The Nature of Business Marketing

Overview
What is business marketing? What is customer value in business markets? What do Business Marketing firms use the term Customer Value Proposition for? What are the differences between business and consumer marketing? How planning is done in business marketing? Classifying business products and services.

Business Marketing, Defined

Marketing of products and services to business customers, such as privatesector and government organizations, institutions like hospital, hotels, and educational institutes. Business customers buy products and services to produce other goods and services, make profits, reduce costs, and so on.

Business Marketing, Defined

Earlier it was known as Industrial Marketing, and then Organizational Marketing, and now with advent of Internet, it is known as B2B Marketing. It is NOT synonymous with marketing of goods and services to the manufacturing industries. All over the world there has been trend away from manufacturing towards service.

Industry sector employment trends in selected countries (1990 and 2007)

Total Employment (000) Agriculture (%) Industry (%) Services (%)

Australia
1990 2007 Canada 7,850 10,470 5.6 3.4 25.4 21.5 69.0 75.1

1990
2007 Germany 1990 2007 Japan 1990

12,752
16,866 27,946 37,815 62,500

4.2
2.5 3.4 2.3 7.2

24.6
21.6 39.8 30.0 34.1

71.2
75.9 56.8 67.7 58.7

2007

64,120

5.4

27.5

67.0

Industry sector employment trends in selected countries (1990 and 2007)

Total Employment (000) Agriculture (%) Industry (%) Services (%)

NZealand
1990 2007 Sweden 1,472 2,156 10.6 7.1 24.6 21.8 64.8 71.0

1990
2007 U.K. 1990 2007 USA 1990

4,508
4,541 26,577 28,303 117,914

3.3
2.2 2.1 1.4 2.8

29.1
21.6 29.0 22.2 26.2

67.5
76.1 68.9 76.4 70.9

2007

146,047

1.4

19.8

78.8

What is Customer Value in Business Markets?

Customer Value (or Value) is the economic, technical, service, and social benefits received by a customer firm in exchange for the price paid for a product or service offering. Value=Benefits divided by costs, or Value=Benefits less costs

How is Customer Value Estimated in Business Markets?

Focus

group

With participants from customers and moderator from supplier.

Customer

Interview Internal Test

Technical people in supplier firm conduct test and estimate

Conjoint

Analysis

What do firms use the term Customer Value Proposition for?

What makes a persuasive value proposition? Three alternative ways in which CVP is being used are: All benefits CVP (many benefits listed), Favorable Points of Difference CVP (Few benefits compared with next best), Resonating Focus CVP (Few benefits meeting customer expectations)

What do firms use the term Customer Value Proposition for?

1. 2. 3.

The fundamental questions that distinguish the alternatives are:

What does the value proposition consist of? What customer question is the supplier attempting to answer with the value proposition? What is required for a supplier to construct the value proposition and have the sales force deliver it? What is the potential pitfall of the value proposition?

4.

What do firms use the term Customer Value Proposition for?

Favorable PointsValue Proposition: All benefits Of-Difference Consists of: All benefits customers receive from a market offering Resonating Focus

All favorable The one or two points-of-difference points-of-difference a market offering (and, perhaps, a has relative to point-of-parity) the next-best whose improvement alternative will deliver the greatest value to the customer for the foreseeable future.

What do firms use the term Customer Value Proposition for?

Value Proposition: All benefits
Answers the customer question: Why should Our firm purchase Your offering? Favorable PointsOf-Difference Why should our firm purchase Your offering instead of your competitors?

Resonating Focus What is most Worth-while for our firm to keep in mind about your offering?

What do firms use the term Customer Value Proposition for?

Favorable PointsValue Proposition: All benefits Of-Difference Requires: Knowledge of own market offering Knowledge of own market offering and next best Alternative offering Resonating Focus

Knowledge of how own market offering delivers superior value to customers, compared to next-best-alternative offering

What do firms use the term Customer Value Proposition for?

Favorable PointsValue Proposition: All benefits of-Difference Resonating Focus

Has the potential pitfall:

Benefit assertion

Value presumption

Requires customer value research

Similarity: Business Vs Consumer Marketing

Similarity is in basic tasks, viz.:

Deciding target markets. Finding target customers needs / wants Developing products / services to meet requirements of target markets. Evolving and implementing marketing plan to satisfy target customers better than competitors.

