B2B Marketing

NATURE OF INDUSTRIAL MARKETING. Basic Definitions: Marketing: It is human activity directed at satisfying human needs and wants through exchange process. Or Marketing is human activity directed at a) The recognition and anticipation of demand. b) The stimulation of demand. c) The satisfaction of demand through an exchange process. Industrial Marketing: (Business Marketing): Consists of all activities involved in the marketing of products and services to organizations ( i.e. commercial enterprises, profit and not for profit institutions, Govt Agencies and resellers) that use products and services in the production of consumer or industrial goods and services, and to facilitate the operation of their enterprises. INDUSTRIAL OR BUSINESS MARKETING Briefly Industrial or Business Marketing can be defined as human activity directed towards satisfying wants and needs of organizations through exchange processes. The goal of B2B marketing is to convert prospects into customers. The B2B marketing process is much more involved and longer. It is important for a B2B company to focus on building relationships, which also spread a positive word of mouth B2B companies are focused on educating various companies as they sell complicated products Marketing techniques such as newsletters, and product or service coverage & customized & direct selling is used

Exchange transactions in the Industrial Market consist of: 1) Product or Service Exchange. The characteristics of the product or service involved have a significant effect on the Industrial Exchange process. The ease of exchange depends upon the ability of the seller to identify the buyers needs and the products potential to satisfy those needs 2) Information Exchange. Often consists of answering technical, economic, and organizational questions regarding pre and post sale maintenance and servicing. Products must be planned and designed to serve customers. To accomplish this, buyers and sellers must work together, exchanging product specific information over long periods of time. 3) Financial Exchanges may involve such considerations as the granting of credit or the need to exchange money from one currency into another when dealing with foreign buyers. 4) Social Exchange is important in such areas as reducing uncertainty between buyer and seller, avoiding short term difficulties and maintaining the exchange relationship over a lengthy transaction period. Many aspects of an agreement between buyers and sellers in the Industrial Market are not fully formalized or based on legal criteria until the end of the transaction period. Rather much of the process of exchange is based on mutual trust.

DIFFERENCES BETWEEN INDUSTRIAL AND CONSUMER MARKETING Industrial Markets. Geographically concentrated and relatively few buyers. Products are technically complex and are mostly customized. Service, timely delivery and availability are very important. Involvement of various functional areas in both buyer and seller firms. Technical expertise required. Stable interpersonal relationship between buyers and sellers. Channels are more direct and fewer intermediaries/middlemen.

Emphasis on personal selling. Competitive bidding and negotiated prices. List Prices for standard products.

Purchase decisions are made mainly on rational/performance basis. Consumer Markets. Geographically disbursed and mass markets. Products are mostly standardized and are mostly simple. Service, delivery and availability are somewhat important. Involvement of family members in the buying process. Less Technical expertise required. Mostly non personal relationship. Channels are mostly indirect and multiple layer of intermediaries. Emphasis on advertising. List Prices or maximum retail prices or MRP. Purchase decisions are mostly made on Physiological/ Social/ Psychological needs.

Summary of Differences between Consumer & Industrial marketing B2C=Business-to-Consumer Market= businesses sell products and services to consumers for household or personal use B2B=Business-to-Business Market= businesses sell products and services to other businesses for use in their daily operations or for making other products and services B2B generally takes shorter & more direct channels of communication B2B promotional budgets are lesser as compared to B2C advertising B2C sale is to an individual whereas B2B sale is to an organization

B2B businesses include complexity of business products & services & fewer customers buying larger volume

INDUSTRIAL BUYER BEHAVIOR In Industrial Marketing, The Buying Process is more complex as compared to consumer Marketing. Purchase Decisions are Based on 1. Compliance with Product specifications 2. Product Quality 3. Availability or Timely Supply 4. Acceptable Payments and other Commercial Terms 5. Cost Effectiveness 6. Pre sales & After Sales Service Etc. Purchase Decisions Take Longer time and Involve many individuals from a) Technical Dept b) Commercial Dept/Materials Dept c) Finance Dept d) Corporate Management (Sometimes) In Industrial Marketing: 1. The Relationships between the seller and buyers are highly valued and over a period of time they become stable because of a high degree of Interdependence. 2. Exchange of Information between Specialists and Representatives from each functional area, from both seller and buyer organizations. 3. Thus inter-organizational contacts take place and interpersonal relationships are developed. 4. There are Negotiations.

In Contrast, in Consumer Marketing: 1. The Relationship between a Buyer and a Seller is Non-Personal. 2. The Consumers change their Purchasing Habits frequently. 3) The Buying Decisions are based on Physiological, Social and Psychological needs of a Family or Household.

