3. Industrial Marketing
Also called: Business-to-Business (B2B) and
Organizational Marketing.
Definition: the creation and management of mutually
beneficial relationships between organizational suppliers
and organizational customers.
Customer can be private firm, public agency, or nonprofit
organization.
3
4. The Marketing Concept
Creating value for customers with goods and services
that address organizational needs and objectives.
4
5. Marketing Concept
Three major components:
All company activities should begin with, and be based on,
the recognition of a fundamental customer need.
A customer orientation should be integrated throughout
the functional areas of the firm: production, engineering,
finance, R&D.
Customer satisfaction is viewed as the means to long-term
profitability goals.
5
6. Strategic Focus Grid
High
Follower Interact
Customer
Focus
Isolate Shaper
Low
Low Technology Focus High
6
7. Market Orientation
Acquire intelligence from the external environment.
Disseminate that intelligence throughout the
organization.
Respond to the intelligence: take action.
(Kohli and Jaworski 1990, Journal of Marketing)
7
8. Marketing Mission Statement
State in terms of meeting customer needs, not in terms
of products or technologies.
Marketing Myopia (Levitt 1960 HBR)
8
9. Marketing Activities
Identify customer needs
Research customer behavior
Divide market into manageable segments
Develop new products/services
Establish/negotiate prices
Deliver, install, service products
Ensure adequate and timely supply of products at correct
place
Allocate resources across product lines
Communicate with customers
Evaluate/control marketing programs
9
10. Marketing Mix
Limited number of variables under Marketing’s control to
create position that is attractive to the target market
segment.
Four Ps
Product
Price
Promotion
Place (Distribution)
10
13. So what’s different about B2B?
Marketing Concept
Marketing Mix
Market Segmentation
Product Life Cycle
All apply in both B2C and B2B.
13
14. So what’s different about B2B?
The technical characteristics of the product are
important.
These products directly affect the operations and
economic health of the customer.
The customer is an organization rather than an individual
consumer, or family.
14
15. Five Major Differences
Between B2B and B2C
Products/Services being marketed
Nature of demand
How the customer buys
Communication process
Economic/Financial factors
15
16. Products/Services
More complex
Functional vs. Symbolic Attributes
Large unit dollar value/Large quantities
Custom/Tailored
Various Stages from raw material to finished goods.
Foundation, Entering, Facilitating Goods
16
17. Raw Material Extraction
Material Processing
Manufacturing
Parts/Subassembly
Facilitators
Assembly
Distribution
Wholesale/Retail Trade
Final Consumers
Firms in Production Chain 17
19. How Customer Buys
Group Process
Formal
Lengthy
Loyal
Decisions based on risk and opportunity
19
20. Communication
Personal selling more important than mass paid
advertising
Support sales with other promotional activities:
advertising in trade journals, catalogs, trade shows, direct
mail, WWW.
Message focused on technical, factual, and descriptive
content.
Multiple audience members.
20
23. Purchasing
Usually the main point of contact
Boundary spanning function
Checks and Balances
Purchase requisition
Written purchase order
Negotiated/bid prices and terms
Contract
Receiving report
Invoice
24. Major Tasks of Purchasing
Identify/evaluate suppliers
Negotiate prices and terms
Purchase contract
Match delivery and production schedules
Expedite orders
Handle returns
Monitor changes in prices, markets, and regulations
25. Strategic Importance
Historically, not a top-level function
Now seen as:
a major source of cost savings,
contributor to operational efficiency
Materials Management Concept:
Buying
Storing
Moving
26. Life-Cycle Costing
Initial Costs
Purchase price to vendor, freight, insurance, training
Start-up Costs
Paid to other than vendor: modifying facilities and
complimentary/support infrastructure
Post-purchase Costs
Maintenance, repairs, power, financing, inventory costs,
and space requirements
Salvage Value
Recovery amount: resale, trade-in, scrap
27. Value Analysis
Reducing cost without reducing quality or effectiveness.
Also called value engineering.
Cost/Benefit trade-off
Redesign, standardization, less expensive manufacture,
substitute
Five stages: information gathering, speculation, analysis,
execution, reporting.
Reverse engineering/absorptive capacity
28. Time-Based Buying Strategies
Speculative Buying
Buying in excess of foreseeable requirements
Inflation or short-term price drop
Added inventory/carry costs
Risky
May buy too much
Prices may not go up
29. Time-Based Buying Strategies
Forward Buying
Buying in excess of current needs, but not foreseeable
needs
Take advantage of quantity discounts or volume freight
rates
Protect against temporary shortages or delays due to
unreliable vendors or transportation
33. Materials Requirement Planning
Systematic determination of current and foreseeable
needs for materials and parts.
Uses economic order quantity (EOQ) models,
probability theory, and statistical demand
forecasting.
Three Inputs
Production schedule
Bill of materials
Inventory record file
Doesn’t work well for large volume, long lead times,
or irregular/infrequent purchases
34. Electronic Data Interchange
and the Internet
Computers communicate without regular
involvement of managers.
Not the World Wide Web
Large investment in equipment and software. Can
use third parties.
Timely, accurate, simpler, cheaper
Dis-intermediation vs. Sales Productivity
Marketing intelligence:
Can track customers, order quantities, purchase
frequencies, and prices over time.
35. Web-Based Procurement
Quick, low-cost access to get data on suppliers and their
offerings.
On-line catalogs and purchasing
Search engines help gather information
Three procurement models:
Catalog-based
Auction-based
Bid-based
36. Enterprise Resource Planning
Internal software-based system
Ties together all basic processes of the business
Order taking, inventory control, production, financial
systems, etc.
Lengthy implementation (Years)
Return on Investment questionable
Costly to convert data, modify procedures, overhaul
networks.
37.
38. Value
May not be tangible
Value is PERCEIVED by the buyer
Can enhance value:
Packaging
Support services
Reliability
Warranties
Training
39. Selling to Organizations I
Social as well as economic dimension
Individual behavior contributes to the mission.
Formal reward system for individuals
Bad purchasing decisions
Interruptions in production/operations
Reduction in product quality
Slowdown in distribution
Dissatisfied customers
Wasted resources
Higher costs/lower sales and cash flow/lower profit
40. Selling to Organizations II
Usually formal contracts
Extensive search for suppliers
Negotiation
Long buying process
Multiple suppliers
Long-term, loyal relationships
43. Technical Complexities
Products and services, and their applications can be
complex.
New technology
Interface with existing technology
Custom
High standards (e.g. clean rooms, surgical suites)
44. Commercial Complexities
So much is open to negotiation
Product, price, terms, discounts, warranties, delivery,
training, service, returns, etc.
Liability, nonperformance
POWER
$ize of deal, characteristics of parties, the deal, # of
parties involved, complexity of products
45. Behavioral Complexities
Negotiating not just with purchasing agent, but multiple
parties from multiple functional areas in the organization
The more people involved, the more complicated it gets
Technical and commercial complexity can exacerbate the
behavioral complexity
46. Who’s on first?
Key decision maker(s)
Important Product/Vendor attributes
Access to key decision makers
Customer purchasing policies and procedures
47. The Buying Center Roles
Initiator
Buyer
User
Influencer
Decider
Gatekeeper
Not really a center at all. Group decision process.
48. Rational Decision-Making?
Purchasing for business, not self
Purchaser being judged on performance
Fiduciary responsibility
Formal structure and procedures
# bidders
Evaluation criteria
Multiple signatories
49. Rational Decision-Making?
Emotional and Social Factors
Friendship
Like/Dislike vendor/rep
Personal/Professional Favors
Influence of others in organization (+/-)
Personal/Departmental Needs & Objectives may not
match those of the organization.
