What is B 2 B Marketing ?
Business marketing is the practice of organizations, including commercial businesses, governments and institutions, facilitating the sale of their products or services to other companies or organizations that in turn resell them use them as components in products or services they offer, or use them to support their operations. Also known as industrial marketing, business marketing is also called business-to-business marketing, or b-to-b marketing, for short.
Business marketing vs. Consumer marketing
While consumer marketing is aimed at large demographic groups through mass media and retailers, the negotiation process between the buyer and seller is more personal in business marketing most business marketers commit only a small part of their promotional budgets to advertising and that is usually through direct mail efforts and trade journals. While that advertising is limited, it often helps the business marketer set up successful sales calls.
Who is the Business Marketing Customer?
While “other businesses” might seem like the simple answer, business customers fall into Four broad categories:
- Companies that consume products or services ( OEMs/ USERS),
- Government agencies and Private organisation
The first category includes original equipment manufacturers, such as automakers, who buy gauges to put in their cars, and users, which are companies that purchase products for their own consumption. The second category, government agencies, is the biggest. In fact, the U.S. government is the biggest single purchaser of products and services in the country, spending more than $1200 billion annually. But this category also includes state and local
governments. The third category, institutions, includes schools, hospitals and nursing homes, churches and charities. Finally, resellers consist of wholesalers, brokers and industrial distributors.
Businesses that succeed do so by creating and keeping customers. They do this by providing better value for the customer than the competition. Marketing management constantly have to assess which customers they are trying to reach and how they can design products and services that provide better value (“competitive advantage”). The main problem with this process is that the “environment” in which businesses operate is constantly changing. So a business must adapt to reflect changes in the environment and make decisions about how to change the marketing mix in order to succeed. This process of adapting and decision-making is known as marketing planning
Strategic planning- A key to Effective Marketing Planning
Strategic planning is part of strategic marketing management. It addresses the need to respond to external environment, competitive environment and internal environment. It is concerned with marketing, of course. But it also involves decision-making about production and operations, finance, human resource management and other business issues that affect the marketing response to combat the external and competitive environment.
The objective of a strategic marketing plan is to set the direction of a business and create its shape so that the products and services it provides meet the overall business objectives For example, in many small businesses there is only one geographical market and a limited number of products (perhaps only one product). However, consider the challenge faced by marketing management in a multinational business, with hundreds of business units located around the globe, producing a wide range of products. How can such management keep control of marketing decision-making in such a complex situation? This calls for well- organised marketing planning.
Key issues that should be addressed in Marketing Planning
- The following questions lie at the heart of any marketing (or indeed strategic) planning process:
- Where are we now?
- How did we get there?
- Where are we heading?
- Where would we like to be?
- How do we get there?
- Are we on course?
Essential of Market planning
Businesses operate in hostile and increasingly complex environment. The ability of a business to achieve profitable sales is impacted by dozens of environmental factors, many of which are inter-connected. It makes sense to try to bring some order to this chaos by understanding the commercial environment and bringing some strategic sense to the process of marketing products and services.
A marketing plan is useful to many people in a business. It can help to:
- Identify sources of competitive advantage
- Gain commitment to a strategy
- Get resources needed to invest in and build the business
- Inform stakeholders in the business
- Set objectives and strategies
- Measure performance
What are the driving growth in B-to-B
The tremendous growth and change that business marketing is experiencing is due in large part to three “revolutions” occurring around the world today. Some of the key criteria that are evident in business arena are as follows:
First is the Technological revolution. Technology is changing at an unprecedented pace, and these changes are speeding up the pace of new product and service development. A large part of that has to do with the Internet, which is discussed in more detail below.
Second is the Entrepreneurial revolution. To stay competitive, many companies have downsized and reinvented themselves. Adaptability, flexibility, speed, aggressiveness and innovativeness are the keys to new frameworks, theories, models and concepts. Marketing is taking the entrepreneurial lead by finding market segments, untapped needs and new uses for existing products, and by creating new processes for sales, distribution and customer service.
The third revolution is Relationship Marketing, the one occurring within marketing itself. Companies are looking beyond traditional assumptions and adopting new frameworks, theories, models and concepts. They’re also moving away from the mass market and the preoccupation with the transaction. Relationships, partnerships and alliances are what define marketing today. The cookie-cutter approach is out. Companies are customizing marketing programs to individual accounts.
