1.the Nature of Business Marketing

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The Nature of Business Marketing


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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.


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Business Marketing, Defined

Marketing ofproductsand servicesto

business customers, such as private-

sector and government organizations,

institutions like hospital, hotels, andeducational institutes.

Business customers buy products and

services to produce other goods andservices, make profits, reduce costs,

and so on.


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Business Marketing, Defined

Earlier it was known as IndustrialMarketing, 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.


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

Total

Employment

(000)

Agriculture

(%)

Industry (%) Services

(%)

Australia

1990 7,850 5.6 25.4 69.0

2007 10,470 3.4 21.5 75.1

Canada

1990 12,752 4.2 24.6 71.2

2007 16,866 2.5 21.6 75.9

Germany

1990 27,946 3.4 39.8 56.8

2007 37,815 2.3 30.0 67.7

Japan

1990 62,500 7.2 34.1 58.7

2007 64,120 5.4 27.5 67.0


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

Total

Employment

(000)

Agriculture

(%)

Industry (%) Services

(%)

NZealand

1990 1,472 10.6 24.6 64.8

2007 2,156 7.1 21.8 71.0

Sweden

1990 4,508 3.3 29.1 67.5

2007 4,541 2.2 21.6 76.1

U.K.

1990 26,577 2.1 29.0 68.9

2007 28,303 1.4 22.2 76.4

USA

1990 117,914 2.8 26.2 70.9

2007 146,047 1.4 19.8 78.8


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What is Customer Value inBusiness Markets?

Customer Value (or Value) is theeconomic, technical, service, and social

benefits received by a customer firm inexchange for the price paid for aproduct or service offering.

Value=Benefits divided by costs, or

Value=Benefits less costs


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How is Customer ValueEstimated in Business Markets?

Focus group

With participants from customers and

moderator from supplier.Customer Interview

Internal Test

Technical people in supplier firm conducttest and estimate

Conjoint Analysis


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What do firms use the termCustomer Value Proposition for?

What makes a persuasive valueproposition?

Three alternative ways in which CVP isbeing 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)


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What do firms use the termCustomer Value Proposition for? The fundamental questions that distinguish

the alternatives are:

1. What does the value proposition consist of?

2.

What customer question is the supplierattempting to answer with the value proposition?

3. What is required for a supplier to construct thevalue proposition and have the sales force

deliver it?4. What is the potential pitfall of the value

proposition?


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ValueProposition:All benefits

Favorable Points-Of-Difference Resonating Focus

All benefitscustomersreceivefroma marketoffering

All favorablepoints-of-differencea market offeringhas relative tothe next-bestalternative

The one or twopoints-of-difference(and, perhaps, apoint-of-parity)whose improvementwill deliver the

greatestvalue to the customerfor the foreseeablefuture.

Consists of:

f


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ValueProposition: All benefits


Answersthecustomerquestion:

Why shouldOur firmpurchase

Youroffering?

Why should ourfirm purchaseYour offering

instead of yourcompetitors?

What is mostWorth-while forour firm to keep

in mind aboutyour offering?

Wh d fi h


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Knowledge

of ownmarketoffering

Requires: Knowledge of

own marketoffering andnext bestAlternativeoffering

Knowledge of how

own market offeringdelivers superiorvalue to customers,compared tonext-best-alternative

offering

Wh t d fi th t


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Favorable Points-of-Difference Resonating Focus

Benefitassertion

Has thepotentialpitfall:

Valuepresumption

Requirescustomer valueresearch


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Similarity: Business VsConsumer 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.


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Differences: Business Vs

Consumer Marketing

Market structure differences

Buying behavior differences Marketing practices difference


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Differences: Business Vs ConsumerMarketing (Market structure)

Dimension Business marketing Consumer

marketing

Nature of demand Derived Direct

Demand volatility Greater volatility Less volatility

Demand elasticity Less elastic More elastic

Reverse elasticity More common Less common

Nature of customers More heterogeneity More homogeneity

Market fragmentation More fragmentation Less fragmentation

Market complexity More complex Less complexNumber of buyers per seller Few Many

Number of buyers per segment Few Many

Relative size of buyer/seller Often similar Seller much larger

Geographic concentration Often clustered Usually dispersed


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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.


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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.


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Stimulating Business Demand

Stimulating Demand:

As the demand for business products isderived demand, promotional programs for

stimulating demand should be done ideally

to stimulate ultimate consumers: Intel, SAIL


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Joint Demand in Businesses

Joint Demand occurs when one industrial

product is useful or needed if other product

also exists. MotorPump; M-Seal; Araldite-Resin (Mono

units); Engine-Alternator

Hence, some business products do not haveindividual demand and are demanded only if

other products are available.


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Elasticity of Demand inBusinesses

ElasticityChange in demand from a change in

priceinelastic/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) forindividual suppliers


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Cross-Elasticity of Demand in

Businesses

Cross-elasticity of demand is the reaction of the

sales of one product to a price change in anotherproduct.

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.


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Reverse-Elasticity of Demandin 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.


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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 tomeet the consumer demand for computers .

Differences: Business Vs Consumer


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Differences: Business Vs ConsumerMarketing (Buying Behavior)

Dimension Business marketing Consumermarketing

Buying influences Many Few

Purchase cycle Often long Usually short

Transaction value Often high Usually small

Buying process complexity Often complex Usually simple

Buyer/ seller interdependence Often high Usually low

Purchase professionalism Often high Usually low

Importance of relationships Often important Usually unimportant

Degree of interactivity Often high Usually low

Formal, written rules Common Uncommon


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Differences: Business Vs ConsumerMarketing (Marketing Practices)

Dimension Business marketing Consumer marketing

Selling process System selling Product selling

Personal selling Used extensively Limited

Use of relationships Used extensively LimitedPromotional strategies Limited, customer

specific

Mass market

Web integration Greater Limited

Branding Limited Extensive, sophisticatedMarket research Limited Extensive

Segmentation Unsophisticated Sophisticated

Competitor awareness Lower Higher

Product complexity Greater Lower

Pl i i B i


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Planning in BusinessMarketing

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 otherfunctions support including cross-functional

teams.


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Implications

Industrial Marketing is more complex than

consumer marketingsuccess depends on

understanding complexities. Business Marketing strategy has company

wide impact, hence is more general

management function, affecting variousdepartments and functions in an organization.

Documents

1.the Nature of Business Marketing