Conflict
51. Buystages
Need recognition (May not be decider)
Solution characteristics/quantity (Specs)
Describe solution in detail (Make/Buy)
Find qualified sources (product +)
Receive/analyze proposals (price +)
Evaluate proposalsSelect supplier
Establish order routine
Feedback/Evaluate (FOLLOWUP)
52. Buying Scenarios
Newness and past experience with product
Amount/Type of information needed by
influencers/deciders
Number of alternatives
Common buying situations (buyclasses)
Straight rebuy
Modified rebuy
New task purchase
53. Structural Perspective
Vertical Involvement: # levels
Lateral Involvement: # functional areas
Absolute Size: # people
Connectedness: Direct communication among buying
center members
Centrality: Degree of communication regarding purchase
flowing through purchasing department
54. Power Perspective
Ability to influence or make buying decisions; often
situation specific
Types
Reward: $, social, political, Ψ
Coercive: punish, penalty
Referent: personality, charisma, persuasion
Expert: specialized knowledge
Legitimate: formal position/title
55. Risk Perspective
Purchase decision is risk reducing behavior
Probability of Loss x Magnitude of Loss
(What about consequences?)
Risk mitigation strategies may help to make the sale
PERCEIVED uncertainty
56. Problem-Solving Perspective
Routine orders: little risk
Procedural: How to use product. Learning/training
Performance: Can product meet need?
Political: Internal politics, departmental squabbles
(legitimate and petty)
58. External Environmental Organizational
Influences Influences
Buyer Center
Dynamics
Individual
Influences
Buyer Center Model
59.
60. From Single Sale to Symbiosis
Discrete Repeat Brand/Source Dyadic Strategic
Transactions Transactions Loyalty Relationships Partnerships
Perspective
Short-Term Long-Term
61. Shifting Objectives
Sales Revenue: “Close the Deal.” Transaction
Perspective
Market Share: “Own the Market.”
Operating Profit: “Generate ‘acceptable’ rates of return
on product, segment, channel investment
Customer Equity: “Capture desired portion of
Customer’s Lifetime Value
64. Loyalty Factors
Task Concerns
Quality, Delivery, Service, Price
Organizational Concerns
Politically safe, minimal benefit for change
Work Simplification Concerns
Makes it easier, too much trouble to change
Attitudes Toward Source
Buyer’s attitude toward company and people
65. Relationship Marketing
Strong, Lasting Ties
Earned Trust
Successful Long-Term Exchanges
Structural and Social Bonds
Cooperation/Collaboration
Long-Term, personalized, mutually beneficial, based in
deep understanding of customer needs and
characteristics
67. Relationship Marketing: Reality or Lip
Service?
Requires more commitment than most are willing to
make.
Most take tactical steps rather than strategic
Shortcomings observed:
Locking in the customer: Needs to be win-win
Informality: legal, strategic, outcomes
Primarily non-financial investments: Capital equipment is
important
Avoiding Dependency: Flexibility over commitment
Unilateral: Buyers should initiate
Not all customers are worth the investment
One size never fits all
68. Relationship Strength Affected By:
Volume of purchases
Frequency of contact
Extent of collaboration in product development
Technical distance
Physical distance
(See Table 4.1)
71. Some Helpful Criteria for Selecting
Partners
High risk of losing account
Important customer
Customer open to partnership
Can improve relationship
Cultural match (Not Gateway/IBM: cows and suits)
Potentially mutually beneficial
Can add benefits in service
Good competitive position
72.
73. Market Segment
A group of existing or potential
customers sharing some common
characteristic that is relevant in
explaining or predicting their response to
a company’s marketing program.
77. Homogeneity
Key to successful segmentation: everyone in the
segment is the same on segmentation basis, not
necessarily on multiple bases.
Can think in terms of the “typical” segmentation
member, and create the marketing mix that positions
your company in the most attractive place.
78. Segment Selection I
Attractiveness
Long-term profitability +
Judgments
Use market research and forecasting
Size
Likely market share/segment
Long-term profits
79. Segment Selection II
Select and prioritize based on:
Time (Sales force)
Effort (Customer service)
Money (Promotions)
81. Segment Selection IV
After selection, study deeper
Patterns in buying behavior
Assess strengths and weaknesses of
competitors
Identify areas of competitive opportunity
83. Degrees of Segmentation
Undifferentiated: One marketing mix for the entire
market.
Reality
Differentiated
Concentrated
Niche
One-to-one:
The ultimate segmentation
Every customer is a market segment.
84. Why Segment?
Efficiency
Optimize firm resources
Target most promising customers
Rifle vs. Shotgun
Effectiveness
Match capabilities to needs/wants/problems
Pinpoint prospects
Identify/Exploit competitor weaknesses
85. Usefulness Criteria
Does the segmentation fit firm’s strategy?
Are there homogeneous sub-groups in the market?
Needs
Buying behaviors
Can the segments be measured?
Potential?
Are the segments accessible?
Reachable via unique marketing mix
89. Micro Strategy
Characteristics of decision-making process and buying
structure of customer organization.
Perceived importance of purchase
Relative importance: product/vendor attributes
Attitudes toward vendors
Vendor selection rules
Buying center structural
Power of key departments in buying center
Key member: personality, demographics
92. Why do research?
The external environment is dynamic.
Knowledge becomes outdated.
To gather more information
Better Information Better Decisions
93. Limitations
Managers NEVER have all of the relevant information
that they need.
Constraints of time and money
Desired information is often more costly than it’s worth.
Decisions are time sensitive. Can’t wait for all of the
information.
94. When NOT to do research
Good research has already been done.
When decisions have been made and won’t be altered by
new information.
When management does not understand scope
necessary and won’t commit $.
Don’t have talent, won’t hire.
Uncertainty reduction justifies cost.
95. Marketing Research Tasks
Estimate market potential
Analyze market share/share of customer
Track competitors
Identify market characteristics & trends
Analyze sales data
Sales forecasting: Existing/new products
96. Key Concerns
Reliability: measures/methods yield consistent
results
Xt1 ≈ Xt2 ≈ Xt3 ≈ Xt4
Validity: research measures what it says it measures; i.e.
little or no error
XA ≈ XM; or XA = XM + Є, and Є ≈ 0
97. Types of Data
Primary
New information generated for specific task.
Can be expensive/time consuming.
Gather by survey, tests, observation, focus groups,
interviews.
Secondary
Existing information.
May not be in useful form.
Sources: government, trade/professional associations,
company records
98. Sampling Issues
Sample vs. Census
Probability
Random, equal chance
Random, stratified
Non-Probability
Convenience
Judgment
99. Questionnaires
Ask what you want to know
Watch length
Aesthetics
Easily understood; watch vernacular
Social desirability bias
Non-response bias
Question order effects
100. Coding-Analysis-Interpretation
Data entry tedious.
Mistakes are made
Need to clean data
Use statistical tools to analyze data.
SPSS/SAS
Can data mine
Important to understand analysis
What results means
Limitations of method
101. B2B vs. B2C Research I
Technology
Need to understand technical needs of customers
Direct economic effect
Quality/Price trade-off very important
Organization, professionals
Understand multiple players, in socio-political setting
102. B2B vs. B2C Research II
Smaller #s of buyers to study
Smaller sample sizes
Secondary data often exists
Tough to get buyer’s attention for research
Need to know which buyer(s) to study
Need technical knowledge for research
Surveys take longer, cost more
103.
104. Marketing Intelligence
Continuous flow of information
Strategic and Tactical
Systematic and periodic
Better understanding of environment over time
Collect from variety of sources
Customers, competitors, regulators, etc.
