B2B & SOLUTION SALES

R.MATHUR
 What is Organizational Buying?

Organizational buying refers to the decision-

making process of formal organizations that:
 establishes the need for purchased products

and services, and

 identify, evaluate, and choose from alternative

brands and suppliers.

The business market consists of all organizations
that acquire goods and services used in
production of other products or services which,
in turn, are sold, rented, or supplied to
organization’s customers.
 (B2B) Marketing is Huge

 Business marketers serve the largest markets

of all.
 Dollar volume of the business market greatly

exceeds the consumer market.

 A single customer can account for enormous

levels of purchasing activity. (For example, GM’s

1,350 business buyers each purchase more than
$50 million annually.)
 What Are Business Products?
 Used to manufacture other products
 Become part of another product
Key is the
 Aid in the normal operations of product’s
an organization intended
 Are acquired for resale use
without change in form
 A product purchased for personal
Use is considered a consumer good
 Business Marketing
 “Business Marketing” or “Industrial Marketing”
are used interchangeably
 Because of interest in high-tech markets and

the size of industrial markets, increased attention

is being paid to Business Marketing Management
 Business marketers serve the largest market of

all, far exceeding the consumer markets.

 All formal organizations participate in exchange

of industrial products and services, thus

constituting business market
 B2C and B2B
The Consumer Market (B2C) and the Business
Market (B2B) at Dell, Inc.

B2C B2B

Customers: Individuals Businesses Institutions Government

& Global Healthcare Federal
Households Large Education State
corporations Local
Small & Medium
sized businesses

Selected PCs PCs

Products: Printers Enterprise Storage
Consumer Servers
Electronics Complex Service
Simple Service Offerings
Agreements
 Business and Consumer Markets: Difference
More money and products are involved in sales to
business buyers than to consumers. Business
markets have several characteristics that contrast
sharply with those of consumer markets:
1) Fewer, larger buyers
2) Close supplier-customer relationship
3) Professional purchasing
4) Several buying influences
5) Multiple sales call
6) Derived demand
7) Inelastic demand
8) Fluctuation demand
9) Geographically concentrated buyers
10) Direct purchasing
 Business and Consumer Markets: Difference
Consumer Goods Business Goods
Marketing Marketing

Customers Numerous, widely dispersed Few, concentrated

geographically geographically
Buying Behavior Individual decisions Group decisions
Many buying influences
Buyer/Seller Very little close contact Very close working relationships
Interact in product design and problem solving
Product Standardized Complex; technical; detailed
specifications Accompanying bundle of services
important
Price Fixed Negotiated, bidding process
List price for standardized items
Promotion Heavily oriented Primary role given to personal
to mass advertising selling
Channels Indirect, many intermediaries at Direct, fewer intermediaries at
each level each level
Business vs. Consumer Products Marketers

Similarities:
Both marketers benefit by employing a market
orientation, i.e.:
 They need to understand and satisfy

customer needs
 They are both market driven
 Market-Driven Firms Demonstrate…
 A set of values and beliefs that places
customers’ interests first
 An ability to generate, disseminate, and

productively use superior information about

customers and competitors
 The coordinated use of inter-functional

resources (e.g., research and development,

manufacturing)
And
Deliver Value Propositions

Provide opportunities for their customers.

 Market-Driven Firms
Have distinctive capabilities:
 Market sensing capability: A company’s ability

to sense change and to anticipate customer

responses
 Customer linking: The ability to develop and

manage close customer relationships

View their customer as an asset, thus:
 Marketing expenditures, once considered

expenses, are now considered investments.

 Therefore, marketers need to measure

performance such as ROI on their investments.

 Meeting Performance Standards Means

Develop and nurture customer relationship

management (CRM) capabilities by:
 Identifying,

 Initiating,

 Developing,

 and Maintaining profitable customer

relationships.
 Professional Marketing Managers
 Employ Customer Relations Management (CRM)
tools for:
 Identifying and categorizing customer segments

 Determining customer’s present and potential

needs
 Visiting customers to learn about applications of

products
 Developing and executing individual components of

marketing to include:
 Sales, advertising, promotions, service programs,

etc.
 Marketing’s Cross-Functional Relationships
 Professional business marketers act as an
integrator between various functional areas
within the company
 Functional areas include:

> Manufacturing
> Research & Development (R&D)
> Customer Service
> Accounting
> Logistics
> Procurement
> Finance
Marketing’s Cross Functional Relationship
 Business Market Characteristics
Business marketing and consumer-goods
marketing are different
 Even though both markets share:

Common body of knowledge, principles

and theory
 They vary in that:

