Chapter -1: Introduction to Industrial and Businessto-Business Marketing:

Learning Objectives: Remember basic marketing principles. Gain an appreciation for the main differences between consumer marketing and Industrial and Business-to-Business marketing. Understand marketing concept and its implications for business-to-business marketing. Understand meaning of value. Gain a sense of how value chain is structured and how it is related to concept of a supply chain. Gain an understanding of implications of value chain for Industrial and Business-t-Business marketing. Obtain a sense of changing nature of Industrial and business environment.
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Introduction to Business-to-business and Industrial Marketing: Business and Industrial markets present different types of challenges and opportunities than those presented by consumer markets. Concept of relationships, value, and buyers decision making function in very different ways than would be expected in consumer markets. Entrepreneurial marketing is a major emphasis of this text. Entrepreneurial marketing is conducting marketing in a way that involves innovation, acting proactively, and taking calculated risks. Industrial and Business Marketing consist of all organizations that purchase goods and services are then offered to their customers. Notice that this does not include transactions for resale. Considered to be within purview of managing transactions within channels. Business and Industrial marketing is process of matching and combining capabilities of supplier with desired outcomes of business customer for creation of value for business and industrial customers. Business customers create value for their own customers. Business marketer must define value in terms of helping value for customers customer.

B2B and Industrial Marketing By Prof: Zafarullah Siddiqui

Marketing Mix:

These are still four Ps of marketing whether operating in a consumer or industrial/business market. Product when an automobile company, such as General Motors markets a fleet of new cars to a car rental company, such as Avis Rent-a-car. Avis isnt buying just cars; but total value package from GM that includes: i) Assorted cars, in large quantities. ii) Financing terms. iii) Convenient schedule of deliveries. iv) Routine and reliable source for parts. v) Training for Avis service personnel. vi) Disposal of old models. Total offering is the offering that provides a complete solution to buyers needs include financing, delivery, service and core product. Price: As in any transaction, price is mutually agree-upon amount that satisfies both sides in exchange. Place about getting product to customer in right form at a useful time with minimum inconvenience associated with place of purchase, Possession ease (transfer of ownership, such as cash, credit, acceptance.

B2B and Industrial Marketing By Prof: Zafarullah Siddiqui

Further Differences Between Industrial and Business Marketing and Consumer Marketing
Consumer demand is the quantity of goods or services desired to be bought, given market conditions (usually expressed as a function of market price). Derived demand is demand experienced by chain of suppliers and producers that contribute to creation of a total offering. without initial consumer demand, there will not be any demand on chain of supplier. Supply chain is chain of entities and activities that results in products provided to end-user. It starts with raw materials and traces flow of materials and sub-assemblies through suppliers, manufactures, and channel intermediatries to the final customer. In eyes of most organizations, supply chains are stable, yet flexible enough to meet varying market demands. (Compare this concept to value network introduced in a later chapter). The Bullwhip effect: Because of derived nature, demand in Industrial and business markets is leveraged greater swings occur than in consumer markets thus term volatile . A small percentage change in consumer markets leads to much greater changes in business markets.

B2B and Industrial Marketing By Prof: Zafarullah Siddiqui

Business-to-Business Consumer:
Market Structure: Geographically concentrated. Relatively fewer buyers. Oligopolistic competition. Geographically dispersed. Mass markets, many buyers. Monopolistic competition. Products: Can be technically complex. Customized to user preference. Service, delivery, and availability very important. Purchased for other than personal use. Standardized. Service, delivery, and availability only some what important. Purchased for personal use.

B2B and Industrial Marketing By Prof: Zafarullah Siddiqui

Business-to-Business Consumer

(contd)

Buyer Behavior: Professionally trained purchasing personnel . Functional involvement at many levels. Take motives predominate. Individual purchasing. Family involvement, influence. Social/psychological motives predominate. Buyer-Seller Relationship Expectations. Technical expertise an asset. Interpersonal relationships between buyers and sellers. Significant into exchanged between participants on a personal level. Stable, long-term relationships encourage. Less technical expertise. Non-personal relationships. Little information exchanged between participants on a personal level. Change, short-term relationships encourage switching loyalty.
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Business-to-Business Consumer

(contd)