Constant vigilance
105. Marketing Intelligence System I
People, Procedures, Computers
Acquires, Disseminates, Interprets, Stores information
about internal and external environments
106. Marketing Intelligence System II
Transform raw data to useful information
Can organize information by customer, competitor,
product line, territory, activity
Sources
Internal: sales, service, accounting
External: government, trade associations, competitor
literature, customers, publications
Output
Periodic reports
Special information needs
107. Decision Support Systems
Computer-aided decision-making
Involve analysis, not just retrieval
Database: Repository of data
Statistics: Analyze data
Model: Patterns in the data; relationships
Optimization: Decisions leading to best outcome given
model
108.
109. What is strategy?
Recognize and interpret opportunities (and threats) in
the environment.
Capitalize on these opportunities (and threats) in a
timely fashion.
110. Characteristics of Strategy
Based on clearly defined objectives
Take comprehensive approach to organization problems
Adopt long-term view
Flexible
Planning is everything. The plan is nothing.
Dwight D. Eisenhower
111. Why have strategy?
State where company wants to be and how it plans to
get there.
Ensure long-term prosperity.
Coordinate efforts throughout the organization.
Have an idea what to do when things don’t go according
to plan.
112. Goal of strategy
Match organization’s core capabilities to its environment
to gain/maintain competitive advantage.
Strategies at multiple levels
Overall corporation
SBU
Product Lines/Markets
113. Strategy vs. Tactics
Strategy
Long-term
overall plan
= Σ Tactics
Tactics
Short-term
Action-oriented
Narrow, immediate goal
114. Strategy Questions
Does it match environment?
Assumptions valid?
Basic elements consistent?
Feasible?
Risk mitigated?
Rewards adequate?
115. Strategy Types
Growth strategy: Product/Market-Based
Primary/Selective Demand Growth
(Product Category vs. Own Brand)
Strategic Target/Advantage (Porter)
116. Growth Strategies
Existing New
Market Product
Existing Penetration Development
Markets
Market
New Diversification
Development
Products
117. Demand Development
Market Potential
Industry Sales
Sales
Company Sales
Primary
Secondary
Time
119. Strategic Marketing Management
Emphasize a continuous search for competitive
advantage (lower cost or higher perceived value).
Maximize portfolio or product line rather than every
product.
Product strategies:
Build for future profits
Reap profits
Fill product line (RTE Cereal)
Defend against cheaper competitors
Support other products (ink jet printers)
121. Price Change
Low Long-Term Impact
Low Investment
Low Risk
Easy to implement quickly
Easy for competitor to respond
High chance of similar competitive response.
122. Reengineer Existing Products/Process
Moderate Long-Term Impact
Moderate Investment
Moderate Risk
Moderately easy to implement quickly
Moderately easy for competition to respond
High likelihood of competitor responding with similar
action
123. New Products/Major Process Δ
High Long-Term impact
High Investment
Moderate-High Risk
Difficult to implement quickly
Difficult for competitor to respond
Low chance of competitor responding with similar action
124. Potential Pitfalls of Planning
Low motivation to plan
Justification; Habit
Poor planning abilities
Art (creativity) and Science (analysis)
“Plans are nothing, planning is everything” (Eisenhower)
Unanticipated environmental changes
Contingency Plans and Continuous Updating
Goldilocks Forecasting
125. Planning Tools
Product Life Cycle
Portfolios
BCG Matrix
GE Portfolio
Experience Curves
Technology Life Cycles
“Killer Aps”
Creative Destruction
126. Strategy: Planned or Happens
Intentional vs. Emergent
Planned Strategy
Crafting Strategy
127. Concepts
Killer Applications
Moore’s Law (Intel) (2X Transistors/Chip or 2X speed
every 18 – 24 months
Metcalfe’s Law: Network externalities and
complimentary products (Telephone, www)
Coasian Economics: Transaction costs
Flock of Birds (not seagulls)
Technology is nonproprietary
Fish Tank Phenomenon: Startups compete
128. Closing Thoughts
Strategy cannot be discussed separately from marketing.
Marketing is an integral part of the process of developing
and implementing strategy.
129.
130. Why innovate?
Maintain/Gain competitive advantage
Customer needs & wants change
Competitors’ offerings change
New products are a significant portion of many
companies’ revenues.
131. Dynamic Theories of Competition
Dickson 1992, 1996
Hunt 2002
Hunt and Morgan 1995, 1996, 1997
Innovation is central to gaining and holding competitive
advantage.
132. Root of Theories
Joseph Schumpeter 1934, 1942
Some firms are always innovating, looking for an edge
over competitors.
Not satisfied with status quo.
Creative Destruction
World-Changing Innovation: telephone, automobile,
airplane, television, computer, Bakelite
135. Decreased
Cost
Increased quality
Lower cost & lower cost
& lower quality
Increased
Quality
Higher cost
& lower quality Increased quality
& higher cost
“Innovations” in this Decision Line
quadrant would
hurt
the organization’s McDonald and Srinivasan 2004
competitive
136. Types of Innovations I
Discontinuous
Fairly revolutionary
Disruptive impact on buyer patterns
Dynamically Continuous
Some disruptive effects
Generally same ways to satisfy needs
137. Types of Innovations II
Continuous
Most common
Little or no disruption
Imitation
Replicate someone else’s idea
Cheap, no R&D $
138. Innovation Dilemmas I
Unknown vs. Control
Breaking/Following Rules (Skunk-works)
Freedom/Discipline
Constraints, Deadlines
139. Innovation Dilemmas II
Answering needs that customers are not aware of
(MOPRO)
Innovating and Not Innovating Risky
Revolutionary vs. Evolutionary
140. Innovation Dilemmas III
Innovation Obsolete Products (Intel)
Infrastructure may become obsolete
Innovation generally comes from small entrepreneurs,
but is costly
141. Innovation Dilemmas IV
Perfection vs. “Good Enough”
Technology-Driven
Market? (Iridium, Ricochet, Dot-Coms)
Customer-Driven:
Competition? (Dig. Cellular)
142. Innovation Dilemmas V
Genius vs. Persistence
Inspiration vs. Perspiration
Breaking the rules of the game vs. playing a different
game
Discontinuity; Creative Destruction
143. Innovation Dilemmas VI
First to market does not equal success
Need complimentary assets (Teece 1988)
Market needs to be ready
144. Risks I
Natural tendency to resist change
Don’t want to learn new things
Threat of taking resources
High failure rates
Hasn’t been done before
Expensive
145. Risks II
Economic Failure
Effect on company image
Psychological well-being of company after failure (also
myopia of success)
Drain on company resources
Cash Flow
Distraction of management
Cannibalism
146. Reasons for Failure
No market
Too much competition
Competitor leap frog
Environmental myopia
Can’t deliver on promises
Price
148. Internal Incompetence
Poor technical assessment
Loose screening criteria
Market potential over/under-estimates
Sloppy financial analysis
Weak quality control in production
Under-estimating competitor’s strengths &
customer loyalty
Bias in marketing research
149. Dimensions of Success I
Keys to success
Product Uniqueness/Superiority
Market Knowledge/Proficiency
Technical and Production Synergy
150. Dimensions of Success II
Success Facilitators
Marketing Resources
Strength of Communications and Launch
Large, Growing Market with Need
151. Dimensions of Success III
Barriers to Success
No Economic Advantage
Extremely Dynamic Market
Customers Already Satisfied
152. Dimensions of Success IV
Factors of Unknown Impact
Market-entry order
Pre-commercialization proficiency
Dominant Competitor in Market
Production Start-up smoothness
Newness of product to company
Project magnitude/technical complexity
Clear product demand
Customer Attitudes
153. Innovation Charter
Innovativeness
How radical
How risky
Proactiveness (Offensiveness)
Lead vs. follow
Synergy
Compatibility with current products and resources
154. Characteristics of Innovative
Companies
Organizational commitment to innovation
Entire organization involved
Attention to Marketing
Effective design/development
Good Communication (Internal/External)
Management Skills/Professionalism
155. Process of Innovation
Idea Generation
Screening
Technical Feasibility Analysis
Product Testing
Profitability Analysis
Test Marketing
Market Launch
Life-Cycle Management
156. Organizing for Innovation
See Table 8.6, pp. 260-1
Notice that each has certain
advantages and disadvantages
There is no one right way
Task Dependent
Resource Dependent
157. Marketing-R&D Interface
House of Quality
It takes both sides of the organizational brain working
together to be successful.