Business buyers and markets function

very differently from consumer markets

 Business Market Demand Characteristics
 Derived demand: Demand for industrial products is
derived from the ultimate demand for consumer
products. Monitor fluctuating trends and patterns in
consumer markets
 Fluctuating demand: Change in consumer demand

can create a fluctuating demand for industrial

products.
An increase in interest rates can quickly stifle new home
sales. This slows down the need for new household
products.
Businesses react by decreasing their inventory of
materials or putting off buying new machinery.
 Business Market Demand Characteristics
The demand for many industrial products tends to
fluctuate more than the demand for consumer products.
A decrease in interest rates has the opposite influence.
 Stimulating demand: Business marketers need to
stimulate demand for consumer goods which either
incorporate their products or are used to make
consumer products.
Pharmaceutical manufacturers advertise on television by
presenting various ailments followed by offering their
products as solution to the ultimate consumer. (“Ask
your doctor if XYZ is right for you!”)
 Business Market Demand Characteristics
 Price sensitivity / demand elasticity: Inelastic
demand is demand without regard to price. An
increase or decrease in the product price will not
significantly affect the demand for the product.
Example: Price for Petrol/diesel
 Consumer Product or Business Product?
 The intended use determines whether or not a
product is a consumer product or a business product
If Mr. Clean is used by the ultimate consumer to

clean his/her house, it is a consumer product.

If Mr. Clean is being used to clean a hospital or

an office, it is a business product.

Nestle sells Nescafe instant coffee to consumers

as well as Hotels. In the first case it is a consumer

product and in the second a Business product.
Many companies successfully sell to both

consumer and business markets.

 Relationship Marketing
All marketing activities directed toward:
 establishing,

 developing, and

 maintaining successful exchanges with

customers
 Building one-to-one relationships with

customers is the heart of business marketing

 Characteristics of Business Market Customers
Characteristic
• Business market customers are comprised
of commercial enterprises, institutions, and
governments.
• A single purchase by a business customer is
far larger than that of an individual consumer.
• The demand for industrial products is derived
from the ultimate demand for consumer
products.
• Relationships between business marketers
tend to be close and enduring.
• Buying decisions by business customers often
involve multiple buying influences rather than
a single decision maker.
• While serving different types of customers,
business marketers and consumer-goods
marketers share the same job titles.
Example
• Among Dell’s customers are Boeing,
Arizona State University, and numerous
state and local government units.
• An individual may buy one unit of a
software package upgrade from
Microsoft while Citigroup purchases
10,000.
• New home purchases stimulate the
demand for carpeting, appliances,
cabinets, wood, and a wealth of other
products.
• IBM’s relationship with some key
customers spans decades.
• A cross-functional team at Procter &
Gamble (P&G) evaluates alternative
laptop PCs and selects Hewlett-Packard.
• Job titles include marketing manager,
product manager, sales manager,
account manager.
 The Supply Chain

“To gain competitive advantage over its rivals, a company

must either perform these activities at a lower cost or perform
them in a way that leads to differentiation and a premium
(more value).”
 Supply Chain Management
 This is a technique of linking a manufacturer’s
operation with suppliers, key intermediaries and
customers to enhance efficiencies and effectiveness.
 The Internet is playing an extensive role by

allowing joint planning and execution in real time.

 As important as it is to gain customers, it is just as

important for manufacturers to develop strong

relationships with suppliers.
 Companies such as IBM and Toyota develop

strategies to create suppliers who provide new ideas

and who are loyal.
 Business Market Customer: Commercial Enterprises

Three categories of Commercial Customers:

 Users: Users purchase industrial products or

services to produce other goods or services that are,

in turn, sold in the business or consumer markets.
 Original Equipment Manufacturers:

- Profit oriented companies

- Produce products - OEM’s and Subcontractors
 Dealers and distributors: Individuals and

organizations that buy business goods and

incorporate them into the products that they produce
for eventual sale to other producers or to consumers.
 GOVERNMENTS & INSTITUTIONS

GOVERNMENTS
Generally use the bidding approach to purchase

goods and services

 Purchase up to 1/3 Gross Domestic Product (GDP)

INSTITUTIONS
 This is the nonprofit segment of the market that

does not seek to achieve normal business goals such

as ROI, %share of market or profit
 Market includes universities, hospitals, schools,

pilgrimage centers, cultural clubs, foundations, etc.

 Classifying Goods for the Business Market

Classify industrial goods

by asking the following:
How does the good or
service enter the
production process?
How does it enter the cost
structure of the firm?
 Business Marketing Management Framework

Business marketing strategy

is formulated within the
boundaries established
by the corporate
mission and
objectives.
 Commercial Enterprises
Commercial Enterprises consist of:
 Manufacturers
 Construction companies
 Service firms
 Transportation companies
 Professional groups
 Resellers
 Manufacturers & Size
Approximately 350,000 in the U.S.
 The top 10%--or 36,000 firms--employ
more than 100 workers
 The top 10% ship over 75% of all products

manufactured in the U.S.

 Business marketers typically serve far

fewer, but far larger, customers

 Smaller Manufacturing Firms
 Almost two-thirds of U.S. manufacturers
employ fewer than 20 people.
 5 million small businesses in the U.S. employ

less than 6 people.

