A Business Marketing Perspective

Business Markets

Local to international– Bought by

• Businesses• Government bodies• Institutions

– For consumption– For use– For resale

GE

Markets for products and services

Figure 1.2 The Consumer Market (B2C) and the Business Market (B2B) at

Dell, Inc.

B2B

Customers

B2C

Individuals & Households

BusinessesGlobalLarge corporationsSmall & Medium sized businesses

InstitutionsHealthcareEducation

GovernmentFederalStateLocal

SelectedProducts PC’s

PrintersConsumer ElectronicsSimple Service Agreements

PC’sEnterprise StorageServersComplex Service Offerings

Dell, Inc.

A Market Driven Firm

Market sensing capability…company’s ability to sense change and to anticipate customer responsesCustomer linking…the ability to develop and manage close customer relationshipsValue : Economic, Technical & SocialValue F – Price F > Value a – Price a

Has:

Business Market Characteristics

• Derived demand• Fluctuating demand• Stimulating demand• Price sensitivity/demand elasticity• Global Market perspective• Reciprocity• Joint Demand• Concentrated • Functional Vs. Symbolic Attributes

GE

Relationship Marketing

• All marketing activities directed toward establishing, developing, and maintaining successful exchanges with customers

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).”

The Supply Chain

Business Market CustomerCommercial Enterprises

• Three categories:– Users– OEMs– Dealers and distributors

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?

Classifying Goods for the Business Market

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 Prentice-Hall, Inc.

A Framework for Business Marketing ManagementBusiness marketing strategy is formulated within the boundaries established by the corporatemission andobjectives.

The Business Market: Perspectives on the Organizational Buyer

Commercial Enterprises

– Manufacturers– Construction– Service firms– Transportation – Professional– Resellers

Includes

Manufacturers:-Concentration in geographies.- Centralized Purchasing

Purchasing Function Goals• Address the needs of business customers of all types.• May have to juggle different, clashing objectives.

Purchasing

Goals

Total Cost Considerations of a Product or Service

Factors that drive total cost.

Acquiring and managing costs.

Quality, reliability over the life cycle.

Value of product to firm/customers.

Firms operate at different levels of development and emphasize different pathways to cost reduction and revenue enhancement.

Levels of Procurement Development and Pathways to Savings/Revenue Enhancement

Segmenting Purchase Categories1st Point, each firm has a unique portfolio.

2nd Point, more attention on purchases having the greatest impact on revenue generation or the greatest risk to performance.

Segmenting the Buy

Bottlenecks

Criticals

Generics

Leverage Items

Two Types of Contracts

1. Fixed-price contracts• A price is agreed to before contract is awarded and

payment is made at conclusion of work.• Provides for the greatest profit potential.• Poses greater risks.

2. Cost-reimbursement contracts• Reimbursement for allowable costs may be allowed;

sometimes “cost-plus” contracts allow costs and certain percentage of profit.

Government Procurement

1. U.S. Department of Defense (DOD)-said to be largest single enterprise in world.

2. Non-defense procurement administered by wide variety of agencies.

Two Procurement Strategies

1. Formal Advertising—the government solicits bids from suppliers, and usually the lowest bidder is awarded the contract.

2. Negotiated Contract—used to purchase products or services that are not differentiated on price alone, competition is common.

3. Terms : LI / TI, RC, BOOT, EMD, SD, PBG, Inspection

The Institutional Market

• Schools, health care organizations, non-profit agencies.

• Similar to government buyers--political considerations and laws.

• Similar to commercial buyers--often managed like corporations--broad range of purchase requirements.

• Group purchasing quite common.