Each has talents and knowledge that compliments the
other.
161. Time
New industrial products can take years to develop.
Technologies
Patents
Packaging
From prototype to reliable commercial product
Strategies for the supporting parts of the marketing mix
(price, promotion, and distribution) take weeks or
months to develop.
162. Marketing Mix Elements
The product/service offering determines
Appropriate quality position
Target markets
Competitors
Appropriate distribution/logistics
Furthermore, cost structure/financial needs influenced
by design, production, delivery requirements.
163. Product vs. Service
Tangible/Intangible
Caterpillar Tractor vs. Federal Express Delivery
Customers are really buying “solutions.”
Caterpillar provides intangible services to support
products.
FedEx uses tangible products to support services.
164. Products
Each product should be thought of as a bundle of
problem-solving attributes, or a package of benefits.
Each product can be evaluated on four levels.
Core Product
Tangible Product
Augmented Product
Communicated Product
165. Core Product
The primary benefit sought by the customer.
An engine would provide the power to make an automobile
run.
A tractor will enable a farmer to till the field.
A computer will allow an organization to keep records, and
communicate.
A desk will provide employees a place to work.
168. Communicated Product
That which the company uses to present the product to
its customers
Brand name
Logo/trademark: Identity
Positioning
Image
169. Strategies
Generally we think of moving out from the core benefit
as the best strategy.
However, a competitor’s product advantage might be
diffused by moving back in.
170. Uniqueness of Industrial Products
Broad range of products: trucks, factories, staples.
The type of product has implications for the
development of the marketing strategy and tactics.
Can qualify products along 8 dimensions.
172. Service
Deed, Performance, Effort
Service Experience delivery of service attributes to
customer
Visible Components: Front Office,
Customer sees
Personnel, facilities, equipment (Quality Cues)
Invisible Components: Back Office
Internal Operations, Customer does not see
Administration, purchasing, accounting, computer
operations, maintenance, employee training
173. Dry dock: Boat building and boat repairs (Ketchikan, Alaska)
174. Unique Characteristics
of Industrial Services
Intangible (Most distinguishing characteristic)
Perishable (can’t inventory)
Often consumed at purchase (simultaneous)
Difficult to gain production economies
Customized more frequently than products
Consumed in irregular patterns typically
Generate less customer loyalty than products
175. Industrial vs. Consumer Services I
Non-convenience type: Custom, impact $, search
Transportable
Brought to customer (Auditing, Legal)
Not as conducive to mass production/marketing
Customer (as individual) does not become part of the
service. (Janitorial vs. Haircut) Often service is
performed on facilities, equipment, or end products.
176. Industrial vs. Consumer Services II
People intensive (capabilities, experience, background),
but also expensive equipment
Sophisticated, knowledgeable customers with specific
expectations
Formal buying process; tangible evidence of ability (cues,
referrals)
Longer term, more stable relationships
Demand patterns more stable/predictable
177. Classifying Products and Services
Based on Tangibility
Consulting Corporate Furniture
Intangible Retreat Tangible
178. Most Companies Sell Both
Few pure products or pure services
Often companies sell complementary products and
services
Consultants may sell software to implement their
recommendations
Security service might also install equipment
Advertising medium might also design ads
179. Product/Service Line Decisions
Cannot make decisions on isolated products or services
Decisions must be made holistically.
Some products/services support others
Some might protect market share
Might use one to set up demand for more profitable
after-sale service or products
180. Mixes, Lines, and Items
Mixes are largest group: Total set of items/lines
Nokia Mobile Communications
Mid-level are lines: Related Items
Tech, production, cost, distribution, customer aps
Can have sub-lines by P/Q
Nokia Cellular Telephones
Items are within lines: Specific Offering
Nokia 3210 Cellular Telephone
181. Assess Item Relationships
Cross-Elasticity
Effect of one product/service on another
Positive Cross-Elasticity
Substitute one product for another
Product from lower end line
Negative Cross-Elasticity
Complimentary products
Computer and Printer
182. Breadth, Length, & Depth I
Breadth is the number of different lines carried by the
company.
Not just #s, but Consistency: tech, production, distribution,
customers
Length is the number of items in a given line.
Shallow (few items) or Deep (many items)
Depth is the number of variations of a particular item in a
line.
183. Breadth, Length, & Depth II
See example of 3M, Figure 9.5, pg. 288.
Do not spread company too thin, or offer products that
do not capitalize on core competencies.
Shallow lines may appeal to fewer segments; deeper
lines may be inefficient.
Depth may grow with PLC, until decline stage
184. Breadth, Length, & Depth III
Strategies
Full Line/All Market (GE)
Market Specialist (Kidder Peabody Financial Services)
Line Specialist (TRW Valves)
Limited Line Specialist (ACI)
Single Item Company (ADD Systems)
Special Situation Company (Pilko, Boots & Coots)
185. Managing Product Quality I
PRODUCT QUALITY
How well do the product specifications meet customer
needs? How well does the product design conform to
these specs?
How well does the product conform to design?
How well does the product perform?:
Reliability, Safety, Durability, Maintainability
186. Managing Product Quality II
SUPPORT QUALITY
How well does product meet customer’s needs at and after
sale?
DELIVERY QUALITY
Timely delivery
187. Managing Product Quality III
Marketers need to ensure that delivered quality meets or
exceeds customer expectations.
Goal is a satisfied customer.
Tracking cost of quality; benchmarking.
Negative costs: of defective products
Positive costs: of eliminating defects
188. Managing Service Quality
Matching service features/characteristics to customers’
needs
More difficult to do with intangible services vs. tangible
products
Establish formal service standards
189. Service Standards I
Focus on the major components of the service
experience (people, equipment, tangibles)
Technical Quality
What the customer receives: audit rpt, market rpt.,…
General know-how, equipment, abilities
Functional Quality
How the customer receives service: professionalism
Reflects attitudes and behaviors of contact employees
Need both functional & technical working together
190. Service Standards II
Difficult to measure
Subjective measures easier to administer than objective
measures
Objective: On-time deliver %
Subjective: Customer judgment of sales performance
SERVQUAL (See Table 9.4, pg. 295)
191. Positioning I
How the firm wants the product/service lines to be
perceived by the customers. (Not where the store is
located!)
Perceptions about underlying benefits
Perceptions about how they compare to competitors’
offerings
Use the marketing mix (4 Ps) to create position
192. Positioning II
Attribute (Reliable: UPS)
Price/Quality (Cheap: USPS)
Competitor (Away/Against)
Product Application (Medical, Transportation)
Product User (Medical, Finance, Trucking)
Product Class (Locks as security: Schlage)
193. Perceptual Map High Quality
Poor Service Excellent Service
Low Quality
194.
195. Price
Price is unique among the 4 Ps in that it directly affects
the company’s revenues and profits.
Pricing is both a science and an art.
Diligence and creativity are both necessary.
Pricing seems to be the one “P” that has been
dramatically affected by the use of the Internet.
