Understanding B2B Marketing

Rajan Arora

B2C vs B2B Market

Business Marketing

B2B Marketing, Business Marketing or Industrial Marketing are used interchangeably

B2B transactions occur between 2 companies, instead of involving a consumer in the process of transaction

50% of all business school graduates join firms that directly compete in the business market Because of interest in high-tech markets and the size of industrial markets, increased attention is being paid to business marketing management Business Marketers serve the largest market of all !

What is Business Marketing Management

Business Markets

Are markets for products and services from local to international Bought by:

Businesses Government bodies Institutions Incorporation Consumption Use Resale

For:

What Are Business Products?

Used to manufacture other products

Become part of another product

Aid in the normal operations of an organization

Key is the products intended use

Are acquired for resale without change in form

A product purchased for personal use is considered a consumer good

B2B Marketing is Huge

1. 2. 3.

Business marketers serve the largest markets of all. Money volume of the business market greatly exceeds the consumer market. A single B2B customer can account for enormous levels of purchasing activity.

GM purchases around $125 billion of products & services annually Recent news (July-2013) GOI to spend One Lac Crore Rupees on e-Governance projects

Noticed an interesting comment from a B2B Marketer in a Blog/Article

To date, companies operating under those conditions are frustrated with marketing theory. 95% of the published marketing textbooks deal with consumer marketing," Richard Morford, general manager for tire and rubber chemicals at Rhne-Poulenc S.A., told us. "We have stopped sending our executives to business school. It is frustrating to learn about the marketing of Listerine mouthwash and have what is of primary interest to us treated as an aside."

Dell - B2C & B2B Markets

The Consumer Market (B2C) and the Business Market (B2B) at Dell Inc.
B2C
Customers: Individuals & Households

B2B
Businesses Global Large corporations Small & Medium sized businesses Institutions Healthcare Education Government Federal State Local

Selected Products:

PCs Printers Consumer Electronics Simple Service Agreements

PCs Enterprise Storage Servers Complex Service Offerings

That means: For B2B vs. B2C Watch out

Nature of Customer How that customer uses the product

Categories of Business Market Customers

Commercial enterprises 2. Governmental organizations 3. Institutions

1.

Business Marketers vs. Consumer-Goods Marketers Similarly:

Both marketers benefit by employing a market orientation, i.e.:

They need to understand and satisfy customer needs

They are both market driven

Customer vs Consumer

A customer purchases and pays for a product or service A consumer is the ultimate user of the product or service

The consumer may not have paid for the product or service to the seller organization directly!!

Customer vs Consumer
Marketing Strategy An Example
A food manufacturing firm makes ready-to-eat meals for supermarkets: From business perspective, the customer is the supermarket The consumer is the individual who eats the meal In terms of its marketing effort, who should the business above target? Understand the needs and wants of both the customer and the consumer. Develop a strong understanding of the needs of the supermarkets in terms of their requirements for ready meals (e.g. packaging, recipes, price & delivery). Understand (perhaps with the help of supermarkets) needs & wants of the consumer. How are tastes changing? Are consumers happy with the SKUs/sizes/taste of the product? B2B Relationships/Collaboration!! Will study more on these points later.

Class Discussion
B2B or B2C Marketer ?
Which markets do these organizations primarily cater to? B2C or B2B ?
1. 2. 3. 4. 5.

Educational Inst (say, IILM CMS) Tata Steel JCB Big Bazaar eBay / Flipkart

6. 7.

8.
9. 10.

Google Inc. Apple Inc. Apollo Hospitals Microsoft Corp A Big Confectionary Shop

Here comes the first assignment

Marks/Weight: 4%

Brief write-up on the following organizations regarding how/whether they cater to - B2C or B2B Markets?
Give

logical reasoning and Primary revenue source / %age? Handwritten submission. Be brief and to the point. Do remember to refer your source book/URL, if any.
1.
2. 3.

4.
5.

Tata Steel JCB Big Bazaar eBay / Flipkart Alibaba.com

6.
7. 8.

9.
10.

Apple Inc. Indiamart.com Boeing Inc. P&G Facebook

Small Exercise
To know the audience better

Write the following on a piece of paper in 5mins:

1. Name 2. Educational background 3. Where do you want to see yourself in 5-7 years from now 4. Hobbies/Interests

B2B vs B2C Marketing More Food for thought

Rethinking the 4Ps for B2BM

4Ps SAVE
1. 2. 3. 4.

Instead of PRODUCT, Focus on SOLUTION Instead of PLACE, Focus on ACCESS Instead of PRICE, Focus on VALUE Instead of PROMOTION, Focus on EDUCATION

Reference: The ideas in this slide have been borrowed from an HBR Article Rethinking the 4Ps by Richard Ettenson, Eduardo Conrado and Jonathan Knowles.

Quick Recap

Categories of Business Market Customers Commercial enterprises 2. Governmental organizations 3. Institutions

1.