Marketing Planning vs. Strategic Planning in Business Marketing
Marketing planning involves the selection of a marketing strategy and the tactics of implementing it to reach a defined set of goals. Marketing planning differs from Strategic market planning in three ways: time horizon, responsibility, and details.
The components of marketing planning are:
- Executive summary,
- Current marketing situation,
- Threats and opportunities,
- Objectives and issues,
- Marketing strategies,
- Action plans and control measures. The strategic planning process consists of:
- Developing the company’s mission;
- Objectives and goals,
- Business portfolio, and
A marketing strategy has to take several factors into account, the prime one being the company’s position in the particular market, specifically whether it is a;
- Market leader– A market leader is a company with the largest market share in an industry that can often use its dominance to affect the competitive landscape and direction the market takes.
- Market challenger– A market challenger is a firm which is just below the market leader with a good presence. The basic aim of the market challenger is to expand its market share and become the industry leader by introducing a new variety of products or by improving customer service
- Market follower– A market follower is a company that follows what the leader in its sector does. A market follower does not like taking risks, i.e., it is the opposite of a Instead, it waits and observes what its competitors do, especially the market leader. It then only adopts the leader’s successful strategies.
- Market nicher– Market Nichers are the marketers or companies who make specific products and/or services which made for specific demand of customers which are not met by otherwise available products. They produce highly customized and specialist products/ services which serve a narrow market
There are Five Major Marketing Strategies depending on the timing of the technologically intensive firm’s entry into an industry.
- Follow the Full Product Life cycle,
- Develop New Products;
- Follow the Leader,
- Application Engineering, and
( Example- Android vs. Apple’s iPhone)
Corporate strategic planning involves four planning activities
- The first is developing a clear sense of the company’s mission. A well-developed mission statement provides employees with a shared sense of purpose, direction, and
- The second activity calls for identifying the company’s strategic business units (SBU). Its customer groups, customer needs, and technologies define a business. SBUs are business units that can benefit from separate planning, face specific competitors, and be managed as independent profit centres.
- The third activity calls functional level strategic management in each of the
- The fourth activity calls for expanding present businesses and developing new ones to fill the strategic-planning gap.
In particular, they are useful to evaluate the firm’s current Product- Market portfolio, evaluate competitors’ current Product-Market portfolio, project the firm’s future competitive situation and guide the development of a Strategic Intelligence System.
The need for a lengthy time frame in industrial marketing can arise from a variety of reasons, like long lead times, long life cycles of many existing industrial products and alternative sources of resources on a long term basis.
The selection of a suitable forecasting technique depends on;
- Identification of new opportunities or threats
- Identification of potential markets and
- Market estimation and product specification.
Strategic Planning In the Industrial Market
While the basic principles of planning apply in both markets namely, industrial and consumer, many organizations have found that what works well in the consumer market fails to do so in the industrial market. Two significant differences between these markets appear to account for this phenomenon.
First, unlike the consumer market where products are normally’ marketed through one or two channels, most industrial marketers face diverse markets that must be reached through a multiplicity of channels-each requiring a different marketing approach. A producer of communication equipment, for instance, may market to such diverse segments as the commercial, institutional, and governmental market, each of which will require a unique marketing plan.
Second, in contrast to consumer marketing, successful industrial marketing strategy depends more on other functional areas. Where the elements of planning in consumer marketing can often be contained within specific areas of marketing, such as advertising, selling, and product management, planning in the industrial market is largely dependent on, or constrained by, the activities of other functional areas-for example, engineering, manufacturing, and technical services.
While planning in the industrial market is as sophisticated as it is in the consumer arena, too often industrial firms concentrate planning efforts in the marketing department, failing to recognize the inter-dependency between marketing and other functional areas. Perhaps this is due to what may be referred to as “functional isolation.
That is, not only does marketing tend to ignore its interface with other areas such as finance, manufacturing, and R&D, but “marketing concepts, methods and inputs are frequently ignored in the decision perspectives of other business function and while marketing should take the lead in defining market segments, needs, and opportunities and in determining what it will take to satisfy the various markets and, segments, planning in the industrial arena must be a collaborative effort between all key functional areas.
While successful planning depends on cooperation between the different functional areas, whenever tasks and objectives are different or unclear between two or more departments a strong tendency for disharmony exists. Potentials conflict also exists between marketing and manufacturing in such areas as sales casting and production planning, and between marketing and R&D in the new product development.