196. Characteristics of Industrial Prices I
Includes more than list or quoted price
Delivery & Installation
Discounts (quantity, promotion, remit time)
Training costs
Trade-in allowance
Promotions: 2 for 1
Financing costs
197. Characteristics of Industrial Prices II
Not an independent variable. Pricing interacts with:
product,
promotion, and
distribution strategies
Must consider complementary or substitute products
when establishing price strategy
198. Characteristics of Industrial Prices III
Prices can be changed by:
Changing price paid by buyer
Changing quantity/quality offered by seller
Changing premiums or discounts
Changing time and place of payment
Carry
Tax/Cash Flow implications
Changing time and place of transfer of ownership
Delivery
199. Characteristics of Industrial Prices IV
Pricing often set through competitive bidding on a
project-by-project basis
Don’t know competitors’ prices
Negotiation may be used instead (some insist)
Emphasis on fairness
Need to justify price increases
Also justify higher prices
200. Characteristics of Industrial Prices V
Affected by economic factors outside company’s control:
Inflation
Long-Term contract (escalation clauses)
Interest Rates
Currency Exchange Rates
Affects cost of materials
Affects price of exports
201. Price = f(Value)
Need to set an initial price that is neither too high (hurts
sales) or too low (lost profit)
Value has two major dimensions:
Customer’s subjective estimate of product’s capacity to
satisfy a set of goals
Objectively established by the competitive market. “What
the market will bear.”
202. Economic Value to the Customer
Purely economic sources of value
Need to compare life-cycle costs of your product and
substitutes
If incremental value is high enough to justify a higher
price, then there is EVC
Sometimes it takes a convincing sales effort to help
customer see the value
203. What’s it worth to the customer?
How much money can customers save by using our
product?
Can the product help them increase sales or reach new
customers?
Does the product provide a competitive advantage?
Does the product improve the safety of the products the
customer sells? ( Value)
How much time can customer save by buying product vs.
making themselves?
207. Market-Based Pricing Strategies
Floor: just cover costs
Penetration: lower than market
Parity: match market
Premium: skimming
Price Leadership: everyone plays follow the leader
Stay Out/Keep Out
Bundle: Multiple products/services
Value-Based: Segment pricing
Cross-Benefit: “Gotcha” (Razors, Ink Jet)
208. Strategic Pricing Programs:
Structure
Basic: One price, no discounts, everyone pays the same
Lacks flexibility, limits sales
Low Cost competitive advantage in price
Price moves toward costs in PLC, until end
Creative Pricing: empty seats, box filler, late
cancellations, season, demand, advance purchase,
customer loyalty
209. Strategic Pricing Programs:
Levels/Tactics
Actual price charge w/discounts
Acceptable range that conveys value
Odd ($2,999) vs. Round ($3000)
Ensure adequate price gaps between items
Modify for costs, competitors, market Δs
Timing: not arbitrary, justify to customer
Sends signals to customers/competitors
Rebates, 2/1, trade-in, etc.
210. Pricing Program
Strategy, structure, level, and tactics all work together.
They must be coordinated.
Strategy may be long lived (several years).
May need to modify structure periodically.
Offer special price deals.
Levels and tactics need to be monitored closely and
changed as needed.
Address competitor changes
In response to cost changes
As demand changes
211. Pricing Decisions: What Lies Beneath?
Most companies use multiple pricing strategies.
If the firm sells complimentary or substitute products,
they are more likely to use product line strategies (e.g.,
bundling).
Objectives
Costs
Demand
Competition
212. Objectives/Strategies
Differentiation Higher Margins
Fewer competitors are substitutes
Increased brand loyalty
Moving to low price from premium-quality position can
hurt sales, not help
Recoup development costs over longer period of time.
Otherwise run risk of sales numbers that are too low to
ever recoup costs.
213. Costs
Establishes the minimum price
Set price based on target margin or return
Can price below cost to:
Keep employees and facilities working during downturn
Support other products in the line
Low bid to establish relationship. Make $ in long term, or
on extras
Experience or reputation
New skills
214. Standard Cost Approach
Target Return Pricing
Need accurate sales forecast: standard volume
Variable costs and fixed costs/unit: standard costs
P = DVC + FC/Q + rK/Q
P: Price DVC: Direct Variable Cost/Unit
FC: Fixed Cost r: Rate of Return
K: Capital Used Q: Standard Volume (units)
215. Standard Cost Approach
Can include interest rates on debt, tax rates (perhaps
different countries for mfr and sales), or inflation factors.
Don’t raise prices to counter weak sales; Don’t drop
prices too quickly either
Need reliable standard volume estimate
Initial low price may increase volume, which in turn
lowers per unit fixed costs
216. Contribution Analysis
Trade off between price and units sold
Total Revenue – Total Variable Cost = Variable
Contribution Margin
Fixed Costs ÷ Contribution/Unit = Break Even Sales
Volume (minimum sales)
Estimate change in volume for changes in price and
compare to break even (Maximum sales/profit
217. Demand
Sets the upper limit of price
Need to understand customer’s reasons for buying
product; how they use it
Hard Benefits
Physical Attributes: hp, productivity, durability, error rate,
performance tolerances
Soft Benefits
Warranty, service, other augmented product
Balance benefits to customer against the costs (price +)
218. Costs
Price + (delivery, modifications, financing, maintenance,
operation, less salvage)
CT machine $500K-$1MM to purchase
Also costs ~ $100K/year to operate and maintain
Cost to prepare facilities to house
Risk (defect, poor performance) Cost
What trade offs are the customers willing to accept?
Slower delivery; Low service priority
Higher, chunkier inventory
Larger purchase commitment
219. Elasticity of Demand
Sensitivity of customer’s quantity demand to changes in
price
Usually demand has a negative slope (higher price
lower demand)
Issue is how steep
Sometimes must hit a threshold level before there is a
change in elasticity Substitutes become more
palatable as prices rise
222. Determinants of Elasticity
Available substitutes
Necessity of product
Relative size of purchase $$$
Differentiation of product/Standardization
Customer switching costs
Ease/Difficulty of comparison (Complexity)
Third-Party Payer (Pass-Through)
Price/Quality Association
Time (Payment due, need for product)
223. Industrial Products
Tend to have inelastic demand
Especially if technically sophisticated, customized, or
crucial to operations
Routine purchases more elastic
Situational elasticity: customer and market
circumstances
Incumbents push uniqueness
Challengers push substitutability
Elasticity can vary across segments
224. Cross Elasticity
Compliments
Lumber and nails, drill presses and bits
Negative cross elasticity
Substitutes
Shipping by train vs. truck, Company B vs. A
Positive cross elasticity
225. Competition
Need to monitor continuously
Anticipate changes
Relatively easy because there are relatively few suppliers
and few customers
Tends to be oligopolistic
Structure: concentrated
Price Leader
Sets the tone for pricing
Usually the organization with the best cost structure
(competitive advantage)
228. Opportunistic Pricing
Follow the swings of the market
Raise prices as high as elasticity will allow
Raise prices as high as customer goodwill or loyalty will
allow
Lower prices as demand drops
232. PLC Pricing I
Critical at Introductory Stage
Sets the tone for future pricing decisions
Penetration pricing (low)
Higher sales, lower margins
Can leave too much on the table
Parity pricing (match)
Premium/Skimming pricing (high)
Can get highest margins
Risk competitive entry
Always easier to lower prices than to raise
Don’t try to recoup R&D costs too quickly
233. PLC Pricing II
Growth: New competition
More specialized need segments develop
Product extensions developed
Scale economies and experience curve start to come into
play
Price ranges narrow; convergence on market price
Downward pressure on pricing
234. PLC Pricing III
Maturity: Market more saturated
Competition aggressive and entrenched
Product may be cash generator (Cash Cow)
Focus is on repeat sales/internal cost efficiency
Competition more heavily priced based; but stop short of
price war
Maximize short-term direct product contribution to
profit
235. PLC Pricing IV
Decline
May raise price to capitalize on remaining, inelastic
demand, or
Leave prices stable, cut expenditures, let product die, or
Cut price, toward break-even, use as loss leader to sell
complimentary products
236. Competitive Bidding I
Most common with
public projects
governmental agencies
custom, technically complex products
long manufacturing cycles
Usually the low bidder
Not always in private sector
Consider bidder qualifications (See AGC form)
237. Competitive Bidding II
Invitation to Bid: RFP published
Newspaper
Private Publications: Dodge Reports
Usually very precise plans and specifications that become
part of the purchase contract
May have to provide a performance bond to ensure that
the product/service will be completed. Bid bonds less
common.
