5

BUSINESS MARKETING [B2B]

RESELLERS

B2B MARKETS----------------- CONSUMERMARKETS

RESELLERS

SUPPLY

CHAIN

OEM

SERVICES

INSTITUTIONS

GOVERN-MENT

TRANSPOR-TATION

MINING

MANUFAC-TURING

TELECOM-MUNICATIONS

SUPPLY CHAIN MANAGEMENT

The supply chain is the vehicle that allows us to enjoy the vast marketplaces of today. Every entity has a supply chain!

It involves every process and step from taking materials out of the ground to making a product available in a store or online.

The World Food Program video

SUPPLY CHAIN MANAGEMENT

MARKETSConsumers:CustomersProspectsSuspects

SUPPLIER’SSUPPLIERS

CUSTOMERS

CUSTOMER’SCUSTOMERS

SUPPLIERSor

SUPPLIERS

TOPPER’S TRIPS TO MARKET1-Plastic eyes & 10-transistors

Shenzhen, China

2& 9-Speakers for voice, 12-wiring

Dongguan, China

3-Plastic body

Malaysia

6-Microfiber fabric coat

Korea

7-Voice recognition requirements

San Francisco

4-Motor for legs

Shaoguan, China

5-Plastic legs & 11-IC chips

Taiwan

8-Voice recognition programming

Taiwan

13-Packaging Hong Kong, China

ManufacturerOutbound

PortInbound

Port

Warehouses and Distribution

Centers

Thousands of Retail Stores

VALUE CHAIN GOAL

• To combine the support and direct activities to create value as perceived by the target market[s] segment[s].

BUSINESS MARKETS

• >70% of total sales

• BUSINESS MARKETS– Businesses– Governments– Resellers– International– Institutions [education and health care]– Non-profits– Captive

THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS

LO1

PRODUCERS

[Manufacturers, OEMs or Private Labelers]

Purchase products for producing other goods and services [can be either a finished good or a component]

RESELLERS Purchase finished goods or components for resale, rental, or leasing for a profit

GOVERNMENTS Federal, state, and local governments [all different buyer behaviors]

ORGANIZATIONS / INSTITUTIONS

Purchase finished goods and services for resale, rental, or leasing for a profit

BUSINESS BUYER CLASSIFICATION

B2B MARKETS

• – Numerous industries identified by NAICS codes

[usually employ a differentiation or low-cost strategy]• B2C – Inexpensive pens, pencils, pads of paper, …• B2B – floor sweeping compound

• – One or a few industries identified by NAICS codes– May be very profitable [usually employ a

differentiation or niche strategy]• B2C – $1,000 fountain pen • B2B – CT scanner

BUSINESS MARKET COMPLEXITY *

BUSINESS SERVICES

Professional Services

Industrial Services

Consulting

Investment banking

Research

Education

…

Project related

Technical industrial

On-going

Education & training

Installation

Maintenance

…

Engineering

Quality

Product testing

…

Maintenance contracts

Field upgrades

…

THE ECONOMY AND NAICS

Agriculture

Mining

Utilities

Construction

Manufacturing Wholesale

Retail

Transportation

Information Finance

Real Estate Professional

Management Administration

Entertainment Health

Education Accommodation

Other

Public Administration

SELLGROW OR MAKE SERVICE GOV’T

MEASURING DOMESTIC AND GLOBAL INDUSTRIAL, RESELLER, AND

GOVERNMENT MARKETSLO1

North American Industry ClassificationSystem (NAICS)

6-11

• NORTH AMERICAN INDUSTRIAL CLASSFICATION SYSTEM [NAICS 2007]

– 20 sectors: 1,174 industries [and growing]– NAFTA: 5 digits + 6TH for country coding– Compatible with ISIC Rev. 3 [UN]

FIGURE 6-1FIGURE 6-1 NAICS breakdown for the information industries sector: NAICS code 51 [Paging].

6-12

COMPARING CHARACTERISTICS OF BUSINESS MARKETS TO CONSUMER MARKETS

BUSINESS MARKETS CONSUMER MARKETS

Market Structure

Fluctuating, derived demand

Geographically dispersed

Mass markets

Small volumes

Primary demand

Products Standard / complex / custom

Service etc. are critical

Business applications

Standard

Service etc. of some note

Personal use

Buyer Behavior

Individuals purchasing

Some family influence

Social / psychological drives

Buyer-Seller Relationships

Technical expertise

Close interpersonal relationships

Long-term focus

May be very dependent on each other

Amateur

Impersonal

Immediate / Short-term

COMPARING CHARACTERISTICS OF BUSINESS MARKETS TO CONSUMER MARKETS

BUSINESS MARKETS CONSUMER MARKETS

Supply Chains / Channels of Distribution

Often shorter [more direct]

Not seen by consumer

Usually indirect except for catalog and internet.

