Business Market Management

Business Market
Management Chapter 2
3rd edition
Market Sensing
Section II:
Understanding Value
Copyright © 2009 Pearson Education

Business Market Management, 3rd edition Chapter 2-2
Publishing as Prentice Hall
Chapter 2: Market Sensing
Overview
I. Defining the Market
II. Monitoring Competition
III. Assessing Customer Value
IV. Gaining Customer Feedback
V. Summary
3
Overview
Market-Driven Firms
 Ability to sense events and trends of ahead of
competition
 Anticipate more accurately responses to actions
designed to retain or attract customers
 Act on information in a timely, coherent manner

4
Overview
Market Sensing: generating knowledge

about the market that individuals in business use
to inform and guide their decision making

5
Overview
Knowledge Management: processes
and supporting systems firms use to gather
know-how,
know-how best practices,
practices and learning that
potentially has value elsewhere in the firm,
convert them into a form that can be readily
found and understood, and then made
accessible for reuse more broadly within the firm

6
Business Market Processes
Managing New Business
Market Offering Channel
Offerings Realization Management
Marketing Gaining
Sensing New
Business
Understanding Sustaining
Firms as Understanding Creating Delivering
Value Value Reseller
Customers Value Partnerships
Crafting
Market Managing
Guiding Principles Customers
Strategy
Regard Value as the Cornerstone
Focus on Business Market Processes
Stress Doing Business Across Borders
Accentuate Working Relationships & Business Networks

7
Market Sensing: Process for
Learning About Markets
Inquiry
Evaluation
Initiated Information Information Information Further
Interpretation Of
or Acquisition Distribution Utilization Inquiry
Outcomes
Continued
Organization Memory Augmentation of Memory

8
Defining the Market
 Market segmentation Substantive Facets
 Determining segments of
Interest
of Market Sensing
Monitoring Competition
 Competitor analysis
 Improving monitoring
performance Market Sensing
 Formulate and test
market views
Assessing Customer Value  Inform and guide
 Value assessment methods decision making
 Customer value management
Gaining Customer Feedback

 Customer satisfaction
measurement
 Net promoter score

9
I. Defining the Market

10
Defining the Market
Market Segmentation: Partitioning a

market into groupings of firms that have similar
requirements and preferences for market
offerings within each grouping and relatively
different requirements and preferences between
groupings

11
Criteria for Judging Validity of
Segmentation
Can the size, growth, and market potential of a
Measurable?
segment be measured?
How profitable is the marketing effort likely to be?

Profitable?
What is the payoff from each segment?
Accessible? Can segments be identified and reached successfully?
Can effective marketing and sales programs be

Actionable?
formulated for attracting and serving the segment?

12
Market Segmentation
Conventional Bases Progressives Bases
 Industry  Application
 Customer size  Customer capabilities
 Customer behavior  Customer business
 Geography priories
 Contribution to
profitability

13
Determining Market Segments
of Interest
Gaining understanding occurs in:
1. Obtaining estimates of each defined market
segment’s size and growth
2. Assessing its sales and profit potential
“I will know when our businesses are doing

a good job when they can articulate who we
should not sell to.” --Chuck Lillis
(former CEO of US WEST Media Group)

14
15
Target
Target Marketing
Marketing
Market Segmentation
1.
1. Identify
Identifybases
basesfor
for
segmenting
segmentingthe
themarket.
market.
2.
2. Develop
Developprofiles
profilesof
ofthe
the
resulting
resultingsegments.
segments.
Market Targeting
Buyer’s Black Box
3.
3. Develop
Developmeasures
measuresof of
segment
segmentattractiveness.
attractiveness.
4.
4. Select
Selectthe
thetarget
targetsegment(s).
segment(s).
Market Positioning
5.
5. Develop
Developpositioning
positioningfor
for
each
eachtarget
targetsegment.
segment.
6.
6. Develop
Developmarketing
marketingmix
mix
for
foreach
eachtarget
targetsegment.
segment.
(Kotler, Copyright 1994 Prentice Hall)

16
Segmenting
Segmenting Business
Business Markets
Markets
Major
Major Segmentation
Segmentation Variables
Variables
For
For Business
Business Markets
Markets
Demographics
Demographics
Operating
Operating Variables
Variables
Purchasing
Purchasing Approaches
Approaches
Situational
Situational Factors
Factors
Personal
Personal Characteristics
Characteristics
(Kotler, Copyright 1994 Prentice Hall)