 This is an important market to serve because

of the numbers.
 However, this is a very difficult market to

serve because of its diversity. The strategy is

to develop services that can meet these diverse
needs in a way that is profitable
 Manufacturers & Geography
 Half are located in eight states: California, New
York, Ohio, Illinois, Michigan, Texas, Pennsylvania,
and New Jersey
Important strategic implications:

First, seller can concentrate marketing efforts

Second, with distribution centers in large volume

areas, rapid delivery is possible

Third, sales personnel may not be tied to specific

geographic areas
By understanding how buyer’s purchase (central

or de-central), the marketer is better equipped to

identify influential participants and to develop
responsive strategies
 How do we find the market?
One service that large firms employ is the:
North American Industry Classification System : NAICS
 NAICS: A detailed numbering system developed by
the U.S., Canada, and Mexico to classify North
American business establishments by their main
production processes.
Classifying Commercial Enterprises

NAICS organizes business activity into economic

sectors and identifies groups of business firms that

use similar production processes
Result of NAFTA (North America Free Trade Agreement)

Replaces SIC system (Standard Industrial Classification)

North American Industrial Classification System
 Every Firm Has to Purchase Something…
 Half of every sales dollar is employed to purchase
goods and services used to produce goods.
 Purchasing goods and services can represent

70% of a company’s costs.

 In small firms, one individual may be responsible

for purchasing.
 In larger firms, it is the purchasing manager

who administers the purchasing policies.

 Buyers carry out the day-to-day purchasing

function. Each buyer is responsible for a specific

group of products. This encourages technical
expertise.
Purchasing Function Goals
 Purchasing Function Goals
 Protect the cost structure of the firm
 Improve quality
 Coordinate JIT inventory control
 Keep inventory investment to a minimum
PURCHASING DEPARTMENTS NOW PLAY A CENTRAL ROLE IN
SUPPLY CHAIN MANAGEMENT
Understanding Total Costs
To unlock savings and growth opportunities,
professional purchasers need to understand not
only total costs but also the value of a good and
its service to the firm.
 Total Cost Considerations
Producing a Product or Service
Factors that drive total cost

Acquiring and managing costs

Quality, reliability over the life cycle

Value of product to firm/customers

 Total Cost Ownership
The Total Cost of Ownership considers:
1. Supplier and buyer activities
2. Cost of a product’s (or service’s) complete
life-cycle
3. Example: Ownership considers purchase
price and overall cost, taking into
consideration such things as the product’s
life-cycle, defects, unit costs, cost savings,
administrative costs, etc.
 Levels of Procurement Development
Different firms operate at different levels to capture cost
savings. They are:
Level 1 – Leveraged Buy (Buy for Less): Centralised purchase,
higher quantity, select seller of best price
Level 2 – Linked Buy (Buy Better): Streamlining bidding
process, optimising delivery, make stable commitment to
suppliers for cost saving
Level 3 – Value Buy (Consume Better): Optimising life cycle
costs and value of products & services.
Value Analysis: value of raw materials, manufacturing

process, improve products, lower cost.

Complexity management: Cost reduction, outsourcing

Supplier Involvement: for new product

Level 4 – Integrated Sell (Sell Better)

 Levels of Procurement Development
Pathways to Savings/Revenue Enhancement:
Firms operate at different levels of development and emphasize different
pathways to cost reduction and revenue enhancement.
 Segmenting the Buy
Each firm purchases its unique portfolio of products
and services. One way to manage this effectively is to
segment the purchase by:
Complexity of the procurement: technical

difficulty/chain coordination
 Nature of the affect and impact on corporate

performance and/or customer value

 Revenue impact / business risk: considers the

degree to which a purchase category can influence

the customer’s perception of value.
Ford feels that brand identity for highly visual parts, such as tires or
steering wheels, is important in terms of increasing revenue by increasing
consumer confidence.
 Segmenting Purchase Categories
Segmenting total purchase into distinct categories
and focusing on those purchases that have the
greatest effect on:
1. Revenue Generation or
2. Present greatest risk to corporate performance
The portfolio of products and services purchased are
segmented into:
 Procurement complexity considers technical
difficulty/ supply chain coordination/ degree of life
cycle costs relevant
 Purchases having the greatest impact on revenue
generation or greater risk to performance
Segmenting Purchase Categories
 E-Procurement
E-Procurement: the process of purchasing over the
Internet. This is a very efficient way to buy.
E-procurement is not a strategy but a technology that
automates procurement.
 Consumers are buying from Amazon and eBay as well

as buying directly from various manufacturers and

distributors.
 Manufacturers and vendors are buying directly from

each other.
It has lead to:
Online negotiations

Collaboration tools

Knowledge management

Analytical tools
 Enhancing Buyer Capabilities
Online negotiations enable the buyer to query
suppliers:
RFP – Request for and Proposal
RFQ – Request for Quote
RFI – Request for Information
Even conducts reverse auctions
Collaboration Tools
Use of e-mail and other tools allow online, real-time
communication between:
Internal stakeholders: specifications, priorities.
External stakeholders: details of requirements
 Enhancing Buyer Capabilities ….
Knowledge Management
Knowledge management is an electronic capability
that allows management and technicians to access
information from anywhere in the world.
 Information includes inventory levels, supplier

performance, material and component costs to name

a few.
Analytical Tools
 Support online analysis: Purchasing costs
 They include accounting programs, statistical

programs, various CRM programs, spreadsheets, etc.