Promotion

Often involves resellers

Simple

Advertising

Price

Volume sensitive

Complex formalized process

Competitive bid / Many strategies

Individuals limited purchasing skill

Little, if any, leverage

Simple process

Not applicable

Demand

Inelastic in the short-run

Volatile and discontinuous

Direct

Elastic

Limited volatility

B2B MARKETING

• Businesses purchase products for one of three primary applications.

1.

2.

3.

B2B DIVERSITY AND SPECIFICATIONS

• Great variety

•

•

• For nearly all sophisticated or expensive items.

• For virtually all components and parts for resale.

BUSINESS PRODUCTS CLASSIFICATIONFor an Auto Plant

Factories, support buildings, large machines, large material handling equipment

Rolled steel, rubber, plastic resins

Spark plugs, radiators, steering wheels

Drill presses, assembly lines, small material handling equipment

Cleaning supplies, office supplies, toilet tissue,

Grounds maintenance, cleaning service, office equipment servicing

Characteristics of Demand

Organizational Buying Objectives

CHARACTERISTICS OFORGANIZATIONAL BUYING

LO2

6-18

BUSINESS DEMAND

• Elastic and Inelastic demand

• Fluctuating demand due to

–

– Erratic based on their customers demands from their customers and/or new programs/products

– Their demand is the total of the demand of multiple segments—which are frequently not in concert with each other.

DERIVED DEMAND

The demand for products and services is derived from the demand for their customers’ products and services [whose demand may also be derived].

EXAMPLE: PC’s drive demand for computer chips

MULTIPLE MARKET SEGMENT DEMAND

0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9

A

B

C

TOT

DEMAND *

• It is critical one understands the all the components of the total demand schedule [Dt]!

• The problem is at the channel level. Thus the Bull-Whip Effect.

BULL-WHIP EFFECThttp://www.shmula.com/310/the-bullwhip-effect

INFLUENCES ON BUSINESS BUYERS

ENVIRONMENTALEconomic, Technological, Political [EPA], Competitive

ENVIRONMENTALEconomic, Technological, Political [EPA], Competitive

ORGANIZATIONALObjectives, Policies, Procedures, Structure, and Systems

ORGANIZATIONALObjectives, Policies, Procedures, Structure, and Systems

INTERPERSONALAuthority, Status, Empathy, and Persuasiveness

INTERPERSONALAuthority, Status, Empathy, and Persuasiveness

INDIVIDUALAge, Education, Position, Personality, and

Risk Attitudes

INDIVIDUALAge, Education, Position, Personality, and

Risk Attitudes

BUYERSRisk and Reward

BUYERSRisk and Reward

• Just-in-Time

Organizational Buying Criteria

CHARACTERISTICS OFORGANIZATIONAL BUYING

LO2

Standards

Supplier Development

Buyer-Seller Relationships and Supply Partnerships

CHARACTERISTICS OFORGANIZATIONAL BUYING

LO2

• Reciprocity

•

6-26

JUST-IN-TIME [JIT] SYSTEMS

•

• Improve logistics

• Improve product quality

• Maximize production efficiency

• Provide optimal customer service

QUALITY APPROACHES

• ISO-9000 Series

• ISO-14000 Series Environmental

• QS9000 [ISO / TS-16949] Automotive

• ISO-17779 Information Security

• SIX SIGMA Motorola, GE, …

• Malcom Baldridge Cadillac

BUYING PARTICIPANTS

GatekeepersCONTROL FLOW

Initiators /Info seekers

STARTERS

Buyers /Purchasing

FORMS

Influencers/ Advocates

SUPPORT

DecidersAUTHORITY

UsersMANDATORY

ApproversNECESSARY

• #1 Problem recognition–

• #2 Information search– Fact finding, preliminary vendor analysis,

value analysis

• #3 Alternative Evaluation – – Negotiations and contract

CHARACTERISTICS OF ORGANIZATIONAL BUYING:ORGANIZATIONAL BUYING CRITERIA

LO2

NEGOTIATIONS

• PREPARATION– Strategy alternatives– Psychological

• PERSONAL SKILLS– –

• TACTICS & COUNTERS– – Ridiculous request - ridiculous response–

• #4 Purchase decision– Final negotiations– Long-term contract

• #5 Postpurchase behavior– Supplier analysis

CHARACTERISTICS OF ORGANIZATIONAL BUYING:ORGANIZATIONAL BUYING CRITERIA

LO2

GOVERNMENT PURCHASING

Government MarketsGovernment Markets

Domestic SuppliersDomestic Suppliers

Open BidsOpen BidsCost MinimizationCost Minimization

Public ReviewPublic Review

PaperworkPaperwork

Prominence of Online Buyingin Organizational Markets

ONLINE BUYING INORGANIZATIONAL MARKETS

LO4

E-marketplaces [B2B exchanges / e-hubs]