17
 Major Segmentation Variables for Business Markets

 Demographic
 1. Industry: Which industries should we serve?
 2. Company size: What size companies should we serve?
 3. Location: What geographical areas should we serve?
 Operating Variables
 4. Technology: What customer technologies should we focus on?
 5. User or nonuser status: Should we serve heavy users, medium users, light
users, or nonusers?
 6. Customer capabilities: Should we serve customers needing many or few
services?
 Purchasing Approaches
 7. Purchasing-function organization: Should we serve companies with a highly
centralized or decentralized purchasing organization?
 8. Power structure: Should we serve companies that are engineering
dominated, financially dominated, and so on?
 9. Nature of existing relationship: Should we serve companies with which we
have strong
Copyright relationships
© 2009 Pearson Education or simply go after the most
 desirable companies?
18
 10. General purchasing policies: Should we serve companies

that prefer leasing? Service contract? Systems purchases?
Sealed bidding?
 11. Purchasing criteria: Should we serve companies that are
seeking quality? Service? Price?
 Situational Factors
 12. Urgency: Should we serve companies that need quick and
sudden delivery or service?
 13. Specific application: Should we focus on a certain
application of our product rather than all applications?
 14. Size or order: Should we focus on large or small orders?
 Personal Characteristics
 15. Buyer-seller similarity: Should we serve companies whose
people and values are similar to ours?
 16. Attitude toward risk: Should we serve risk-taking or risk-
avoiding customers?
 17. Loyalty: Should we serve companies that show high loyalty
to© 2009
Copyright their suppliers?
Pearson Education
19
Market Targeting
B2B Targeting Criteria
 Market Potential
 Total Market Demand
 Sales Potential
 Sales Forecast
 Share of Customer’s Business
 Customer Incentive to Purchase

Market Segment Size and Growth
 Market Potential: identifies the maximum

units of a defined product or service capable of
being purchased within a geographic area
during a designated time period
 Total Market Demand: a prediction of

the actual number of units that will be purchased
20
Estimating Market Potential for a Segment
Market potential estimates for subsegments, using available

Buildup
secondary research or conducting primary research, and
Method
combining them to reach an estimate for the segment
Chain Begins with a large number of prospective customers. This

Ratio number is multiplied by a series of percentages that
Method correspond to the assumptions made (e.g. percent of potential
customer that use a certain technology to arrive a market estimates)
Ties the estimates to a single factor affecting the market, such

Index
as the number of new housing starts, or to multiple factors,
Method
obtained from an econometric forecasting service

21
Four Steps to Forecast
Total Market Demand
1. Define the market
2. Divide total industry demand into its main components
3. Forecast the drivers of demand in each segment and project how

they are likely to change
4. Conduct sensitivity analyses to understand the most critical

assumptions and to gauge risks to the baseline forecast
Source: Barnett, “Four Steps to Forecast Total Market Demand,” p. 28)

22
Sales and Profit Potential
 Sales Potential: identifies what one firm
could sell if it applied maximum marketing effort
Sales Force Composites
Regression Analyses

23
II. Monitoring Competition

24
Knowledge about competitors used in:
 Crafting their own market strategy
 Anticipating competitor’s reactions to their strategy
 Deciding what reactions to

make in response to competitor's
action in the market

25
 R&D monitor advances
in technology outside the
industry
 Monitor mergers and acquisition activities
 IBM’s Crow’s Nest
 GE’s “DestroyYourOwnBusiness.com”

26
Framework for Competitor Analysis
Future Goals Assumptions
Understand competitor’s financial and Understand the assumptions competitor
market performance goals makes about itself
Know management compensation plans Recognize blind spots identified by
Be aware of competitor’s corporate training competitors as areas to exploit
programs
Current Strategy Capabilities
Know competitor’s current market strategy
Discern competitor's selected target Investigate and understand competitor's
markets capability to conceive and design, produce,
Understand competitor’s positioning of market, finance, and manage
market offerings Estimate how quickly competitor can adapt to
Be aware of their marketing mix selected in change
support of strategy Gauge competitor’s strength of will to compete
27
Figure 2.3
The Intelligence
Pyramid

28
III. Assessing Customer
Value
“Everything is worth what

its purchaser will pay for it.”
--Publilius Syrus, first century, B.C.