- The firm is limited in what it can design because one has to keep it simple for marketing because neither the customer nor the marketing department understand the product and how it is supposed to work.
- The information that marketing includes is sometimes so exaggerated, that the firm could get sued for false advertising.
- Trying to package so many products and hold costs down is extremely difficult and finally it could lead to a situation where to sell such a product is difficult. The query exist that why can’t we have reasonable Quality at reasonable
- Technical selling through technical expert to soothe customers is the call of the day even though the buying firm really may not have a
- Engineers always go by the book, they prefer that the warranty clause be robust enough for the product failure to be remote or only incidental and in such cases contingency plan must be
Alleviating conflict begins with developing an understanding of the basic causes of interdepartmental conflict. Conflicts arise due to the fact that each area is evaluated and rewarded on different dimension.
The inherent complexities of the different functional areas and the different perceptions of the individuals involved magnify the problem. Conflicts owing to differences in how departmental individuals perceive their prestige, power and knowledge are quite common. Budget constraints, rapid company growth, and the rapid pace of technological change can also yield potential areas of conflict.
Some degree of conflict is necessary and can be very constructive in that it promotes more efficient and effective use of the company’s resources. However, when conflict begins to diminish the ability of the organization to coordinate the efforts of its various’ functional areas, it becomes counterproductive and impedes the organization’s effectiveness in achieving its primary goals. Alleviating conflict, however, is top management’s responsibility.
Conflict can only be alleviated when an atmosphere of cooperation is created through
- Promotion of clear and straightforward corporate policies,
- Evaluation and reward systems that stress inter functional cooperation and responsiveness, and
- Formal and informal inter functional contacts (e.g., including manufacturing people in sales meetings and marketing people in product design decision meetings or establishing squash courts for noon-hour use by all company members) are increased between the marketing and other .
Marketing executives, however, can assist in alleviating conflict by building their marketing plans around each functional area’s ability to service the firm’s markets and customers and by analyzing the strengths, weaknesses, and competitiveness of each respective area, similar to analyzing customers and competitors.
Firms often design many products, now with numerous options it is hard to maintain quality and keep costs down.
Firms suffer from the drawback of not having enough manpower and further they hold the hand of some pet customers of marketing thereby limiting their knowledge base.
Often marketing departments want the firms to pay the full amount of every claim, even when sometimes the claim being invalid one.
A market is
It represents a set of present and potential individual(s) or organizations, who have needs for products in a product class and who have the ability, willingness and authority to purchase such products (conditions needed for an exchange).
Types of markets
- Consumer Market– It intends to consume or benefit for an outcome of satisfaction, but not to make a
2. Organizational/Business Market For:
- Direct use in production
- General daily
Developing a Target Market Strategy
- A Product will not sell by itself;
- The Firm needs the best of
- At first a firm intends to define a segment or segments where in it intends to
- After drawing a strong strategy plan for each such segment(s), one needs to develop a target market based on one’s limited
Targeting: Selection of Right segment
A Product will not sell by itself; it needs the best of strategies. At first a firm intends to define a segment or segments where in it intends to operate. After drawing a strong strategy plan for each such segment(s), one needs to develop a target market based on one’s limited asset. .
1. Selecting Target Markets by Analyzing Demand
- Market Segmentation Approach.
Market segmentation is the process of dividing a total heterogeneous market into market groups consisting of occupants who have relatively similar product needs, there are clusters of needs. The major bases of segmentation for Industrial Marketing are following enumerated below:
v Characteristics of Buying Organisations
- Size ( The scale of operations of the organization)
- Geographical Locations
- Usage Rate
- Structure of Procurement
- Product Application
v Characteristics of Purchasing Situations
- Type of Buying Situation
- New Task
- Modified Rebuy
- Straight Rebuy
Ø Stage of Purchase Decision Process
- Need/Problem Recognition
- Information Search
- Evaluation of Alternatives
- Purchase Decision
- Post purchase decision
*Selected Micro bases of segmentations are used to further segment the market. Some of the important variables are enumerated below:
- Purchasing Strategies
- Structure of Decision Making
- Importance of Purchase
- Attitude towards Vendors
- Organisational Innovation
- Some key criteria ( Quantity, Delivery, Reputation,etc )
The major and minor bases make the segmentation effective. One finds that the segmentation variables are different in industrial market from that of consumer market. The criteria of the segments being considered so are:
- It should be
- It should be accessible
- It should be substantial for doing business
- It should be
The firm has limited capacity and considering the segment to be large it has to operate based on its own resource base or the asset base. Thus though segments could be many it needs to follow some strategy to meet its own goal.
