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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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What do firms use the termCustomer Value Proposition for?
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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What do firms use the termCustomer Value Proposition for?
ValueProposition: All benefits
Favorable Points-Of-Difference Resonating Focus
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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What do firms use the termCustomer Value Proposition for?
ValueProposition:All benefits
Favorable Points-Of-Difference Resonating Focus
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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What do firms use the termCustomer Value Proposition for?
ValueProposition:All benefits
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.