Reverse Auction

Online Auctions in Organizational Markets

Traditional Auction

6-34

6

MARKET RESEARCH

AMA CODE OF ETHICS

• Honesty and integrity•

• No high-pressure tactics• • No conflict of interest

Market Research

The collection and analysis ofinformationto support

the market related decisions

MARKETSRESPONDENTSCOMPETITORSSTRATEGIES

MARKET PLANNING

Market segmentation

Needs and wants analysis

Market share or potential

Competitive analysis

PRODUCT MANAGEMENT

New product ideas / concepts

New product introduction

Marketing mix decisions / IMC quality

PRODUCT DEVELOPMENT

Concept / use testing

Marketing mix decisions

Sales techniques

STRATEGIC MARKETING

Strategy analysis

Establishing / setting objectives

New business / SBU analysis

WHAT IS MARKET RESEARCH?LO1

THE MARKET RESEARCH PROCESS

Developing

the researchplan

Developingthe research

planCollect the informationCollect the information

Analyze theinformationAnalyze theinformation

Present thefindings

Present thefindings

Market research can describe, analyze, and/or predict.

PERSPECTIVE

• One’s viewpoint is their perspective.

• You must understand others perspectives to succeed.

THREE RESEARCH TYPES

Test cause-and-effect

If x then y

Tests hypotheses

Test cause-and-effect If x then y

Tests hypotheses

Define the problem.

Help to define the issues andhypotheses

Define the problem.

Help to define the issues andhypotheses

•How big?

Product potential, attitudes, …

•How big?

Product potential, attitudes, …

You must also know when marketing research will not be cost-effective or very difficult to use..

STEP 2: DEVELOPTHE RESEARCH PLAN

LO2

Specify Constraints

Identify Data Needed for Marketing Actions

8-41

Determine how to collect data

STEP 3: COLLECT RELEVANT INFO/DATASECONDARY DATA

LO3

8-42

• INTERNAL [primary – under your direction]– Corporate data– Privately purchased– Privately purchased

market research– Observational

• Watching people• Asking people

• EXTERNAL [secondary – under someone else’s direction]– Government– Standard reports and

market research– Periodicals / books– Associations

DATA AND ITS USE

• QUALITATIVE DATA

• Symbolic data• Only subjective data• Understand behavior• Evaluate reactions• Describe small groups of

subjects or individuals in depth

• Exploratory role [generate ideas and hypotheses]

• Depth and richness of information

• QUANTITATIVE DATA

• Numeric data• Objective data• Measure a market• Describe groups of

consumers [structured by parameters]

• Extrapolate from a sample to the general population [market or market segment]

• Representative data

TYPES OF SAMPLES

• PROBABILITY SAMPLE [scientific process]– Simple random sample – Stratified random sample– Cluster [area] sample

• NONPROBABILITY SAMPLE [arbitrary]– Convenience sample [easy]– Judgment sample [select]– Quota sample [n]

SCALES OF MEASUREMENTSCALE STRUCTURE EXAMPLE(S)

1:1 correspondenceSubjective data

Football numbersLottery drawing numbers

Equal distances between items (e.g. 4-2=4-3)

A scale existsNo distance relation is known (e.g. 3-2 <> 4-3)

Calendar daysTemperature

Military rankQuality of lumber, beansUpper-middle-lower class

A continuous scale of measurementDefinite relationshipsA true zero point

MeasurementLoudness scale

Equal distances between items (e.g. 3-2=4-3)

Calendar daysTemperature

TYPES OF STATISTICS

• PARAMETRIC– F, t, z, ANOVA, …– Large sample size required

• NON-PARAMETRIC or DISTRIBUTION-FREE– Chi-square, Kruskal-Wallace, Smirnoff, …– Ideal for small sample sizes

STEP 3: COLLECT RELEVANT INFO/DATA+/– OF SECONDARY DATA

LO3

Advantages

• Time Savings

• Inexpensive

• Out of Date

• Definitions/Categories Not Right

Disadvantages

• Not Specific Enough8-47

STEP 3: COLLECT RELEVANT INFO/DATAPRIMARY DATA—OBSERVING BEHAVIOR

LO4

Mechanical Observation

8-48

Personal ObservationMystery ShopperVideotaping

STEP 3: COLLECT RELEVANT INFO/DATAPRIMARY DATA—QUESTIONING CONSUMERS

LO4

Questionnaire data

Idea generation methodsIndividual interviewsDepth interviewsFocus groups

Idea evaluation methods

ELEMENTS OF A GOOD QUESTIONNAIRE

•

• Precise questions and answers

• Avoids leading questions

• Does not ask unreasonable questions

• Does not alienate the respondent– Sensitive topics = ?

