing technologies maturing? What

technological developments or trends are affecting or could affect our industry?

 Government What changes in regulation are possible? What will their impact
be on our industry? What tax or other incentives are being developed that
might affect strategy development? Are there political or government stability
risks?

 Socio cultural What are the current or emerging trends in lifestyle, fashions,
and other components of culture? What are there implications? What
demographic trends will affect the market size of the industry? (growth rate,
income, population shifts) Do these trends represent an opportunity or a
threat?
 Future What are significant trends and future events? What are the key areas of
uncertainty as to trends or events that have the potential to impact strategy?

 Internal Analysis Understanding a business in depth is the goal of internal analysis.

This analysis is based resources and capabilities of the firm.

 Resources A good starting point to identify company resources is to look at tangible,

intangible and human resources.
 Tangible resources are the easiest to identify and evaluate: financial resources and
physical assets are identifies and valued in the firm’s financial statements.

 Intangible resources are largely invisible, but over time become more important to
the firm than tangible assets because they can be a main source for a competitive
advantage. Such intangible recourses include reputational assets (brands, image,
etc.) and technological assets (proprietary technology and know-how).

 Human resources or human capital are the productive services human beings offer
the firm in terms of their skills, knowledge, reasoning, and decision-making abilities.
Organizational
Buying
 Characteristics of
organisational procurement
 Multiple influencers
 Technical sophistication

 Value analysis

 Well established procedures

 Longer term and closer

relationships.
 Closer interactions among multiple

functions.
 Supplier proximity considerations.
 Buying phases
 Recognition of a problem
 Solution determination

 Determining the needed item

 Search for and qualification of

potential sources
 Acquisition and analysis of proposals
 Buying center
 The decision making unit
 Group of individuals who come
together to make a particular
purchase decision
 Buying center roles
 Primary roles
• Decision makers
• Influencers
 Secondary roles
• Users
• Buyers
• Gatekeepers
Objectives in organisational
buying
• Price
• Services
• Quality
• Assurance of supply
 How purchasing activities
influence buying behavior…
 Material requirement planning (MRP)
• Demand management
• Production management
• Material management
 Just-in-time purchasing (JIT)
• Only one supplier
• Long term relationships
• Frequent supplies
• Precise quantity at precise time
 Centralized purchasing
 Buyer technology
• On-line DSS, on-line order processing etc
Factors influence the size of the
buying Centre
 Characteristics of the firm
 Purchasing situation

 Perceived importance of the product

 Psychological factors
influencing decision making
 Difference in role orientation
 Difference in information exposure

 Perceived risk
 Sources of power in conflict resolution
 Reward power
• Ability to influence by granting monetary
benefits
 Coercive power
• Ability to impose punishment
 Legitimate power
• Formal authority
 Personality power
• Ability to influence with personal charm
 Expertise power
• Information or knowledge power
 Evaluation of supplier
performance
 The categorical method
 Weighted point method

 Cost ratio method

 Weighted point method

Factor Weight Actual performance Score

Quality 40 90% acceptable 40*0.9=36

Delivery 30 90% on schedule 30*0.9=27

Price 20 125% of lowest bidder 20*0.8=16

100/125=0.8

After sales 10 60% on time 10*0.6=6

Total score 85
Cost ratio method
 Market demand
 Market demand for a product is the
total volume that would be bought
by the defined customer group in a
defined geographical area in a
defined time period in a defined
marketing environment under a
defined marketing programme
 Demand measurement and
forecasting
Types of demand measurement
Geographical
Product level
Time level
Segmentation, targeting and
positioning in Industrial
marketing
 Segmentation, Targeting &
Positioning
 Levels of Market segmentation
• Individual marketing
• Segment marketing
• Niche marketing
• Mass marketing
 Requirements for effective
segmentation
 Measurable
 Substantial

 Accessible

 Differentiable

 Actionable
Basis of segmentation in business
marketing
 Macro segmentation
 Micro segmentation
 Some Macro variables
 Industry
 Plant characteristics

 Location

 Purchasing process

 End use markets

 Some Micro variables
 Organizational variables
• Purchasing situation / phase
• Product innovativeness
• Organizational capabilities
 Purchase situation variables
• Inventory practices
• Purchasing policies
• Structure of buying centre
 Individual variables
 Market targeting
 Process of market targeting
• Evaluating the market segments
• Selecting the market segments
Product planning
What is an industrial product…
 Basic properties
 Enhanced properties

