Business to Business Marketing

Review: Understanding Customer Value June 16-July 2, 2012

Business to Business Marketing

I. II. III.

Nature, Characteristics, Scope Business Marketing Vs Consumer Marketing Understanding, Creating and Delivering 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.

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

B2C

B2B

Customers

Individuals & Households

Businesses Global Large corporations Small & Medium sized businesses

Institutions Healthcare Education

Government State Local

Selected Products

PCs Printers Consumer Electronics Simple Service Agreements

PCs Enterprise Storage Servers Complex Service Offerings

Business Marketing
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 )

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 PrenticeHall, 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

External Environment

Key Linkages

Internal Organization

CUSTOMER

MARKETING

MANUFACTURING

Derived Demand Fluctuating Demand Complex Buying Process Concentrated Customer Base Relationships/ Business Networks

Emphasis on Technology High Level of Customization Made to Order Cross Functional Relationships

External Linkages
Derived Demand Driven by consumer goods demand AutomobileDashboard - ABS Plastic Pellets3 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 clusterssilicon valley, auto component industry, diamond cutting..) Personal Selling; Direct Marketing

The Supply Chain

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

External Environment

Key Linkages

Internal Organization

CUSTOMER

MARKETING

MANUFACTURING

Derived Demand Complex Buying Process Concentrated Customer Base Business Networks

Emphasis on Technology High Level of Customization Made to Order

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

Marketings Cross Functional Relationship

Business marketing planning must be coordinated and synchronized with corresponding planning efforts.
Developed by Cool Pictures and MultiMedia Presentations

Marketing is perhaps best understood as

1. The customer-product connectionlinking the customer to the focal offering. 2. The customer-service delivery connectionthe design and delivery actions involved in providing a firms goods and services. 3. The customer- financial accountability connection. Activities and processes that link customers to financial outcomes.

Marketings Role in Managing Three Customer Connections

Customer

Marketing, Operations

Product

Operations

Service Delivery

Human Resources, Accounting

Financial Accountability

Human Resources

Accounting, Management Information Systems

Top Management

Cross-Functional Connections Explores the Interrelationships Between Marketing and Four Business Functions

Formulating Business Marketing Strategy: Vital Cross-Functional Connections

Business Vs Consumer Mktg. Strategy

Business Markets
1

Consumer Markets
Consumer demographic, Psychographic variables

Market Segmentation

Industry Characteristics; Organization Characteristics; End user markets; Product Application Positioning on Value ; monetary worth of benefits; (technology, capabilities, performance, features) Flexible / customized

Positioning; Product Policy

On psychological attributes

Pricing

Standard

Channels of Distribution Marketing Research

Personal Selling

Wholesalers / Retailers

Customer specific; Relationship specific; Internally generated

Market specific; Survey; External Agencies

Customer Value Management

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 customers application

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: (Valuef Pricef ) > (Valuea Pricea)

Customer Value Management

The essence of customer value management:
-Deliver superior value to targeted

--

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.

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:

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 competitors 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

Understand what customers value

Constructing Customer Value Models

Generate a comprehensive list of value elements Identify the economic, social,technical and service benefits; Less tangible elements: value placeholders Conduct a customer value workshop to gather data to estimate the monetary worth and understand the relative importance of the benefits compared to BASE Focus group discussions/ indepth interviews Field visits: Spend a day in the life of your customer

Constructing Customer Value Models

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

Brands & Branding in Business Markets

Branding in Business Markets

Powerful B2B Brands GE, ABB, L&T, Caterpillar, Dupont, Fedex, IBM, Intel, HP, Siemens, 3M, Cisco Branding as Differentiation Strategy Brand Awareness and Brand Image Products and services associated with a brand and what attribute sand befits make it distinctive

Top 20 Brands: Brand Finance 2012

Top 20 Brands: Brand Finance 2012

Branding
Bran Essence Key point of difference that are the essence and spirit of the brand in 3-5 words Nike: Internal brand mantra: authentic athletic performance External brand slogan: Just Do it Brand Slogans: GE: Imagination at Work HP: INVENT Xerox: The document company

Branding
Brand Charter: Summary of history and positioning of a brand Marketing actions should be evaluated against the brand charter Strong Brands: Consistent brand image across customer population Aligned with the firm strategy

Branding , Derived Demand & Fewer Customers

Derived demand & ingredient branding Every firm in the value chain benefits from a strong brand Business Goods and Services Raw materials, processed materials, component parts, subassemblies, Light equipments; construction: MRO and services Services: Supplementary services or standalone intangible services like tax advice / investment banking Brand name differentiates- Bechtel (construction); Cargill (raw materials), caterpillar (heavy equipment), Dupont (processed materials); Mckinsey consulting; Morgan Stanley (Banking); Xerox: Light Equipment

