Marketing Mix: Business Markets

CBSMarch 2014

Macro segmentation◦ Size, geographic location, usage rate, industry, end-

market served, ……. Micro segmentation

◦ Purchasing strategies(single source, multiple source)◦ Structure of DMU( decision making)◦ Organizational Innovativeness(innovator, follower)◦ Importance of Purchase( high…………….low)◦ Key Criteria( quality, delivery, supplier reputation)◦ Personal Characteristics( demographics, decision styles)

Business Market Segmentation

Signode: steel strapping for packing products Signode moved beyond traditional microsegments It uncovered 4 distinct buyer segments: Programmed Buyers

◦ Not price or service sensitive◦ Purchased in routine manner

Relationship Buyers◦ Knowledgeable customers◦ Valued partnership model◦ Did not push for price or service concessions

Transaction Buyers◦ Large and knowledgeable buyers◦ Actively considered price vs service trade off

Bargain Hunters◦ Large volume buyers◦ Product and price are very important

Examples…B2B Segmentation

Philips Lighting Company introduced Alto An environmentally friendly bulb Reduces customers overall costs Shows environmental concern of user company Philips targeted CFOs who embraced costs

savings and PROs who saw environmental image benefits

Result: Replaced 25% of traditional lamps in U.S stores, schools, offices.

Example:B2B Segmentation

B2C Companies like Nestle, Unilever, Pepsi have developed a host of enduring and profitable brands.

B2B Firms like IBM, GE, Intel, HP, Cisco, Oracle, Siemens have built valuable and powerful brands.

Steps for building a strong B2B Brand◦ Develop a strong Brand Identity and Brand Awareness◦ Create well defined Brand Positioning and Associations◦ Measure Brand Response( feelings, excitement, security) ◦ Build Brand Relationships.(resonance)

Product Management

Types of B2B Product Lines◦ Proprietary /Catalog Products

Offered only in certain configurations Example: Bearings, Valves, fasteners Produced in anticipation of orders

◦ Custom-Built Products Offered as a set of basic units with many options Example: Retail workstations from NCR,ERP solutions Offers end-to-end solutions from data warehousing to check out

◦ Custom-Designed Products Created to meet needs of a specific customer or group of

customers Example: A power plant, Machine tool, aircraft model

◦ Industrial Services Capabilities like maintenance, technical services or consulting

Product Management

The Technology Adoption Life Cycle: Classes of Customers◦ Technology Enthusiasts(Innovators)

Influence how products are perceived by others in the organization Good technology/domain expertise Lack control over resource commitments

◦ Visionaries(Early Adopters) Access to organizational resources Exploit innovation for competitive advantage(revolution)

◦ Pragmatists(Early Majority) Make bulk of technology purchases in organization Focus on technology evolution

◦ Conservatives(Late Majority) Price sensitive and pessimistic on tech investments Purchase technology to avoid being left behind

◦ Skeptics(Laggards) Die-hard critics of new technology products Very difficult to convince

Product Management

Strategies for Technology Adoption Life Cycle How to cross the chasm between visionaries &

pragmatists(time lag and buy in readiness lag)◦ The Bowling Pin Strategy

Each segment is like a bowling pin The momentum from hitting one segment carries into surrounding

segments Lotus Notes: evolution of strategy Corporate wide communication---business function solutions----

customer service function– customer included in the Notes Loop◦ The Tornado Strategy

Focus on product leadership& operational excellence in manufacturing and distribution.

HP Printers Business: Just ship---extend channels----drive to next lower price point

◦ The Main Street Strategy Value based strategies for specific end user segments. Supply exceeds demand: need for niche specific extensions HP: portable printer for space constrained users HP: high performance color printer for commercial flyers

Product Management

Overcome chicken and egg problem Attracting users when you start with zero content Find a niche where you can easily overcome this

problem and then hop to other niches/broader markets

Facebook executed the Bowling Pin Strategy◦ Started out at Harvard◦ Got the first 1000 users at Harvard◦ Spread to other colleges◦ Went to the general public◦ A good niche has to be a true community