(b) Target Market
Developing a target market strategy has three phases:
- Analyzing consumer demand
- Targeting the market(s)
- Developing the marketing strategy
· Concentration Strategy
A firm that does targeting of only one segment with a unique marketing mix is referred as concentrated marketing strategy. It the company is small or new to the field, it may decide to go for concentrated strategy.
· Multi-segment strategy (or also called as Differentiated marketing strategy)
Here targeting is inclusive of many segments using individual marketing mixes is called differentiated marketing strategy. Here two or more segments are sought with a Marketing Mix for each segment, different marketing plan for each segment. This approach combines the best attributes of undifferentiated marketing and concentrated marketing. On long term for full coverage this a worthwhile strategy.
· Undifferentiated Approach (Total Market Approach)
This approach does not differentiate the market according to any variable. In this case a Single Marketing Mix for the entire market identified is laid out. All consumers have similar needs for a specific kind of product. Target Market may be following a concentrated segment, multiple segments or an undifferentiated segment but it must be portion of it. This portion is chosen based on the following criteria.
- The preference to the product awareness more rather than the unawareness
- The favourable demand situation where in the threat of entry is less
- The incremental margin or revenue is high to cost
- There exists the possibility of faster penetration and higher
Differential Value Creation in Marketing Mix
In modern internet marketing era, the organisations are bound by 3 key elements link the organization to its customers
- Information Technology
- Micro Marketing
- Relationship Marketing
Ø Information Technology (IT)
IT designed computer and communication systems to satisfy organizations Information needs.
Marketing Research is the information gathering arm of IT. IT is the framework for the day- to-day management and structuring of information gathered regularly from sources outside and inside the organization:
Effective IT provides a continuous flow of information, regarding: prices, advertising expenses, sales, and competition distribution expenses.
Processing classifying information and developing categories for meaningful storage and retrieval. Marketers can then determine which information-the output-is useful for decision making. Feedback enables adjustments to the input.
Ø Micro Marketing Segmentation
- Consumption profiles of
In order to target customers more efficiently marketers can use multi variable segmentation incorporating Buyer Behaviour information and Demographic information. What people have done in the past (Purchase) is a better predictor to future behaviour than any other characteristic/variable. Use frequent user programs to collect data on heavy user customers.
Ø Relationship Development for high performance.
Old model, sell one product to as many customers as possible (target market). New model, sell as many products to one person, one-to-one focus on the life-time value of the customer (LVC) instead of the individual transaction. While life time value is the method the preceding condition is that the relationship should be worth developing which means that there should be and economic criteria for the customer to be included for such relationship marketing. Firms first provide for the financial relationship, then the social relationship and finally the structural relationship. Customers previously in banking had a ‘one to one relationship’ with firm, this was the inception point where in services this relationship marketing bloomed, of course this marketing diffused to other industry as well later on owing to its merits. Now companies have the technology to have a 1 2 1 (few) relationship with their customers.
- Businesses will tend to work on creating positive relationships when it comes to business to business marketing where the main goal is to build a long term
- There is few importance of relationship development in B2B marketing. One of the importance is to create an ongoing repeated relationship where the buyer makes constant purchases as post purchase services will be
- Besides that, innovative solutions can be created when there is a good relationship developed between the seller and the
This is where the buyer can get solutions for the problem that the buyer is facing when they confront the seller. Furthermore, the period of buying and selling can consume time and having a well developed relationship will allow the buyer and seller to have patience.
- And lastly, a solution oriented relationship can be created which will allow the buyer and seller to focus on coming out with solutions that would help them to do the business
Pricing of Industrial Products
The industrial marketers should understand the various aspects of the pricing, since pricing is the most critical part of industrial marketing strategy. Different strategies such as market segmentation strategy, product strategy, and promotion strategy are related to pricing strategy. In order to achieve the dual objective such as to meet the company objective and satisfy the market needs, the industrial marketer has to integrate the various strategies.
Product specific attributes
- Company related attributes and
- Sales personnel related
Therefore, the total product includes much more than its physical attributes. In the same way the cost of industrial products includes much more than the seller’s price. Hence, decisions on pricing and products are inseparable and must be balanced with in the firm’s market segmentation plan.