• Multiple Buying Influences

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Organizational Buying Behavior

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Organizational Buying Process

1. Problem Recognition

2. General Description

of Need

3. ProductSpecifications

4. Supplier Search

5. Acquisitionand Analysisof Proposals

6. Supplier Selection

7. Selectionof

Order Routine

8. PerformanceReview

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Three Buying Situations (slide 1 of 4)

1. New task2. Modified rebuy3. Straight rebuy

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Three Buying Situations1. New Task (slide 2 of 4)

• New task—problem or need totally different from previous experiences.– Significant amount of information required– Buyers operate in extensive problem solving

stage• Buyers lack well defined criteria.• Lack strong predisposition toward

solution

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Three Buying Situations2. Modified Rebuy (slide 3 of 4)

• Modified rebuy—decision makers feel benefits to be derived by reevaluating alternatives.– Most likely to occur when buyers displeased

with current supplier’s performance– Buyers operate in limited problem-solving

stage.• Buyers have well-defined criteria.

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Three Buying Situations3. Straight rebuy (slide 4 of 4)

• Straight rebuy—problem or need is recurring or continuing requirement.– Buyers have experience in area.– Require little or no new information– Buyers operate in routine problem-solving

stage– Electronic Purchasing– Buy-side Requisitioning Process.

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Buying Decision Approaches

Casual purchases…involve no information search or analysis.

Routine low priority…decisions more important and involve moderate amount of analysis.

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Forces Influencing Organizational Buying Behavior

EnvironmentalForces

OrganizationalForces

GroupForces

IndividualForces

OrganizationalBuying

Behavior

•Economic Outlook: Domestic & Global•Pace of Technological Change•Global Trade Relations

•Goals, Objectives, and Strategies•Organizational Position of Purchasing

•Roles, relative influence, and patterns of interaction of buyingdecision participants

•Job function, pastexperience, and buyingmotives of individualdecision participants

Projected change in business conditions can drastically alter buying plan.

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Strategic Priorities in Purchasing

Becoming Business Partners,Not Just Buyers

Exploring New Value Frontiers:It’s Not Just About Price

Putting Suppliers Inside:The Best Value Chain Wins

Pursuing Los-Cost Sources:A World Worth Exploring

Shift from administrative role to value-creating function that serves internal stakeholdersand provides competitive edge in market.

Focus on suppliers’ capabilities, emphasizingbusiness outcomes, total ownership costs, andpotential for long-term value creation.

Develop fewer and deeper relationships withstrategic suppliers and involve them in decision-making processes, ranging from new productdevelopment to cost-reduction initiatives.

Overcome hurdles imposed by geographicaldifferences and seek out cost-effective suppliersaround globe.

Source: Adapted from Marc Bourde, Charlie Hawker, and Theo Theocharides, “Taking Center Stage: The 2005 ChiefProcurement Officer Survey,” (Somers NY: IBM Global Services, May 2005), pp. 1-14. Accessed at http://www.ibm.com/bcson July 1, 2005.

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Questions for the Industrial Salesperson when Assessing Group Forces

1. Which member takes part in the buying process?

2. What is each member’s relative influence in decision?

3. What criteria is important to each member in evaluation process?

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Members of the buying center assume different roles throughout the procurement process.

Clues for Identifying Powerful Buying Center Members

(Users, Influences, buyers, deciders, gate-keepers

1. Isolate the Personal Stakeholders

2. Follow the Information Flow

3. Identify the Experts

4. Trace the Connections to the Top

5. Understand Purchasing’s Role

SOURCE: Adapted from John R. Ronchetto, Michael D. Hutt, and Peter H. Reingen, “Embedded Influence Patterns in Organizational Buying Systems,’ Journal of Marketing 53 (October 1989), pp. 51-62.

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Selective Processes in Information Processing

Selective exposure. Selective attention. Selective perception. Selective retention.

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Perceived Risk Components

1.Uncertainty about decision outcomes.

2.Magnitude of consequences associated with making wrong selection.

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Organizational buyers’ behavior influenced by environmental, organizational, group, and individual factors.

Major Elements of Organizational Buying Behavior

ONGC

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- Geopic Buying Seismic Simultation Equipment : Modified Rebuy / L2 or L3

- Exploration : Scada – Modi

- Tech & Field Services : Drilling of well in Orissa Basin – MR / L2

- Offshore : Buying of Photocopiers for Mumbai High Office – SR / L1

- Infocomm : SAP Package for ERP : New Task / L4