• Readily lends itself to statistical analysis

STEP 3: COLLECT RELEVANT INFO/DATAPRIMARY DATA—QUESTION FORMATS

LO4

Open-Ended Questions

Closed-End or Fixed Alternative Questions

Dichotomous Questions

Semantic Differential Questions

Likert Scale Questions

8-51

WHICH TYPE OF QUESTION IS BEST FOR YOUR SITUATION?

OPEN-END or COMPLETELY UNSTRUCTURED

OBTAINS INFORMATION WITHOUT BIAS

What do you think about scholarship support at Texas Tech University?- General understanding of that person’s perspective- Complex question[s]-

- Answer interpretation can be problematical

FREE RESPONSE

ANSWERS ARE LIMITED TO A WORD OR A PHRASE

Does TTU provide inadequate, sufficient, or exceptional financial scholarship support?

TYPES OF QUESTIONS

SENTENCE COMPLETION

THE answer IS OBTAINED BY DIVIDING the numerator BY the denominator.

GOOD FOR ROTE MEMORY MEASUREMENT – BAD FOR

TYPES OF QUESTIONS

DICHOTOMOS

THE RESPONDENT MUST ANSWER ONE OF JUST TWO CHOICES

Do you think TIDE gets clothes clean without injuring the fabric? YES NO

TYPES OF QUESTIONS

DICHOTOMOS

THE RESPONDENT MUST ANSWER ONE OF JUST TWO CHOICES

Do you think TIDE gets clothes clean without injuring the fabric?

YES NO

YES = CLEAN AND WITHOUT INJURY TO THE FABRIC

NO = WHICH? CLEAN, INJURES, CONFUSED, … ?

TYPES OF QUESTIONS

MULTIPLE CHOICE

VERY EASY

ONE CORRECT ANSWER

TO MEDIUM

SEVERAL ANSWERS ARE ONLY SLIGHTLY DIFFERENT

TO HARD

COMBINATION ANSWERS ONLY SLIGHTLY DIFFERENT

TYPES OF QUESTIONS

RANKING, RATING, and CONTINUUM QUESTIONS

FORCE A MORE PRECISE SCALE OF MEASUREMENT

SCALE DETERMINES TYPE OF STATISTICAL ANALYSIS

THE CHALLENGE WITH ALL OF THESE IS THE MEANING OF THE SCALE OF MEASUREMENT.

PROBLEMS WITH QUESTIONS

• THE RESPONDENT

– DOES NOT UNDERSTAND THE QUESTION

– DOES NOT HAVE THE INFORMATION TO ANSWER THE QUESTION

– CAN NOT REMEMBER THE ANSWER

– DOES NOT WANT TO ANSWER

THE PROBLEMS OF ENGLISH

• AMBIGUITY– Pear, pare, pair– To, two, too– The, run

• THE CHICKEN AND THE EGG

• SPECIFICITY AND ABSTRACTION– What is the midpoint between right and

wrong?

STEP 3: COLLECT RELEVANT INFO/DATAPRIMARY DATA—PANELS & EXPERIMENTS

LO4

Panels

Experiments

• Independent Variable:The Cause

• Dependent Variable:The Result

• Test Markets8-60

STEP 3: COLLECT RELEVANT INFO/DATA+/– OF PRIMARY DATA

LO4

Advantage

• Expensive

• Time Consuming to Collect

Disadvantages

• More Specific to the Problem

8-61

STEP 3: COLLECT RELEVANT INFO/DATAUSING INFO TECHNOLOGY TO TRIGGER MARKETING ACTIONS

LO5

• Data Mining is the extraction of hidden predictive information from large databases.

Data Mining: A New Approach to Searching the Data Ocean

8-62

STATISTICAL MEASURES

• – Intent– Does it measure what it is meant to?

• – Error – What is the consistency of the data?

• – Who? Type of …? How many …?– Is it representative of the population?

STEP 5: TAKE MARKETING ACTIONSLO5

Frequently Evaluate the Results

Make Recommendations

• Evaluate the Decision Itself

Implement the Recommendations

• Evaluate the Decision Process Used

8-64

OTHER MATHEMATICAL TOOLS

• Calculus

• Linear programming, matrix algebra, and Simplex solutions

• Queing theory

• Markov chains

• Regression analysis

• Time series analysis

SOME MARKETING RESEARCH TOOLS

• CORRESPONDENCE MAPPING

• CLUSTER ANALYSIS

CORRESPONDENCE MAPPING

• #1 - Graphically represents the relationship between brands / products and other variables such as psychographics, media, etc..