 E-Procurement Delivers

Measurable results of e-procurement include:

Material costs saving, process efficiencies,
performance enhancements.
Cutting purchasing cycle in half

 Reducing purchasing costs by 14%+

 Reducing administrative costs by 60%+

 Allowing global access to supplies, resources,

and labor (outsourcing).

 Direct and Indirect Goods
Direct goods or entering goods = raw
material or component parts (core to
firm’s manufacturing process).
Indirect goods = operating resources
(such as supplies).
 Earlier companies used the Internet to

purchase indirect goods: computers,

spare parts, factory equipment.
 Now, they also purchase direct goods

from selected Internet suppliers.

 Harley-Davidson's World-Class Purchasing Organization

Like Honda of America, IBM, and a select group of others, Harley-Davidson is widely recognized
as an organization that possesses a world-class purchasing organization. Here are some
achievements that set it apart:
• Cost reduction: the firm implemented a five-year cost improvement program with suppliers
that reduced the costs of purchased goods and services from $86 million to $57 million annually.
• Inventory strategy: Harley-Davidson handles its inventory on a just-in-time schedule.
• Supplier relationships: the purchasing staff cut the number of suppliers with which it transacts
business and now concentrates 80 percent of its purchases with a critical group of suppliers that
can meet the firm's new objectives of cost reduction, quality improvement, and reduced new-
product-development time.
• Supplier involvement: on-site suppliers assume a central role in the new-product development
process.
• Quality targets: Harley-Davidson is aggressively pursuing a quality goal of 48 parts per million
(ppm) or better. Highly trained specialists are assigned to suppliers that are having quality
problems.
Jeff Bluestein, chairman and CEO of Harley-Davidson, attributes the firm's success to adopting
beneficial relationships with suppliers and taking a strategic approach to purchasing.
"That means we are trying to have real close affiliations, close relationships with each of these
suppliers. It starts with the understanding that we want long-term relationships."
 Purchases that Affect Performance
Revenue impact / business risk dimension considers the
degree to which a purchase category can influence the
customer’s perception of value.
Example: Ford feels that brand identity for highly visual parts,
such as tires or steering wheels, is important in terms of
increasing revenue by increasing consumer confidence.
Customer gets online
> Browses various online catalogs
> Selects product
> Checks price quotes
> Creates online purchase order (or buys directly via Pay-pal or
credit card)
> Sends purchase order to supplier
> Follows tracking of purchase
> Receives product
 E-Reverse Auctions
>Starts with one buyer
> Buyer invites bids from several pre-qualified
and/or preferred suppliers (worldwide)
> Face off in real-time competitive bidding
Savings may be 20%+
Reverse Auctions
Benefit: cost savings
Critics say these force lower costs associated

with lower quality and poor service.

Reverse auctions appear to be more appropriate
for commodities. Note: Many products are
considered commodities.
 Buy-Side Requisitioning Process
1. Customer gets online
2. Browses various online catalogs
3. Selects product
4. Checks price quotes
5. Creates online purchase order (or buys directly
via Pay-pal or credit card)
6. Sends purchase order to supplier
7. Follows tracking of purchase
8. Receives product
 Organizational Buyers Evaluate Potential Suppliers
1. Starts with buyer’s perception and evaluation of
supplier.
2. Next, buyer considers quality, service, price,
delivery reliability, capability, capacity, and
company image.
3. Buyers present their various criteria in advance of
selection.
4. Commodities are subject to bidding. Custom
products and services are considered using
different criteria such as, “Does the sales
representative do a good job?” or “Does the
selling company help the buyer’s
competitiveness?”
 Government Contracts
Selling to governments is much different than selling
to industries
 Rules, forms, and standards are very complex

 One needs to stay abreast of agency procurement

plans
 There is much politics involved

 There are strict rules on adhering to contract

procedures and requirements

 Government Contracts
The Government is by far the largest single buyer.
Two Types of Government Contracts:
 Fixed-price contracts

The price is agreed to before contract is awarded

and payment is made at conclusion of work

Provides for the greatest profit potential

Poses greater risks (especially if unforeseen

expenses are incurred, if inflation increases

dramatically, or if conditions change)
 Cost-reimbursement contracts

Reimbursement for allowable costs may be permitted

“Cost-plus” contracts allow for certain amount above cost
as profit
 Two Procurement Strategies
1. Formal Advertising—Government solicits bids from
suppliers. Usually the lowest bidder is awarded the
contract.
2. Negotiated Contract—Used to purchase products
or services that are not differentiated on price alone.
Competition is common.
 Strategy to Sell to Governments
1. Understand their complex rules.
2. Develop a system to keep informed of plans.
3. Generate a strategy for R&D that responds to
government needs.
4. Develop a communications strategy on “how”
technology meets their needs.
5. Generate a negotiation strategy that considers
payments, contract completion, cost overruns, etc.
 The Institutional Market
Institutional market includes schools, health care
organizations & non-profit agencies (religious
organisations).
 Similar to government buyers—one needs to

understand political considerations and laws.