The Demand for Industrial Products and Service Does Not Exist By itself. It is derived from the ultimate Demand for Consumer Goods and Service. Industrial Demand is, therefore, called Derived Demand

1. DERIVED DEMAND:Industrial Customers buy Goods And Services for Use in Producing other goods and services. Ultimately, whatever is finally produced will be sold to the consumers. Hence the demand for industrial goods and services is derived from consumer goods and services. For example the demand for PRECISION STEEL TUBES does not exist in itself. It is demanded for the production of bicycles , motorcycles ,scooters, furnitures (steel tables and chairs), which are used by consumers .Thus demand for precision steel tubes is derived from the forecast of consumer demand for Bicycles, Scooters, Motor Cycles and Furniture. During periods of recession or reduced consumer demand, industrial firms reduce their inventories or reduce the production or do both. On the other hand, during the period of prosperity

there is an increased production and sales of consumer goods, which results in an increased demand for industrial goods. 2.JOINT DEMAND Joint demand occurs when one industrial Product is useful if other product also exists. For example, a pump cannot be used for pumping water, if the electric motor or diesel engine is not available. 3. CROSS-ELASTICITY OF DEMAND

Cross elasticity of demand is the responsiveness of the sales of one product to a price change in another product. For example, the demand for aluminum door and window frames etc. will increase if there is a price increase for steel and wooden and window frames. THE INDUSTRIAL MARKETING CONCEPT The marketing concept holds that the key task of the organization is to define the needs of a target market and adopt the organization products or service to satisfy those needs more effectively than its competitors. While the nature of markets differs, the marketing concept is applicable and important in both the Industrial and Consumer markets. However, evidence indicates that consumer markets have embraced the marketing concept more fully than their Industrial Counterparts.

The Industrial Marketing Concept involves more than facilitating exchange with customers; it is a philosophical point of view that has basis the formation of a partnership between buyer and seller for the purpose of achieving the organization goals of both Too often, Industrial Organizations, tend to be technically oriented, much more interested in a particular product and its technical development. In view of this, there is a risk of becoming so enamored with a technical accomplishment or particular product parameters that the necessary flexibility for responding to customer needs in a competitive market place disappears. For marketing effectiveness, the product should always be regarded as a variable and should be viewed from the perspective of the customer. Customer benefits and need satisfaction, rather than physical product should be the centre of attention Customer satisfaction should be paramount in all corporate decision making.

Providing customer satisfaction must involve all decision makers and not only marketing dept and will affect product design, demand analysis, manufacturing techniques, resource utilization and longrange profits.

Strategic Planning An Industrial Firm carries out strategic planning by identifying long term product / markets, based on its forecasts of external environment, analysis of its strengths and weaknesses, and its long term objectives and goals. This would help an Industrial Firm to take strategic decisions on diversifying through Backward, Forward or Horizontal Integration, or by expanding its markets from domestic to international markets.

Backward Integration: A company seeks ownership or control of its supply system example: - Crompton Greaves Ltd. went for Backward Integration by setting up its manufacturing plant for steel stampings, which were earlier supplied by GKW.

Forward Integration: A company seeks ownership or increased control of its Distribution Systems. A Material Handling company, for example, opened its own branches with warehousing facilities, in place of its agents, in order to improve customer service. Horizontal Integration: A company seeks ownership or control of some of its competitors. For instance, A Company reduced competition by acquiring the management control of some of its competing firms. INDUSTRIAL BUYING PROCESS Purchasing Objective: Generally, the Purchase / Materials Management is defined as buying the right quantity, at the right price, for delivery at the right time and place It is the Managements job to define what is right for each dimension. The objectives of the purchasing function are briefly given below. 1. Delivery / Availability:One of the prime objectives is to ensure that purchased goods and services are available or delivered as and when & where required, If not work will come to a grinding halt. This will reflect badly on the performance of the Purchase Function. The corollary to this that is that Vendor Reliability in delivery is the most important criterion while evaluating vendors in the most of the cases. 2. Product Quality: The Product Quality should be consistent with the Specifications and use of the Product. It is important to ensure consistency in Product Quality to reduce the cost of inspection, interruptions in production process due to rejections and replacement of rejected material. Hence, product Quality is considered as one of the important objectives of purchasing. 3. Lowest Price :Subject to availability in time, with good and consistent quality, buyers would like to buy at the lowest price. 4. Supplier Relationship:-

To develop a good long term Supplier / Vendor Relationship and to develop new sources of supply. 5. Services:-

Industrial Buyers need many types of services like prompt and accurate information from supplier, application or technical assistance, spare part availability, repairs and maintenance capability and training if required. 6. Personal Objectives:-