• #2 - A preliminary step to cluster analysis, used in determining the most discriminatory psychographic statements

CLUSTER ANALYSIS

• USED FOR SEGMENTING MARKETS BY GROUPING INDIVIDUALS WITH SIMILAR RESPONSES INTO DISCRETE GROUPS.

• A POWERFUL STATISTICAL TOOL FOR UNDERSTANDING CHARACTERISTICS AND RELATIONSHIPS

7

MARKET SEGMENTATION

and

TARGET MARKETING

CREATING CUSTOMER VALUE

1. SEGMENTATION

2. TARGETING

3. DIFFERENTIATION

4. POSITIONING

PRODUCTS, SERVICES, & TECHNOLOGIES

APPLICA-TIONSCHANNELS

MARKET[S]

SEGMENT[S]

WHY SEGMENT MARKETS?WHEN AND HOW TO SEGMENT MARKETS [Kotler]

LO1

9-72

WHY IS SEGMENTATION WORTH DOING?

• Allows targeted communications• Fulfills consumers needs and wants• Responds to changing markets• Very efficient use of resources

WHAT IS MARKET SEGMENTATION?

• A multi-step process– The same process whether B2C or B2B

•

• A process for determining attractive target market segments

MARKET SEGMENTATION- A MULTI-STEP PROCESS -

POSITIONING FOR EACH SEGMENTThe desired consumer mental image.

MARKETING MIX PER SEGMENT

IDENTIFY BASES FOR SEGMENTATIONWhich attributes are important? What are their limits?

DEVELOP SEGMENT PROFILESWrite a description of the typical consumer in that segment.

DEVELOP ATTRACTIVENESS MEASURESWhat makes a segment attractive for your firm?

SELECT TARGET MARKET SEGMENTSbased on attractiveness.

MARKET

SEGMEN-

TATION

SELECT & RANK THE MOST MEANINGFUL BENEFITS

MARKET SEGMENTATION- BASES FOR SEGMENTATION-

UNIVERSE OF PROSPECTS

1+ CHILDREN

HISPANIC

AGES 25-34 HOUSEHOLD INCOME

OVER $50,000

CONSUMER [B2C] MARKET SEGMENTATION METHODS

• Geographic

• Demographic

• Psychographic

• Behavioral

STEPS IN SEGMENTING AND TARGETING MARKETSSTEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS

LO3

• Geographic Segmentation B2C

9-77

World region North America, Europe, EU,

Region Southwest, Mountain States

Population SMSAs or SCAs, small cities

Population density Urban, suburban, exurban, rural

Climate Temperate, hot, humid, rainy

“Lubbock’s leading radio station”

STEPS IN SEGMENTING AND TARGETING MARKETSSTEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS

LO3

• Demographic Segmentation B2C

9-78

INCOME

MARITAL STATUS

GENDER

AGE Under 11, 12-17, 18-34, 35-49, 50-64, 65-74, 75-99, 100+

Male, female

Single, married, divorced, living together, widowed

Under $25,000, $25,000-$34,999, $35,000-$49,999, $50,000-$74,999, $75,000-$99,000, $100,000 and over

OCCUPATION**

EDUCATION Some high school, high school graduate, some college, college graduate, postgraduateProfessional, blue-collar, white-collar, agricultural, military

SUBCULTURES/RACE / ETHNICITY

RELIGION

CULTURES American, Italian, Chinese, Mexican, …

Catholic, Protestant, Jewish, Moslem, other

African-American, Caucasian, Asian, Hispanic

FAMILY LIFE CYCLE Bachelors, young married, empty nesters, …

VALS2 CONSUMER MODEL

FULFILLEDS[Satisfied]

10.5%

BELIEVERS[Family focused]

17.0%

ACHIEVERS[Committed]

14.7%

STRIVERS[Needs others]

11.8%

EXPERIENCERS[Socializer]

12.9%

MAKERS[Traditional]

12.0%

ACTUALIZERS[Sophisticated]

11.7%

PRINCIPLE STATUS ACTION

STRUGGLERS[Uneducated]

9.5%

$$$

$

I

N

C

O

M

E

PRIZM

• PRIZM– 500,000 neighborhoods– 62 clusters– Claritas

• http://www.claritas.com

STEPS IN SEGMENTING AND TARGETING MARKETSSTEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS

LO3

• Psychographic Segmentation B2C

9-81

LEARNING-INVOLVEMENT

PERCEPTION

PERSONALITY*

NEEDS-MOTIVATION Shelter, safety, security, affection, sense of self-worth

Extroverts, novelty seeker, aggressives, low dogmatics

Low-risk, moderate-risk, high-risk

Low-involvement, high-involvement

ATTITUDES Positive attitude, negative attitude

SOCIAL CLASS* Lower, middle, upper, …

STEPS IN SEGMENTING AND TARGETING MARKETSSTEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS

LO3

• Psychographic Segmentation B2CLIFESTYLE*SEGMENTATION

Based on personality, motives, lifestyle, and geodemographics. [Zip code 79424]