 Similar to commercial buyers—often managed like
corporations with a broad range of purchase
requirements.
 Group purchasing is quite common.
 Selling To Institutional Markets
In some ways public institutions (public schools)
buy similar to governments (bid process)
 In other ways private institutions (churches, non-
profits, hospitals) purchase more like corporations
 Both types value efficient purchasing
 To sell to these diverse institutional markets, many
companies employ a market-centered approach
 Marketing & Selling to Institutions
 Each institutional market is unique, one strategy to
maximize company objectives is to arrange
organization around market sectors.
 Each sector is headed by a specialist and each
specialist needs to understand “what” his or her
market needs and “how” the market purchases.
For example, many institutions develop budgets and
attempt to spend up to that limit. Specialists know
this and work around these budget objectives by
providing products and service in a timely manner to
meet their institutional customers’ needs.
 Marketing & Selling to Institutions
Some markets face strong budgetary constraints. They work
with outside vendors who specialize in a particular area, to be
more efficient and effective.

For example, many institutions outsource their food &

beverage service or cleaning operations to efficient outside
providers.

Many institutions have buyers who purchase for their

professional staff. Often there is a conflict. Ex: Universities
consist of professors & administration. Professors are
motivated by product benefits whereas buyers are concerned
with price, quality and value.

The strategy is for salespeople to cultivate relationships with

the professionals by promoting benefits while marketing
timetables, maintenance contracts and price to buyers.
 A Market-Centered Organization
 Markets are so diverse (military, businesses, profit
& non-profit institutions and state, central
governments, etc.), firms have developed a market-
centered organization which employs specialists who
are thoroughly knowledgeable about one particular
market.
 This strategy provides a firm with a structure to

meet the multiple needs of these various institutions.

Knowing the Customer is Not Enough!

 Once we know the customer, we need

to understand what new products,
services and features will excite them.

 Our job is to know the customer so

well that we can provide him or her with
(technological) solutions to problems
that they don’t even know exist yet!
 High-Growth Companies Succeed By:

• Developing • Focusing
 Selecting well-
distinctive marketing
defined
value resources on
groups of
propositions acquiring,
potentially
that developing,
profitable
competitively and retaining
customers
meet customer profitable
needs customers
 Business Sector
The business market consists of 3 broad sectors:
 Commercial Enterprises

 Institutions

 Government

 Each sector has many segments

 Each segment has a unique need and requires a

unique marketing strategy

 Keys to Success
The marketer who…
 Recognizes various profitable segments

 Develops competitive products or services

 Develops a marketing program to take

advantage of opportunities B2B groups

offer
…can be very successful!
 What Is A Market?
A market is…
(1) People or organizations who
(2) need & want what we offer (all have
the same problem and need a similar
solution)
(3) have the ability to purchase and
(4) the willingness to buy ASAP.

A group of people that lacks any one of

these characteristics is not a market.
 Market Segmentation

People or organizations with needs or

Market wants, the ability to purchase and the
willingness to buy.

A group of present or potential customers

Market with some common characteristics which we
Segment can explain (predict) their actions when
subjected to marketing stimuli.
The process of dividing a market into
Market meaningful, relatively similar and identifiable
Segmentation segments or groups.
 Business Market

 Often in the business market, segments

that appear strong (that is, they produce a
lot of volume) often do not contribute as
much to profits as they should.

Because of this, it is important to choose

business market segments wisely.
 Key Criteria to Define a Unique Market Segment
 Measurability: The degree to which information
on particular buyer characteristics exists or can be
obtained.
 Accessibility: The degree to which the firm can

effectively focus its marketing efforts on chosen

segments.
 Substantiality: The degree to which the segments

are large or profitable enough to be worth

considering for separate market cultivation.
 Responsiveness: The degree to which segments

respond differently to different marketing mix

elements such as pricing or product features.
 Segmentation
Segmentation involves identifying groups
of customers or business groups that
are…
 Large enough

 Unique enough

 Financially independent enough

 Reachable enough

…to justify a separate marketing

strategy.
 Marketer’s Dilemma

Marketing strategists spend too much attention on

“What is..” vs. “What could be…”
By focusing only on existing markets, strategists
may:
 Ignore new markets

 Miss signals about emerging new markets

 Miss signals about new opportunities

 Missed Opportunities – Three Customer Groups

To spot new opportunities, marketers should focus

on the following three customer groups…
 Undershot customers - Existing solutions fail to

meet their needs, resulting in:

 a purchase of new product versions

 at steady or increasing prices.

 Over Shot Customers - Existing solutions are too

good, thus customer is reluctant to purchase new

version.
 Non-Consuming Customers – Customers who lack

resources, skills or ability to benefit from existing

solutions.
 Missed Opportunities (continued)
 Often, marketers focus too much on Undershot
and not enough on Overshot or Non-Consuming
customers.
 Consequently, marketers miss opportunities to:
Recognize new innovations that could

motivate Overshot and Non-Consumers to buy.

Invent new products that could revolutionize

industries as we know it.