Bowling Pin Strategy

Many high-tech products qualify as discontinuous innovation

Paradigm shock(PC replacing a typewriter) Application Breakthrough( voice recognition for service

personnel) For discontinuous innovation there is a chasm(gap) in

customer demand Technologies stuck in the chasm: AI, Electric car, RFID,

………….. Focus on 1 segment and become a gorilla Develop and dominate other segments Then the tornado starts and destroys the old technology

and establishes the new one Examples: spreadsheets, Windows, microprocessors

Tornado Strategy

Mass Market Stabilizes New product and infra in place Price decline in standard product Some conservative users look for value added

extensions with additional benefits Add on products should command a price

premium Examples:

◦ Printing Machine with auto changeover add ons◦ Copier Machine with add on productivity features

Main Street Strategy

United Technologies Corporation(UTC) provides a broad range of high-tech products and support services to the building systems and aerospace industries. Go to http://www.utc.com and identify UTCs major product lines.

Exercise

Direct Channels◦ Use of own sales force

Indirect Channels◦ Industrial distributors◦ Used where markets are fragmented & dispersed◦ Number of items purchased in 1 transaction

Integrated Multi-Channel Models◦ Coordinate activities of multiple channels◦ Call centre, web, field sales rep, channel partners◦ Used to serve customers in a particular market.◦ Focus on touch points and use of CRM systems

Channel Management

Participants in the Business Marketing Channel◦ General-Line Distributors◦ Specialist Distributors◦ Combination Distributors◦ Sales Representatives◦ Commission Agents

Channel Management

Channel Functions in alignment to customer needs◦ Provide Product Information◦ Product Customization to meet unique needs◦ Product Quality Assurance(Reliability, Integrity)◦ Order Size◦ Meet need for Assortment/Range of Products◦ Drive Product Availability◦ Facilitate After Sales Service◦ Logistics support

Channel Management

Sysco Corporation is a large distributor of food and food related products to the food service industry. The Company provides its products and services to 415,000 customers including restaurants, educational & health care facilities, lodging establishments and other customers. It generates sales of $ 25 billion annually and has 50,000 employees. Go to http://www.sysco.com and identify some of the services Sysco provides. What kind of channels could Sysco be using?

Exercise

Acquisition Costs +

Possession Costs +

Usage Costs =

Total Cost in Use

Price Interest Cost Installation costs

Paperwork cost Storage Cost Training CostsTransportation Quality Control User labor costsOrder Expediting cost

Taxes & Insurance

Replacement costs

Product Evaluation costs

Obsolescence Repair Costs

Error/Rework in shipping/delivery

Handling Costs Disposal Costs

Pricing for Business Markets

Steps in Price Setting for Business Markets

Set strategic pricing

objectivesDemand

Estimation& Estimating

ElasticityDetermine Cost-Volume

relationshipsExamine

competitorPrices and strategies

Set the Price level

Sonoco,a packaging supplier provided a flexographic printed film for packaging snack foods for Lance,a FMCG Company. This reduced costs for Lance(cost driver)& increased sales by increasing visual appeal(revenue driver)

A new surgical product reduced the length of a surgical procedure from 55 minutes to 40 minutes. This released capacity in operating rooms and helped optimize schedules. This helped in value based pricing.

Sealed Air Corporation supplied protective packaging for heavy items with long shipping cycles. It could command a pricing premium in this segment.

Some examples…………………

Hypercompetitive rivalries◦ Intel disrupts equilibrium in microprocessor market◦ HP drives printer business by hitting lower price

points Gauging competitive response

◦ Examine cost structures of competition(annual reports)

◦ Examine position in learning curve◦ Responding to price attacks

Position in Product Life Cycle◦ Skimming(for new distinct vale added products)◦ Penetration Pricing(for mature products)◦ Product Line considerations

Competition based pricing

Hill-Rom is a leading B2B firm that dominates a niche in the healthcare industry. Go to http://www.hill-rom.com and describe the product and services it offers. Describe how these products and services will reduce the total cost in use for a hospital

Exercise………….

Direct Mail Trade Shows On-Line Advertising Business Publications Interactive Marketing Communications Print Advertising-others

Advertising & Promotion for Business Markets

Intuit In, a leading provider of software for SMEs created a web site to help these SMEs develop customized jingles. Go to http:// thejinglegenerator.com and give an assessment of this on line initiative

Exercise………………