Introduction to Business Marketing

Learning Resources
Business marketing : Robert Dwyer & John F Tanner Industrial Marketing : Robert R Reeder , Edward G & Betty H Reeder Industrial Marketing : Krishna K Havaldar

The Story of BASF The story of Edible Salt Minda switches and lighting The story of Kirloskar

What is business marketing?!

Marketing products or services to other companies , government bodies , institutions and other organizations. Consumer marketing : marketing of products and services to individuals , families and households.

Areas
Market characteristics Product characteristics Service characteristics Buyer behavior

Industrial markets
Geographically concentrated Relatively few buyers Technical complexity Customised Service , timely delivery and availability is very important Involvement of functional areas of both buyer and seller Purchase decisions made rationally Technical expertise

Consumer markets
Geographically distributed Mass markets Standardised Service , delivery and availability is somewhat important Involvement of family members Purchase decisions made on personal needs Less technical expertise Indirect Lot of intermediaries Advertising List prices or MRP

Channel characteristics Promotion Price

More direct Fewer intermediaries Personal selling Competitive bidding

Industrial demand : Derived

Industrial customers buy goods and services for use in producing other goods and services. Eventually , whatever is produced is sold to the consumers. Thereby , demand for industrial goods and services is derived from consumer goods and services.

 Joint demand : occurs when one industrial product is useful if other product also exists. Cross elasticity of demand :
The concept of elasticity Cross elasticity of demand is the responsiveness of the sales of one product to a price change in another product

Types of industrial customers

Industrial customers are generally classified into 4 groups.
Commercial enterprises Government customers Institutional customers Cooperative societies

Industrial customers
Commercial enterprises : private sector , profit seeking organizations consisting of :
Industrial distributors Original Equipment Manufacturers (OEMs) Users

Classification of industrial products and services

There are many methods by which industrial products and services are classified. The method that is most accepted classifies products and services based on how products or services enter the production process , and their relative costs.
Materials and parts Capital items Supplies and services

Materials and parts

Materials that enter product directly.
Raw materials Manufactured materials ( acids , fuel , steel , chemicals) Component parts ( spark plugs , bulbs , LCD Display units )

Capital items
Capital items are those which are used in the production processes and they wear out over certain time frame.
Heavy equipment ( turbines , generators , furnaces , boilers , earth movers) Accessories / light equipment ( computer peripherals , hand tools etc) Plant and building (offices , plants , warehouses , parking lots etc)

Supplies and services

Supplies and services support the operation of the purchasing organization. They do not become the part of final product.
Supplies ( coffee , soaps , oils and grease , pencils etc) Services ( building maintenance , auditing , legal , courier , marketing research , catering)

Industrial customers purchasing orientations

Business buyers ( industrial customers) do not have the same purchasing orientation , or overall purchasing philosophy which guides them through the purchasing decision.

SCM Orientation

Procurement Orientation

Buying Orientatio n Compon ent and subasse mbly intermedi aries

Raw material suppliers

Final assembl y

Consum ers / end users

Buying orientation
The purchasing firm with buying orientation has narrow and short term focus.
Lowest Price : selects lowest price supplier
I win you lose is the negotiation style

Gain power : the buying firm gains power over suppliers by using tactics such as commoditisation and multi sourcing

Procurement orientation
Purchasing firm has a strategic focus and is proactive. Both Quality improvements and Cost reductions are sought after.
Collaborative relationships Working closely with other functional areas

Supply Chain management orientation Includes coordination and integration of

purchasing function with other functions within the company and also with other organizations. Focuses on improving the whole value chain from raw materials to end users (products)
Deliver value to end users Outsource non core activities Support collaborative relationships with suppliers

Industrial marketing environment

Interface level Public

Macro environment
Government

Interface level
Involves key participants who immediately interface with an industrial firm in facilitating production , distribution and purchase of firms goods and services.
Input suppliers Distributors Facilitators Competitors

publics
Publics are distinct groups that have an actual or potential interest or impact on each firms ability to achieve its respective goals. Publics have the ability to help or hinder a firms effort to serve its markets
Financial publics Independent press Public interest groups General publics Internal publics

The macro environment

The dynamic forces of the macro environment have a major impact on both the publics and interface levels of the industrial environment.
Economics Ecology Physical environment Culture Technology

Government
Government , charged with administering and controlling nations , enables and facilitates , but also hampers and disallows industrial actions.
The government laws , regulations and activities affect all participants

 Primary functions of a government are to :

Protect companies from each other Protect consumers from unfair business practices Protect the larger interests of society against unrestrained business behavior Promote income equality in society Provide economic stabilization through control of unemployment and inflation.