Economy-minded, couch potatoes outdoors enthusiasts status seekers

ATTITUDES, INTERESTS, & OPINIONS (AIO) for instance:

Spends 1+ hours per day on the Internet, heavy e-mail user

Buys on the Internet, goes to stores only as required

Professional, income above $75,000 per year

Belongs to multiple frequent traveler programs

STEPS IN SEGMENTING AND TARGETING MARKETSSTEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS

LO3

• Behavioral Segmentation B2C

Occasion Regular or special [4th of July, new child]

Benefits Quality, service, convenience, value

Brand loyalty None to insistence [frequent flyer]

Usage rates Light, medium, heavy

STEPS IN SEGMENTING AND TARGETING MARKETSSTEP 4: SELECT TARGET MARKETS

LO4

• KOTLER’S FIVE TESTS [B2C]– MEASURABLE – – SUBSTANTIAL – – ACCESSIBLE – – HETEROGENEOUS – – ACTIONABLE –

• EACH SEGMENT SHOULD HAVE A [NEARLY] UNIQUE RESPONSE / BEHAVIOR PATTERN.

CONSUMER [B2B] MARKET SEGMENTATION

• Use the same process as B2C

• Use different attributes / variables

BUSINESS BUYER CLASSIFICATION[Review]

Purchase products for producing other goods and services [can be either a finished good or a component]

Purchase finished goods or components for resale, rental, or leasing for a profit [distributors, dealers, wholesalers, retailers, …]

Federal, state, and local governments [all different buyer behaviors]

Purchase finished goods and services for resale, rental, or leasing for a profit

DEMAND [Review]

• It is critical one understands the all the components of the total demand schedule [Dt]!

• The problem is at the channel level. Thus the Bull-Whip Effect.

BUSINESS MARKET COMPLEXITY[Review]

BUSINESS SERVICES

Professional Services

Industrial Services

Consulting

Investment banking

Research

Education

…

Project related

Technical industrial

On-going

Education & training

Installation

Maintenance

…

Engineering

Quality

Product testing

…

Maintenance contracts

Field upgrades

…

CONSUMER [B2B] MARKET SEGMENTATION METHODS

• Geographic

• Demographic

• Behavioral

STEPS IN SEGMENTING AND TARGETING MARKETSSTEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS

LO3

• Geographic Segmentation B2C

9-90

Statistical Areas [SMSA, SCA]

AREA BUSINESSESLA – Long Beach686,222New York598,093Philadelphia - NJ405,082Chicago399,511

Source: D&B Sales and Marketing Catalog, ~2005

STEPS IN SEGMENTING AND TARGETING MARKETSSTEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS

LO3

• Demographic Segmentation B2C

9-91

NAICS code[s] Industries example Annual sales Channel of distribution Title / functional responsibility Number of employees See example

BUSINESS MARKET SEGMENTATION

• DEMOGRAPHIC

EMPLOYEES BUSINESSES

1,000+ 18,864

500-999 16,270

100-499 126,466

<100 1,803,535

Source: D&B Sales and Marketing Catalog, ~2005

STEPS IN SEGMENTING AND TARGETING MARKETSSTEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS

LO3

• Behavioral Segmentation B2C

Usage Rate Product / process / technology / application Type of equipment [plastic manufacturing]

BUSINESS MARKET SEGMENTATION

INDUSTRY / INDUSTRY / INDUSTRY / INDUSTRY /SEGMENT NAME SEGMENT NAME SEGMENT NAME SEGMENT NAME

DESCRIPTION DESCRIPTION DESCRIPTION DESCRIPTIONNAIC(S) NAIC(S) NAIC(S) NAIC(S)