 Augmented properties
Product strategy involves
continuous change
 Product strategy issues revolves
around
• Changes needed in current products
• Whether products should be added or
dropped(product mix management)
 Industrial product manager
 Forecasting sales
 Product planning
 Pricing
 Product conceptualizations
 Initiating product changes
 Product re-engineering decisions
 Product mix management
 Production planning and capacity
management
 Technical support to the selling team
 Product life cycle
– Course that a products sales and profits take over it’s
life time
– The PLC has four phases
• Introduction
• Growth
• Maturity
• Decline
 Introduction stage
 Characteristics
• Low sales
• High cost per customer
• Negative profits
• Innovators customers
• Few competitors
 Marketing objective
• Create product awareness and trial
 Introduction stage
 Strategies
 Product : Offer basic product
 Pricing : Cost plus pricing
 Distribution : Build selective distribution
 Advertising : Build awareness among early
adopters and dealers
 Sales promotion : Heavy sales promotion to
entice trial
 Growth stage
 Characteristics
• Rapidly rising sales
• Average cost per customer
• Rising profits
• Early adopters
• Growing competitors
 Marketing objective
• Maximize market share
 Growth stage
 Strategies
• Product : Product extensions, service,
warranty
• Price : Competitive pricing
• Distribution : Intensive distribution
• Advertising : Build awareness and
interest in mass market
• Sales promotion : Reduce
 Maturity stage
 Characteristics
• Peak sales
• Low cost per customer
• High profits
• Middle majority customers
• No of competitors begin to decline
 Marketing objective
• Defend the market share while maximizing
profits
 Maturity stage
 Strategies
• Product : Features
• Price : match or beat the competitors
• Distribution : more intensified
distribution
• Advertising : Stress brand differences
• Sales promotion : Increase to achieve
brand switching
 Decline stage
 Characteristics
• Declining growth rate
• Low cost per customer
• Declining profits
• Laggards customers
• Declining competitors
 Marketing objective
• Reduce expenditure and milk the brand
 Decline stage
 Strategies
• Product : Phase out weak items
• Price : Cut price
• Distribution : Selective
• Advertising : Reduce to minimal level
Product revitalization decisions
 Identifying the causes for poor
performance
• Uncompetitive price
• Production problems
• Uneconomic batches
• High cost of production
• Wrong assessment of customer
expectations
• Low selling price
Product revitalization decisions
 Corrective actions
• Product modifications (cost reduction)
• Increase the price
• Product improvement
• Decrease the price
• Development of new market
• Increased promotional expenditure
• Revamping distribution channels
 Product elimination decisions
 Factors to be considered during
product elimination decision
• Full line policy
• Corporate image
• Sales of other products
• Profitability of other products
New product development
 What is new product
 New to the world
 New product lines

 Product variants

 Improvements in the existing

products
 Repositioning
Where do new ideas come from
 Within the company
 Customers
 New product development process
 Idea generation
 Idea screening
 Idea evaluation and preliminary
business analysis
 Concept development and testing
 Product development and testing
 Formal business planning
 Test Marketing
 commercialization
 Organisational aspects in new
product development
• Product managers
• New product managers
• New product committees
• New product departments
Formulating channel
strategy
Channel participants
 What is a marketing channel
 A marketing channel is a set of
interdependent organisations
involved in the process of making a
product or service available for use
or consumption
 Key members of marketing
channels
 Manufacturer
• Producer of product or service being
sold
 Intermediaries
• Means channel member other than
manufacturer or end user (wholesaler,
retailer)
 End users
 Why marketing channels

Demand-side Supply side factors

factors • Routinisation of
• Facilitating the transactions
search • Reduction in no. of
• Assortment contacts
 Sorting • Carry inventory
 Accumulation • Demand creation
 Bulk breaking • Extend credit to end
users
• service
 Marketing flows
 Physical possession
 Ownership
 Promotion
 Negotiation
 Financing
 Risking
 Ordering
 Payment
 “Service outputs”
 Value added services created by
channel members along with the
product purchased by consumers are
called service outputs
 Typical service outputs include bulk

breaking, spatial convenience,

waiting and delivery time,
assortment etc.
 Choosing the right distributor
 What marketing functions to assign
 Product line
• Fragmented channels
• Specialized products
 Size and type of the distributor
• Large and reputed distributors
• Small distributors
 Exclusive or multiple distribution
 How to divide selling function b/w company
sales team and distributors
• House accounts and distributor accounts
 Distribution policies
Marketing logistics

Physical distribution and

customer care
 Logistics
 In the business area, Logistics refers
to the interrelation and management
of all the activities involved in
making products and raw materials
available for manufacturing and in
providing finished products to the
customers when, where and how
they are desired
Various logistical cost centres are
 Transportation
 Inventory management

 Warehousing

 Material handling

 Order processing
 transportation
• Mode and carrier selection
 Road
 Rail

 Air

 Pipeline

 waterways

• Carrier routing
• Vehicle scheduling
 Inventory management
 Inventory carrying cost
• Inventory acquisition cost
• Inventory service cost such as insurance
• Storage space costs
• Inventory risk cost
 warehousing
• Private or public facilities
• Site location
 Market centered
 Production centered

 Intermediate
Marketing communication

Advertising and sales promotion

Publicity and Personal selling
 Advertising in business
marketing
 In business marketing advertising is
required for
• Reaching the buying influencers
• Creating awareness
• Enhancing the sales call effectiveness
• Increasing overall marketing efficiency
• Supporting channel members
 Industrial advertising media
 Business and trade publications
 Directory advertising

 Consumer media

 Direct marketing

• Mailers
• Telemarketing
• Catalogues
 Sales promotion in business
marketing
 Trade shows
 Premiums

 Specialty advertising

 Incentives

 Publicity in business marketing

 Advertising funds
 What can we afford
 Objective and task

 Percentage of sales

 Experimentation

 Match the competition

 Developing message strategy
 Identifying the audience needs
 Keep the message to important

specifics
 Case histories

 Testimonials

 Comparison Ads

 Straight exposition
 Developing media plan
 Media class
 Media vehicle

 Reach

 Frequency

 Continuity (Length of the campaign)

 Scheduling
 Advertisement evaluation
 Advertisement impact assessment
• Aided recall
• Un aided recall
 TOM
 SIM

 OIM

• Message recall
• Content recall
 Pricing
 Factors that influence pricing
strategy
• Customer demand
• Competition
• Cost and profit relationships
• Government regulations
 Cost analysis
 Fixed cost and variable cost
 Economies of scale

 The learning curve

 Pricing strategies
 New product introduction
• Market skimming
 Product has a patent protection
 Highly valuable innovation

 Product has a short life span

 Potential competitors are distant in time

 Uncertainty regarding markets price

sensitivity
• Market penetration
 Market is highly price sensitive
 Strong competition exist

 Company’s goal is high market share

 Pricing policies
 Discount pricing
• Trade discounts
• Quantity discounts
• Cash discounts
 Geographical pricing