Differences: Business Vs Consumer Marketing

Market structure differences Buying behavior differences Marketing practices difference

Differences: Business Vs Consumer Marketing (Market structure)

Dimension Nature of demand Demand volatility Demand elasticity Business marketing Derived Greater volatility Less elastic Consumer marketing Direct Less volatility More elastic

Reverse elasticity
Nature of customers Market fragmentation Market complexity Number of buyers per seller Number of buyers per segment Relative size of buyer/seller Geographic concentration

More common
More heterogeneity More fragmentation More complex Few Few Often similar Often clustered

Less common
More homogeneity Less fragmentation Less complex Many Many Seller much larger Usually dispersed

Businesses have Derived Demand

Derived Demand

Demand for business goods is derived from the demand for consumer goods. Derived word 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.

Businesses do not want fork-lift trucks or computerized logistics systems in the same way that consumers want fashion clothing or computer games. The demand for fork-lift trucks and logistics systems is derived from the demand for the products that they help to deliver.

Fluctuating / Volatile Demand

Fluctuating / Volatile demand / Acceleration effect Demand for business goods / services is more fluctuating or volatile than the demand for consumer goods / services.

Stimulating Business Demand

Stimulating Demand: As the demand for business products is derived demand, promotional programs for stimulating demand should be done ideally to stimulate ultimate consumers: Intel, SAIL

Joint Demand in Businesses

Joint Demand occurs when one industrial product is useful or needed if other product also exists. Motor Pump; M-Seal; Araldite-Resin (Mono units); Engine-Alternator Hence, some business products do not have individual demand and are demanded only if other products are available.

Elasticity of Demand in Businesses

Elasticity Change in demand from a change in price inelastic/unitary/elastic. Demand for business goods is elastic/ inelastic? Demand for most of the business goods can be inelastic (insensitive to changes in prices) for a particular industry, but at the same time, highly elastic (i.e. sensitive to changes in prices) for individual suppliers

Cross-Elasticity of Demand in Businesses

Cross-elasticity of demand is the reaction of the sales of one product to a price change in another product. If the cross-elasticity of substitute products is high, it indicates that the products compete in the same market. Marketer should monitor the price movements of direct as well as of substitute products.

Reverse-Elasticity of Demand in Businesses

In this, a price increase can cause an increase in demand and a price decrease would be followed by a decrease in demand.

This is in expectation of further expected increase/decrease

These short-term reactions are opposite from what we would normally expect from business buyers.

Bull-whip effect in Business Markets

It is the tendency of buyers of a product in short supply to buy more than immediate need. (Does it happen in consumer product?) A shortage of microprocessor may make a computer assembler buy more processors to meet the consumer demand for computers .

Differences: Business Vs Consumer Marketing (Buying Behavior)

Dimension Buying influences Purchase cycle Business marketing Consumer marketing Many Often long Few Usually short

Transaction value
Buying process complexity

Often high
Often complex

Usually small
Usually simple Usually low Usually low Usually unimportant Usually low Uncommon

Buyer/ seller interdependence Often high Purchase professionalism Importance of relationships Degree of interactivity Formal, written rules Often high Often important Often high Common

Differences: Business Vs Consumer Marketing (Marketing Practices)

Dimension Selling process Business marketing System selling Consumer marketing Product selling

Personal selling
Use of relationships

Used extensively
Used extensively

Limited
Limited

Promotional strategies
Web integration Branding Market research Segmentation Competitor awareness Product complexity

Limited, customer specific

Greater Limited Limited Unsophisticated Lower Greater

Mass market
Limited Extensive, sophisticated Extensive Sophisticated Higher Lower

Planning in Business Marketing

Compared to consumer marketing, planning in business marketing requires: Closer relationship to corporate strategy, involving capital investment and company wide implications. More functional interdependence, or other functions support including cross-functional teams.

Implications
Industrial Marketing is more complex than consumer marketing success depends on understanding complexities. Business Marketing strategy has company wide impact, hence is more general management function, affecting various departments and functions in an organization.