Channels: Shorter, more direct. Organization involvement as part. Indirect, multiple relationships. Little/no customer supply chain involvement. Promotion: Emphasis on personal selling, dialogue Most communications invisible to consumer. Consumer seldom aware of business-to-business brands and companies. Emphasis on advertising, monologue. Companies compete for visibility and awareness by consumer market. Price: Complex purchasing process or competitive bidding, depending on purchase type. Usually list or predetermined prices. Demand. Derived, inelastic (short run), volatile (leveraged), discontinuous, direct, Elastic, less volatile.
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Bullwhip Effects:
Slowdown in orders for automobiles results in bullwhip effects in auto parts supply chain. Reduced demand and competitive pressures pushed U.S. automakers to slow down their payments to parts suppliers creating an even tighter cash situation in supply chain. Discontinuous demand is condition in which quantity demanded in market makes large changes up or down in response to changes in market conditions. Transition from one market state to another occurs in large increments rather than small incremental changes in demand. When a consumer goods manufacturer experiences an increase in demand, additional raw materials and supplies are consumed. Suppliers of these items experience greater demand and are required to increase production capacity. When demand on suppliers reaches a level that is maximum that existing facilities can efficiently produce. Capitalization of new production capability is required, resulting in a discontinuity in supply capability. If supplier elects to invest in additional capacity, addition not only provides increased capacity to marketplace of supplier but also creates demand in markets of producers of manufacturing equipment and other production and infrastructure-related products. In this scenario, increased demand for manufacturing capability impacts supply chains for several other markets.
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Elasticity of Demand:
Elasticity of demand refers to percentage change in quantity demanded relative to percentage change in price. If a price change produces a change in demand that is less in percentage then percentage price change, then demand is said to be inelastic. While demand fluctuates more in business markets, it is also inelastic in short term. Your customer, a manufacturer who has incorporated your product into design of its own offering to customers may not be able to substitute another component for that item. Volatility: Bullwhip effect, or leveraging, described here can help us understand logistics-oriented supply chain effects on business-to-business demand. Bullwhip effect, however, is only part of cause of volatility in business-to-business markets. Because of volatility in business-to-business demand, small changes in consumer buying attitudes are closely watched as potential indicators of changes in our economy.

B2B and Industrial Marketing By Prof: Zafarullah Siddiqui

Derived Demand - A Rationale for Relationship Marketing:

Derived demand is that business marketers must understand their customers customers. Outsourcing is purchasing of part of companys continuing operations, such as recruiting or manufacturing, rather than investing in infrastructure to accomplish task internally. Opportunities through relationships: In business-to-business markets, additional product design efforts is often needed to ensure that a products complexity will enhance customer value rather than detract from. Communications in business marketing must often focus more on personal selling than in consumer marketing. The sale force becomes focal point for developing relationships. Necessary for close relationships is that switching costs. Costs of switching suppliers become very high for both customer and supplier. In consumer markets, switching costs usually are not nearly so constraining. High switching costs in business-to-business markets can result from investment that partners make in make in matching buying, ordering, inbound logistics.
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Marketing Structure:
Industrial Business marketers face markets with a much smaller number of customers than consumer that cost per contact is low. Integrated versus Networked Supply, Brand Identity: Degree to which a company networks, depends on many factors including.
i) ii) iii) iv) v) How long company has been in business. Desirability of diversifying, through vertical integration, into another business. Availability of quality supply choices in market. Speed at which technology is changing market. Degree of uniqueness or specialization of supplied or manufactured component.

Some International Considerations: International consumer markets are subject to many more cultural, language, regulatory, and individual value differences than business-tobusiness markets. Business-to-business products are subject to same politics of tariffs and other trade barriers, many materials, supplies, and components meet standards that are agreed to and consistent across international borders. Suppliers are seldom recognizable by consumers they are not familiar brands. Manufacturers who contributed to final product may surprise you.

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An Examination of Value:
As consumers, we do not purchase music compact discs 9CDs) because we like shiny plastic discs; we buy them because we are interested in entertainment value of music. Disc is merely a container for value. Customers do not purchase products; they purchase offerings that create solutions and satisfaction. Consumer and business markets are alike in exchange process. Value as sum of all of benefits that a customer receives in process of buying and using a product or service less costs involved. There are certainly costs involved in search for, purchase, and maintenance of products, but there are also time costs and aggravation costs in purchasing process, as well. Purchasers encounter hidden costs associated with usage, such as learning time and cost of mistakes made while learning how to use product. The sum of these costs, total cost of owning and using a product, is referred to as evaluated price. Evaluated Price is total cost of owing and using product. This may include transportation, inventory carrying costs, financing costs, potential obsolescence, installation, flexibility to upgrade, cost of failure, and obsolescence of existing products or equipment, plus price paid to vendor. Value Chain Value chain, then, is chain of activities that creates something of value for targeted customers. Evaluated price includes all costs that are subtracted from benefits to produce value cost of doing business.

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Direct and Support Activities contribute to Value:

Support Activities, Value Enabling
i) ii) iii) iv) Infrastructure. People management. Technology development & management. Resource acquisition. Input logistics. Operations. Delivery logistics. Service.

Direct Activities, Value Enabling

i) ii) iii) iv)

Value Enabling Activities include:

Value Activities Value Value Enabling Creating

Value Activities Value Value Enabling Creating

Value Activities Value Value Enabling Creating

Creation of value extends from customer back through distribution channels, through manufacturers, through component suppliers, finally to raw material provides.
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Misunderstanding of value and value Chain Concepts: Companies that they lose sight of what customer value really means forget that customers will not choose to buy a total offering unless it provides superior value to customers. Trends and Changes in Industrial Marketing. Formation of partner networks. Adoption of information technology and internet. Supply chain management. Channel facilitators are those service providers to channel that are not necessarily part of channel design but who make possible efficient operation of channel. Channel facilitators are financial institutions, transportation and logistics companies, third-party service providers, etc. These organizations provide outsourced services to facilitate effective operation of channel. Time Compression an increase in speed of doing business. How organizations react to this acceleration has both short-term and longterm effects on their survivability and performance. With hypercompetition, competitive pressures cause companies to attempt to get new products out faster and to replace these products with succeeding generations of products even more rapidly.
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