Industrial Buyers try to achieve both organizational purchase objectives and personal objectives. The Industrial Marketers should realize that it is important to satisfy not only the purchasing objectives of an Industrial Firm but also the personal objectives of the buying members. BUY - PHASES IN THE INDUSTRIAL BUYING-DECISION PROCESS. Buying is an organizational-decision making process. There are eight phases (or stages) in the buying decision process, indicating the logical sequence of activities 1. Recognition of a problem or need. 2. Determination of the application or characteristics and quantity of needed product. 3. Development of specifications or description of needed product. 4. Search for and qualifications of potential suppliers. 5. Obtaining and analyzing supplier proposals. 6. Evaluation of proposals and selection of suppliers. 7. Selection of an order routine. 8. Performance feedback and post-purchase evaluation. UNDERSTANDING THE VARIOUS PHASES OF BUYING-DECISION MAKING IS USEFUL TO AN INDUSTRIAL MARKETER AS IT HELPS IN DEVELOPING AN APPROPRIATE SELLING STRATEGY. Three kinds of Organizational Purchases Straight rebuy a routine repurchase that may have been made many times before Characterized by vendor loyalty, review & feedback

Modified rebuy Happens due to product & quantity type specification changes Happens when a new competitor enters the market offering the product @ lower price & more favorable terms & conditions than the existing vendor Customer goes through the process of vendor qualifications to review & feedback in the Decision Making Stage New-task buy a firm has a new need and the buyer wants a great deal of information Characterized by first time purchase of the products Involves considerable search for alternatives All eight buying phases come into play THE BUYGRID FRAME WORK Understanding organizational buying becomes easier if it is divided into different buying phases ( buy phases) and these phases are analyzed under different buying situations ( buy classes). Robinson formulated the buy grid framework which combined three types of buying situations (buy classes) with eight phases of buying decision process (buy phases). An analysis of the buyphases in relation to the buy-classes gave interesting results, which are summarized below.

1. All eight phases of industrial buying process are applicable to a new buying solution however, in case of modified re buy and straight re buy situations, only some of the buy phases are applicable. 2. The most difficult buying situation occurs for a new task in buy phases of problem recognition, and determination of product characteristics and specification. This is because; maximum number of decision makers and influencers are involved. 3. Modified Re buy situation are not very difficult to handle. 4. Straight Re buy situation are handled in a routine matter. Decision can be taken by junior executive in the purchase dept. BUYING CENTER ROLES. Before identifying the individuals and groups involved in the buying decision process, it is important to understand the roles of buying-center members. Understanding the buying center roles helps the Industrial Marketer to develop an effective Marketing Strategy. There are six roles of buying center members.

1.

INITIATORS :-

These are the individuals who first recognize a problem or need, which could be resolved by purchase of a product or service. Often, the users of the product / service play the role of the initiators. 2. BUYERS :-

The Major roles or responsibilities of buyers are obtaining quotation from suppliers, supplier evaluation and selection, negotiation, processing purchase orders, expediting delivery and generally implementing purchasing policies of the firm. Usually they are purchase [or materials] officers & executives. 3. USERS:-

These individuals use the product or service that is to be purchased. Often users play the role of initiators. They may define the specifications of the needed Product .They may be shop floor workers, maintenance engineers, or R & D Engineers. 4. INFLUENCERS:-

They influence the buying decision. Generally technical people have a substantial influence on purchase decisions. Sometimes outside Consultants or Experts play the role of influencers by drawing specifications of products or services. 5. DECIDERS:Actual buying decisions are made by the deciders. They may be one or more Individuals involved in the buying decisions. Generally for routine purchases, the buyer or purchase executive may be the decider. But for high value and technically complex products, senior executives are the deciders. 6. GATE KEEPERS:They are individuals controlling flow of information regarding products & services to the buying centre. They also control sales peoples meetings with members of buying of buying centre. They are normally assistants or junior persons in the purchase dept. Models of Organizational Buying Behavior There are two models available to provide a comprehensive and integrated picture of the major factors that combine to explain organizational buying behavior. The Webster and Wind Model of Organizational Buying Behavior.

The Jagdish Sheth Model of Industrial Buyer Behavior This model emphasizes the joint decision making by two or more individuals, and the psychological aspects of the decision making individuals in the industrial buying behavior. The model includes three components and situational factors, which determine the choice of a supplier or brand in the decision making process in an organization

Conflict Resolution Strategies : [In Joint Decision Making] 1. Competing Let us do it my way. 2. Accommodating I see your point of view. 3. Collaborating May be we can work this one out. 4. Avoiding Better let situation cool down before we act. 5. Compromising Let us split the difference. 6. Coalition formation among certain buying center members. 7. Power in conflict resolution. 8. Reward versus coercive power. 9. Legitimate power. 10. Expert Power. Review Questions:

1. What are the characteristics of Business Marketing and outline the exchange transactions that normally occur in it. 2. Enumerate the differences between B2B & B2C Marketing. 3. The buying process in Industrial Marketing is complex. Elaborate. 4. Explain the buy phases in the Industrial buying-decision process. 5. What constitutes an industrial demand for products/services? What are 3 types of organizational purchases? 6. Write a brief note on Classification of Industrial Products and services. 7. What do you understand by Buying centre Roles and six roles of buying center members?