238. Competitive Bidding III
Sealed/Closed Bids
Due at same time
Open all at once
One time pricing
Open/Negotiated Bids
Iterative process
Combines bidding and negotiating
Web bidding has facilitated this process
239. Competitive Bidding IV
Questions to consider:
Is project large enough to bid?
Are the specs precise enough to do an accurate bid?
How will successful bid affect our other jobs, products, and
customers?
Who else may bid? How hungry are they?
Do we have time to put together quality bid?
(Courtesy Bid)
240. Competitive Bidding V
Bidding Strategy
Probabilistic Bidding (Value????)
Assumes profit maximization is goal
Assumes lowest bid selected
Focus on size of bid, expected profit if win, and probability
that bid will win
E(X) = P(X)Z(X)
X = Bid Price Z(X) = Actual profit if successful
P(X) = Probability of bid acceptance
E(X) = Expected profit at this bid
241. Competitive Bidding VI
Bidding models are only tools
Managerial judgment is critical
Set price to achieve a good win
Bids are not always fixed
Might have an escalation clause
Might have a pass-through clause (cost+)
Post-Bid negotiation (by customer) common
Extras (not addressed by bid) PROFITABLE
243. Price Negotiation I
Need good interpersonal skills, persuasion skills,
judgment, conflict resolution skills
Negotiation is the result of two sides coming together to
decide how much gain each will have by working
together
If not win-win, won’t happen
Each side has minimums that it wants to “win” and needs
to “win”
If < “need” No deal
If << “want” No repeat deal
244. Price Negotiation II
Need to understand risks and rewards for both sides of
negotiation
Estimate settlement ranges for self and other party
Bargaining zone: Seller’s minimum price to Buyer’s
maximum price
245. Seller Buyer’s Max Buyer
Opens Price Wants
High Bargaining Low
Zone
Seller’s Min Buyer
Seller
Price Opens
Wants
246. Negotiation Styles
Avoidant: Relatively rare
Avoid confrontation. Out for self.
Collaborative: Good long-term strategy
Win-Win. Try to satisfy self and other party.
Competitive: Short-sighted
Win-Lose. Get all you can from other party.
Sharing: Common
Both parties partially satisfied.
Accommodative: Rare
Satisfy other party, at own expense.
247. Other Issues on Negotiation
One time deal, or repeated negotiation?
Repeat more cooperation
Have longer term view
What else besides price is important?
Guarantees
Return Policies
Volume
Quality
Financing
Service
Time constraints?
248. Discounts and Incentives
Common point of negotiation
Can use to attract new customers, or keep existing ones
Can offer on select products, and to select customers
Prepaid freight, drop-shipping, financing, post-dating,
returns, rebate
Discounts:
Cash
Quantity
Trade
249. Cash Discounts
Incentive to pay quickly
Helps cash flow
2/10, n30: 2% off if paid w/in 10 days, otherwise, full
amount due in 30 days
Might offer discount for prepaying, prior to delivery, or
even prior to production
Many companies need cash, and will discount for up-
front $ (+ no risk)
Prepaid expenses can provide payer tax benefits in
addition to discounts offered
250. Quantity Discounts
Cheaper by the dozen theory
Seller gets guaranteed sales
Can plan production better
Smoothes out production, inventory, delivery
Helps with financing, & getting other business
Can offer discounts on $ or unit level
Might spread out large purchases over a period of time,
but commit up front
251. Trade Discounts
Also called functional discounts
Usually given to distributors for performing certain
functions for the manufacturer
Storage, warehousing
Sales
Transportation
Promotion
Common with automobile dealers
252. Leasing I
Contract to use an asset that is owned by someone else
(renting) for a period of time
Avoid cash payment up front
Sometimes avoid maintenance and ops costs
Can expense for taxes (not amortize)
Does not reduce debt capacity
Hedge against technology obsolescence
253. Leasing II
Financial Lease
Longer term
Σ lease pmts > Purchase price of asset
Lessee (buyer) responsible for maintenance & operating
expenses
Can apply some of lease pmt to purchase @ end
Operating Lease
Shorter, cancelable
Not amortized
Lessor (seller) responsible for ownership expenses
No purchase option
Lease price > financial lease price
254. Transfer Pricing
Internal sales price from one division to another within
the same company
Need to cover costs
Need to be cheaper than market
Exact price subject to negotiation
Both sides usually profit centers
May need to be determined by higher-up
Set formula (cost + 2/3 of margin to market)
255. WWW & Pricing
Facilitates information search by customers
Auctions: buyers set prices, not sellers
Buyers control transaction, on-line bidding
Can get spot pricing on everything and can take
competitive bids on lots of purchases
Forces even strong brands to be treated like
commodities
256. What to do about WWW
Use differential pricing
Optimize pricing by using customer data: increases
customer switching costs
De-Menu pricing; can adjust pricing almost instantly
as needed; remove lumpiness
Push differentiation even more: can use web to
provide pleasing aesthetics, entertainment,
education, or escapism
Don’t assume customers will not pay more
Establish electronic exchanges, barter excess
supplies
Maximize revenue, not price: Yield Management
257.
258. What is distribution?
Set of companies involved in the flow of products from
the manufacturer to the ultimate customer.
Sometimes called a “value-added chain”
Involves intermediaries (“middlemen”)
Joins makers and buyers
260. Channel Flows
Goods and Services
Assignment of risk also moves
Titles are transferred
Money/Financing flows
Information flows
261. Purpose of Channels
Provide goods to the right customers
In the right quantities
Of the right quality
At the right time
In the right place
To maximize profits
262. Value of Intermediaries
You can eliminate intermediaries, but not their functions
The reason that intermediaries exist is that they provide
these functions more effectively and efficiently than the
manufacturer can on its own
Economists have noted fewer intermediaries at
intro/growth and decline phases of PLC
263. B2B Channels
Fewer customers, larger purchases, complex delivery
requirements, tech support/service
Means B2B channels are shorter and more direct than
B2C
B2C uses wholesalers and retailers
B2B uses industrial distributors, manufacturers’ agents,
jobbers, & brokers
264. Manufacturers’ Representatives I
Independent business, usually 5-15 clients
Long-term relationship, a decade or more
Usually a large geographic area
Often > 100 customers
Principle function is SELLING.
Established contacts and tech knowledge
Only get paid when making sale
265. Manufacturers’ Representatives II
Especially helpful for small and medium-sized
manufacturers
Can use instead of or to supplement sales force, esp. in
remote areas
When sales get large enough, manufacturer may choose
to use own sales force. Need to anticipate this conflict.
266. Manufacturers’ Representatives III
Use of reps loss of control by manufacturer
Conflict often occurs because rep carries products from
multiple manufacturers
Agency theory suggest that rep will push:
Better quality products
Products with higher commissions
Products of mfrs they have better relation with
Products with stronger promotional support
267. Manufacturers’ Representatives IV
Reps sell
Care less about market information or customer service
They want reliable, quality products, mfr support,
reasonable commission rates, training, and good mfr
reputation and image
269. Industrial Distributors I
An independent wholesaler who sells the majority of its
goods and services to industrial , commercial, and
institutional customers, the government, builders, &
farmers.