Factors Influencing Pricing Decision
The factors influencing pricing decision of an industrial marketing firm is explained below.
Survival is one of the short term objectives for many industrial companies. Due to intense competition and other reasons the firm may be unable to sell its products. For the survival of the firm it reduces the prices to convert the inventory into sales. The survival is more important than prices. The prices are fixed in such a way that they cover variable cost and a part of fixed cost so that the company continues in business. Survival is only a short term pricing objective and in the long run the firm must increase its prices to cover total cost and end up with some profits.
b) Maximum short term sales
To maximize the sales revenue in the short run is the pricing objective for some firms. The belief behind such an objective is that by maximizing sales revenue in the short run the firms will have growth in terms of market share and also have profit maximization.
c) Maximum short term profits
Setting prices with the objective of maximization of profit in the short run may be pricing objective of some of the marketing firms. These firms estimate the market demand and costs at alternative prices and select the price that maximizes the present profits. Estimating demand and cost is very difficult. This objective emphasizes on short term profit maximization rather than long term performance and customer relationships. The competitors’ reactions and legal implications are not considered by the companies adopting this objective.
d) Market penetration
Based on the assumption that the market is price sensitive and that the low prices will increase sales; the prices of products are fixed as low as possible by some firms with the objective of maximizing sales volume and market share of its products. The other assumptions underlying are low prices will discourage entry of potential competitors and highest volume will reduce the production and distribution cost and leads to higher profits in the long run.
e) Maximum market skimming
In the initial stages of the product life cycle high prices are fixed by some firms when they introduce new and innovative products. The new product is initially aimed at those market segments where demand is least sensitive to price. The firm skims maximum revenue and profits by adopting the skimming objective of pricing.
f) Product-quality Leadership
By producing superior quality products and charging little higher prices than the competitors price the industrial marketing firm may have an objective to be product quality leader in the market. This pricing objective results in higher profits.
Pricing of industrial products List price
List price is a base price or the basic price of a product consisting of various sizes or specifications. It is the published statement of basic prices which is sometimes quoted or informed to the customers. The list price statement indicates the effective date of its applicability and mentions the extra charges for optional product features, the excise duty, freight, sales tax, octroi, and transit insurance. The net price is worked out based on list price less discounts or any other concessions. The net price is most important to the organizational buyers because that is the price which is applicable to the industrial buyer after subtracting discounts and concessions.
The trade discounts are offered to the intermediaries such as dealers and distributors. The amount of trade discount depends on the particular industry norms or the functions performed by the intermediaries.
A quantity discount is granted to industrial customers who buy large volumes. It is a price reduction given by subtracting the volume discount from the list price. The quantity discounts are justified as they reduce the cost of selling (since a bulk moves out with lesser of personal selling expense), inventory carrying, and transportation. The quantity discounts are given either on individual orders or on a series of orders over a longer period of time, usually one year. The basic idea behind offering quantity discount is to encourage customers to buy larger quantities and to maintain their loyalty. The decision on the amount of quantity discount depends on demand, costs, and competition analysis.
To ensure prompt payments cash discounts are offered to customers in industrial marketing. It is discount applicable on the gross amount of the bill, provided customer pays the bill within the stipulated period from the date of invoice.
Geographical pricing refers to the location at which the price is applicable. Geographical pricing strategy is influenced by a number of factors such as the location of the company’s plant, the location of the competitors’ plants and their pricing strategies, dispersion of customers, extent of transport costs, demand and supply conditions and competitive environment. In geographical pricing, there are generally two methods of price basis which are stated in the offers or quotations submitted by a seller to a buyer. These are
- Ex-factory and
“Ex-factory” means the prices prevailing at the factory gate. When a seller quotes to a buyer “ex-factory price’, it means that the freight and transit insurance costs are to the buyer’s account. In other words, the seller will charge the costs of freight and insurance to the buyer. The more distant customers’ landed costs are higher because of freight cost.
FOR Destination or FOB Destination
When a seller quotes to a buyer “FOR destination or FOB destination” (free on road/free on board destination), it means the freight costs are absorbed by the seller or included in the quoted prices
In this method of price basis, all the customers get the product at the same price irrespective of their locations from the seller’s factory premise. If the quotation or the price list is on FOR destination basis, generally the industrial marketer estimates the average freight and insurance costs and adds the same to the basic product prices. Absorbing these costs is rarely done by a seller; it is done only in an intense competitive situation to get business from a particular customer.