29
Value Assessment Methods
Value Assessment: work process of

obtaining an estimate of the worth in
monetary terms of some present or
proposed market offerings or elements of it

30
Value Assessment Methods
Internal Engineering Focus Group Value

Benchmarks
Assessment Assessment
Field Value-in Use Direct Survey Compositional

Assessment Questions Approach
Indirect Survey
Conjoint Analysis Importance Rating
Questions

31
Customer Value Management
Goals:
1. Deliver superior value to targeted market
segments and customer firms
2. Get an equitable return on the value delivered
To gain an equitable return on value, suppliers must

be able to persuasively demonstrate and document
superior value relative to next-best alternative

32
Customer Value Models
Data-driven estimates of what a present or

prospective market offering is worth in
monetary terms to targeted customers
relative to the next-best-alternative
offering for those customers
-33
Customer Value Models
Five phases:
1. Translating business issues into projects
2. Customer value workshop
3. Customer value research
4. Constructing a business case for change
5. Value realization

-34
Translating Business Issues into
Projects
Phase I
 Senior managers review significant business issues
facing business
 Forms a team to examine where greater knowledge
of customer value is needed to make more profitable
decisions
 Active support of senior management is crucial

-35
Customer Value Workshop
Phase II
1. Teams come together in a Customer Value Workshop
2. Define value elements in a comprehensive and elemental way
3. Form list of value elements and hypothesize what customers types would
receive the greatest or least value from the offering
4. Determine customer characteristics that best capture hypothesized differences
in value offerings
5. Consider next-best-alternative offering for each segment
6. For each value element, team decides whether there is a difference to its
offering’s functionality or performance relative to the next-best alternative
 Points of Parity
 Points of Difference
 Value Word Equation
7. Team focuses on points of difference. Points of contention may surface.

-36
Customer Value Workshop
(Value – Price ) > (Valuea – Pricea )

f f
(Value – Value ) > (Price – Price )

f a f a
Valuef, a > (Pricef – Pricea )

-37
Customer Value Research
Phase III
Gain initial customer cooperation (incentives to
participate)
• Low-cost resource to better understand their business
• Opportunity to benchmark
• Earlier access to new product or service
• Desire for a lower price
Gather data
Analyze data

-38
Constructing a Business Case for
Change
Phase IV
1. What specific actions does the team recommend?
2. What resources are needed to accomplish
recommended changes?
3. What are the specific concerns in implementation?
4. What milestone can be charted for progress?
5. What would be the profitability impact if
business change is approved?

-39
Value Realization
Phase V
 Critical phase for realizing value and incremental
profitability
• Create value-based sales tools
• Develop sales force training
• Formulate a method of feedback needed to document actual
value
• Create tracking system to document incremental profitability
– Value documenters

-40
IV. Gaining Customer
Feedback

41
Role of Customer Feedback:
 Educates supplier where its offerings provided
functionality and performance customer expected and
where it fell short
 Can remedy problems and retain a customer’s business
 Provides early warning of changing customer
requirements and preferences

-42
Feedback from three distinct customers:
New Customers
Established Customers
Customers that recently stopped doing
business

-43
American Customer Satisfaction Index
(ACSI)
 Overall Customer Satisfaction: represents a
cumulative evaluation of a firm’s market offering, rather
than a person’s evaluation of a specific transaction
 Overall Satisfaction Measure
 Measure to the extent that offering’s performance falls short or
exceeds
 Offering’s performance relative to customer’s ideal product or
service

-44
The American Customer Satisfaction Index
Perceived + Customer
Quality Complaints
-
+ Perceived + Overall
Customer
+ Value Satisfaction
(ACSI) +
+
Customer Customer
+ Loyalty
Expectations

45
Customer Satisfaction Findings
Findings:
 Significant predictor of economic returns to
the firm
 Significant positive relationship between
customer satisfaction and shareholder value
 Significant positive relationship between
customer satisfaction and market value of
equity