These functions involve:

Regulating agencies (SEBI , IRDA, Company Law Board) Laws / policies(MRTP Act) Program funding (R&D Support) Import / export regulation (FEMA, quota , trade barriers) Levying taxes (service , octroi , VAT) Providing social programs ( Benefits , CSR) Controlling interest rates (Monetary and Fiscal policies)

Environmental analysis
Environment

Ecological and physical

internal

external

micro

macro

Case 1. Edward F. Crow Company

The Edward F. Crow Company is an industrial distributor located in Memphis, Tennessee. Its principal product lines include materials handling equipment such as conveyors and transfer stations, electric motors and controls and power transmissions, and, finally, weighing scales, particularly those used as part of conveyor lines.

The firm covers a territory consisting of parts of nine states: Tennessee, Kentucky, Alabama, Mississippi, Louisiana, Arkansas, Missouri, Illinois, and Indiana. Memphis is the hub of a trading area called the mid-South.
The firm was founded in 1937 by the late Edward F. Crow who had earned his mechanical engineering degree from Case School of Applied Science (now Case Western Reserve University) in the 1920s. Before carting his own firm, he had been a design engineer and then a sales engineer for a major manufacturer of conveyors.
This case was prepared by Ernest F. Cooke, Professor of Marketing, Layda College, Maryland. Reprinted by permission.

Case 1. Edward F. Crow Company

When he passed away about five years ago, operation of Crow was taken over by one of the lawyers who was handling the estate. There were no heirs interested in or capable of running the firm. Over the last five years, annual sales have decreased from slightly less than $3 million to slightly more than $2 million (see Exhibit 1). Because of inflation, actual physical volume has decreased even more (about 40 percent). Five years ago the corporation was very profitable, but last year Crow suffered a very small loss. Five years ago there were five outside sales people. As conditions worsened, the sales force diminished in size, the last outside salesperson quit last week, and only two inside salespersons are left. They are both very competent but are overworked. As a result, the firm lost an opportunity to bid on seven large electric motors for the Tennessee Valley Authority when the closing date was missed.

Case 1. Edward F. Crow Company

Income Statement, 1978 versus 1982 ($000)

1978
Sales Motors and so on Parts, repair and service for motors, and so on Materials handling/installations* Scales Parts, repair, and service for scales Total net sales Cost of goods sold Motors and so on Parts for motors and so on Materials handling Scales Parts for scales Total cost of goods sold Gross margin

1982

$669 $412 642 516 870 615 361 224 374 298 $2,916 $2,065

458 237 556 243 111 1,605 $1,311

288 196 406 155 94 1,139 $ 926

Case 1. Edward F. Crow Company

Income Statement, 1978 versus 1982 ($000) 1978 Operating expenses Service and repair, labor and overhead** Warehouse and distribution expense General administrative and selling expense*** Basically fixed costs' Total operating expense Operating income [loss] Interest expense less interest revenue Net income [loss] before taxes Income tax [refund] Net income 501 212 318 1,031 $ 280 [13] $ 293 132 $ 161 1982 412 201 319 932 $ [6] [4] $ [2] 0 $(2)

*Actual materials handling sales are larger than indicated on the income statement because they usually include electric motors and controls, power transmissions, and sometimes scales. When these components are included as part of a materials handling installation, the sales dollars are shown under the category scales or motors m so on. ** About 10% of this is assembly labor and warranty labor associated with material handling sales. ***Basically fixed cost and includes the engineer's salary.