Business Market Customer

Commercial Enterprises as Consumers Three categories of Commercial Customers:

Users OEMs Dealers, Distributors, Facilitators etc.

Users

Users purchase industrial products or services to produce other goods or services that are, in turn, sold in the business or consumer markets. Example:Toyota buys machines to produce cars that are sold to consumers and businesses. Toyota is a user. Machine/tools dont become part of their end product (car) Use vs Consumption

E.g. Buy a machinery (or a printer) for use in manufacturing (or printing) vs. Buy its refills like coolant/dies/lubricating oils (or printers cartridges etc.) for consumption.

Original Equipment Manufacturers OEMs

An OEM manufactures products or components that are purchased by another company and retailed under that purchasing company's brand name. i.e. An OEM refers to the company that originally manufactured the product. Contradictory definition: OEM refers to Individuals and organizations that buy business goods and incorporate them into the products that they produce for eventual sale to other producers or to consumers.

Original Equipment Manufacturers OEMscontd.

Alternatives to contradictory or confusing use:

Instead of OEM, companies may label themselves Resellers or VARs (Value-Added Resellers).

A Value-added Reseller (VAR) is a company that adds features or services to an existing product, then resells it (usually to end-users) as an integrated product or complete "turn-key" solution.

Dealers, Distributors, Facilitators

Include commercial enterprises that purchase industrial goods for resale (in basically the same form) to users and VARs. The distributor accumulates, stores and sells a large assortment of goods to industrial users Handling transactions of billions of dollars, industrial distributors play a strategic role in business markets!!

Think of SCM, Inventory Control, Working Capital, Big Exporters, Resellers, Indirect Channel Members and Facilitators etc. for huge deals of B2B/industrial goods

Pause! Any questions so far?

Group Project
1. 2.
1.
2. 3.

Form Groups of 4 Requirements (Youll not be permitted to change later)

Choose a New Industrial Product Amount (in Crores of Rupees) you plan to invest B2B Marketing Plan

Ideas (Be innovative; Dont get biased; Special credit for Out-of-the-box thinking): You may choose a product from a SMB or a big enterprise too. For information, check with friends/relatives employed in MNCs/SMEs or doing own business producing industrial goods or providing large-scale business services to B2B customers!

Guidelines for Report

Not limited to

Company backdrop/history Current Product Portfolio Objective of New Product (and/or Setting up the company) The Key Opportunities in the Market Environment The New Product Description/Details The Target Audience (STP) Assessing Market Demand and Sales Forecasting The Marketing Challenges and Strategies adopted Implementation and control of their B2B plan The Future Scenario Your learning and suggestions

Group Project
Timelines
1.

Stage-1: Submit Product Name (and if possible, Company Name too) by 19/Aug/2013 Stage-2: Submit Contents of your Marketing Plan by 22/Aug/2013
1.

2.

What all you will study and analyze

3.

Stage-3: Submission of Project Report by 30/Aug/2013 Stage-4: Presentation and Viva - TBP

4.

Market-Driven Firms Demonstrate

1. 2.

3.

A set of values and beliefs that places customers interests first An ability to generate, disseminate, and productively use superior information about customers and competitors The coordinated use of interfunctional resources (e.g., research and development, manufacturing)

Market-Driven Firms
Have distinctive capabilities:
Market sensing capability: A companys ability to sense change and to anticipate customer responses Customer linking: The ability to develop and manage close customer relationships

Market-Driven Companies
View their customer as an asset, thus:
1. Marketing

expenditures, once considered expenses, are now considered investments. need to measure performance such as ROI on their investments.

2. Therefore, marketers

Meeting Performance Standards

Develop and nurture customer relationship management (CRM) capabilities by:

a.

b.
c. d.

Identifying, Initiating, Developing, and Maintaining profitable customer relationships.

Professional Marketing Managers

Employ

Customer Relations Management (CRM) tools for:

Identifying

and categorizing customer segments Determining customers present and potential needs Visiting customers to learn about applications of products Developing and executing individual components of marketing to include: Sales, advertising, promotions, service programs, etc.

Professional Marketers:

Focus on Profitability
Understand forces that affect profitability Align resource allocation to revenues and profits that will be secured by future business

Partner with Customers

Marketers dont just sell to customers; they develop a form of partnership for the purpose of serving and adding value for their consumer This strategy can result in becoming a preferred vendor

Market-Driven Companies

Deliver Value Propositions Create programs that include products, services, ideas and solutions to problems that offer value and provide opportunities for their customers.

Marketings Cross-Functional Relationships

Professional business marketers act as an integrator between various functional areas within a company Functional areas include:

Manufacturing Research & Development (R&D) Customer Service Accounting Logistics Procurement

Marketings Cross Functional Relationship

Business marketing planning must be coordinated and synchronized with corresponding planning efforts.

Pause! Any questions so far?