Examples:
Computer industry – Mainframes vs. PCs
Printing Industry – Print shops vs. office
printers
 Selective Segmentation Benefits
 Attunes marketer to unique needs of
customer segments
 Focuses product development efforts,

develops profitable pricing strategies and

selects appropriate distribution channels
 Provides valuable guidelines to allocate

marketing resources
 Consumer vs. Business Profiling

Consumer-goods marketers are interested in
meaningful profiles of individuals concerning:
 Demographics

 Lifestyle

 Benefits sought

 Business marketers profile:

Organization size

Organizational buyer’s decision styles &

buying criteria
 Two broad classifications for commercial
markets:
 Micro & Macro Segmentation
 Business Marketing Segmentation
Geographic

Customer Type
Macro-
Macro-
segmentation
segmentation Customer Size

Product Use
Business
Business
Markets
Markets
Purchasing Criteria

Purchasing Strategy
Micro-
Micro-
segmentation
segmentation Importance
Personal
Characteristics
 Macro-Level Bases
To find viable macro-segments, it is useful
to partition buying organizations into smaller
groups based on certain criteria.
Criteria include:
 Characteristics of the buying organization

 Product service application

Characteristics of purchasing situation

Selected Macro-Level Bases of Segmentation
 Macro-Level Bases
Product/Service Applications:
 Because a specific industrial good can be used in

different applications, the market can be divided in

specific use applications
 The method to do so is to use the NAICS codes

Segmentation: Value in Use

 Value in use is a product’s economic value to the
user relative to specific alternatives in a particular
application.
 Value in use can vary from one customer

application, or one market segment to another.

 Purchasing Situation
 Segmentation of purchasing situation has
an enormous affect on marketing strategy.
 New task buy vs. straight rebuy vs.

modified rebuy demands different

marketing strategies.
 Because of these variables, marketers are

forced to employ a segmentation approach

which allows them to develop effective
strategies that can be applied to
commercial markets.
 Characteristics of Buying Organization
 The structure of the procurement
function offers challenges and
opportunities to marketers.
 Centralized purchasing operates

differently than decentralized

operations.
 Centralized Purchasing
 Forces specialization upon buyers and they
usually meet the challenge
 Allows for better coordination of materials

purchases
 Results in better method of syncing supply

and demand
 Takes advantage of volume savings

 Results in a better coordination between

purchasing strategy and corporate strategy

 Decentralized Purchasing
 Local autonomy helps support local
businesses—makes buying organization a
good neighbor and citizen to the local
community.
 Can cut costs in some cases.

 Sometimes, local areas offer ideas not

available to a central purchaser.

Selected Micro-Level Bases of Segmentation
 Key Criteria
Most business buyers value:
Quality

Delivery

Service

Supplier’s Reputation

Price (all other things being equal)

 Price vs. Service
Often there are tradeoffs between
buyers with respect to Price vs.
Service
One study identified four types of
buyer segments:
Programmed buyers

Relationship buyers

Transaction buyers

Bargain hunters
 Types of Buyers
1. Programmed Buyers - Neither price or service
sensitive. They buy routine products according
to a purchasing program.
2. Relationship Buyers - Value partnerships and
are not super price sensitive. Product may be
moderately important to operation.
3. Transactional Buyers - Price is important but
considerations are made to service, depending
upon importance of product.
4. Bargain Hunters - Price is everything but
always relative to importance of product
 Value Based Strategies
Many customers seek sellers who are able
to offer innovative solutions to help them
become more competitive. Marketers
identify these customers as:
1. Innovation-focused customers

2. Customers in fast-growing markets

3. Customers in highly competitive

markets
 1. Innovation-Focused Customers
 Committed to being the first in the market with
new products and technologies
 Want suppliers who offer innovative solutions or

opportunities that help them attract new

customers
2. Customers in Fast-Growing Markets
 Constantly under pressure from competitors in

fast-growth markets
 Seek suppliers who offer proven performance in

technology, manufacturing, marketing and

supply-chain management
 3. Customers in Highly Competitive Markets
 Have mature products in highly competitive
markets
 Look for suppliers who offer products/services that

speed up manufacturing and related processes

 Are efficient and effective at keeping overall costs

down
Purchasing Strategies
Micro-segments can be classified according to their
purchasing strategies:
 Some buyers have several suppliers and give each

a healthy volume of business.

 Some buyers need an assured supply, thus giving

most of their business to a few suppliers.

 Structure of the Decision Making Unit

 Whoever makes the buying decisions often

dictates how to market to that customer.
 Would it be the engineers, the purchasing agents,

or top management?
Other Meaningful Micro-Segments
Importance of purchase – Appropriate when product
is applied in various ways by various customers
Attitudes toward vendors – Analysis of how various
buyer clusters view alternative sources of supply;
often uncovers opportunities
 Other Meaningful Micro-Segments
Organizational Innovativeness – Some organizations
innovate more and thus are more willing to purchase
new industrial products
Personal Characteristics – Although some interesting
studies have shown viability of segmentation based
on individual characteristics, further research is
needed to explore its potential as valid base for
micro-segmentation
New Products – When new products are introduced,
marketers may need to approach new influencers vs.
traditional buyers
 Choosing Market Segments
 Analyse key characteristics of the organization
and of the buying situation (macro-dimensions) to
identify, evaluate and select a meaningful macro-
segment.
Segmentation Model
1. Identify key characteristics (macro-segments)
based on organizational characteristics (e.g.: size,
NAICS)
2. Consider the buying situation in terms of macro-
dimensions (i.e., Where are they in the
procurement cycle – new task, rebuy, modified
rebuy?)
 Segmentation Model
3. Select set of acceptable macro-segments based
on corporate objectives and resources.