Case 1. Edward F. Crow Company

At present (1983), volume is broken down as follows: 1. Electric motors and controls and power transmissions 2. Parts, repairs and service for motors, and so on 3. Materials handling equipment, including parts and design services but not including motors, controls, transmissions, or scales. 4. Scales 5. Parts, repairs, and service for scales 20 % 25 %

30 % 10 % 15 %

Over the last five years, dollar sales decreased in all five categories. The share of total sales held according to category has changed, with new motors and scales dropping from 35.3 percent to 30.8 percent, all parts and repair increasing from 34.8 percent to 39.4 percent, and material handling holding steady at 29.8 percent.

Case 1. Edward F. Crow Company

In addition to the two inside sales people, employees include a purchasing agent, a parts manager, a service manager, and seven service and repair people, an engineer who designs materials handling systems, some warehouse and delivery people, and clerks who handle bookkeeping, billing, and correspondence. There has been turnover among these employees; consequently, problems have arisen due to being short of help as well as having inexperienced help For example, there is a one-month backlog in billing for completed service work due a shortage of help and inexperienced help The purchasing agent also acts as office manager. The engineer has increased the amount of his customer contact because of decrease in outside sales people.

Case 1. Edward F. Crow Company

The firm is the exclusive distributor i the mid-South for Primax, a foreign manufacturer of electric motors whose East an Gulf Coast portof-entry is New Orleans. Primax has a distribution center in Memphis that serves the entire country. Crow's annual Primax sales, five years ago, totaled 400 units contrasted with sales last year of 200 units. Its sales quota last year was 200 units. So far this year, sales have been at an annual rate of 200 units averaging $1,000 per unit. Crow also represents several division of Reliable Electric, a manufacturer of electric motors, control, transmissions, and so on. Sales of Reliable products this year are running at an annual rate of $300,000 including parts. Almost 10 percent is small power transmission components purchased from Reliable's Lodge Division for materials handling installations.

Case 1. Edward F. Crow Company

The firm is the distributor for several different manufacturers of materials handling equipment and scales. These manufacturers are competitors in some of their lines. In these cases, Crow sometimes uses more than one manufacturer for a given installation of materials handling equipment or scales. For most manufacturers, the firm is the exclusive distributor in the Memphis area even though they carry competitive lines. In the almost 40 years that Mr. Crow ran the firm, he had built up an excellent reputation among suppliers and customers. Although this reputation has deteriorated somewhat in the last five years, the firm still enjoys a good reputation. If the situation continues to deteriorate much longer, it will reach a critical stage. It may even become an irreversible situation. Recently the Fearhank-Moose Scale Company, which manufacturers a line of portable industrial scales, canceled its contract with Crow because it felt that Crow was not doing justice to its line of scales. Subsequently, Fearhank signed up with another Memphis industrial distributor who is in direct competition with Crow.

Case 1. Edward F. Crow Company

You have just purchased a controlling interest in the firm and have appointed yourself president, chief executive officer, and chief operating officer. The lawyer who was president is no longer with the firm. There is no doubt that he was ill-equipped to run the business. It requires someone, like you, with marketing and management know how!

Class Exercise 1
Team 1 : You are the marketing team of Symantec , renowned for the anti-virus software norton antivirus. Latest market research , based on IP tracking of customers have revealed the following facts. Product name Market % (product volume / total sales) Geographical distribution ( highest of user lists) Norton antivir home edition 71% Asia Norton Antivir small business edition 26% North America & europe Norton antivir enterprise edition 2% scattered On further investigation, following facts are revealed Most of the IT companies in developing worlds (India & Thailand) use antivir home edition. There are many cases of IT service providers in India , violating the license and distribution of these products. Norton enterprise edition , which is specifically designed for large enterprises , has little acceptance. The cases of copyright violations and license violations through malicious code / hacking has increased. The estimated impact on sales in Asia due to software piracy is 62%. The hacked version cannot update itself to latest virus definitions , hence the brand value of Norton antivirus too is affected. You are now required to : Come up with reasons for huge popularity of norton-home with the IT service providers. State whether a whole new product for these regions (Asia) needs to be developed. If so , state reasons. Prepare a presentation outlining the benefits of norton-enterprise over the home version , which needs to be presented at the next summit of CEOs of IT companies.