Independently owned/operated merchant
Takes title to merchandise, keeps inventory, delivers,
extends credit, may service after the sale
270. Industrial Distributors II
Two major categories
General (Grainger)
Specialized (Caterpillar)
Heavy reliance on short-term debt
Most assets tied up in inventory and AR
Use inside and outside sales
Stock small ticket items:
Spare parts, lubricants, power tools, small machinery,
bearings
271. Industrial Distributors III
Principle functions: selling, inventory, credit
Can provide important feedback to manufacturer about
the local market, about problems with sales, service, etc.
Sell popular parts, small quantities
Distributor may carry competitor product lines, and
many different products.
273. Brokers
Bring buyer and seller together
Facilitate transaction, including negotiations
No ownership
Short-term relationship, transaction-specific
Commission
Can represent seller or buyer
274. Commission Merchants
Short term relationship
Deal with bulk products like raw materials, commodities
Never take possession of materials
Represent manufacturer
Never take title
Paid on commission
275. Facilitators
Improves the efficiency of the channel
Can provide financing, credit, market information,
grading/certification
Never take title
Does not negotiate sale or purchase
277. Sales Agents
Independent salespeople
Handle entire marketing function of a single producer
May design promotions, establish prices, determine
distribution policies, and recommend marketing
strategies.
278. Channel Conflict
Only an issue when it becomes dysfunctional
Conflict can arise over many issues: inventory levels,
margins, competitors, promotional expenditures, trainings,
returns, product obsolescence, delivery, sales support,
commissions (See Table 13.4, p. 448)
Monitor conflicts and resolve/manage
Can address through
Ownership
Contract
power
280. Channel Strategy
To intermediate or not to intermediate. That is the
question.
Distribution objectives
Sales, profits, market share & coverage, control, costs,
service, image
Consider buyers, product, competition, available
channels, legal environment
281. Why Adjust Channels?
Number of buyers and specialized needs change during
PLC
Buyers’ change and their buying changes
Changes in customer demands
Price, order size, delivery times, etc.
Some options become available, while other options
become feasible over time
283. Why Not Adjust Channels?
Long-term commitment
Legal, moral, social
Inertia: Change is difficult. Takes time and much energy.
Competitors may tap abandoned channels
Need data to justify change
Resistance to change company and channel
Change is disruptive
284. Evaluating Intermediaries
Need to periodically review channel members’
productivity, profitability, and effectiveness
Contribution Analysis Method
Weighted Factor Method
296. What’s different about
industrial promotion?
Differences due to:
Products are more technical
Fewer buyers
Buyer location
Long, complex buying process
Therefore, advertising, sales promotion
and publicity play support roles to sales.
297. What else is different about
industrial promotion?
Not much mass media.
Mostly print advertising
Messages logical/factual, vs. emotional
May need different promotion to
different organizations, or even people
within a single organization.
298.
299. Available Promotional Tools I
General Business Publications: Forbes
Trade Publications (See pg. 362)
Horizontal: Job/Function focused: purchasing
Vertical: Industry focused: steel, agriculture
Industrial Directories: Thomas Register
Trade Shows
Catalogs
300. Available Promotional Tools II
Direct Mail
Videos
Technical Reports
Web Sites/Internet
Samples
Publicity
Novelties
Telemarketing
304. Cost/Effectiveness of Promo Mix
Cost/Contact Effectiveness
High Field Salesperson High
Inside Salesperson
(Telemarketing)
Medium Trade Shows Medium
Direct Mail
Catalogs/Manuals
Low Low
Trade Journals
Other Advertising
305. Micro Look at Buying
Cognition Affect Behavior
Awareness: Publicity and Advertising
Comprehension: Education and Advertising
Conviction: Personal Selling, some Adv.
Ordering: Personal Selling
306. Macro Look at Buying
Problem Awareness: Sr. Mgmt/Current Users; use Trade
Shows and Trade Publication Advertising
Solution Identification/ Information Search: Techies; use
Catalogs, Samples, Trade Journal Advertising, Sales Force
(defense)
Evaluate Alternatives: Purchasing Mgrs.; use Comparative
Adv., Testimonials, Sales, Tech Reports, Publicity
Decide/Purchase: SALES: negotiate, persuade, adapt
Post-Purchase Evaluation: Advertising, inside sales, direct
mail
307. Implications for Marketer
Can influence buyer’s decision
Need to determine:
Most critical stages for product/market
Which promo tool most appropriate for stage
Balance cost/benefit of promo
As risk increases, the buyer seeks more info
More conflict, the buyer seeks more info
309. Should businesses advertise to businesses?
Yes, but focus on print media
Need to reach specific industries, organizations, and
individuals within organizations
Can use some TV and Radio, but usually for products with
broad market appeal (insurance, computers)
310. Print Media
Advantages
Not fleeting like broadcast
Can include technical information
Buyer can go back and see again
Buyer can go through at own pace & focus on what she/he
is interested
Disadvantages
Can’t possibly include all pertinent information
May not be seen
Difficult to assess effectiveness (like all adv.)
311. Why businesses should advertise.
Can reach people in the buying center that sales can’t reach
Good tool for prospecting (1-800; reply card)
Can lay groundwork for salesperson’s call
Creating awareness
Providing general information
Can reduce cost of sales call
Motivate/support intermediaries/distributors
Can create pull for customer’s products, leading to increased
derived demand
Can convey desired image
312. Advertising Objectives I
Express as sales or market share (easy to measure)
Could also use awareness levels or changes in attitudes,
beliefs, or perceptions
Might just be reminder (esp. in decline)
Post-sale reassurance (reduce cognitive dissonance)
BE SPECIFIC: Time and Audience
Unfortunately, most managers don’t know or understand
their objectives
313. Advertising Objectives II
Objective Strategy Characteristics
Awareness Corporate Diffuse, LT Benefits; Low Persuasion
Generic Informative, not comparative
Knowledge Preemptive Establish superiority. Informative,
moderate persuasion
Liking Brand Image Focus on benefits, not competitors
Emotion, moderate persuasion
Preference Positioning Focus on differentiation vs.
Conviction competition. High/moderate
persuasion
Purchase Unique What comp. Does not do. Hi
Appeal to action persuasion
Incentive to act. High persuasion
314. Budget
% of sales: Easy, bad if sales decrease
Last year’s budget + %: Easy, not rigorous
Competitive parity: Are competitors right?
Product/Service profitability: Low Π needs adv.
Productivity judgments: Cost/Benefit analysis
Task & Objectives: Complex, best method
315. How much to spend?
High Low
Standardized Products Customized Products
Broad product line Narrow product line
Superior product quality Lower product quality
High price Low/Average price
316. The Message I
Need visual magnetism: get attention
Color, contrast, angles, straight lines, oddities, …
Select the right audience
Invite reader into the scene: identify with ad
Promise reward (benefits, good performance)
Back up promise: support claim
Testimonials, tech standards, …
317. The Message II
Organize ad to present message in logical sequence
Speak to reader as an individual, personalize, keep
simple, ACTIVE VOICE
Avoid Clichés
Easy to read
What vs. where or who: Focus on product or service
first, not the company (except…)
Reflect company’s character & personality
Be consistent, takes long time to develop and maintain
image
318. Choosing Media I
General B. Pubs (Forbes, Business Week)
Good for products with broad appeal to large # of
customers, who are geographically dispersed.
Good to project image to business community.
May be best to reach upper level management.
Cost up to TEN TIMES price of trade journal ads.
Trade Journals (Modern Metal, Purchasing Today)
Special Interest. Knowledgeable readers.
Vertical vs. Horizontal.