APPLICATION 1 PRODUCT 1 PRODUCT 2

APPLICATION 1 PRODUCT 1

PRODUCT 1 APPLICATION 1 APPLICATON 2 APPLICATION 3

Brief verbal descriptionMARKET (SEGMENT) NAME

A

PRODUCT – MARKET MATRIX

OrlonOrlon

RayonRayon

Pro

du

ct M

anag

ers

AcetateAcetate

NylonNylon

DacronDacron

Market Managers

Men’sMen’swearwear

Women’sWomen’swearwear

IndustrialIndustrialmarketsmarkets

HomeHomefurnishingsfurnishings

Example is DuPont, see also Dow, GE, …

STEPS IN SEGMENTING AND TARGETING MARKETSSTEP 4: SELECT TARGET MARKETS

LO4

Criteria to Use in SelectingTarget Markets

Those That Divide a Market into Segments

• Two Types of Criteria

Those That Actually Pick the Target Segments

9-96

STEPS IN SEGMENTING AND TARGETING MARKETSSTEP 4: SELECT TARGET MARKETS

LO4

Criteria to Use in Selecting Target Markets

• Market Size

• Expected Growth

• Competitive Position

• Cost of Reaching Segment

• Compatibility with OrganizationalGoals and Resources

9-97

CREATING CUSTOMER VALUE

1. SEGMENTATION

2. TARGETING

3. DIFFERENTIATION

4. POSITIONING

MARKET SEGMENTATION:FILLING THE GAPS

MARKETS / SEGMENTS

CHANNELS OF DISTRIBUTION

PRODUCTS

SERVICES

APPLICATIONS

13

2

4

TARGET MARKETS

Identifying relatively homogeneous groups with similar needs and buyer behavior.

TARGET MARKETS

A

C

B

A

CB

A

C

B

MARKET TARGETING;CHOOSING A MARKET-COVERAGE

STRATEGY

Company Resources

ProductVariability

Product’s Life-Cycle Stage

Market Variability

Competitors’Marketing Strategies

MARKET SEGMENTATION:Market Coverage Strategies

The firm decides to ignore market segment differences.

One marketing mixSame product to all segments

Coca Cola Early Ford

• 1 Pricing strategy • 1 Promotional program aimed at everybody • 1 Type of product with little/no variation • 1 Distribution system for the entire market

– Staple foods-sugar and salt and farm produce, Henry Ford Model T – standard model, no options

MARKET SEGMENTATION:Market Coverage Strategies

The firm decides to target several [large] market segments

Each segment has a marketing mixDifferent products for each market segment

Proctor & Gamble detergents Current auto manufacturers

Until around 2000, Marriott International U.S. segmentation was

Consumer market segmentsMarriott Suites……….....Permanent vacationersFairfield Inn…………………...Economy Lodging

Business market segmentsResidence Inn………………….....Extended StayCourtyard By Marriott……….Business Travelers

MARKET SEGMENTATION:Market Coverage Strategies

The firm decides to pursue a larger market share of

selected [smaller] segments, sub-segments, or nichesDifferent products to the [sub-]segments

Different marketing mix for each segment or sub-segmentSUV’s standard to family to luxury to Disney [co-branded] to …

MARKET SEGMENTATION:Market Coverage Strategies

Specialized products for individuals and locations

[Brands, promotions] [1:1 marketing]Local chain grocery stores Amazon, Dell

8

DIFFERENTIATION

and

POSITIONING

CREATING CUSTOMER VALUE

1. SEGMENTATION

2. TARGETING

3. DIFFERENTIATION

4. POSITIONING

DIFFERENTIATIONLO5

Differentiation is a marketing strategy that uses different marketing mixes to help consumers perceive a product as being different from and having meaningful benefits compared to competing products.

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DIFFERENTIATION

• SETTING YOURSELF APART– – Important in consumer marketing– Essential in business marketing

• DIFFERENTIATION BASED ON THE MARKETING MIX– Product [the pen exercise] and services if

applicable– Place [limited availability]– Promotion [Schlitz Beer]– Price [value perception, brand]

IDENTIFY AND ESTABLISH BRAND POSITIONING AND VALUES

• •

– RELEVANCE – relevant and important

– DISTINCTIVENESS – distinctive and superior

– BELIEVABILITY – believable and credible

– COMMUNICABLE – gets through the noise

IDENTIFY AND ESTABLISH BRAND POSITIONING AND VALUES

• –Elements where there is

disagreement as to how their performance or functionality compares to the next best alternative.

• COMPETITIVE FRAME OF REFERENCE

AREAS OF DIFFERENTIATION

ProductForm – Features

Performance – DurabilityReliability - Expected life

Design - Apple

ProductForm – Features

Performance – DurabilityReliability - Expected life

Design - Apple

ServiceRepairability, Warranty

ServiceRepairability, Warranty

ImageStyle – Design – Quality

Away from or against competitors?

ImageStyle – Design – Quality

Away from or against competitors?

PeopleCompany / User class or

segmentB2C vs. B2B

PeopleCompany / User class or

segmentB2C vs. B2B

PERCEPTION – areas for competitive differentiation

COMMON AREAS OF BRAND DIFFERENTIATION

• The brand – – provides unique or superior customer service,

purchase, or usage experience;– delivers superior performance and/or is the

technology leader or innovator / pioneer;– is the most convenient or easy to find and use; – delivers the best perceived overall value for the

price category; – has excellent testimonials; – …

THE PRODUCT CONCEPTEvery item in the product concept is an opportunity to differentiate.