4. Evaluate each segment that possesses distinct

needs, is open to a distinct message and is
responsive to your marketing program.

5. If Step 4 is successful, select macro-segment as

the target market and complete a cost/benefit
analysis for marketing to it.

Is it worthwhile?
 Segmentation Model
1. If a particular macro-segment is not the right
market, then do a micro-segment analysis based
on key decision-making characteristics (i.e., What
is their purchasing strategy? Attitude towards
vendors? etc.)

2. Select a new desired micro-segment based on a

cost/benefit analysis.

3. Identify the complete profile of the segment

based on macro & micro-level characteristics.
 Utilizing Segmentation
 Management can utilize segmentation in different
ways.
 Companies can categorize their present business
customers from:
 Bad – Good – Great
 Unprofitable to Profitable
 Segmenting both new prospects and present
customers in this manner can result in a more
profitable organization.
 Account-Based-Marketing (ABM)
 ABM is an approach that treats an individual
account as a market.
 Done right, it ensures that key accounts are:

Fully serviced

Understood with respect to important issues

The strategy is to:

Focus on that single client

Develop a collaborative relationship

Work with the client to mutually develop value

propositions that meet the client’s business needs

 Segmentation Summary
Managing the implementation of segmentation is
a difficult task at best. It means the
product/service mix needs to be customized for
diverse segments.
It demands inter-organizational coordination and

cooperation.
Managing critical points of customer contact is

one of a marketing manager’s fundamental roles.

Estimating Demand
 Estimating demand within selected markets is
vital to marketing management!
 Estimating Demand
 Forecasting demand represents probable
sales. It takes into account:
 Potential business

 Marketing efforts

 Virtually all business decisions are predicated

on the forecast, both formal and informal.

Potential Demand and Forecast
 Business Plan Prerequisites
Before anyone can formulate a business plan,
they need to formulate a marketing plan.
Before they can formulate a marketing plan,

they need to estimate demand (potential

market for their firm’s product).
Without a plan, it is very difficult to allocate

scarce resources to segments, products,

territories, etc. effectively or efficiently.
 Affected Stakeholders
Demand analysis (or lack thereof) affects three
broad stakeholder groups:
1. Engineering Design and Implementation teams
2. Marketing and Commercial Development teams
3. External Stakeholders, including:
 Investors
 Government regulators
 Equipment suppliers
 Distribution partners
 Estimates of Probable Demand
 Estimates of probable demand should only be
made after a firm has decided on its marketing
strategy.
 Only after a marketing strategy has been

developed can expected sales be forecasted!

 Many firms use the forecast to determine the

level of marketing expenditures.

This is a mistake!
 Marketing strategy determines sales (not vice

versa).
 Supply Chain Links
 Sales forecasts are critical to a smooth
operation throughout the supply chain.
 Timely forecasts allow supply chain members

to effectively coordinate their efforts and share

in the benefits.
Sales Forecast Data
Sales Forecast Data is used to:
 Distribute inventory within the supply chain

 Manage stock at each level

 Schedule resources at all levels

 Provide material, components and service to a

manufacturer
 Methods of Forecasting Demand
1. Qualitative
 Executive Judgment
 Sales Force Composite
 Delphi Method
2. Quantitative
 Time Series
 Regression (causal)
3. Collaborative Planning Forecasting and
Replenishment
4. Combining Techniques
 Qualitative Method: Executive Judgment
Executive Judgment:
 This method is very popular because it is:

Easy to understand

Easy to apply

 Executives from various departments (Sales,

Marketing, Accounting, Finance, Procurement)

are brought together and apply their collective
knowledge to the forecast.
 Executive Judgment: Benefits
Executive judgments are often used in
conjunction with quantitative approaches to
forecasting
Tend to be fairly accurate when:
Forecasts are made frequently & repetitively

The environment is stable

The link between decision, action and

feedback is short
 Executive Judgment: Limitations
 Does not offer systematic analysis of cause &
effect relationships
 No formula (Model) for estimating derived

demand
 New executives may have trouble making a

reasonable forecast
 The forecast is only as good as executives’

collective knowledge and experience

 Difficult to compare against alternative

techniques
 Qualitative Method: Sales Force Composite
 Rationale is that the sales force knows their
customers, markets and competition, thus they
can estimate their market fairly accurately.
 Having the sales force involved in the

forecasting process helps them understand how

the forecast is derived and boosts their
incentives to achieve desired sales levels.
 The composite forecast is attained by getting

input from all their salespeople.

 Sales Force Composite: Benefits
 More successful if the dyadic (buyer/seller)
relationship is close
 Inexpensive

 Facilitates salespeople to review their

account in terms of future sales

 However, few companies rely solely on their

sales force estimates

 They are reviewed by top management and

are compared to quantitative methods

 Sales Force Composite: Limitations
Limitations are similar to the executive
judgment approach:
 Not a systematic analysis of cause & effect

 It’s still only judgment/opinion

 Some salespeople overestimate their forecast

to look good
 Some salespeople underestimate to lower

their quota or increase commissions

 Generally, short term estimates are accurate,

but long-term estimates are lacking

 Qualitative Method: Delphi Method
It starts with a moderator (analyst) who
attains a forecast opinion from a panel of
anonymous experts.
These estimates (along with reasons) are

passed around to the entire group and new

estimates are evoked.
Rounds continue until a consensus is reached.