Useful for directing specific, technical messages
Can reach technical people who read these journals
319. Choosing Media II
Industrial Directories (Thomas Register)
List suppliers of variety of product types
Also Catalogs, like Sweet’s
Telemarketing
WATS, incoming and outgoing
Complaints, inquiries, orders, service requests
WWW
Catalogs, orders, email, phone directories, information on
company and products
Direct Mail: Brochures, Intro letters, LISTS
320. Evaluating Advertising
Compare outcomes to goals.
Look at bottom-line increases in sales. Be sure to
account for other factors (pricing, sales efforts,
competitor actions)
Nonlinear relationship, diminishing returns
Time lag can be months
Was target audience reached?
Which medium was most effective? $/sale
Effect of adv on audience attitude, awareness, recall,
behavioral intent (to buy)
321. Sales Promotion
Supplements and complements sales
Samples
Contests for distributors
Advertising Specialties: Trinkets and Trash
Trade Shows, conventions
Catalogs
Technical Reports
322. Trade Shows I
Formal exhibition of products
Opportunity to make lots of contacts at once
Good for customers to ask questions and compare
competitors
Introduce/demonstrate products
Build awareness
Make personal contacts
Parity with competitors (Keeping up with Joneses)
Recruit employees, reps, and distributors
323. Trade Shows II
Need to identify goals
Measure effectiveness
Know which shows to focus on
Displays and Literature: Location, Quantity/Quality
Static Displays: Well trained salespeople.
Attention-Getters: Contests, Shows, Games, Gimmicks
Audiovisual Presentations: Tapes, Computers, Films
Live Product Demonstrations: 10 Minutes ±
Be on MUST SEE list
Take-Aways: Literature, brochures, samples
324. Catalogs
Contain information on the company’s line of products.
Might include price lists & warranties.
Can customize
Use Direct Mail, Trade Shows, Sales to distribute
Put on-line
Publish in industry directories, like Sweets
325. Technical Reports
Describe product and its use
Gives fairly detailed specifications (customer
understanding, no trade secrets)
Cut-Sheets: Graphs, charts, illustrations
May give results of product testing
Distribute via direct mail, trade shows, sales
326. Publicity
“FREE” (or at least less than advertising)
Credibility: Objective 3rd Party
Events: Chili cook-offs
Sponsorships
Press releases
Press conferences
Public speaking
Article Writing in trade journals
Supplemental Role: Inform about new products; Generate
inquiries; Increase awareness
327.
328. Personal Selling
The most important promotional tool in B2B marketing
Transaction/relationship is often too complex to
consummate without personal interaction between
marketer and buyer.
Physical link between parties
Boundary Spanner
329. Salespeople as Boundary Spanners
Represent the company to customers
Represents the customer to company
Bring info back to company
Sales forecasting, product suggestions, competitor
impressions
Negotiates prices and terms
Solves problems
330. Personal Selling
NOT manipulation
Might persuade or entice, but cannot force the customer
to buy.
Sales must be professional. Not fast-talking, shiny-
suited, slick liar.
Customers are sophisticated and you need a long-term
relationship to be successful.
B2B sales cost more than B2C selling.
Account for more $/sale
More direct, shorter channels
331. Training and Skills
More technical knowledge in B2B
Need to know customers’ businesses
Build relationships over a long period of time before
reaping rewards
Negotiate effectively
Price, payment terms, delivery, quantities, returns, post-
sale training and service
332. How salespeople spend their time
Selling: 32%
Waiting, travel: 21%
Telephone: 19%
Administration: 15%
Service: 13%
333. Four Types of Selling Jobs
Trade Selling
B&D to HD
Missionary Selling
DeWalt to contractors
Technical Selling
New Prospect Selling
Customer Service (Non-Sales, Selling)
Post-sale satisfaction
334. Selling Aids
Small Gifts
Useful, permanent, quality, tasteful, relevant
Not substantial; Not to Gov’t customers
Plant Tours
Customer’s attention, seller’s turf, best way to educate
customer about company
Chaparral Steel
Entertainment
Lunch, dinner, drinks (careful), leisure (sports, golf), parties
for clients
335. Sales Process Steps
Prospecting
Identify
Qualify
Preparation
Research: prospect, industry, market, competitors
Presentation
Approach, Presentation, Objections, CLOSE
Post-Sale
Delivery, Installation, Training, Billing, Returns,
Relationship Building
337. Relationships
Industrial sales: develop and maintain relationships
Power: Who is dependent on whom?
Effect of power on negotiation
Sources of conflict and cooperation
338. Structural Positions
Central and Formal buying
Level of key buying decisions
Functional areas participating in buying process
Fit between our salesperson and buyer reps
May be an issue if mismatched
339. People
Demographics and personal characteristics of buyers and
salespeople
Age, experience, education, lifestyle, race, gender,
personal goals
Better fit might lead to better relationship, but
differences may be productive too.
Need to determine if relevant
If so, which dimensions?
341. Roles, Norms, and Rules of the Game
Mostly unwritten
Some (gifts) written
Acceptable/Unacceptable tactics for both buyers and
sellers.
Perceived roles played by buyer and seller
representatives
Are both sides seeing same thing? Do perceptions
match?
342. Roles
Role Ambiguity: Unclear understanding
Role Conflict: Role partners want different things from
sales person
Role Accuracy: Misunderstanding
Role Consensus: Buyer/Seller agree on roles
Role Fulfillment: Buyer/Seller satisfied
Can improve some with training, supervision, and
experience
343. Managing Sales Force
Sales force size
Sales force organization
Recruiting and selecting salespeople
Training
Motivation and Compensation
Standards
Evaluation
344. Sales Force Size
Breakdown Method
Forecast Sales
Estimate Salesperson Productivity
Calculate Number of Salespeople Needed
Work Load Method (in text)
Number of accounts (current/potential: ABC)
Call Frequency
Call Length
345. Methods of Forecasting
• Subjective
– Users’ Expectations
– Sales Force Composite
– Jury of Executive Opinion
• Delphi Technique
346. Methods of Forecasting
• Objective
– Market Test
– Time Series Analysis
• Moving Averages
• Exponential Smoothing
• Decomposition
– Statistical Demand Analysis
348. Recruiting and Selecting Salespeople
Job analysis and description
Sales jobs are different: e.g. inside/outside
Characteristics: Enthusiasm, education, flexibility,
stability, past performance, goals
Tests: Intelligence, aptitude, psychological
Interviews and References
Sources
Legislation
350. Training Methods
On-the-job: most common
External seminars: top three, major tool
Home assignments: least favorite
In house classes
351. Training Costs/Time
New Hires
$4,000+ to nearly $10,000
4± months average
Existing Salespeople
About $4,000/year
Nearly a week (32.5 hours) per year
More emphasis on product vs. skills
352. Motivation
Expectancy Theory
Expect that effort will lead to performance
Reward is instrumental in achieving reward
Salesperson Valence for reward
Need all for motivation.
353. Rewards and Compensation
Extrinsic and Intrinsic
Money, awards, recognition, travel, promotions
Personal Growth, sense of accomplishment
Lower/Higher Order Needs
Compensation
Salary
Commission
Bonus
Contests
Benefits
354. Standards: Quotas
Goals assigned to salespeople for
specific time period.
Three Purposes
Motivate salespeople
Evaluating performance
Controlling salespeople’s effort
355. Characteristics of Good Quotas
Attainable
Motivation requires reasonable chance of
attainment
Easy to understand
Too complex suspicion and mistrust
Complete
Cover all criteria to avoid imbalance
356. Types of Quotas
Volume
Units, Dollars, Points
Activity
# cold calls, proposals, displays, service calls, meetings,
collections, demonstrations
Financial
Expenses, Gross Margins, Net Profit
357. How to Set Quotas
Volume
History
Territory Potential
Activity
Sales reps and managers; sales reports; research
Financial
Based on financial goals of firm
Adjust to meet needs