Business Market Characteristics

Business marketing and consumer-goods marketing are different Even though both markets share: Common body of knowledge, principles and theory They vary in that: Business buyers and markets function very differently from consumer markets

Business and Consumer Marketing Differs In:

1. 2. 3. 4. 5. 6.

Nature of their markets Market demand Buyer behavior Buyer-seller relationship Environmental influences (competition, political, legal) and Market strategy Due to these differences, business marketers need to understand how demand for industrial products and services differs from consumer demand.

Business Market Demand Characteristics

Derived demand Fluctuating demand Stimulating demand Price sensitivity / demand elasticity

Derived Demand

The demand for business products is called derived demand because the demand for industrial products is derived from the ultimate demand for consumer products.

As a result, business marketers must carefully monitor fluctuating trends and patterns in consumer markets.

Derived Demand
Demand for education Derived demand - textbooks Derived demand - paper Derived demand - pulp

Derived demand forestry products

Side Learning

Save Paper Save Trees Save Environment !!

Fluctuating Demand

Because demand is derived, an increase or decrease in consumer demand can create a fluctuating demand for many industrial products. For Example:

An increase in interest rates can quickly stifle new home sales. This slows down the need for new household products. Businesses react by decreasing their inventory of materials or putting off buying new machinery. This action explains why the demand for many industrial products tends to fluctuate more than the demand for consumer products. A decrease in interest rates has the opposite influence.

Stimulating Demand

Sometimes, business marketers need to stimulate demand for consumer goods which either incorporate their products or are used to make consumer products.
o

Sometimes manufacturers offer deep price discounts that influence members of the supply chain to lower their prices, in the hope of influencing the ultimate consumer to buy their product. Pharmaceutical manufacturers advertise on television by presenting various ailments followed by offering their new products as solution to the ultimate consumer. (Ask your doctor if XYZ is right for you!)

Inelastic Demand

Inelastic demand is demand without regard to price. An increase or decrease in the product price will not significantly affect the demand for the product.

Example: Price for gasoline / petrol / diesel

Elasticity of Demand
Elastic Demand Curve D Inelastic Demand Curve D Price Price

D Quantity Quantity

Global Market Perspective

Marketers must have a global perspective:

They need to look beyond borders. The demand for industrial products in countries such as Germany, Japan, and Korea is growing rapidly. Enormous growth in developing countries such as Brazil, China, Russia, and India offer huge opportunities for both large and small businesses Emerging Markets !!

Consumer Product or Business Product?

As mentioned earlier, the intended use determines whether or not a product is a consumer product or a business product

Some Consumer Products Become Industrial Products

J.M. Smucker Company sells their jellies and jams to ultimate consumers as household food products but also markets them as fillings and yogurt additives for other companys products. Many companies successfully sell to both consumer and business markets.

Pause! Any questions so far?

The Supply Chain

Business Marketing is an important influence in the supply chain.

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).

Supply Chain Management

This is a technique of linking a manufacturers operation with suppliers, key intermediaries and customers to enhance efficiencies and effectiveness. The Internet is playing an extensive role by allowing joint planning and execution in real time.

Managing Relationships in the Supply Chain

As important as it is to gain customers, it is just as important for manufacturers to develop strong relationships with suppliers. Companies such as IBM and Toyota develop strategies to create suppliers who provide new ideas and who are loyal.

Governments

Municipal, State and Central Government Generally use the bidding approach to purchase goods and services

Institutions

Market includes universities, hospitals, schools, civic clubs, foundations, etc. This includes the nonprofit segment of the market that does not seek to achieve normal business goals such as ROI, %share of market or profit

Classifying Business Goods & Services

3 Main Categories of Products
Entering

Goods

Become part of the finished product Cost assigned to the manufacturing process

Foundation

Goods

Capital Items Typically depreciated over time

Facilitating

Products

Support organizational operations Handled as overhead expenses

Classifying Business Goods & Services

Entering Goods
Raw

Materials

Farm products & natural products Only processed as necessary for handling & transport Require extensive processing

Manufactured

Materials & Parts

Any product that has undergone extensive processing prior to purchase Component Materials require additional processing Component Parts generally do not require additional processing

Classifying Business Goods & Services

Foundation Goods Installations

Major

long-term investment items Buildings, land, fixed equipment, etc.

Accessory
Less

Equipment

expensive & short-lived Not considered part of fixed plant Portable tools, PCs, etc.

Classifying Business Goods & Services

Facilitating Products
Supplies
Any

supplies necessary to maintain the organizations operations

Services
Maintenance

& Repair support Advisory support Logistical support

Classifying Goods for the Business Market

Classify industrial goods by asking the following: How does the good or service enter the production process? How does it enter the cost structure of the firm?

A Framework for Business Marketing Management

Business marketing strategy is formulated within the boundaries established by the corporate mission and objectives.

Any questions so far?