-46
Customer Satisfaction Findings
Feeling of attachment or affection toward company’s people,
Customer products, or services.
Loyalty Ultimate measure of loyalty: is share of purchases in the
category
Supplier’s
Share of The percent of a customer’s total purchase requirement for a
Customer market offering that the supplier obtains
Business
Exceeds rather than simply meets customer requirements and
preferences.
Caution warranted:
Customer
Increasing performance level is costly
Delight
Exceeding expectation raises customer's expectations
Suppliers may not be able to delight or even completely satisfy
certain customers
-47
Overall Quality Drivers
US Primary
WEST Competitor US WEST Best In
Category Importance Score Score Ratio Class
Voice 30.0 9.0 9.0 1.00 Company A
Reliability
Repair Service 20.0 8.0 8.5 .94 Company B
Data Reliability 20.0 8.0 7.0 1.14 US WEST
Account 10.0 7.2 8.5 .85 Company C
Relationship
Installation 10.0 7.0 7.5 .93 Company C
Service
Billing Service 10.0 6.8 6.5 1.05 Company A
Customer Satisfaction Score 8.0 8.1
Market Perceived Quality 99.9
Ratio:
Source: Renee Karson, Formerly Director Customer Value Measurement, Market Intelligence and Decision Support, US
WEST Communications.
-48
Net Promoter Score (NPS)
 How likely is it that you would recommend
[company x] to a friend or colleague?
10-point scale: 10 = extremely likely;

5 = neutral; 0 = not at all likely

49
Net Promoter Score

<footer>Business Market Management, 3rd Chapter 2-50
edition
NPS:? Net Promoter Score

<footer>Business Market Management, 3rd Chapter 2-51
edition
Top 10 Reasons that Satisfaction
Surveys are a Joke
#10: Too many surveys, too many questions
#9: The wrong customers respond
#8: Employees don’t know how to take corrective action
#7: Too many surveys are marketing campaigns in disguise
#6: Survey scores don’t link to economics
#5: Plain-vanilla solutions can’t meet companies’ unique needs
#4: There are no generally accepted standards
#3: Surveys confuse transactions with relationships
#2: Satisfaction surveys dissatisfy customers
#1: Gaming and manipulation wreck their credibility

52
V. Summary

53
Summary
 Market Sensing is the process of generating knowledge about the marketplace that
individuals in the firm use to inform and guide their decision making.
 Market driven process
 Market sensing allows managers to test, revise, update, and refine their market
views
 Four substantive facets of market sensing :
1. Defining the market
2. Monitoring competition
3. Assessing customer value
4. Gaining customer feedback
 Market segmentation and determining market segments of interest are fundamental to
defining the market.
 Customer judgments about the value of the firm’s market offerings takes place within
the context of market offering of other firms.
 Customer value assessment is the work process of obtaining an estimate of the value
in monetary terms of some present and proposed market offerings
2-54
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior written permission of the
publisher. Printed in the United States of America.
Copyright © 2009 Pearson Education, Inc.


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Business Market

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 Anticipate more accurately responses to actions

designed to retain or attract customers

 Act on information in a timely, coherent manner

Copyright © 2009 Pearson Education

Market Sensing: generating knowledge

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Regard Value as the Cornerstone

Focus on Business Market Processes

Stress Doing Business Across Borders

Accentuate Working Relationships & Business Networks

Organization Memory Augmentation of Memory

Copyright © 2009 Pearson Education

Gaining Customer Feedback

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Market Segmentation: Partitioning a

Copyright © 2009 Pearson Education

How profitable is the marketing effort likely to be?

Accessible? Can segments be identified and reached successfully?

Can effective marketing and sales programs be

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

“I will know when our businesses are doing

Copyright © 2009 Pearson Education

(Kotler, Copyright 1994 Prentice Hall)

(Kotler, Copyright 1994 Prentice Hall)

 Major Segmentation Variables for Business Markets

 10. General purchasing policies: Should we serve companies

Copyright © 2009 Pearson Education

 Market Potential: identifies the maximum

 Total Market Demand: a prediction of

Market potential estimates for subsegments, using available

Chain Begins with a large number of prospective customers. This

Ties the estimates to a single factor affecting the market, such

Copyright © 2009 Pearson Education

2. Divide total industry demand into its main components

3. Forecast the drivers of demand in each segment and project how

4. Conduct sensitivity analyses to understand the most critical

Copyright © 2009 Pearson Education

 Sales Potential: identifies what one firm

could sell if it applied maximum marketing effort

Sales Force Composites

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

 Anticipating competitor’s reactions to their strategy

 Deciding what reactions to

Copyright © 2009 Pearson Education

in technology outside the

 Monitor mergers and acquisition activities

 IBM’s Crow’s Nest

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

“Everything is worth what

Copyright © 2009 Pearson Education

Value Assessment: work process of

Copyright © 2009 Pearson Education

Internal Engineering Focus Group Value

Field Value-in Use Direct Survey Compositional

Copyright © 2009 Pearson Education

To gain an equitable return on value, suppliers must