A panel may consist from 6 to 100’s

depending upon the purpose. Numerous

rounds are conducted until a consensus is
attained.
 Delphi Method
 It is generally applied to long term forecasting
of demand.
It’s good for new products or for situations

that are not well suited for quantitative analysis.

 Finally, like other qualitative approaches, the

Delphi method is difficult to accurately measure

Summary of Qualitative Forecasting Techniques
 Quantitative Methods: Time Series
 Time Series uses historical data
 Rationale is that the past patterns will apply to

the future
 The analyst needs to understand all possible

patterns to include:
Trends

Seasonal patterns

Cyclical patterns

Irregular patterns

Time Series methods are well suited for short

range forecasting
Quantitative: Regression or Causal Analysis
 Uses factors that are identified as affecting
past sales
 Y = a + bX Linear Regression equation

 To be valid, there needs to be a direct link

between X (independent) & Y (dependent)

variables. For example, X cause (housing
starts) should affect future sales (demand) of
Y (new furniture or hardware or wood, etc.)
 Regression Analysis
 Much historical data is needed
 Some will come from accounting data

 Other data can come from both primary and/or

secondary sources such as:

Project specific surveys (primary), or

Survey of Current Business (secondary)

Reports developed by the Dept. of Labor that

are especially data related to employment

statistics
Industry specific research studies

Census data
 Regression Analysis: Limitations
 Although regression analysis is fairly accurate,
there are some limitations:
Some variables are highly correlated, they

may not have a genuine cause/effect

relationship.
Again, there is a need for much data,

however some data may not be available.

Regression analysis uses past data and may

not be relevant to rapidly changing events,

thus invalidating past relationships
 Quantitative: Which Method?
 Research suggests that strategists should
choose a forecast method that is based on the
market’s “underlying behavior” rather than on a
“time horizon”
 When markets are sensitive to market or

environmental changes, causal methods work

best
When market shows no sensitivity to market or

environmental factors, time series is more

accurate
 Using CPFR to Estimate Demand
 CPFR: Collaborative Planning Forecasting &
Replenishment involves deriving, sharing information
by combining the efforts of many functional areas
within the firm and between channel partners to
estimate demand.
With respect to the supply side, functional areas

include Sales, Marketing, Production, Logistics and

Procurement will be called upon to discuss their
upcoming plans.
On the demand side, planners will reach out to

customers, distributors and manufacturers to

discover their plans.
 Result of CPFR
 Result: Often, the forecast of demand is very
accurate!
 Partners can map this shared information in a way

that:
Fits into their organizational needs

Points out where plans deviate from their own

Allows collaboration that assesses assumptions

which may lead to different estimates

This iterative process encourages the supply chain

to synchronize activities better while keeping the

enterprise planning process intact.
 Combination Approach to Forecasting
 Research suggests that forecasting can be
improved by combining several forecasting
methods.
 Experts suggest that management should use a

composite forecasting model to include both

Qualitative and Quantitative factors.
 Furthermore, rather than searching for a “one

best method”, they should consider the broader

range of factors that affect sales, and integrate
them into a “composite” forecasting approach.
 Buying Situations
C) New buy is when the purchaser buys a product or service for the
first time. The business buyer makes the fewest decisions in the
straight re-buy situation and the most in the new-buy situation.
 In the new-buy situation, the buyer has to determine:
- product specifications,
- price limits,
- delivery terms and
- times,
- service terms,
- payment terms,
- order quantities,
- acceptable suppliers, and
- the selected supplier.
This situation is the marketer’s greatest opportunity and
challenge.
 Because of the complicated selling involved, many
companies use a missionary sales force consisting of their
most effective salespeople for new-task situations.
 Buying Situations
The business buyer faces many decisions in making a
purchase. The number of decisions depends on the buying
situation:
 complexity of the problem being solved,

 newness of the buying requirement,

 number of people involved, and

 time required.

There are three types of buying situations: the straight re-

buy, modified re-buy, and new task.
A) Straight re-buy is when the purchasing department reorders on
a routine basis and chooses from suppliers on an “approved lists.”
B) Modified re-buy is when the buyer wants to modify product
specifications, prices, delivery requirements, or other items.
 THE BUSINESS BUYING PROCESS
The decision-making unit of a buying organization is called
the “buying center”. It is composed of “all those individuals
and groups who participate in the purchasing decision-making
process, who share some common goals and the risks arising
from the decisions.”
There are seven roles in the purchase decision process:
A) Initiators—requests the product
B) Users—will use the product
C) Influencers—influence the buying decision
D) Deciders—makes the decision of what to purchase
E) Approvers—authorize the proposal
F) Buyers—have the formal authority to purchase
G) Gatekeepers—have the power to prevent seller information
from reaching members of the buying center