BrandName

QualityLevel

Packaging

Design

Features

Delivery& Credit

Installation

Warranty

After-Sale

Service

DIFFERENTIATION AND PRODUCT DECISIONS

Product AttributesFeatures – Design - Quality

Product AttributesFeatures – Design - Quality

BrandingBranding

Packaging, Labeling, and Product WarningsPackaging, Labeling, and Product Warnings

Product Support ServicesProduct Support Services

Product Safety, Product LiabilityProduct Safety, Product Liability

Market research and new product developmentMarket research and new product development

INDIVIDUAL PRODUCT DECISIONS

WarrantiesWarranties

Product Safety, Product LiabilityProduct Safety, Product Liability

Expressed = written

Implied = unwritten

WARRANTIES

• Lifetime

• Limited lifetime

• Extended warranty

• Free from manufacturer’s defects

• Merchantability and fitness of use

INDIVIDUAL PRODUCT DECISIONS

WarrantiesWarranties

Product Safety, Product LiabilityProduct Safety, Product Liability

Product RecallsProduct Recalls

Individual and Class Action LawsuitsIndividual and Class Action Lawsuits

PRODUCT STRATEGIES

Strategies for Strategies for New New

ProductsProducts

Strategies for Strategies for New New

ProductsProducts

Strategies forStrategies forRegionalRegionalProductsProducts

Strategies forStrategies forRegionalRegionalProductsProducts

Strategies forStrategies forMatureMature

ProductsProducts

Strategies forStrategies forMatureMature

ProductsProducts

Vanilla Coke Giant Texan Coke

Coca-Cola

CREATING CUSTOMER VALUE

1. SEGMENTATION

2. TARGETING

3. DIFFERENTIATION

4. POSITIONING

POSITIONINGLO5

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Positioning helps you …

1. 2. or to see if you are launching into a crowded

competitive marketplace; 3. 4. appreciate the most important criteria customers' use

when positioning different brands in their mind; 5. 6. find the best position for your product or brand in the

marketplace.

POSITIONING

IncreasingEmotional

Connectionwith

Consumers

IncreasingDifficulty

forCompetitors

SELECT THE RIGHT COMPETITIVE ADVANTAGES FOR POSITIONING TO BE

EFFECTIVE

Affordable[relative]

Affordable[relative]

Superior[perception]

Superior[perception]

ProfitableProfitable

PreemptivePreemptive

Distinctive[differentiation]

Distinctive[differentiation]

Important[to the consumer]

Important[to the consumer]

CommunicableCommunicable

PERCEPTUAL MAPLO5

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A perceptual map is a way of displaying the perception of brands, companies, products, or services in the minds of consumers.

It allows one to understand the importance of the meaningful differences being promoted relative to the competition.

It is usually done in two dimensions, but occasionally in three.

POSITIONING DIMENSION CANDIDATES

Quality

Application[s]

Occasion[s]

Lifestyle / image

Attributes

Competition

Price

POSITIONING: PERCEPTUAL MAPPING

MoreArtwork

MoreCopy

Fashion Coverage

Club Coverage

A

B

C

Gap

Channels /

Products?

Gap

POSITIONING STRATEGIES

Against CompetitionAgainst Competition Repositiona Competitor

Repositiona Competitor

C C CU U

POSITIONING STRATEGIES

Find a PositionFind a Position

C U

C CC

Gap

POSITIONING STRATEGIES

Find a PositionFind a Position Create a PositionCreate a Position

C CC

U

C CC

CC

UU

VS

MARKET POSITION & STRATEGYSee Marketing Warfare article, by Ries and Trout

MARKETLEADER

Coca Cola

MARKETChallenger

Pepsi

MARKETFollower

RC ColaMARKETNicherP/L

Frontal or indirect attack?

Frontal attacks are usually for market leaders.

Really good marketing executives are flexible.

POSITIONING STRATEGIES

Broaden the BaseBroaden the Base

C UC C

C

MICROSOFT BRANDS IN 2003

MICROSOFT

Commercial Consumer

Windows Server

System

Microsoft Business Solutions

Microsoft Visual

Microsoft Office

MSN XBOX

UNIQUE SELLING PROPOSITION [USP]

• THREE TESTS

–

–

–

A

SALES FORECASTING TECHNIQUESLO6

Industry or Market Potential

Sales Forecast

Company Forecast

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SALES FORECASTING TECHNIQUESLO6

Statistical Methods

• Trend Extrapolation - extending a pattern observed in past data into the future

• Linear Trend Extrapolation - a straight line to extend a pattern observed inpast data into the future

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