Branding and Business Buying Behaviour

Characterised by profit motivated and Budget constrained customers; rather than products Buyers: Fewer, Larger, nature of relationship demanded & importantly buying process Many actors; long periods; multiple decision stages Combination of individual and organisational decision making process; brands to influence both processes

Branding and Business Buying Behaviour

Decisions made interacting with internal and external people Decisions made within organisational goals, resources, strategy and structure Organisation in a dynamically changing business environment (changing technology, products)

Branding and Buying Situation

Situation characterized by complexity of the problem solved, significance, newness of the buying requirement, no of people involved, stages and time taken Buyers: Branding receptive; highly tangible and low interest Branding receptive: Found in more risky situation; formal; thorough and open minded; Use more suppliers; sophisticated ; better educated and buy in volumes

Branding and Buying Situation

Highly receptive buyers Typical product oriented re-buys and went by the book in a structured process Low interest buyers Transaction oriented, straight re-buy procurements based on convenience and low involvement Over time: New buy- Re- buys- Routine purchase Brand play different role in different situation

Buying Centre and Branding

Initiators, Users, Buyers, Deciders, Influencers, Gatekeepers Strong brand awareness and favorable attitudes among dispersed buyers can exert major influence throughout the process Buying authority; veto power; consensus & group decision making Self interests; functional area; organizational interests & multiple buying criteria Brand as a major tool for building consensus in organisational perceptions; predisposition and buying action

Business Buying and Branding

Individuals take decisions Individual goals vs organizational goals Individuals are buying solution to two problems Organisations economic and strategic problem Their own desire to obtain individual achievement and rewards Rational & Emotional Basis Product related brand association are likely to play more importance

Branding and Customer relationships

Customers on the relationship continuum Chemical company: Low price seekers, dial toners; techies. Win-win partners Branding to address different segments Relationship seekers value corporate brand; reliability and trustworthiness Transaction customers: Product performance, pricing and tangible service attributes Intel and Microsoft has successfully managed their complex relationships with OEM and Users through branding efforts

Branding Strategy
Corporate Brand Sub-brand for different product lines ( Intel- Pentium; Dupont- Teflon) Firm may be more important than the products Branding will increase in significance with increase in user base Brand Value proposition: meaningful to buyers; users; influencers and deciders in the organisational buying decision process

Guidelines for B2B Branding

Differentiate your offer Symbolic identifier or a shorthand descriptor for the set of economic, social, service benefits that customers receive from a suppliers offering Brands get endowed with meaning through consistent performance over; brand names may not be evocative Dupont brands: Lycra, Teflon, Kevlar etc Brand associations

Guidelines for B2B Branding

Capture the value of value placeholders (the intangibles) Demonstrated value and brand equity may not be the same Ingredient Brands: Conveys values of a suppliers offering to its customers Increases marketing effectiveness: lowers cost of new product launched Create emotional attachment or loyalty to an offering through their association with customer experiences

Guidelines for B2B Branding

Emphasise a corporate branding approach Build the corporate brand around brand intangibles such as expertise, trustworthiness, ease of doing business and likeability Internal Branding

Guidelines for B2B Branding

Branding to be aligned with suppliers business model and value delivery strategy Understand the role of brand in the organisatonal buying process Basic value proposition to be relevant to all significant members in the DMU

Examples of Value Models Used in the industry

Value Model: Siemens- Value Calculators
http://www.energy-efficient-production.siemens.com/en/cost-savingpotential/calculation-examples.htm https://www.industry.siemens.com/topics/global/en/energy-efficientproduction/energy-saving-tools/energy-savingcalculator/Pages/energy-saving-calculator.aspx?HTTPS=REDIR

Value proposition
http://www.mckinsey.com/client_service/marketing_and_sales/expe rtise/digital_marketing

Examples of Value Models Used in the industry

Value -Case studies Infosys
http://www.infosys.com/global-sourcing/casestudies/Pages/information-services-casestudy.aspx http://www.infosys.com/global-sourcing/casestudies/Pages/networking-casestudy.aspx

White Paper: Benefits of Cloud Computing

http://www.infosys.com/cloud-computing/whitepapers/Documents/realizing-value-proposition.pdf

TCS
You may refer to http://www.tcs.com/Pages/default.aspx to understand their value prosposition and value based sales tools

Thank You